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Are We About to Lose the Postal Service?

Obama has agreed to cut Saturday delivery, 2500 offices may close immediately and up to 16,000 by 2020, and Republicans want to end free door-to-door mail.

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In 1845, Congress  closed the loopholes, enabling the Post Office to dramatically lower the price of postage and initiate free door-to-door delivery in cities.

In the 1890s the Post Office extended free door-to-door delivery to the two-thirds of America who lived in rural areas. Postmaster Generals like John Wanamaker, the founder of the Philadelphia department store, knew this would lose money in the short term but the nationwide infrastructure would become the foundation for new services. One of these would be package delivery. A full fledged parcel post would develop profitable routes that compensated for the unprofitable ones found in any system promising universal service.

Wanamaker got his wish when the handful of private companies that dominated package delivery began treating their customers badly. The companies refused to inform their customers about free delivery in areas beyond rail depots, sent shipments by circuitous routes to inflate costs, discriminated among customers, double charged and overcharged.

The post office stepped in. Parcel post began in 1912. Critics predicted the post office would be unable to compete. “(T)he Postal Department as now organized and operated would be utterly unable to compete with express companies upon purely a business basis”, one writer  insisted. He was wrong. Tests comparing the private and public services found the government service generally faster. Within a year, express companies stopped competing with parcel post in many small towns.

Professor Richard B. Kielbowicz of the University of Washington  describes how the financial panics of the late 1800s and early 1900s and the closure of hundreds of banks led the Post Office to promote the general welfare another way, by undertaking “an experiment in a new field of public benefits”: postal savings banks.

The banks fought back. They contended postal banks were unnecessary and would be “mismanaged, inefficient and costly and (would) serve the public less well than privately managed businesses.” The American Bankers Association spent $1 million to defeat the bill. It lost but did get the bill written in a way that severely restricted the ability of the post office to compete. Congress set the interest rate payable on deposits at 2 percent, half what private banks were offering, and set a maximum account balance at $500. Nevertheless, the postal savings system was by all accounts a success. At its peak in 1947 it had over 4 million accounts and deposits exceeding $3.3 billion.

In 1966, Congress voted to discontinue postal banks. With the advent of deposit insurance many argued, “the postal savings system had simply ‘outlived its usefulness’”. Perhaps. But twenty years later, hundreds of the nation’s newly deregulated private savings and loans collapsed, resulting in a $200 billion taxpayer bailout.

The New Postal Service Is Born

Historically Congress set postage rates. One result was that they were totally unrelated to costs. Capital investment shriveled even as mail volume soared. Finally, just before Christmas in 1966 the system collapsed. The Chicago Post Office, the nation’s largest, came to a virtual stop under a logjam of mail.

Congressional hearings ensued. In 1967 President Lyndon Johnson appointed a Commission to reorganize the Post Office on “a business basis”. In 1970 Congress transformed the Cabinet-level Post Office Department into the independent United States Postal Service (USPS). Taxpayer subsidies to the Post Office, which amounted to 25 percent of its budget in 1971 (about $16 billion in current dollars) were phased out.

Freed from some constraints and with a new capacity to borrow, the Post Office made major capital investments. Productivity soared. Today the USPS  delivers 139 percent more mail to 89 percent more delivery points with just 2.5 percent more work hours than it did in 1971.

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