Cafe Hayek: Stamping Our Feet

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May 11, 2008

Stamping Our Feet

Don Boudreaux

Tomorrow, the price of a first-class postage stamp in the U.S. rises from 41 cents to 42 cents. This price hike by a legally protected monopolist (the United States Postal Service) prompts me to reprint the following letter that my friend (and former colleague at GMU) George Selgin and I published in the April 4, 1994 edition of the New York Times:

To the Editor:

It has been suggested that, because the nominal price of first-class postage is about where it was in the late 18th century, Americans who complain about the proposal to increase postal rates are merely whining wimps who are lacking in historical perspective.

However, the real price of transportation (a key input in postal service) has plummeted over the last 200 years. In 1799 it took 53 days for an Army courier to travel from Detroit to Pittsburgh.

Today the same trip can conveniently be made in minutes. Likewise, the productive efficiency of the United States is vastly greater now than it was even a few decades ago.

Given the plunge in transportation costs, joined with other technological improvements and a large increase in the scale of postal activity, the price of postage should have fallen dramatically.

Americans do not oppose postal-rate increases because of their ignorance of history.

Rather, opposition to these increases grows from the correct perception that a legally protected monopolist such as the United States Postal Service can keep prices higher, and service inferior, to what these would be under competition.

Regardless of how today's postal rates compare with rates in the past, opening the delivery of first-class mail to competition would lower rates still further while improving service.

DONALD J. BOUDREAUX, G. A. SELGIN
Clemson, S.C.,
March 24, 1994

The writers are, respectively, an associate professor of legal studies at Clemson University and an assistant professor of economics at the University of Georgia, Athens.

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Comments

From the USPS page linked above;

Consistent with a new law*, prices for mailing services will be adjusted annually each May.
*The Postal Accountability and Enhancement Act

We've already seen numerous times that such a document isn't and shouldn't be called a law, but a legislation. But what about their use of price, should such a toll, enacted through legislation rather than through confrontation of supply and demand, be refered to as a price?

Does the answer to this question apply to all monopoly prices?

Posted by: Mathieu Bedard | May 11, 2008 10:18:44 AM

The price of postage continues to rise over the last hundred years, while the price of a long distance phone call has plummeted -- and is now virtually at zero. How much sense does it make that the government still maintains the Federal Communications Commission to regulate the telephone industry?

Posted by: SheetWise | May 11, 2008 2:05:43 PM

Posted by: SheetWise | May 11, 2008 2:06:19 PM

This is something akin to hunting for wolves on an ever-expanding rabbit farm. I'm sure the FCC is so gosh darn busy sifting through the wealth of new services offered each year that they feel like their mandate needs to expand to deal with the extra workload of finding those, not recently observed, wolves. This is sort of like Prof. Robert's peanut room analogy, except that their actual JOB is to find whole peanuts, so they have to think up more and more innovative and expensive ways of making their own work still possible -- or relevant for that matter.

Posted by: Gamut | May 11, 2008 2:25:43 PM

At Walmart and Krogers, I can get a Kiwi fruit from New Zealand for $.40 each. The USPS will now charge me $.42 to mail a folded piece of paper across town.

Profit makes a difference.

Posted by: Justin Ross | May 11, 2008 4:23:16 PM

Wondering aloud how much things like stamps and packages would cost if the USPS were privatized. And wouldn't the cost of shipping, lets say an envelope sized document via FedEx be lower in cost if there were no USPS? How would costs be lower? People. I remember not too long ago an encounter with a very friendly postal worker who I just overheard tell a colleague in the back that he just hit the $50,000 mark in salary and that, at 48, had just two more years to get his maximum retirement. This guy sold stamps at the counter and put together some other shipping itmes and nothing else. He, like everyone else at the USPS, had a union pay scale. His job, in the reality of the market place, should have paid between $7 and $8 per hour and not $50,000 per year....for selling stamps.

Posted by: tiger | May 12, 2008 3:46:00 AM

I personally hardly use the postal service anymore. I pay nearly all my bills with electronic funds transfers. I receive most of my bills online. I send nearly all of my personal correspondence through email and most of my business correspondence through email. I have a few magazine subscriptions, but far fewer than in the past, because I do most of my reading online.
The one service I continue to receive through the postal service is unsolicited "junk" mail.
I am begining to wonder how much longer the post office will survive and whether it will have soon outlived its usefullness.

