Monday, May 11, 2009

Mail Fail

Looks like more of the inevitable is happening at the post office. When will we understand that this government enforced monopoly is pointless and wasteful? If we opened first class mail up to competition, FedEx and UPS would almost certainly thoroughly and quickly replace the post office, probably reducing the price and certainly preventing the steady stream of price hikes created by the current enforced monopoly.

The silliest part of it all is the notion that the Forever Stamps, which allow people to buy stamps that can be used any time, even after a price increase, will do any good. These stamps have no effect on the problem. The problem is not that the American people are paying too much. The problem is that we don't have a true price system, so we have no clue what "too much" is. The post office, like every enforced monopoly is constantly aware that they can simply raise prices to cover costs, and never have to worry about competition. Even a monopoly in a market is less problematic that this, for a monopoly arising under normal conditions always has to consider the possibility of emerging competition. A government enforced monopoly is the most parasitic possible business arrangement and will almost inevitably lead to inefficient production that creates a steady increase in prices.

Furthermore, the arguments behind the monopoly are simply outdated. There was a time when it made some sense to say that if the government doesn't send mail certain places, and make sure the price is low, then mail will simply never get there. Whether this factual claim justified the normative claim that the USPS should exist (of course it did not) is now irrelevant, because the factual claim at the root is no longer true. If we eliminate the USPS monopoly we are not likely to see a failure to deliver mail to large parts of the rural US. I imagine UPS, FedEx, and others would have to compete among themselves for public image, and thus would avoid significant rate differences to rural areas. The USPS is simply outdated and overpriced and needs to go. Step one is opening it up to competition. When it flounders before its superior competitors whose production costs and prices are driven down by the profit motive the USPS lacks, the next step, the total elimination of the USPS, will be obvious.

8 comments:

Greg said...

Now we can expect global warming to kick in.

Anonymous said...

The one thing not noted is that neither FedEx or UPS have the ability to deliver to every door every day. This would add dramatically to their present costs. Also, both companies have an annual increase that usually averages 3.9%.

Steve June said...

Anonymous,
I'm sure Ben would agree that UPS, FedEx or DHL don't have the current capacity to operate in the same facility as the USPS. However, what he is suggesting is not the immediate closure of the USPS, but rather simply opening up the market to competition... or more simply... allowing FedEx or UPS the ability to deliver First Class mail.

With this new opportunity, surely these companies will expand to suit the needs of the new market, and therefore slowly they will obtain the capacity to deliver to every door in the nation on a daily basis. At this point, the less efficient USPS will simply go out of business due to its own inefficiency.

Rate increases are to be expected, however competition among companies keeps this increase to a minimum.

Greg said...

In a free market, would door-to-door delivery continue? It very well may not, as it is not the most efficient method of delivery.

Ben Bryan said...

Anonymous,
I think Steve and Greg pretty well answered your concern just as I would, so there's not much to add.

Steve,
Spot on. I have nothing to add.

Greg,
The link in your first comment is hilarious. In your second comment, you bring up an important thing about markets: they answer questions our present speculations cannot. We really do not know what method of mail delivery is most efficient to deal with present demand because we don't have a market with prices that work the way they are supposed to.

Steve June said...

I think the most interesting aspect of it would be the "junk mail" aspect. I think that with simple person to person mail, it's quite possible there wouldn't be the market for these companies to bother. Where they could really steal USPS's business, is in negotiating contracts for bulk mail.

Lets say that Capital One wants to mail out credit card invitations to every family in the state of California. Rough guess would be about 10 million letters. (33 million at about 3 people per family) At 44 cents for a machinable letter less than 1 oz., that works to 4.4 million... non-negotiable.

However, if there was competition... and USPS, UPS, FedEx, and DHL were all competing for those 10 million letters, surely a contract could be negotiated down. Every cent saved due to this negotiation, we're talking about 100 thousand dollars saved on Capital One's part.... and that would still be nearly a 4 million dollar contract for the postage carrier... surely the market for that would be huge.

Ben Bryan said...

Yeah, there's all sorts of possibilities. I'm sure in response to what you describe consumers would come up with some way of resisting. The whole possibility of junk mail depends on the open mailbox needed for the USPS, so perhaps in the long run the mailbox would become extinct. Who knows? That's the thing about having no real market: we just don't know what it would bring us. Speculating about what it would bring is fascinating, but at the end of the day, no one really knows what exactly things would look like. One thing's for sure: it would be more efficient than it is now.

Anonymous said...

If the USPS is gone, so are all the junk, magazines, catalogues and neighborhood mailings. In most countries, you go to the post office to pick up any first class that you receive. Probably, about one piece a week. No bills either. You go to or call the companies to see what you owe and pay them directly. The USPS has spoiled many people because it is not a business. It is a SERVICE!

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