In Less Than One Month the USPS will Face Financial Insolvency

According to a report that the GAO released yesterday, “By the end of this fiscal year—in less than one month—the U.S. Postal Service (USPS) projects that it will incur a $9 billion loss; reach its $15 billion borrowing limit; not make its $5.5 billion retiree health benefits payment; and thus, become insolvent.”

The GAO report examines a series of structural policy recommendations, focusing largely on making changes to pension benefits for new employees, employee health benefits, collective bargaining agreements, and retail services.

However, other ideas for reform that have become more popular in the media, such as getting rid of Saturday delivery, are often marginal in nature and fail to address the underlying structural issues that the USPS faces. It is unlikely that a few minor tweaks to the largest federal civilian employer will significantly improve its current financial crisis.

One key factor contributing to the inefficient performance of the USPS is simply that it is an outdated organization. As Maurice McTigue argues, the USPS is “trying to run a 1920s business in a 21st Century economy….The current system is poorly configured with archaic facilities in the wrong places.”

Joshua Hall and I further argue that the main concern with the USPS is that it is a quasi-monopoly. The Federal government has implemented barriers to postal delivery that directly prevent people from reaping the benefits of competition. Removing these barriers and letting markets work would allow competitive forces to eliminate inefficiencies and determine better ways of operating.

Therefore, with the USPS nearing financial insolvency, it seems that there are three possible paths for its future: 1) making minor tweaks that will result in little (if any) improvement, 2) making structural reforms to the current system, or 3) letting the market process work via privatization of postal delivery.

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About Ben VanMetre

Ben VanMetre is an MA Fellow at the Mercatus Center at George Mason University. Before joining Mercatus, Ben earned his Bachelor of Arts degree from Beloit College where he double majored in Economics and Management and Psychology. His research interests include international and state-based development issues, entrepreneurship, institutional arrangements, and economic freedom. His work has appeared in Forbes, Economic Affairs, the Cato Journal, the Journal of Business and Economic Perspectives, the Journal of the James Madison Institute, the Free Market Foundation, and the second volume of the Wealth and Wellbeing of Nations.