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Charles Wheelan, Ph.D. The Naked Economist

Charles Wheelan, Ph.D., The Naked Economist

Privatize the Postal Service (for Starters)

by Charles Wheelan, Ph.D.

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Posted on Tuesday, May 1, 2007, 12:00AM

The United States Postal Service has announced that the price of a First Class stamp will rise to 41 cents this month.

I don't have a problem with that. My complaint is much bigger. I don't understand why the post office still exists.

First-Class Incompetence

Forty-one cents to send a letter anywhere in the country doesn't strike me as extreme.

I'm much more bothered by the long lines at the post office, the clerks who snarl at me, and the letter carrier who brings me Greg Albion's mail about every third day.

Who is Greg Albion? And if I'm getting his mail every third day, who's getting mine?

Community-Building USPS Style

I'll admit that I have an axe to grind on this one. My mail delivery is the worst in the country. That's not a throwaway exaggeration -- I mean that when the post office did an internal audit, service in my ZIP code was the very worst.

Our mail delivery is so bad that novelist Jonathan Franzen, author of "The Corrections" (though most famous for saying that he didn't want to be in Oprah's Book Club), wrote an entire essay in The New Yorker on what's gone wrong in the 60614 ZIP code.

How bad is bad? I live in one of those places where a letter carrier's house catches on fire and after the blaze has been put out, the firefighters find 11 years' worth of undelivered mail smoldering in the attic. Our letter carrier frequently gets "one house off," meaning that everyone on the block gets the mail that should've gone one home to the east or west.

This is actually a nice community-building exercise, as it requires lots of neighbors to speak to each other at the end of the day in order to retrieve their bills and magazines. It does, however, get old after awhile -- particularly if your neighbor goes away for the summer and you have to contact his ex-wife to unlock the house to retrieve your paycheck.

No Public Good

But that's not even my primary complaint. The key frustration -- and herein lies the larger point -- is that we can't do anything about it. That's what's so rotten to the core about any unnecessary government monopoly.

I once went to the manager of my local post office to complain. She dutifully explained how I could send a letter to someone somewhere to file a formal grievance. As I was leaving, I asked, "Is this going to make any difference?"

She replied, "Probably not." While I admire the candor, I can't stand the system. Can you imagine someone at FedEx saying that?

That's the fundamental economic problem. A government monopoly means that the law precludes anyone else from doing your job. (In the United States, no private firm is allowed to deliver First Class mail.)

I don't have a problem with the government running the army, printing the currency, operating the courts, protecting the borders, or even installing stoplights. A basic economics text would explain why the private sector can't provide those kinds of "public goods" as efficiently as government.

A Dated Concept

But delivering mail?

A hundred years ago there were legitimate reasons for the government to deliver the mail. The costs of reaching every address were so high that it would've been prohibitive for private firms to build competing national mail delivery infrastructures. We know that's changed; private firms now routinely compete to deliver overnight mail around the globe.

But the government monopoly on First Class mail persists, and it creates terrible incentives. What would your day look like if 1) You were virtually impossible to fire, and 2) A large segment of the population had to use your services by law?

If I were in that position, I'd be at the driving range instead of worrying about whether every sentence in this column has a subject and a verb.

What Governments Should Deliver

I'll admit that shoddy mail delivery isn't at the top of the list of society's key problems at the moment. I don't expect it to come up in the presidential debates. But the lessons from the post office monopoly do offer lessons for much more significant social issues.

First, we should avoid government monopolies whenever we can. If you put good, motivated, smart people in a system with rotten incentives, you usually get rotten outcomes. (And over time, the good, motivated, smart people prefer not to work in that system.) Do our public schools operate more like the post office or FedEx?

And when we do a health care overhaul, let's not be allured by the supposed efficiencies of a single government provider. (Though there's no reason why government can't fund health care, or broaden insurance coverage, as long as citizens are allowed to choose their own health care providers.)

Second, it obscures the larger point of what government should and shouldn't be doing, particularly as we (rightfully) urge countries around the world to end wasteful subsidies, purge unnecessary regulation, and sell off their inefficient state run monopolies. There's no reason for governments to run airlines, pay farmers not to grow things, license businesses that aren't dangerous -- or deliver mail. Here's a good chance to practice what we preach.

