Post Office May Not Last 'Forever'
An Interview With Charles Guy
The Postal Service is billing
its 41-cent "forever" stamp as a customer convenience. But the
agency's former chief economist says it's also designed to ease
the way for a series of future rate increases.
If you haven't stocked up on
"forever" stamps yet, you'll need some 2-cent stamps to cover
the price increase that takes effect Monday. And Charles Guy,
who studied the economics of mail for 26 years inside the Postal
Service, says such increases may become an annual ritual.
Recent legislation allows the Postal Service to raise prices
without going through a cumbersome rate-setting process, as long
as the increase is in line with the rate of inflation. If
inflation is 2.5 percent over the next year, the first-class
rate could go up a penny to 42 cents next year.
Guy is now an adjunct scholar
with the Lexington Institute, a conservative think tank in
Arlington, Va. He expects his old agency to take full advantage
of its new pricing power, but says it shouldn't.
The volume of first-class mail
- the post office's most profitable service - has been shrinking
for several years. Receiving and paying a bill used to generate
two pieces of first-class mail, but now the bill is likely to be
sent by e-mail and paid online. Raising the price of a stamp,
Guy says, will only accelerate that trend.
"They're losing their
high-markup volume," he said. "It means the labor force they are
employing to do this work needs to shrink."
It's not a problem that higher
prices will solve. "The more they raise prices, the more volume
will decline," Guy said. "We're just delaying solving the
problem and making it bigger."
Postal management has blamed
the latest increase on higher fuel prices, but Guy says they're
not the real culprit. Labor accounts for 80 percent of the
agency's costs, while transportation is just 8 percent.
Yet, Guy alleges, management
hasn't even tried to bring down labor costs. A recent contract
with the largest postal union calls for annual raises of 1
percent, plus cost-of-living increases, and contains a no-layoff
The Postal Service has been
praised for achieving labor peace, but Guy says that shouldn't
be the objective. He compares the post office's situation to
that of Detroit's Big Three automakers, which also have seen
their sales shrink. The Big Three, he says, acknowledge that
they have too many workers and need to reduce costs.
Postal managers need to make
some tough decisions now before the market makes their problem
even tougher. "Why wait for a crisis?" he asked. "That's exactly
the game we're playing here. Ducking and dodging the real issues
is just going to make a financial catastrophe extremely likely.
"You ought to be doing
something to minimize the increases and make them as infrequent
as possible, not institutionalizing them by having a forever
There are alternatives: If a
government-run postal monopoly is incapable of controlling
costs, Congress should look at privatization. Germany has
privatized its post office, and Sweden and New Zealand have
repealed their postal monopolies, allowing competition.
If we had competition, price
increases no longer would seem inevitable. In other so-called
network industries, like airlines and telecommunications, prices
over time have risen by less than the rate of inflation.
So, as you stand in line to
buy a forever stamp, you might ask yourself why no one's trying
to sell a forever airline ticket.