George Will Is Confused by Numbers at the Post Office

Dean Baker--SS

George Will Is Confused by Numbers at the Post Office:

I know, everyone is saying that "George Will" and "confused by numbers" is repetitive, but it is nonetheless necessary to say in reference to his latest piece calling for privatization of the United States Postal Service (USPS). The point is supposed to be that the USPS is hopelessly inefficient compared to its private sector competitors and that if it were required to be run at a profit it would soon be out of business.

Actually, the data don't really make this case. In 2006 Congress required the USPS to advance fund retiree health benefits. While this may be advisable, this is not the normal practice among private businesses. Furthermore, it required that it build up the advance funding at a rapid pace (over 10 years), using health care cost growth assumptions that are way out of line with those used in the private sector.

The result was an added expense of roughly $5.5 billion a year that shifted the USPS from profits to losses in 2007 and 2008 and made its losses considerably larger in each of the last two years. Even accepting the pre-funding requirement, if the shortfall was made up over 30 years, and the USPS was allowed to use the same health care cost growth assumptions as those heroic job creators in the private sector, the USPS would have been profitable in the years 2007 and 2008 and had considerably smaller losses the last two years.

The USPS also suffers by virtue of the fact that it is required to invest its pension fund exclusively in government bonds. If it were allowed to invest in the same mix of assets as the heroic job creators in the private sector, the return on the fund would be 1-2 percentage points higher, saving the USPS roughly $1 to $2 billion in annual pension expenses.

These two changes, which would involve treating the government-run USPS in the same way as heroic job creators in the private sector, would restore the USPS to profitability over the course of a business cycle, even if they could not guarantee profitability even at the bottom of the worst downturn since the Great Depression. Apparently Will has not heard of the recession since it is not mentioned anywhere in his piece. (It's hard to get news at the Washington Post.) The profitability of the USPS has always been highly cyclical.

It is reasonable to consider privatization of any government service, as well as the opposite. The decision should be made based on whether the private sector can accomplish the task more efficiently. The numbers are certainly not as clear cut as Will seems to believe.

In addition, the USPS carries a mandate to ensure that everyone in the country has access to low-cost mail service. It is obligated to deliver a letter from the most remote island in the Florida keys to Nome Alaska for the same cost as sending a letter across the street in Manhattan. We know that the letters can be delivered across the street in Manhattan at a lower cost, but no private delivery service will ship letters between small towns across the country for 44 cents. We may not care about this implicit subsidy to small town America, but anyone who talks about privatizing the USPS without dealing with the issue of guaranteed universal service is pushing an agenda, not discussing the issues involved with privatization.