How Postal Rate Hikes Foretell America’s Future

The post office isn’t obsolete yet, but it will be soon if Congress continues with business as usual.


The post office isn't obsolete yet, but it will be soon if Congress continues with business as usual. And if Congress can't fix the postal service, it's a grim indicator of its ability to rein in the national debt, curtail runaway entitlement spending, or get the economy back on track.

The U.S. Postal Service wants to raise the price of a stamp by 2 cents to 46 cents—a 4.5 percent increase. But it needs to do a lot more to join the 21st century. Postmaster General John Potter also wants to eliminate Saturday delivery, close low-volume post offices, open new outlets in shopping centers and other places where people normally shop, and broaden the merchandise beyond just shipping supplies. Imagine, for example, a vending machine selling snacks at the venerable post office. Far out.

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Those are reasonable moves for an institution that's about as healthy as General Motors was before it declared bankruptcy. The physical delivery of mail is a "legacy" business in decline, thanks to email, texting, online banking, and the fading need for anything on paper. On its current course, the postal service is expected to lose $7 billion over the next year and $238 billion by 2020. That's a catastrophic deficit, nearly twice what the government has spent so far to prop up two other failed government enterprises, the mortgage agencies Fannie Mae and Freddie Mac.

Yet modernizing the postal service is a Gordian challenge that highlights the worst parochialism in American politics. The postal service is a government creation that tries to act like a corporation, yet has to abide by rules that virtually guarantee it will lose money. It's required to deliver mail to every address in America six days a week, even if the daily delivery constitutes nothing more than fliers for furniture sales. It can't lay off workers or close money-losing outlets, no matter how bad its finances. Big changes require Congressional approval, which gives lobbyists for the postal workers' union, publishers, direct-mail advertisers, and even competitors such as UPS and FedEx an inordinate amount of control over the agency.

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The postal service is now facing a crisis that's a microcosm of what's coming in other parts of the government. It simply can't provide the service that Americans have come to expect without a stark increase in prices. So we'll have to make a choice between lower service levels or higher costs. This is the same choice we're going to have to make about Social Security, Medicare, welfare, road construction, education, and even basic services such as fire and police coverage. Americans have gotten used to a high degree of government service financed by borrowed money, a bubble economy, and six decades of prosperity that ended with the Great Recession. The future will be more austere.

Solutions to the postal service's budget problems are within easy reach. Consolidating post offices seems like an obvious start. It would inconvenience some, but on balance it's necessary for a healthier system. Five-day mail delivery would require a few adjustments but would hardly be revolutionary. In a study commissioned by the postal service, consulting firm McKinsey & Co. even suggested three-day delivery as a solution to the agency's budget problems. Other changes could involve steeper price hikes, slower delivery for some letters, and delivery that stops at "cluster boxes" instead of each individual mailbox. If the postal service were truly a private corporation, the board of directors probably would have insisted on such changes the moment the profit margin started to shrink, and we'd all be used to them by now.

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The price hikes for stamps and other kinds of postage are likely to go into effect by January. But that will only cover about one-third of the gap in the postal service's annual budget, which means bigger changes are likely to come before Congress in coming months. Congress could use that debate as a warm-up for tougher decisions it won't be able to put off much longer. To close the gap in Social Security funding, for example, the government could defer payments by raising the retirement age, hike payroll taxes on younger workers, or simply cut benefits paid to those who feel they've earned them. None is satisfying, yet something has to be done. The same questions apply to Medicare. And the national debt will have to be reduced through some combination of new middle-class taxes and deep cuts in most government services. Compared to that, postal reform should be easy, right?

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Consumers could benefit from the postal debate, too. If we're realistic about the tradeoffs between costs and services in an era when government revenues have plunged, then it makes sense to accept a compromise that still provides decent service at reasonable prices. That's the kind of public attitude that will be needed to solve much bigger—and more emotional—challenges. But if we're still addicted to fantasy funding, then there will be an outcry over cutting mail delivery by a day and making us drive farther to get to the nearest post office. Members of Congress will posture and fulminate and provide just enough cover for the postal service to muddle through for another year. Then we'll have the same charade over the next underfunded government program, and the one after that. The check, unfortunately, is not in the mail.