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Will the United States Post Office Become a Victim of #COVID19?

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Will the United States Post Office Become a Victim of #COVID19?

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By Lambert Strether of Corrente

“To establish Post Offices and post Roads” — United States Constitution, Article I, Section 8

Fortunately, we didn’t bail out the cruise industry. But we’re not bailing out the United States Post Office, either. From Fortune, “USPS warns it might have to shutter by June as $2 trillion coronavirus stimulus package provides no funding“:

Today, the Postal Service is just as essential: It delivers about 1 million lifesaving medications each year and serves as the only delivery link to Americans living in rural areas. Working with other delivery services like UPS, the agency supports $1.7 trillion in sales and 7.3 million private sector workers year, and this year will prove essential to delivering the 2020 Census to citizens as well as any vote-by-mail initiatives. The USPS is the federal government’s most favorably viewed agency, with an approval rating of 90%.

Yet once again, the USPS is in crisis mode.

With a negative net worth of $65 billion and an additional $140 billion in unfunded liabilities, the USPS originally expected to run out of liquidity by 2021 without intervention. That has accelerated rapidly because of COVID-19. Fewer people and businesses are sending mail because of the outbreak, which could hasten the decline of the Postal Service and close its doors as early as June, officials warned.

Readers will recall the neoliberal playbook: “[1] Defund [or sabotage], [2] claim crisis, [3] call for privatization… [4] profit!” (rinse, repeat as necessary. We can see this happen with the VA here, and with the NHS in the UK. Fortunately for those who believe that the maiil is a public good, we in the United States, even in the current crisis, seem hung up between stage [3], “call for privatization,” and [4], “profit!” (And by invoking Betteridge’s Law with the headline, perhaps I have done my own little bit to keep things hung up.)

In this post, I’ll look at the initial act of sabotage (“The Postal Accountability and Enhancement Act”), then at the prospects for privatization, and finally at the politics of a Post Office bailout in the midst of the corona virus crisis (which nobody wants to waste). Much of this material will be a refresher for long-time Naked Capitalism readers, since most of our posts on this to published in 2015, and newer readers may find it useful as well.

The Postal Accountability and Enhancement Act

The Postal Accountability and Enhancement Act was a villainous piece of jobbery passed passed by a lame-duck Congress during the Bush administration. NC explained how the sabotage worked:

That year, the Congress passed the Postal Accountability and Enhancement Act of 2006 (PAEA). Under the terms of PAEA, the USPS was forced to “prefund its future health care benefit payments to retirees for the next 75 years in an astonishing ten-year time span” – meaning that it had to put aside billions of dollars to pay for the health benefits of employees it hasn’t even hired yet, something that “no other government or private corporation is required to do.”The problem with the Post‘s argument starts in its thesis: that the post office is in some sort of deep fiscal hole of its own making – a result of being left behind in the Internet Age and a shrinking consumer base. The truth is that almost all of the postal service’s losses can be traced back to a single change in the law made by the Republican Congress in 2006.

As consumer advocate Ralph Nader noted in 2011, if “the prepayments required under PAEA were never enacted into law, the USPS would not have a net deficiency of nearly $20 billion, but instead be in the black by at least $1.5 billion.”

Remarkably, even one of the main sponsors of the 2006 legislation now agrees the pre-funding requirement was a bad idea. In 2014, a writer for the Roanoke Times reached out to former congressman Tom Davis, a Virginia Republican who today works for the accounting and consulting giant Deloitte. Though Davis agreed that the requirement was unwise, he said it was “the cost of getting the bill through,” noting that the Bush administration wanted to use the revenue to help balance the budget (note that the U.S. Postal Service doesn’t actually use taxpayer dollars but does have implicit subsidies such as borrowing at a lower rate).

The key point to notice in today’s discourse, however, is that an oft-repeated liberal Democrat talking point blames the Act solely on Republicans (“How George Bush broke the Post Office“). It will, therefore, not surprise you to learn that the Act, which originated in the House, had a Democrat sponsor (the powerful Henry Waxman), and passed the House — just like the bailout, and no doubt a similar reason — on a voice vote. (I can’t find the Senate vote.) A similar bill the previous year, which failed, passed the House 410-20. Step one of the neoliberal playbook was implemented in a thoroughly bipartisan fashion. To be fair, this year the House passed a measure to repeal the health care pre-funding measure, but let’s remember the history when it comes time for the sausage to be made in the negotiations between the House, the Senate, and the Administration. (Mark Meadows, Trump’s new chief-of-staff, is a Post Office privatizer.)

