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The benefits of a public service are not measured by revenues

Washington DC — Recent changes to the United States Postal Service (USPS) imposed by Postmaster General Louis DeJoy prompted reports of potential sabotage, lawsuits, and emergency Congressional hearings. A new report, released today by the Center for Economic and Policy Research (CEPR) challenges long-standing misconceptions about and unrealistic expectations for the postal service’s fundamental function as a public service. This report proposes a clear alternative to calls for privatization or running the postal service “as a business.”

The US Postal Service Is a National Asset: Don’t Trash It, by CEPR Senior Research Fellow Max B. Sawicky outlines the economic principles that illustrate how notions of privatization and self-financing of the USPS are bad for the economy and undermine the federally mandated universal service obligation.

“It is common to declare the post office obsolete based on the decline in first-class mail,” says Sawicky. “Rather than ruminate on ways to carve up the service until revenues cover costs, consider its unique assets and ask what more could the USPS do in the national interest.”

Sawicky frames the public postal services’ unique assets in a series of economic principles.

The last mile of postal routes — from main roads to individual delivery points, especially in low-density, rural areas — is not efficiently served by more than one mail delivery service, making the postal service a natural monopoly. This means there is no efficiency to be gained from multiple last mile delivery services.

The concept of economies of scale, where increased output reduces the cost per unit of output, is seen in the postal service’s tradition of low prices for every class of mail, regardless of the required trip from source to delivery point. The postage for a first-class letter from Baltimore to Philadelphia is the same as one from Miami to Anchorage. Reducing prices and expanding service would be a move in the direction of greater economic efficiency.

Cheap delivery of letters or packages to any US location is worth something to all, regardless of whether they use it. The benefits of mail delivery extend beyond the direct users of the mail, making it an explicit public good, or what economists call an external benefit. Historically, postal service expansion played a major role in the nation’s economic growth since its inception during colonial times.

Economies of scope refer to the production of two related goods or services that result in combined cost savings. The possibilities inherent in this economic concept could mean a robust future for the USPS. But the execution of the concept, especially in the postal service’s case, is fraught with neglect and abandonment. For example, Sawicky recounts the abandonment of postal banking, which was successfully operated from 1911 to 1966.

“A strong public sector and postal service are essential under the current threats of a pandemic and an economic recession,” says Sawicky. “As a public service, the United States Postal Service has provided a significant boost to the nation’s prosperity and well-being. Privatization for the sake of self-financing is a move in the wrong direction. The service should be returned to a department of the federal government proper, expansion opportunities explored, and regular budget appropriations should cover any shortfalls in operating costs or promised benefits to postal workers.”

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