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Tuesday, September 6, 2011

Western Union? Railway Express Agency? USPS?

Remember Western Union? Its brand carries on as a money transfer company, but Western Union as it was known in 1900 or 1950 is long gone. So is the Railway Express Agency. In contemporary terms, Western Union was email and REA was FedEx.

Next in line, apparently, is the United States Postal Service -- or as many of us still call it, the Post Office. (Do you still think of the National Weather Service as the "Weather Bureau"?)

Were it not for Netflix, which is by far the largest user of first-class mail, the question of USPS' financial viability would have been forced long ago. Netflix, however, has begun a transition from DVD-by-mail to online streaming. It wouldn't surprise me if Netflix drops DVD-by-mail by 2020, perhaps sooner.

As recently as 10 years ago, my household consumed rolls of 100 first-class stamps on a regular basis. But every one of my recurring bills (electricity, cable TV, mortgage payment, etc) has been converted to both electronic invoice and electronic payment. Multiplied by tens of millions of households, that's a huge loss of revenue for USPS. Most of what USPS now puts into my mailbox is junk mail. On some days I don't even bother to retrieve the mail and look through it.

Law doesn't allow USPS to raise the prices of stamps faster than inflation. If that were changed, one way forward in the short-run is to double the price of a first-class stamp. It's not a long-run cure, of course, because higher prices will cause more defection to alternatives. Perhaps USPS can identify new revenue sources such as delivering parcels for FedEx or UPS, but I've got my doubts about that.

Experience shows that it's very difficult for a corporation to reestablish break-even only by cutting back. Ask any airline. As a company shrinks, fixed costs that are unavoidable become a larger percentage of total costs. Making matters worse, many politicians oppose the elimination of Saturday delivery. Let's recite together: D-E-N-I-A-L. USPS is allowing its workforce to shrink by retirements and voluntary resignations; but that's a slow process, especially in this stunted economy.

Thus it is becoming impossible for USPS to uphold commitments made to its labor unions decades ago. Among those commitments are healthcare for retirees. Here is another example of why businesses cannot rationally be expected to be a conduit for healthcare coverage in this country: things change within the human lifespan! Either coverage for USPS retirees will be dropped to Medicare-only, or the cost of their incremental coverage will become a general obligation of the federal government (and a taxpayer burden). I don't know which is more likely, but the 2012 elections may tell us.