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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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According to the post office economic model Marquette County, Wisconsin, population 15,000 and home to 7 post offices is significantly overserviced. Students at the University of Wisconsin  undertook a proper cost-benefit analysis to determine if this were true. They chose to evaluate a post office that clearly would fail the post office cost-benefit test. They found that closing the Packwaukee post office would save about half a million dollars while costing the community, in increased travel time and related expenses, more than $700,000.

The Wall Street Journal  carried an instructive story about the enormous unquantifiable impacts on Prairie City, South Dakota when its post office was closed. The closure saved the Postal Service $19,000 a year.

Prairie City postal clerks kept a pot of coffee brewing and posted birth and death notices. “That was the gathering place for people to come in the mornings, have a cup of coffee or a can of pop, and visit, but we don’t have that no more,” says Daniel Beckman, a recently widowed farmer. “All that’s left in the town now is just a church; it’s totally depressing.”

The area’s only major hospital and pharmacy is in Hettinger, N.D., 40 miles away and over the state line from Prairie City. Before, when an elderly person or farmer in Prairie City quickly needed an antibiotic or other medication, a pharmacist in Hettinger would rush prescriptions to the Hettinger post office, catching the mail carrier who each day traveled from Hettinger to the Prairie City post office. The closing eliminated that direct route, and now Prairie City mail is sorted and delivered on a rural route out of Bison, S.D., delaying the delivery of medicine from Hettinger by two or three days, says Dr. Brian Willoughby, of West River Health Services in Hettinger. “When they cut these services, there are multiple spinoff consequences for these older people out there in the middle of nowhere, but the bureaucrats sort of forget about that…

Eliminating Saturday delivery would save more money, $1.5-$3 billion a year, although one would hope that cutting service by 17 percent (one day) to reduce costs by 2-4 percent and eliminating some 50,000 full time, middle class jobs at a time when Washington sees as its primary mission the creation of such jobs, would seem to a nonstarter. Moreover, the strategy would slow delivery by two days for perhaps 25 percent of the mail and open the door to private firms to step in.

Unleashing the Post Office

Rather than cut back services, the USPS might revisit John Wanamaker’s strategy. Take advantage of its vast retail capacity. This has already begun. In 2010 it  processed 6.7 million passport applications and issued over 120 million money orders. To these could be add all kinds of government services: state fishing licenses, renewing car registrations, applying for Medicare, voting registration.

Tragically, but not surprisingly, the 2006  law hobbles the ability of the USPS to offer new products. For example, it cannot offer a product that would “create an unfair or otherwise inappropriate competitive advantage for the Postal Service…”!

“The contradiction in the law is part of a pattern in effect ever since the USPS stopped receiving appropriations – Congress wants it to be self-sufficient but doesn’t want it to make money”,  observes Elaine C. Kamarck of Harvard Kennedy School of Government.

For example, in the mid-1970s the post office was told to remove copy machines from post offices under pressure from lobbyists representing office equipment stores who feared that USPS was taking away its business. Later when the USPS initiated a “Pack and Send” service, the outcry from Mailboxes Etc. and other private packing stores successfully challenged the service. Years later, when Internet shopping took off, the delivery of packages to individual households should have resulted in a dramatic increase in USPS business. But parcel shipments were generated by large organizations and the USPS was not allowed to negotiate discounts and thus lost business. It was forbidden  by law from lowering prices to get more business. This resulted in the entirely incredible situation in the 1990s where the United States Government negotiated an agreement for the delivery of U.S. government package services with Fed Ex because the USPS was not allowed to negotiate for lower prices!

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