Why we're stuck with ever-rising stamp prices

June 01, 2006|By SAM RYAN

"The postman always rings twice" took on new meaning last month.

Just 17 weeks after the U.S. Postal Service raised stamp prices from 37 cents to 39 cents, it filed for a second increase - which would push the price of a first-class stamp to 42 cents sometime next year.

But this time, the Postal Service has a plan to ease our pain. It's going to introduce a "forever stamp." The details have yet to be worked out, but here's the general idea:

You go to the Post Office and buy a few rolls of stamps at 42 cents each. The next year, when prices increase to 46 cents or $5 or whatever, the forever stamps you bought the year before are still good for one first-class ticket to Aunt Minnie's mailbox.

Eliminating those annoying 2-cent and 3-cent add-on stamps is one of the best ideas since 2001, when Postmaster General William J. Henderson suggested privatizing the entire USPS and giving stock ownership to the employees.

Unfortunately, the Postal Service also has announced that it expects to start raising prices every year as of 2009. With the forever stamp, those regular rate jumps will be slightly less annoying. But the prospect of annual increases raises a dark question.

Why must stamp prices - unlike, say, telephone prices - keep going up?

This is, after all, a government agency with a locked-in monopoly on first-class and standard letter delivery. By law, no one else can deliver a letter for less than $3, or twice what USPS charges. Nor can anyone else use your mailbox.

Further, the Postal Service is exempt from taxes. It's immune from anti-trust and truth-in-advertising laws. It has a direct line of credit with the U.S. Treasury. It can issue legally binding regulations against its competitors. It doesn't even pay parking tickets. And it has received $27 billion in taxpayer-funded appropriations since 1970.

At the same time, postal operations also have become increasingly automated. Modern reader/sorters can process over 30,000 pieces of mail an hour, which theoretically should make it cheaper to mail a letter.

One could argue that stamp prices really ought to be decreasing, not rising. A 2004 study by leading experts of the Postal Rate Commission says as much: "The doubling of overall volume coupled with scale economies should have resulted in the average price of the stamp dropping in real terms."

The Postal Service says the reason behind this new rate request is rising gas prices. On the surface, that seems reasonable. The price of gasoline has a major effect on the Postal Service's bottom line. But this excuse completely ignores the elephant in the room - the Postal Service's massive labor costs.

"The bottom line is that the Postal Service, with a reduction in first-class mail volume, is facing an inability to control costs," says Rep. Jeff Flake, an Arizona Republican who recently proposed an amendment to expand postal outsourcing.

Postmaster General John E. Potter implied as much when he noted that despite a reduction in employees, "our annual health benefits costs have grown some $2 billion - or 36 percent - since 2002." Today, about 80 percent of Postal Service costs go toward labor, compared with about 50 percent at private delivery companies.

There are strategies the USPS could use to bring labor costs down. Removing the no-layoff provisions that protect about 89 percent of career employees would be a start.

Another option would be to peg wage increases to inflation. That eventually would bring USPS wages back into alignment with legal requirements that postal wages be comparable to those in the private sector. Currently, there's a substantial wage premium. New hires receive, on average, a 28 percent increase from their previous jobs.

To be sure, Mr. Potter deserves credit for efforts to bring costs under control. He has shrunk the work force through voluntary retirements. He's also overseeing a redesign of the postal distribution network, which will save money by consolidating some processing centers into fewer, larger facilities.

But this modest streamlining effort won't be enough to stop stamp prices from substantially outstripping inflation in the coming years. Until the Postal Service can bring its labor costs under control, we can expect rates to keep going up. And if prices get too high, customers will stop using the Postal Service.

That would be a disaster. What would we do with our forever stamps if the Postal Service went out of business?

Sam Ryan is a senior fellow at the Lexington Institute. His e-mail is ryan@lexingtoninstitute.org.

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