And Now The U.S. Postal Service Is About To Go Belly Up…

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The U.S. Postal Service is projected to lose $11 billion this year, and it's running out of cash.

Barring a bailout or massive restructuring, the Postal Service says, the organization may stop operating early next year.

That's a frightening thought. But it's also one designed to get everyone's attention. And now the question will be whether anyone with the power to do anything about it actually does something intelligent.

Approaching this problem intelligently starts with analyzing what's wrong with the USPS. And the answer, according to the New York Times, is twofold:

• The volume of physical mail has dropped more than 20% in the last five years and is projected to keep on dropping, thanks to vastly more efficient information delivery via the Internet

• The US Postal Service's compensation and benefits contracts with its employees leave it unable to reduce its costs fast enough

The current situation of the organization is obviously a major problem, not just for the Postal Service, but for the country. The U.S. Postal Service employs 653,000 people, and with the national unemployment rate already running over 9%, the country can't afford to lose more jobs. Thanks to the Postal Service's generous benefits and pensions, moreover, these are "good" jobs--ones that pay employees far better than they might get from private organizations.

But these jobs are one reason the U.S. Postal Service's labor costs are 80% of its total expenses, versus an average of 53% and 35% for private competitors like UPS and FedEx, respectively. And they're also the reason that the only way out of the U.S. Postal Service's current mess is to vastly restructure its operations, reducing the organization's workforce and labor costs.

If the U.S. Postal Service were a private company, the solution here would be simple (if painful). The organization would file for bankruptcy and be completely restructured. Many services and jobs would be changed or eliminated, and the organization would be "right-sized" for the new reality, just the way car companies like General Motors were three years ago.

This would obviously be a very painful process, especially for those work for the USPS. Over the long haul, however, it would be healthy, not just for the organization but for the broader economy. Devoting so much productive capacity to delivering pieces of paper when technology is making much of this unnecessary is not helpful for the economy long-term. It just preserves an anachronistic tradition. Just as the economy transitioned away from farming to industry, the economy will eventually transition away from the physical delivery of mail. This transition will take time, but it will happen, and the economy will eventually be stronger for it.

Because the USPS is a government entity, however--and because the US economy is in such a fragile state--a wholesale restructuring of the USPS will probably be avoided at all costs. Instead, we'll probably get half-measures that just postpone the day of reckoning and kick the can down the road.