The Postal Service

In 1970 President Richard Nixon had what seemed like a good idea, to make the U.S. Post Office (as it was called then) self-sufficient. It wasn’t turned into a for-profit corporation—it was still owned by the federal government—but it was supposed to act like one. Postage and other services, like post office box rentals, were supposed to pay the costs. Congress would stop giving the Post Office subsidies. That appealed to Republicans. And labor unions could organize and, for the first time, strike, if necessary. That appealed to Democrats.

That’s how, in 1971, the Post Office became the U.S. Postal Service. What’s interesting is that for 35 years Nixon’s idea of a breakeven Postal Service worked, more or less. And then, in 2006, it stopped working. Why? Partly because of politics and partly because of changes in the way we communicate and pay bills. (We’ll explain later.)

Today the Postal Service is deeply in debt. By the end of the 2020 fiscal year it had lost $87 billion over a 14-year period and was expected to lose another $9.7 billion in 2021. Not surprisingly this has caused many to wonder if there’s a way out.

Advocates have offered a number of ideas for adding revenue, from getting in the grocery-delivery business to creating postal banks that anyone could use. Others urge the Postal Service to drastically cut costs and end money-losing services. The current postmaster general has suggested slowing some first-class mail delivery, while concentrating on package delivery. 

But there’s a problem with all of these ideas and you can trace it to the decision in 1970 to create the Postal Service. The U.S. Post Office was never intended to be a business; it was a government service whose purposes went beyond delivering letters and packages. 

Before we get to those purposes—and why the Postal Service is in so much trouble today—a few facts about the Postal Service:

• It is, by geography and volume of mail, the world’s largest postal organization, delivering nearly half the world’s mail. Every day the Postal Service processes and delivers about 430 million mail pieces, everything from first-class letters and postcards to packages and advertising flyers.
• There are 34,351 post offices in the U.S., down slightly in recent years. And there are nearly 142,000 blue street corner mailboxes around the country. 
• No matter where you are mailing from or to, as long as both locations are in the United States, the cost of a one-ounce first-class letter is 58 cents, as of early 2022. Mailing your letter 5.8 miles across town? 58 cents. Mailing it from Kure Atoll, Hawaii to Riviera Beach Florida (5,823 miles)? 58 cents.
• And wherever you live in the U.S., the Postal Service will deliver to your house or apartment six days a week—usually by a carrier in one of those ubiquitous Grumman LLV trucks. But not always. One of the oddest postal routes is on the Magnolia River in Alabama, where a contract carrier in a boat delivers to 176 dockside mailboxes along a 31-mile stretch of the river.
• Postal Service rates are bargains. It costs 58 cents for Americans to mail a one-ounce letter but 81 cents for Canadians, 99 cents for Britons, and $3.29 for Italians. 
• How does that compare with sending letters through private services like UPS or Federal Express? Well, good luck figuring it out, as these companies do not make it easy to compare rates. But it appears that a letter sent through UPS costs between $9.50 and $16.70 IF it’s a two-day delivery and IF UPS serves the destination. 
• And if UPS doesn’t serve the destination, such as those houses on the Magnolia River? The clerks at the UPS Store will sell you an envelope and postage, and mail your letter . . . through the U.S. Postal Service. 

Given all this and the deficits, the answers to the Postal Service’s troubles seem easy to some. UPS and Federal Express are solidly profitable businesses. Home delivery is in such demand that companies like Amazon have created their own delivery services. Why not become more like these private companies? Drop money-losing routes, shut down all those neighborhood post offices, raise postage rates dramatically, and plunge headlong into the package-delivery business. 

And here’s where we find the flaw in the 1970 law: The U.S. Post Office was never intended to be a business or even, particularly, act like one. And most Americans, if they thought about it, would be opposed if it did. 

The Post Office’s mission from the start was to tie together a sprawling, diverse country, and offer everyone—including those in the most remote places—affordable levels of service. This mission was dear to the first postmaster general, a printer and newspaper publisher named Benjamin Franklin.  The cheap rates charged for newspapers and books spurred the growth of literacy by making it easy to ship books, magazines, and newspapers from Boston and Philadelphia to New Orleans and Savannah. 

Franklin and the other founders felt so strongly about the need for an equitable, affordable postal service provided by the federal government that they wrote it into the Constitution. And even with the rise of private package-delivery companies, when it comes to things that tie citizens to their governments—the distribution of absentee ballots, for instance, or the delivery of drivers licenses, passports, census forms, Medicare cards, and so on—Americans do not want private companies handling these things. They want the Postal Service.

Why? Because over the years the Post Office (and later the Postal Service) developed a reputation as one of the most beloved government agencies, one more trusted by consumers than any corporation in America. 

But if it’s beloved and trusted, it’s also an institution not doing well financially. Why is that? Two reasons.