Market Wisdom Short-Circuited

How much would a stamp cost if we had a competitive market for First Class mail? I have no idea. In fact, the price of postage might go up and down. The current monopoly forces some postal customers to subsidize others. Logically, it should cost less than 41 cents to send a letter from downtown Chicago to downtown New York, and more than 41 cents to send a letter from Big Swamp, Fla., to Igloo, Alaska.

Having a single price for postage doesn't make any more sense than United Airlines charging $300 for every flight from and to anywhere within the country. Of course, if it's easier for consumers to pay a flat rate for stamps rather than dealing with variable rates, a private firm would find a way to accommodate that desire instead.

The lovely thing about markets is that they give you an option for exit if you don't get what you want -- which is what makes it more likely that you'll actually get what you want.

There's a profound difference between FedEx (in which I own stock) and the post office (which I supposedly own as a taxpayer). At FedEx, and most other such enterprises, there are lots of people with an incentive to make me happy. And if they don't, I can go somewhere else.

Going Postal

So forget about raising the price of stamps; that's small change, literally and figuratively. We should go much further: Eliminate the monopoly on First Class mail and sell off the post office to one or more private bidders. The U.S. government could clearly use the revenue. Think of it as a big government yard sale.

Will it happen? Probably not. Politicians would get an earful from the huge number of postal workers who would be threatened by the shake-up. But I feel better for having offered my analysis. Of course, with it and 41 cents you can mail a letter.

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310 Comments

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  • Yahoo! Finance User - Friday, July 6, 2007, 5:34PM ET  Report Abuse

    • Overall: 1/5

    What a whiner!! Hey Chuck, ever heard of a Post Office Box? Try it. More importantly, the Framers made the post office an explicit govt function in Article I, Section 8 of the US Constitution. Mr Whelan should stick to ECONOMICS. When it comes to govt, he has proven he does not do his homework.

  • Yahoo! Finance User - Wednesday, July 4, 2007, 12:03PM ET  Report Abuse

    • Overall: 3/5

    U.S. taxpayers may have come to regard prior years' USPS subsidization as that required to cover any given current year's operating costs with the balance treated as "sunk costs" ;i.e., investment in postal plant and equipment. Over time, I have found U.S.P.S. Chicago area emloyees at several levels to be not paticularly "customer-oriented". Currently, there are indications that first class postage is used to subsidize junk mail a.k.a. "advertizing". Why do we continue to submit? Would "privatization' be the logical solution? B

  • Doug - Thursday, June 14, 2007, 7:07PM ET  Report Abuse

    • Overall: 1/5

    see mkpntcst - Tuesday, June 5, 2007; that sums it up

  • carla - Tuesday, June 12, 2007, 2:33PM ET  Report Abuse

    • Overall: 1/5

    That military you mentioned wastes a lot more money than the U. S.P.S. Here in the 48042 our outgoing mail is picked up from our box and the mail arrives everyday. You talk about a shake-up, what you really mean is a slash to pay and benefits. Your ilk think the working class should just be damn glad we have a job. Refresh you history lesson and realize we don't need to owe our soul to the company store. In this country the rich just keep getting richer, whats the matter, not getting richer fast enough? While I am not and never was was postal employee, I will not begrudge the dedicated hard working people who bring my mail in any weather.

  • BethanyK - Thursday, June 7, 2007, 4:05PM ET  Report Abuse

    • Overall: 5/5

    "what private company could or would want the First Class mail business?? (the only class of mail falling under the monopoly), delivering to over 141 Million addresses, 6 days a week, with well over $8 BILLION dollars spent in fuel when gas was $2.50 a gallon national average." It doesn't matter if anyone wants to deliver mail or not (though there are great arguments that people want to, just look at the DHL/Fedex competition) it is not the role of the federal government to control our mail delivery through this monopoly. You make great some great arguments. Even if the postal service was 100% accurate it is not the governments role!

  • giless - Wednesday, June 6, 2007, 2:11PM ET  Report Abuse

    • Overall: 4/5

    Everyone should write their congressman & senator encouraging them to sell off the USPO and privatize the postal system. My UPS man diesn't have time to stop and discuss the issues of the day but the postal worker at the post office will discuss anything.

