Wednesday, February 6, 2013

How the US Postal Service Can Cut Costs

The New York Times is reporting (here) that the US Postal Service is planning to stop Saturday deliveries of mail (but not parcels) in an effort to cut costs. The move would save an estimated $2 billion per year, or nearly $5.5 million per day. Unfortunately, the USPS currently is losing an estimated $36 million per day. So, even a move as dramatic as curtailing a whole day of mail delivery saves only peanuts compared to the massive deficits the USPS runs up.

So, what more can the USPS do to stem the tide of red ink. Arguably, the best way would be to apply for liquidation in bankruptcy, in concert with a move by Congress to start a competitive bidding process (state-by-state, regionally, or, less likely, nationally) for private contractors (think UPS, FedEx, and other delivery services) as a replacement (with successful bidders obligated to provide universal service in their territories).

Even assuming there once were rationales for the government to be involved with mail collection and delivery (the universal service burden may have been one such rationale), those rationales probably no longer apply. In a modern world where communications, including payments of bills, increasingly is electronic, and private enterprises exist that could pretty easily take up the slack left by the absence of the USPS, and more efficiently provide the same services, there is no reason for US taxpayers to continue bearing the excess costs associated with relatively inefficient government provision.

Of course, creating monopoly private providers in different regions is not necessarily an efficient solution either  - witness the history of monopoly private provision of cable tv or electricity. Perhaps it's not even necessary for the government to demand universal service, as companies would naturally be willing to serve every house in American, no matter where located, as long as they could profit. This would, of course, mean differential pricing - a stamp would no longer cost the same regardless of point or origin or (domestic) destination. But that's already the case with respect to privately-owned parcel services that will send almost anything almost anywhere, using differential pricing. Whether mail should be treated any differently than parcels (given existing technologies) is the real question.

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