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The Postal Service’s long-term problem

The Postal Service has been organized in several different ways across American history, but its modern paradigm, dating from the 1970s, dictates that the USPS is supposed to be a self-funded, independently operating public sector entity.

And at the core of that entity is a two-sided bargain. On the one hand, the Postal Service gets a monopoly on the provision of daily mail services. On the other hand, the Postal Service undertakes a series of public service obligations that a private company would not provide — most notably, daily mail delivery and flat postage rates regardless of where you live.

But the volume of first-class mail — the source of the lion’s share of USPS revenue and the cornerstone of both its monopoly and its universal service obligations — peaked in 2001 at 104 billion pieces of mail. Decline has been fairly steady since then, falling to just 55 billion pieces in 2019. The cost of meeting USPS’s basic service obligations, by contrast, has essentially remained steady, creating an obvious financial problem.

There’s little reason to think the decline of paper mail will reverse in the future, so one possible response would be to cut costs by closing post offices, canceling Saturday delivery, and laying off workers. Congress has generally opposed that, pushing the postal service to instead find new sources of revenue such as its parcel delivery business in which it competes with UPS, Federal Express, and other private companies.

A few other solutions have been floated, but none have taken hold. For instance, many people on the left would like to see laws changed to allow USPS to begin offering banking services to both increase revenue and create a public option that would compete with private banks. On the right, the general preference is to privatize postal services (which is what’s largely happened in Europe) and end the mix of special monopolies and special service obligations that currently governs postage.

Back in 2006, a lame-duck Republican Congress turned up the pressure on privatization by forcing the Postal Service to prefund decades of pension and retiree health costs through investments in low-yield government bonds. That onerous obligation made USPS technically insolvent before the coronavirus hit. But rather than achieving its apparent intended result of spurring privatization, in practice it mostly served to give privatization opponents something to complain about rather than addressing the underlying decline in USPS’s business model. Along the way, however, USPS did find a promising new line of business as a contractor delivering Amazon packages.

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