Continued Efforts at Post Office Privatization

The continuing Post Office privatization effort is documented in a report from Trump’s “Task Force on the United States Postal System, whose machinations are detailed at Naked Capitalism here:

There are two key documents. The first is the administration’s plan to reorganize the Federal Government: “Delivering Government Solutions in the 21st Century Reform Plan and Reorganization Recommendations” (for clarity, I’ve edited out the talking points from the neoliberal playbook; primarily the pension obligations scam). From the Recommendations:

USPS has extremely high fixed costs as a result of relatively generous employee benefits combined with a universal service obligation that is understood to require mail carriers to visit over 150 million addresses six days per week…. A new model that adequately finances USPS while meeting the needs of rural and urban communities, large mailers, and small businesses is needed… This proposal would restructure USPS by aligning revenues and expenses to restore a sustainable business model and possibly prepare it for future conversion from a Government agency into a privately-held corporation…. USPS privatization through an initial public offering (IPO) or sale to another entity would require the implementation of significant reforms prior to sale to show a possible path to profitability… To address these major issues and identify solutions, possibly including private ownership, the President has issued Executive Order 13829: Task Force on the United States Postal System. The Task Force will conduct a thorough evaluation of the operations and finances of the Postal Service and make recommendations for reform consistent with this reorganization proposal.

In short form, the Post Office is to be fattened up for sale, but is not yet fat enough. The second key document is the Task Force report, “United States Postal Service: A Sustainable Path Forward“, to which alert reader cnchal directs us. Here are two paragraphs that should give you the flavor. From page 6:

The USPS should explore new business opportunities that will allow it to extract value from its existing assets and business lines. For example, the USPS should explore licensing access to the mailbox and providing additional government services, such as licenses for hunting and fishing. The USPS could also capture additional value from its existing retail offices by

converting post offices into contract post offices or by co-locating with or renting space to complementary retail establishments. However, given the USPS’s narrow expertise and capital limitations, USPS should not pursue expanding into new sectors, such as postal banking, where the USPS does not have a demonstrated competency or comparative advantage, or where balance sheet risk would be added.

This is very amusing. The USPS should license access to the mailbox (i.e., franchises), compete with WeWork (lol), or go into the real estate business (like DiFi’s husband). But on no account should the Post Office go into banking, even though it processes enormous amounts of cash, including money orders, and has all the bricks and mortar anyone could want for gen-u-wine, old-fashioned branches! What’s the matter, can’t hire any banking executives who aren’t crooks to roll out the operation? And then on page 10:

The [Universal Service Obligation (USO)] is a public policy that defines what citizens and businesses need from a government provided postal service, representing a mission statement for a country’s postal system. The generally accepted attributes for defining the USO include specifying the geographic coverage for postal delivery, frequency of delivery, processing standards, mode of delivery, range of required postal products, level of access to post offices, and rules for affordable postal rates. In the United States, the USO is not clearly defined. For the USPS’s business model to achieve sustainability, the USO must be defined with greater specificity. The Task Force believes that the USO must distinguish between the types of mail and packages for which a United States Postal Service: A Sustainable Path Forward 5 strong social or macroeconomic rationale exists for government protection in the form of price caps and mandated delivery standards (“essential services”), versus those types of mail and packages that are commercial in nature, and therefore would not have a basis for government protection. This definition will provide the USPS and the PRC with a framework to sustainably manage pricing, costs, and products.

The USO is so simply defined: It means that the Post Office delivers to any address in the country. This is amusing, too, since undermining the USO would destroy the Post Office’s distinctive competence, both as an enterprise and politically (you can bet rural areas would lose out, which is one reason this might never fly).

I think the bottom line for the purpose of bailout sausage-making is that immediate privatization will not become a subject of negotiation in the bailouts; the animal to be sold is not fattened up enough.

