If you google the title of this post, you will find that many of the articles are from left leaning and pro-governement media sites. The reason for this is that there is a wonderful progressive message sitting on the surface of the facts. Here’s an example of the typical sound byte that Americans can easily digest. The short of the message is this: the USPS was doing just fine. In fact, they had a $623 million dollar profit in 2013. The problem was due a bill passed in 2006 that mandated pre-funding of retiree benefits. After paying that mandate, the USPS finances go red.
Now that’s really strange isn’t it? It begs the obvious question: Why did they do that? Why would congress want to hurt the finances of an entity it wants to maintain control of? The left can easily claim the republicans did it. Perhaps, since the Republicans controlled the House, Senate and White House. The bill was passed with unanimous consent, but then so are most bills. Interestingly, I found it quite difficult to determine what the actual thinking was behind the bill. For example, here is a forum thread from some concerned citizens who tried to determine just that, and didn’t get very far. In my mind, this questions the process of democracy completely. The idea that congress “represents” us is ludicrous. Normally, the truth doesn’t come out regarding the politics of legislation for decades later, if at all and I suspect that will be the case here.
By the way, the lefts take on this is really quite twisted. On the one hand, they would be the first to desire legislation that funded massive retirement benefits for the USPS. But then when they get their wish, they complain. Yes, they will complain that the funding was done too quickly, but I think there were good reasons for this. The writing was on the wall for the post office. Additionally they scream that the post office, with it’s retirement pre-funding, is being asked to do what not other private firm is asked to do. That is true: private firms do not generally provide employees with lavish retirement benefits. That is because they wouldn’t be profitable if they did. It is the very same extravagant benefits the left asks for that they are complaining the USPS is being asked to provide.
So, what are a possible reasons for the 2006 legislation? We know that both democrats and republicans supported the bill. We also know both sides are looking out of their own interests. Based on that, my own conclusion is simple: democrats wanted to fund retirement accounts for their employees. The knew the red ink would be funded by government. Yes, they also knew that there was some risk that Republicans would push for privatization, but they’d cross that bridge when they came to it. Republicans saw a chance to create a crisis, resulting in privatization. Secretly, both sides knew that manufacturing crisis allows government to stay in power. Another point that indicates a manufactured crisis is that the legislation was introduced and finally passed at a point when USPS profit was on a severe decline:
Another interesting angle to this story are the finances. The USPS is not a private entity. However, it has some aspects that make it act somewhat like a private entity. It does calculate a profit and loss and, other than government guaranteed loans, it funds itself by selling it’s services. Also, the USPS contracts out a huge volume of it’s own business to private firms including UPS, Fedex and Pitney Bowes. If you look at the management of the USPS, it’s clear they are genuinely trying to stay profitable. The problem has always been decisions made by politicians who can’t leave well enough alone. Well, this with one caveat: USPS management can’t quite behave like a private firm because the implications of profit and loss are not the same, which I’ll address next.
So what happens to USPS profit and loss? As nearly as I can tell (and it’s not easy to find this information), profits naturally go to the federal government. Losses are funded by the government via loans that are expected to be paid back. So lets take a look at revenue over the years:
Liberals are claiming that the 1996 bill forcing retirement funding is the one thing ailing the post office, but there is more too it than that. Yes, the recession was a factor starting in 2007, but there was certainly a flattening of revenue starting in 2000. Mail volumes have continue to fail through 2014, especially in first class mail, the post offices highest profit business. You can find more details here, but the bottom line is this: business managers must project long term outlooks. But liberals who would have you focus only on the fact that there was a profit in 2013 (minus the retirement funding) are either ignorant or uninterested in that. Politicians could see the writing on the wall: with revenue falling, they would be faced with difficult decisions in the future. The recession sped things up, but it was coming. Here is a chart of profit/loss minus the retirement funding:
Note that RHBF payments are the retirement benefit payments.
My overall take on the USPS is that it has survived over the years because it has some free market features. It is may very well be true, as liberals will tell you all day, that the post office could have provided services similar to other free market innovations, but were limited by congress. But that is exactly the point. Liberals are essentially saying “If only the USPS was allowed to act like a free market business, it would be fine”. Do you see the conundrum here?