How to lose $5B
economist.com
economist.com
Clearly, the unsubsidized-but-government-controlled model doesn't make a whole lot of sense, either from the "it is a public benefit and should be a public service" perspective or the "it is not a public benefit and should be provided in the private market" perspective.
The website is excellent as well, you can link your online package tracking account with your physical mailbox so that incoming packages addressed to you will often appear in the dashboard without any input from you.
Funny also how quickly perception of USPS changed. Prior to that many considered them a model of an anti-red tape beaurucratic government entity.
http://www.cnbc.com/2015/11/13/postal-service-tallies-51b-lo...
USPS made $1.2 billion in operating profit in the last fiscal year. The USPS has been an independent, revenue-neutral agency since 1971.
[The USPS's] unfunded liability grew 76% between 2007 and 2015, to $125.2 billion. The Tax Foundation, a think-tank, doubts it can ever repay this money. The service has done much to improve its financial state—hours have been cut at rural branches and it has reduced work hours by 420m since 2002, saving some $17 billion annually. It has shrunk its staff by nearly 300,000, but it still has staggering labour costs. About 80% of its budget goes to its workers. Under a law of 2006, the service has to pre-fund 75 years’ worth of health benefits for retired workers, something no other company, much less a government agency, is required to do.
Privatization isn't looking too bad. I'm all for strong employee benefits and organized labor, but 75 years' pre-funded benefits for retired workers seems excessive. We might end up losing a few of the more rural branches, but the employee/employer negotiations and business model would be much more sane under a private for-profit structure.
The whole purpose of that unique mandate is to make privatization look better by making the state of the USPS look bad.
I'm all for strong employee benefits and organized labor,
but 75 years' pre-funded benefits for retired workers
seems excessive
Why wasn't this mentioned in the article if it's such a well-known scheme?
So you're both saying that Congress is being paid (by who? UPS/Fedex?)
The bill might also be a result of regulatory capture, which is what I was suggesting and seems fairly plausible to me.
And I still have yet to see any actual citations rather than speculation.
One stipulation of the PAEA has caused controversy.
It stipulates that the USPS is to make payments of
$5.4 - $5.8 billion into the Postal Service Retiree
Health Benefits Fund, each year, from 2007 to 2016 in
order to prefund 50 years of estimated costs.
How many retirees do you know that live fifty years in retirement? If the Post office were liquidated, the retirees would be dead two decades before the mandated fund would run out.
Republicans hate public services as a matter of ideology. They don't need to be paid to do this, they do it for fun.
I don't see anyone saying that Congress is being paid to do that. Congress has lots of members who favor privatization of government services in general and the post office in particular, but outright privatization seemed like it would have a political cost that they weren't willing to bear. So they put in that measure, with the intent of building political support for privatization over time.
Whether the preference for privatization is honest ideology, corruption, or something else is its own issue.
> Why wasn't this mentioned in the article if it's such a well-known scheme?
The article mentions the mandate as one of the central problems facing the USPS, and the fact that it is a requirement that neither private businesses nor other public institutions face.
> The article mentions the mandate as one of the central problems facing the USPS, and the fact that it is a requirement that neither private businesses nor other public institutions face.
Right, the point of my original comment was to highlight this seemingly absurd policy. The Economist provides no further explanation. People in this thread are quick to color in whatever details they like. I'm no expert on the USPS so perhaps the Economist has an agenda to push by not including the relevant information.
I was 13 in 2006, so if this really was the result of Bush and his friends in Congress, they did a fantastic job of playing the long game. But I'll wait to form an opinion until I see credible citations.
EDIT:
> I was 13 in 2006, so if this really was the result of Bush and his friends in Congress, they did a fantastic job of playing the long game. But I'll wait to form an opinion until I see credible citations.
Also, IMO your age at a particular time a decision was made is irrelevant. The facts on what happened are readily available. Just because I was 9 when the first Gulf War happened, doesn't mean I can't have formed an understanding of it from (contemporary) sources and later reports, articles, and books. It's almost a reverse ad hominem, an attempt to excuse yourself from a discussion or drawing a conclusion because you weren't present or cognizant at the time. You're capable of conducting research yourself, you're an intelligent, human being. And others have provided citations and discussion throughout this thread on the topic.
