We just learned that the post office is losing another $5 billion this year. This is on top of a $10 billion loss and a long history of destroying resources. Among the many problems with the post office (aside from bureaucracy serially allergic to entrepreneurship and serving customers) is that it has way over-capitalized itself and has a heavy labor cost structure. It’s not that postal workers are paid too much, it’s that legacy costs of retirees are enormous and that staffing levels are likely to be out of line with what would be required to run the business efficiently.
This is not a post on the post office. It should be eliminated, and we can discuss that at some other time (and the reasons people still defend it on public goods grounds). Rather, imagine the scenario that might unfold when it is disbanded or even “worse” – it is privatized. The essence of the post-office’s losses today is that the 46 cent stamp does not capture the full cost of mailing a letter. Indeed, we feel some of that cost via lower quality at the post office, and we feel the rest of it quietly through our taxes. So, perhaps the real cost per letter sent is 70 cents.
What happens when the agency goes private, gets its act together and starts selling stamps to reflect the true costs? Maybe the new private stamp costs 54 cents. Note that this cost allows the private agency to be run (economically) profitably, requiring no subsidy or bailout. Note too that this cost captures the value of the better service that a private company is likely to provide. And note that when privately run, there is an incredible incentive for the private agency to bring this stamp price down. And if the record of FedEx, UPS or really any private food, clothing, etc. company is indicative, in the long run one would expect dramatic decreases in the costs of delivering mail as well as dramatic improvements in the quality.
Yet opponents of privatization, those who worship at the altar of the government, will go absolutely bananas at how “unfair” and how greedy the new private agency is for charging 54 cents for the new stamps. “You see!” they’ll all say – private businesses are more costly to operate than government businesses. “You see!” they’ll all say – private businesses face no discipline and can raise prices to whatever they wish, forcing the rest of us to eat cake. “You see!” they’ll all say – look at how this makes the lives of the poor worse off.
Prepare for these sorts of observations and arguments when we try to get water priced properly around the world. Much water is terribly underpriced, which imposes incredible costs to all of us. Prepare for these sorts of observations as some public schools make transitions to more market oriented schools (especially in higher ed). Prepare for these sorts of observations when and if people are asked to pay for trash, fire, police and other services. Prepare for these sorts of arguments when rent control laws are removed in cities. Prepare for these sorts of arguments when anti-price gouging laws are removed. And so on.
If I wanted to bore you, I’d draw you a picture with a “proof” of my above points – we learn it in every Intro Econ class, or at least most students do. We need a name for this sort of a thing, can anyone come up with one?
For the sake of intellectual consistency, I’ll demonstrate an analogous version of this phenomenon committed by the right (at times) in a post over the weekend.