  • Yahoo! Finance User - Tuesday, June 5, 2007, 8:05PM ET  Report Abuse

    • Overall: 1/5

    You could have done a little more research before publishing this article. The USPS is an independent establishment of the Executive Branch, receiving NO TAX Dollars since the early 80's, so you lost credit with the "own as a taxpayer" comment. USPS operates as a private business, generating it's own revenue thru the sale of postage and services. With that said, what private company could or would want the First Class mail business?? (the only class of mail falling under the monopoly), delivering to over 141 Million addresses, 6 days a week, with well over $8 BILLION dollars spent in fuel when gas was $2.50 a gallon national average. I sympathize with your personal mail delivery concerns, but think you should continue to escalate the issue locally before yard selling a very economical and efficient system as a whole.

  • Yao - Monday, June 4, 2007, 10:47AM ET  Report Abuse

    • Overall: 5/5

    For the most part, the USPS is controlled by AFL_CIO union. This no lay-off policy is creating lots of waste. It is impossible to get rid of an employee, no matter what, unless you catch them selling drugs in action or something like that.... The expectation of USPS employee is; 30 years of employment for doing as little as possible, plus over time and penalty over time, another 30 years of pension for doing nothing....

  • Yahoo! Finance User - Sunday, June 3, 2007, 9:56PM ET  Report Abuse

    • Overall: 4/5

    Excellent points, but the column just strikes me as a customer service complaint on behalf of everyone who lives in the 60614 ZIP code. Is the USPS really that bad? Is UPS 100 percent? Is FedEx 100 percent? Is DHL 100 percent? The answer to all of those questions is a resounding "NO" and I think Wheelan needs to give the USPS a break and realize that what is happening in 60614 is an aberration. The USPS provides an excellent, usually reliable service to the American people for a fair price.

  • Yahoo! Finance User - Friday, June 1, 2007, 2:27PM ET  Report Abuse

    • Overall: 5/5

    Excellent Article.

  • Sam - Friday, June 1, 2007, 12:18PM ET  Report Abuse

    • Overall: 2/5

    Astute points, but do you really want only private companies in charge of mail. It is not realistic. Mail is not a commodity, it is a utility. Every time they push deregulation on utilities the crap hits the fan and they put together oversight boards and new legislation to put controls in place. You would swap the post office for some kind of national postal control board? Also, who protects our mailing rights when it is privatized? As for the postage price. I've always APPRECIATED the fact that it is subsidized. I LIKE that I can mail anything anywhere in the US for the same price.

  • Blubous - Thursday, May 31, 2007, 2:14PM ET  Report Abuse

    • Overall: 4/5

    Typically acute Wheelan. I appreciate that.

  • Yahoo! Finance User - Tuesday, May 29, 2007, 8:30PM ET  Report Abuse

    • Overall: 1/5

    A lot of HOT AIR, what was his point?

  • Yahoo! Finance User - Monday, May 28, 2007, 3:17PM ET  Report Abuse

    • Overall: 4/5

    From an efficiency standpoint, a private company could definitely do better. However, the system will end up like the airline industry. Wheelan touched on the similarities, but didn't discuss the pricing in detail. Just like airports, it would be affordable in the major cities, very expensive in smaller cities, and unavailable in all of the small towns across America. Again, it's more efficient, but not really what people have in mind when they think of the post office. You can argue efficiency all day and prove your point, but there's not a chance of the vast majority of people hopping on board with this one.

  • Yahoo! Finance User - Saturday, May 26, 2007, 9:35AM ET  Report Abuse

    • Overall: 1/5

    If you want economic inefficiency, let's talk about the U.S. Army! Would you want to privatize that? I wouldn't. So let's stop talk about privatizing the Postal Service (perhaps he just couldn't think of anything else to write about this day, so he picked an easy subject). The Postal Service's charge is not economic efficiency. It is about keeping the nation's families, friends, businesses, and citizens connected to each other and their government. I don't want that important service put at risk by the whims of a private provider. If a remote town suddenly became unprofitable for commercial mail delivery, it would find itself without this essential service. On the other hand, the Postal Service promises to keep delivering the mail regardless. That's an important, guaranteed service.

