Tuesday, March 02, 2010

Government vs Free Markets

Now I'll admit I don't know everything, or even very much, about the operations of the United States Postal Service. I work with computers and electronic mail is how I prefer to deal with everything. However, today I came across yet another indicator that, in the long run, government typically cannot compete with the free market, even on ground slanted in their favor, let alone on even ground.

The post office is now suggesting that they will to do away with Saturday delivery. In addition, there is the ever-present threat of closing post offices.

istockphoto_1393704_money_from_the_mail.jpgThis is because the post office is, and has been, operating at a significant loss for several years now (even before the recession began). Their last quarter in the black was back in 2006 (and that was while issuing over $2 billion in bonds ... aka debt). They operated Q4 (Oct-Dec) of 2009 at a deficit of, get this, $300 million! In 2008 and 2009 they apparently lost $2.8 billion and $3.8 billion respectively. It was on target to be nearly $7 billion in losses for 2009, but by issuing bonds (shown as 'Debt' in the chart) the yearly revenue didn't end up being as bad.
Interestingly, notice that the difference in mail volume barely changed between 2005-2007. Really only 2009 was the first year to see a significant drop in volume and yet a huge swing in revenue took place starting in 2007.

The USPS has been struggling even beyond its fiscal problems. Even Obama said so. Though underlying the deteriorating work environments and aging employees (and a congressional requirement to pre-fund health benefits to employees), most of the problems come back to money. To combat this trend, there have been discussions regarding how to improve the post office's fiscal situation. Some have even mentioned fully privatizing the post office (note: that's from 1995).

Keep in mind, the USPS isn't strictly a government agency.  It only gets about $3 billion of federal tax money. It operates primarily from the revenue from its services. However, at the same time, there are a significant number of advantages (note: I'm not sure how old that article is as it claims the Post Office has made profits in the preceding years, which isn't the case currently) that they have over any truly private organization. It's sorta positioned as a pseudo-governmental entity:  Lots of the benefits of government with many of the freedoms to act like business.

Yet despite the advantages, it looks like some difficult times ahead for the USPS.

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