Posted by: PaulD | May 12, 2008 9:38:31 AM

With all bill paying going online, online magazines, and email I fail to see any purpose other then delivering packages. UPS does that quite well.

Posted by: FreedomLover | May 12, 2008 2:24:45 PM

Justin --

You wouldn't be able to get one specific kiwifruit from NZ delivered to your door for less than 42 cents. The USPS has a slightly harder job: they're supposed to bring the letters that are addressed to you to your house.

If they just handed out the letters to customers randomly by the pound and made you pick them up at the post office they could do it more cheaply.

You just wouldn't get the mail that was addressed to you (of course, you don't necessarily get it now).

So I don't think your analogy holds. But I agree that profit matters.

Posted by: Eric | May 12, 2008 3:40:19 PM

...note especially that the USPS pays NO Taxes --- giving it a vast financial advantage.

No fuel taxes, no sales taxes, no property taxes, no corporate taxes, etc.

Imagine what FEDEX and UPS could offer consumers in pricing & service if they were tax exempt like the USPS.

It takes great skill for the USPS management to continually lose money... despite their legal monopoly, tax exemption, and Federal subsidies.

Posted by: Talbot1 | May 12, 2008 5:03:55 PM

I'm for privatizing/abolishing the USPS, but I'd settle for the USPS setting a fixed postage price for the next decade.

I don't care if it's high, I just never want to have to think about postage. It my just be a penny, but I suspect that the transactional costs are huge.

Posted by: Nathan Bowers | May 12, 2008 7:33:14 PM

Freedomlover: "With all bill paying going online, online magazines, and email I fail to see any purpose other then delivering packages."

Do you think we're anywhere near that point yet? Does the response rate for online magazine advertising and unsolicitated emails come close to that for printed magazines and direct mail? Also, I'm not sure if your generation differs from mine, but we seniors are not about to give up sending personal expressions - sympathy and birthday cards - by mail. Email is still too impersonal for us.

USPS revenue in 2007 totalled $75 billion. 70% of that revenue was standard and first-class letters and cards. Though we may criticize them and predict their demise, USPS is still thriving.

Posted by: John Dewey | May 13, 2008 10:06:19 AM

I haven't heard about any problems where UPS or FedEx employees just don't deliver, deciding instead to collect all the packages at home. Yet, every so often, some postal employee gets caught with a ton of mail at their home. It just happened again in NC:

http://www.newsobserver.com/news/story/1070767.html

(And, the USPS wasn't even responsible for the person getting caught!)

I doubt that opening up 1st class mail to competition would do much for prices -- 42 cents is still pretty low. Instead, I suspect that the competition would be on service. And, on those grounds, the USPS will fail miserably.

Posted by: Chris | May 13, 2008 11:43:17 AM

Chris: "I haven't heard about any problems where UPS or FedEx employees just don't deliver, deciding instead to collect all the packages at home."

I was a Fedex industrial engineer in 1986 when we introduced the hand held Supertracker. This bar code scanner allowed every shipment to be tracked at several points from origin to destination. From that point, it was not possible for a delivery courier's failure to be overlooked. I don't remember any intentional delivery failures prior to the Supertracker, but I'm sure some could have happened.

The important difference between USPS and FedEx is the culture, of course. I have known FedEx couriers who actually shed tears when they missed a handful of delivery commitments by just a few minutes. At least when I worked there, almost all the employees took their jobs very seriously. Can anyone make such a general claim about USPS employees?

Posted by: John Dewey | May 13, 2008 1:04:50 PM

I think too many people bash the USPS when in reality they have no idea how the mail operates or what the carrier has to endure. To lump all USPS employees in one basket is plain stupid because they are many of them who do quality work daily. it is a very difficult job that many wouldnt be able to endure over a week. its not the worker it is management. the country would not function without the USPS. You cant compare FedEx or UPS to the USPS because in my opinion its a major difference delivering a package and delivering over 13ft or letters, flats(bulk mail) and small parcels by foot. This happens it rain, sleet, snow, heat or any other adverse conditions. I think many should give the "Mailman" a break. Because many of YOU who posted comments couldnt withstand the job.

Posted by: Jack | May 25, 2008 10:12:32 AM