The Politics of a Post Office Bailout

Now to the politics of the Post Office in the bailouts. We’ll have to do a little disentangling. Common Dreams, “With Postal Service on ‘Verge of Collapse’ and 630,000 Jobs at Risk, Trump Slammed for Refusing to Act“:

President Donald Trump has thus far rejected the Postal Service’s requests. During a press briefing earlier this week, Trump urged USPS to simply “raise the prices by, actually a lot.

Rep. Gerry Connolly (D-Va.), one of the most vocal critics of the Trump administration’s refusal to assist USPS, said in a statement Thursday that “we cannot allow the Postal Service to collapse.”

According to new reporting from the Washington Post on Saturday, Connolly’s accusation was correct. “Trump threatened to veto the $2.2 trillion Coronavirus Aid, Relief, and Economic Security, or CARES, Act if the legislation contained any money directed to bail out the postal agency, according to a senior Trump administration official and congressional official,” the Post reported.

What Common Dreams leaves out is who, exactly, would bear the “increased prices.” Matt Yglesias, “The debate over a post office bailout“, explains:

But the Trump administration also appears to be specifically hostile to the idea of a Postal Service bailout. Its distaste for a postal bailout merges ideological conservatives’ generic preference for postal privatization with the president’s specific hangup about the idea that USPS is giving Amazon a sweetheart deal on shipping.

Most coverage of this controversy just skips over raising prices on Amazon, but to his credit, Yglesias goes into it.

New York Magazine’s Josh Barro has dug into the substance of the parcel pricing controversy and finds that Trump’s contention that the Postal Service could improve its financial situation by doubling what it charges Amazon is false. The key issue is that because of USPS’ universal service obligations, it can’t drastically reduce its real estate footprint or the number of trucks it sends driving around the country. The reason it gives Amazon good rates is that the facilities it’s using would otherwise be half-empty.

That’s an odd theory of pricing. Does Yglesias seriously believe that pricing is cost-driven, as opposed to using market power to stick it to a customer whenever possible? More:

Raising prices without making any other operational changes could lead to Amazon looking elsewhere for delivery services, which would leave the post office in even more desperate financial circumstances.

Really? “Elsewhere” where? The Post Office’s Universal Service Obligation, combined with its monpoly, makes it the only entity suitable for last-mile delivery, to any address. Perhaps there’s another reason for the reluctance to touch Amazon, and in fact Barro gives one:

But if Trump succeeds, he’ll be hitting consumers in the process. According to eMarketer, about half of U.S. households have at least one member with an Amazon Prime membership, spending an average of $1,400 a year on products from the company. Adding about $1.50 to the delivery cost for each Amazon package would have a material affect on the Prime membership fee (currently $119 a year), product prices, or both.

So? Here is how Prime membership maps to income:

Will the United States Post Office Become a Victim of #COVID19? 2

One might almost suspect that Amazon is untouchable in this debate because Amazon Prime memberships correlate directly to income. And if some lower income people drop Prime and go to Walmart, or better yet, whichever local retailer Walmart and Amazon between them haven’t strangled, is that so bad, really?

In short, regardless of how Trump came to his views — and is hating Jeff Bezos so bad, really? — I don’t see a prima facie reason why sticking it to Amazon isn’t being fed into the sausage-making grinder. [1] And I doubt very much that rural Republicans will want to see the Post Office disappear from their towns; we still have Amtrak long distance travel, however degraded, for similar reasons. I could be wrong, because the crisis makes everything overly dynamic, but I think there’s space for a deal. Personally, if I were a Democrat, I’d start with a demand not only a Post Office bank, but for broadband — especially rural broadband — using Post Office real estate and billing where possible, and negotiate downward from there.

Conclusion

I want to highlight this wonderful thread on the Post Office from someone who delivers your mail:

It was nice, when I moved to Maine, to have as my carrier the man who also delivered books and manuscripts to my mother; and who went to the same church. Many millions have had a similar experience. Could be worth calling your Congress critter about, just to make sure their head is on straight.

NOTES

[1] There is also a view that Trump wants to destroy the prospect of Vote By Mail for November by destroying the Post Office. I think this assumes that Trump is pointlessly devious. To control the outcome of vote by mail, all you have do is control the tabulation. So far as I know — I could be wrong — none of the vote-by-mail proposals on offer prevent privatizing the count. Much simpler to buy a vendor or a programmer than to take the heat for destroying the Post Office.

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