The USPS – A Perfect Example of Bureaucracy

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There can be economy only where there is efficiency. ~ Benjamin Disraeli  (1804-1881) British politician and author

Update: August 5, 2011: The USPS lost $3.5 Billion in three months and faces default.

Daily Finance reports that all those nice union perks need to be looked at along with fundamental changes in legislation – “Given current trends, we will not be able to pay all 2011 obligations,” said USPS chief financial officer Joseph Corbett in a statement. “Despite ongoing aggressive cost reductions totaling over $10 billion in the last three years, it is clear that a liquidity problem is looming and must be addressed through fundamental changes requiring legislation and changes to contracts.”

 

Original Story July 27, 2011-

Last year, the post office lost 8.5 billion. In the last quarter, it lost 3.5 billion. Why is it a financial disaster?

One of the biggest problems facing the post office is that every policy decision must be approved by Congress which makes it difficult for them to work efficiently like the UPS or FedEx. John McCain recently called USPS a “model of inefficiency,” but one of the reasons it is inefficient is because it is run by Congress.

In 2007 Congress passed the Postal Accountability and Enhancement Act. The law required the USPS prefund it’s retiree health care benefits for the next 50 years.The USPS was forced to pay between $5.4 billion and $5.6 billion per year into its retiree health benefits trust fund. No private company is required to do this – it’s a pay as you go system. The number was later cut but the expenditure had been set aside, burying the post office in more financial difficulty.

The USPS is required by law to deliver mail 6 days a week in nearly every town in the United States, regardless of need. It’s an absurd requirement and it’s unworkable.

In addition, email and online banking have taken the place of what was once the sole domain of the post office. Between 2006 and 2009, post office mailings dropped 17%. Then there is the poor economy.

The post office will be closing on Saturdays as part of a plan to stop the bleeding and they are hoping to resist major layoffs until normal attrition and retirement can reduce the work force.

The post office has lost $20 billion in the last four years. Either the government has to become more efficient at running the post office or it has to be privatized.

The problem with a bureaucracy such as the post office is that it is despotic and does not conform to market changes. The bureaucratic company does not have free choice. They are not working for monetary gain. Normal accounting procedures cannot be used to make them profitable.

The money that comes in to the post office and the money they spend are unrelated. So when they become unprofitable in a bad economy, they cannot streamline – they have to wait for Congress to make a decision. We all know what that can be like.

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