First, there has been a decline in first-class letters, the type of mail the Postal Service was designed to handle (and, despite bargain prices, could make money on). Here is the volume of first-class mail by year. As you can see, it reached a peak in 2001 (103.7 billion pieces) then began a slow decline that accelerated over the years. In 2020, the Postal Service delivered just 52.6 billion pieces of first-class mail. Why the decline? Email and social media took away big chunks. (You don’t send as many notes to your grandmother these days; you send her an e-card or keep her informed through Facebook.) Electronic bill payments took away another big chunk. 

The Postal Service made up some lost ground with package deliveries, which more than doubled in the past decade (from 3.3 billion packages in 2011 to 7.3 billion in 2020). But it didn’t replace all the revenues lost to the decline in first-class mail.

Second reason for the Postal Service’s financial problems: Laws passed by Congress. The most egregious is a 2006 law requiring that the Postal Service “prefund” (that is, pay in advance) the health care benefits of future retirees. This accounts for about $5.5 billion of the Postal Service’s deficit each year. 

And when it comes to competing with UPS, FedEx, and the other private shipping companies, the Postal Service is constrained by a long list of federal laws and regulations, some of which were created after lobbying by the private companies. 

But the real problems with the Postal Service lie in Richard Nixon’s plans for treating it as if it were a business instead of a government agency, one that deliberately underprices its services in some cases. Is underpricing services a good business practice? No. Is it good government? Well, governments do it all the time (see our entries on interstate transportation and rural electrification). So it depends on the government’s goals in pricing its services and whether those goals are achieved.

And what is the goal of the Postal Service with its underpricing? To make sure all Americans, not just those easiest to serve in cities but citizens in remote Alaskan villages and along that river in Alabama, have precisely the same services at exactly the same prices. 

So it might cost a few dollars to deliver a letter with a 58-cent stamp from Miami to Wailuku on Hawaii’s island of Maui, but federal government leaders long ago decided it was worth the added cost. Some things, they reasoned, should be outside the market economy, and connecting every American through the mail was one.

We can see this mission at work—and how it differs from business logic—by looking at Wyoming, our smallest state by population and ninth largest in land mass. (Translation: It’s pretty empty.) UPS has 10 stores in all of Wyoming. So if you want to mail a package using UPS, you may have to drive hundreds of miles. Or you could turn to the Postal Service, which has 143 active post offices, or 14 times as many locations, including one in tiny Chugwater, population 201. (You can see the Chugwater Post Office here.)

And affordable? We’ve already mentioned how cheap first-class postage is by international standards. Package mailing is also inexpensive compared to the commercial services. How affordable? Mailing a present to your grandparents? The Postal Service charges $7.65 for packages under 20 pounds, delivered in three days or less, anywhere in the U.S. It will even give you a box. UPS charges $11.50; boxes are extra. Federal Express charges $9.50.

And if you wanted to send a package to someone in Chugwater, Wyoming or Ketchikan, Alaska? With the Postal Service, there are no added fees for remote locations. There are with UPS and FedEx. 

Point is, the Postal Service subsidizes places like Wyoming and Alaska and deliberately underprices some of its services because it isn’t a business. It’s a government agency that treats everyone the same, regardless of the cost of services. Would people in Wyoming support closing a hundred small-town post offices and accept drastic price hikes for delivery to rural areas? Almost certainly not. Would people in cities accept it, if they could save a little in taxes? Perhaps. Or perhaps they would see the Postal Service as Benjamin Franklin did, as means of uniting a large and diverse country through equal services at equal prices, and therefore worth the cost.

That said, the Postal Service remains in difficult financial straits.  So what is the way forward for this public service? There are many ideas but no final strategy yet—although a bipartisan plan was making its way through Congress in March 2022. If and when a strategy is adopted, it will likely be based on the Postal Service’s considerable strengths: its scale and low-cost service model, its admirable “brand,” and the increasing volume of home package delivery.

Should the Postal Service make its services more efficient and invest in new technologies? Absolutely. Raise postage and package delivery fees? Very likely. Close some post offices, so that the Postal Service has, say, only 10 times as many outlets in Wyoming as UPS? Yes, if it can do so without penalizing too many citizens. Enter some new lines of service, like postal banks? Maybe.

These are difficult choices, but the U.S. Post Office/Postal Service has accomplished far bigger things in its history than closing a financial deficit. It has united a far-flung country, brought excellent services to customers in cities and farms alike, and delivered information and goods that made Americans healthier, wealthier, better educated, and better citizens (newspapers and books in one era, medicines and mail-in ballots in another). And it did all this at low cost to its users and taxpayers.

So have some faith that the Postal Service will once again prove its worth, not as a business but as a vital government service.

Footnote: We got a taste of the Postal Service’s scale and reliability in January 2022, when the Biden Administration announced it would deliver free Covid tests to any household requesting them. So, who was put in charge of delivering 500 million tests to American homes? The Postal Service.

More information:

https://en.wikipedia.org/wiki/United_States_Postal_Service

https://www.newyorker.com/news/q-and-a/the-importance-of-the-post-office-to-american-democracy

https://www.pewresearch.org/fact-tank/2020/05/14/the-state-of-the-u-s-postal-service-in-8-charts/

Give the credit to: federal government

Photo by Pam Lane licensed under Creative Commons.