Should Congress Repeal The Private Express Statutes?

2389 words - 10 pages

In July 2009, the Government Accountability Office (GAO) listed the budget of the United States Postal Service as “high risk” and recommended oversight from Congress and the Executive Branch. Specifically, the GAO stated that “Amid challenging economic conditions and a changing business environment, USPS is facing a deteriorating financial situation in which it does not expect to cover its expenses and financial obligations in fiscal years 2009 and 2010” (“Restructuring”, 2009, pg. 1). The GAO claimed that the mail volume in 2009 would likely decrease by about 28 billion as compared to 2008 and that the USPS would likely see declining volumes for the next five years (“Restructuring”, 2009, pg. 1). Clearly, the USPS is currently facing a dire financial situation in which major reforms are needed to ensure the long term success of the agency. In this policy review, I will focus specific attention on the Private Express Statutes, which grant the Postal Service a monopoly on first class mail. As I will argue here, the Private Express Statutes should be repealed on economic and historical grounds.
The Private Express Statutes should be repealed on economic grounds. In particular, the economic reasons given for maintaining a monopoly on first class mail rest on two principles. First, that the Postal Service must maintain a monopoly in order to fulfill the universal service obligation under which it is legally obligated, and second that the market for mail is a natural monopoly and thus the USPS must be allowed to operate as a monopoly in order to achieve economies of scale. I will examine both of these arguments in an economic light to determine their validity.
The postal service does not rely on a monopoly to provide universal service. Advocates for the mail monopoly claim that in order to provide a uniform postage rate, the postal service must be guaranteed access to the profitable urban routes so that they can afford to deliver mail to the unprofitable rural routes. If the mail monopoly were removed, then private companies would quickly gain control of the most profitable routes, leaving the postal service with universal obligations but no profits and therefore no funding with which to serve these routes. Many economists have challenged this urban to rural subsidy. In a testimony to the President’s Commission, Robert H. Cohen, an economist and the Director of Office of Rates at the USPS, demonstrated evidence that universal service does not depend on a postal monopoly. In regards to the urban to rural cross subsidy, Cohen (2003) claimed that “the proportion of unprofitable routes in the U.S. is approximately the same for urban and rural areas” (pg.2). Cohen conducted this study by examining “rural carrier routes” and created a list of these routes ordered by the number of mail boxes delivered per mile of the route (pg. 14). Since these rural routes inevitably include some urban routes as well, Cohen (2003) only looked at the bottom...

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