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Post Office May Not Last 'Forever'
An Interview With Charles Guy

5/14/2007

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 clause.

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 stamp."

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.

 

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