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Thursday, September 30, 2010

Postal Service Denied Rate Hike

A gradual decrease in mail volume has resulted in the U.S. Postal Service not being able to fully cover costs. As a result the USPS requested an increase in first class mail stamps by 2 cents; this request was recently denied by the Postal Regulatory Committee.

This article highlights the economic woes of both the USPS and American small businesses. The resulting decision was made in favor of small businesses, in part because of the assumption that the USPS shortcomings are a result of long-term structural problems, not the recent recession. Additionally, another scrutiny of the USPS is “related to an overly ambitious requirement for the Postal Service to pre-fund its future retiree health benefit premiums.”

This is a key decision that has consequently put more strain on the government funded USPS, by not raising marginal postal costs for small businesses by 5.6%. This decision really highlights the need for the USPS to reduce costs, something it did in 2009, by cutting budgets by $6 billion.

But this really raises the question of what restructuring needs to be done in order for the USPS to operate efficiently. The USPS’s financial position is a microcosm of inefficient government spending, and significant reorganization is essential in order for it to run efficiently again. While this may involve cutting many postal jobs, it appears that this may be the only option. This would certainly affect jobless rates in the short-run, and hurt the economy, but something must be done in order to address the short-comings of this government agency.

The question is whether regulatory officials are willing to make these necessary moves? It appears as if this denial in postal rate hiking is a clear sign that government officials are indeed taking the first step.

I believe that this decision is a necessary step in confronting the budget problem with the USPS. Privatized parcel services are not running into the same issues as the USPS and this is a clear sign that changes need to be made, even if it means the loss of substantial jobs and benefits.

I feel that the small business sector’s ability to thrive would be severely compromised if postal rates continued to be hiked, and I am glad that the Postal Regulatory Committee finally put its foot down. In the interest of our economy, small businesses do not need any more unnecessary expenses, and if the current structure of our postal service cannot accommodate this without raising prices then they cannot serve the public in an efficient capacity. With increased use of electronic delivery of documents, this problem is only going to get worse, and it is in the general public’s best interest to that this be addressed and fixed.

Given the nature our our class, I suggest a question is obvious: Is there a market failure justification for government provision of mail delivery services?
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