  • Jason - Friday, May 25, 2007, 9:09AM ET  Report Abuse

    • Overall: 2/5

    I agree with the Economics of Charles argument. However, we don't live in a world where all humans are rational!!! I lived in Birmingham, Alabama until I was 27 years old. Then, one year ago, I moved permanently to Buenos Aires, Argentina. Let me tell you guys something - The U.S. postal service rocks. On price/speed ratio and reliability, they are hands down 10 times better than Correo Argentina, which is the Government run mail company, and the same goes for the private mail delivery companies as well. You can't send anything of value in the mail here, because it will be stolen. You can't send a letter from your house. No, you have to go to the post-office to send it. You can't drop a letter off in a box, to be sent! No, you have to wait in line 30 minutes to send a simple letter. It is insane. Why doesn't somebody do something? That's always the question, isn't? In my opinion, the U.S. postal service works great, so let's live it alone. If we change it, then I believe the risk of failure is far too costly, such that it isn't worth the potential gain. I mean, we can't really gain much more, but we sure could lose a lot.

  • homeless - Thursday, May 24, 2007, 8:15PM ET  Report Abuse

    • Overall: 1/5

    People who say USPS has more rate hikes than anyone else never actually use UPS or other private carriers. With UPS, you have no idea how much you are paying for a package until next month when the bill actually comes. (I expect FedEx would be the same, though I have never used them on a daily basis) Not to mention all kind of charges (fuel surcharge, rural area charge and residential charge just to name a few) you may see on your bill. How about zip code correction for $5 ? Why picking up on the first class ? Let's just ask UPS/FedEx to compete with USPS on their priority service and see if they can do a better job. My experience is with USPS. If UPS/FedEx can not compete with USPS on high postage item like Priority Mail, how can they compete with USPS at 41 cents First Class Mail ? Not to mention the new forever stamp that just roll out this month. Just ask any private company about the "forever rate" concept and see how they response....

  • J - Thursday, May 24, 2007, 9:48AM ET  Report Abuse

    • Overall: 3/5

    I don't believe that in this case getting rid of the problem all together will just make it go away. Nor do I believe an institution such as the Postal Service should be disbanded for what sounds like nothing but customer service gripes. Instead, let's look at the REAL problem: The lack of any feeling of responsibility within a government institution to serve the American people with any sense of urgency or respect. From time to time, you will come across a very friendly, courteous, and helpful Post office worker, but that is the EXCEPTION. This institution needs to find a way to instill value for the customer, the American public. So, getting rid of it is not the answer. Instead, changes must occur from the inside, starting with leadership and working its way down. This is a problem deeply rooted in the pay system used by the government which does not motivate the individual worker to EARN the next pay raise, but rather appeases its employees with gauranteed raises and virtual tenure (something you will certainly not find at, say, FedEx), making it nearly impossible to get rid of the people holding it back and reward those few courteous workers willing to do the right thing. So, let's not all waste our time writing letters trying to get the Postal Service disbanded (which will never happen) and instead focus on the real problem at hand (which can more realistically be expected to be fixed). Of course, then there's the problem of actually getting the Postal Service to fix itself which requires more than this blog space can handle!...Enjoyed the article...

  • ATOMP - Tuesday, May 22, 2007, 11:08PM ET  Report Abuse

    • Overall: 5/5

    Every econ class I've ever taken has mentioned the USPS as being the classic case of when a monopoly hurts the consumer. I sat in the post office yesterday for over twenty minutes while an overworked pair of postal workers with bad attitudes slogged through the line. There is no way any reputable, for-profit company would ever maintain a consumer base while providing the low level of service that is the norm for the USPS.

  • Sung - Tuesday, May 22, 2007, 6:02PM ET  Report Abuse

    • Overall: 1/5

    Who will deliver a 3.3oz letter for 11 cents or less for non-profit anywhere USA?

  • PoulJ - Friday, May 18, 2007, 12:13PM ET  Report Abuse

    • Overall: 1/5

    I do not agree. We do not privatize the post office, nor the rail system, communications, health care insurance.... these are the must-haves and the backbone of a nation! This country is well on the way to do all of that. It's a big shame for the majority of our citizens, and the large corporations laugh all the way to the bank. We must have government oversight in the areas that are critical to our lives and our nation.Why do we have more UPS trucks than USPS? This is no accident, it is by design. The business friendly government wants to outsource USPS! We are not even maintaining our infrastructure! China and Europe are investing billions make their countries more fluid and efficient every year. There hasn't been rail built for 50 years in this country! I have 1 usps in my town, long lines and frustration, and 25 alternative options for mail. This is not an accident this is by design. Don't forget FedEx and UPS are both for-profit corporations answering to their shareholders! No I am against privatizing the USPS. But I am for improving it, we should have the USPS open more branch offices, small and efficient like their private competitors, and expand the hours as well.

  • Kits - Tuesday, May 15, 2007, 11:51AM ET  Report Abuse

    • Overall: 1/5

    Just another squawk about mis-delivery. First class mail is not the Post Office bread and butter income. How much first class mail do you receive? Now check ads, magazines and catalogs delivered at greatly reduced postal rates. UPS took parcel business from PO originally at cheaper reduced rates. Now they are higher priced. That's private business???

  • Billy Splatts! - Monday, May 14, 2007, 4:20PM ET  Report Abuse

    • Overall: 5/5

    Excellent as always!

  • dannyboy - Friday, May 11, 2007, 11:56AM ET  Report Abuse

    • Overall: 4/5

    What are the odds of wheelan never seeing a letter reach his address again after the USPS posts this letter?

  • Yahoo! Finance User - Wednesday, May 9, 2007, 9:22PM ET  Report Abuse

    • Overall: 5/5

    Amen! There is no reason for the government to have a monopoly on delivering mail. Plenty of private companies have demonstrated their competency at delivering packages and could do the same for first class mail. First the USPS and then the Public Schools, privatize it all.

  • Stephen M - Wednesday, May 9, 2007, 8:43AM ET  Report Abuse

    • Overall: 4/5

    The post office should be obligated to deliver mail every business day. It should service America's business by running on the same schedule. There are too many non-service days. When there is no mail delivery I try to figure out why and joke that it must by Yosemite Sam's birthday.

  • Doron - Wednesday, May 9, 2007, 1:46AM ET  Report Abuse

    • Overall: 5/5

    Like always, I can't agree more. As for all the one star posts, it is clear that they have never taken an econ class. (i.e. don't mingle in the affairs of dragons for you are crunchy and full of ketchup) I would love to hear more about going private with our public schools, something that should have been done many years ago. -an economist

  • Yahoo! Finance User - Tuesday, May 8, 2007, 9:13PM ET  Report Abuse

    • Overall: 1/5

    Want to see a comment by someone who is obviously insecure about his intellectual ability? Then check out "borg_neu's" remarks. Here is someone whose only argument is to attack those who disagree by name-calling - a very mature, educated response. Reading a book is all well and good, borg, but understanding it is the tricky bit. Good luck with that, and don't be so unhappy with your intellectual poverty. You're obvioulsy not alone. Yahoo! Finance has its resident propogandist in Charles Wheelan. Your argumentation skills are a close match to his.

  • Yahoo! Finance User - Tuesday, May 8, 2007, 4:39PM ET  Report Abuse

    • Overall: 1/5

    Interesting bias toward Fedex. Is that from a customer's standpoint or a shareholders? I am not impressed.

  • Yahoo! Finance User - Tuesday, May 8, 2007, 1:04AM ET  Report Abuse

    • Overall: 1/5

    As an employee of USPS, I have to disagree with the privitization idea. Currently the postal service is contracting out most newly developed areas to form routes called CDS. The problem with it is now not only do people have regular problems with their trained union employees, but many will now have untrained, non-career carriers to get their mail to them. I agree with one point, the complaints don't get too far, we as carriers have our own issues with the "higher ups". But besides all that, I just want to say that the majority of carriers enjoy the job, and we form bonds with our customers because as the regular mail carrier they trust us with their mail. Most carriers are trying to get the job done to their best ability, and mistakes are always going to happen. But we would never choose to compromise the quality of delivery for anything else. We regular carriers have to see our customers daily, sometimes for years and years! The area you are in must be run by a very transient office I am guessing.... the most mistakes happen when there is not a regular carrier in place for a extended period of time. The more new faces the more learning by mistakes that takes place. The last thing is that maybe the monopoly doesn't seem fair, but in all reality it is protecting our country from what could be a disastrous turnout if other companies came in and tried to pick up where we left off.... the system works and it shouldn't be tampered with. It took over 100 yrs to be as efficient as the USPS is, believe it or not. Sometime maybe you could visit your local plant and be amazed at how complex the delivery system is, and maybe actually gain some APPRECIATION for the right pieces of mail that are delivered to you!! If I misdeliver 5 pieces of mail in a day, out of the 4000 that I had to get right, I am so sorry I didn't get the 4000 perfect. But I am glad I got 3995 right! And that is just me on my little route.......

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