Lobbyists who want it privatized so it can be milked. Just like social security or a myriad of other things.
>Do you have any citations?
http://angrybearblog.com/2015/03/epic-fail-for-the-postal-se...
>Why wasn't this mentioned in the article if it's such a well-known scheme?
Because the Economist is a neoliberal rag. They're about as likely to say "maybe free market orthodoxy isn't all its cracked up to be" as they are to start running op eds by dreadlocked union leaders.
The prefunding requirement was added to give the impression of financial problems so as to manufacture consent for privatization among the public.
A quick look around this thread demonstrates that it's mostly been a successful ploy ("Privatization isn't looking too bad.").
I've no doubt that any privatization that does occur will dump these existing pension liabilities on the federal government, raise prices and strip employee benefits to the bone while jacking up executive compensation.
Textbook private equity stuff.
Whomever buys the USPS will get a cheap monopoly which they can milk indefinitely. This will be declared a success for the free market or something.
Any other arrangement is forcing the employee to become an investor, in which case the usual protections should attach.
No company should be able to play the game of "oh, man, we totally thought we'd be making bank 40 years on, bummer we can't pay the rest of our worker's employment compensation, tough s---." And then you have situations like GM, Bethlehem Steel, etc.
Why is anyone cool with "don't worry, we'll be profitable later" when it comes to worker's wages? Why do people like gambling with workers' promised benefits?
>>Any other arrangement is forcing the employee to become an investor, in which case the usual protections should attach.
The return is speculative? Then you're an investor. The return is part of your promised compensation package? It shouldn't be (modulo the ability to predict reasonable RoRs, etc.)
Largely the justification for owners of equity get rewarded for taking a risk, and the employees get wages less than the full value of their output because they take no risk. If they are taking no risk, then any pension plan should also be risk free, not a hidden tie-in to the risk used to justify their pay.
This position is not unreasonable. OTOH, it is unreasonable to require the USPS to prefund benefits that neither private businesses nor government agencies are required to prefund, specifically to make its finances look bad when compared with other entities.
I disagree that it is a sane policy (much less that it is the sane policy) except when applied consistently. There is a not-unreasonable argument that it might be a sane policy, applied consistently.
Nonetheless, neoliberal dogma says that the market does a better job of investing than the government will.
Coincidentally privatized pension contributions provide ample opportunity for profiteering.
It's more that we let this happen to us through inaction rather than we asked for it, though.
There is no definition of public sector that makes bankruptcy impossible.
Pre-funding is about honesty of the obligations. If you say you're going to pay the workers $X at time t, apportion the money now. Put your full faith and credit behind it now. Make it so you can only renege by reneging on bonds in general.
It's mind-boggling how ostensibly pro-worker advocates are okay with the mentality of, "don't worry, we'll find your pension money later, if Congress appropriates enough down the road".
The US treasury can't and won't ever run out of dollars. Whenever there is a bank that needs bailing out or a war suddenly the government remembers this. It's only when funding pension obligations or healthcare it suddenly 'forgets' and assumes that taxes pay for things.
There is still an inflation risk but bankruptcy does indeed become impossible.
>Pre-funding is about honesty of the obligations. If you say you're going to pay the workers $X at time t, apportion the money now. Put your full faith and credit behind it now. Make it so you can only renege by reneging on bonds in general.
There has to be wiggle room somewhere if it's a private sector obligation. Pension are invested and future payouts are based upon certain assumptions about those investments holding. A lot of perfectly reasonable assumptions pre-2008 suddenly went out of the window afterwards.
So it is not entirely about honesty of the obligations.
>It's mind-boggling how ostensibly pro-worker advocates are okay with the mentality of, "don't worry, we'll find your pension money later, if Congress appropriates enough down the road".
I've never heard any ostensibly pro worker advocate say this.
Again, the point is that dynamic is unrelated to the definition of the public sector. I understand the on-the-ground reality; I was objecting to your characterizing of it as "by definition".
>There has to be wiggle room somewhere if it's a private sector obligation. Pension are invested and future payouts are based upon certain assumptions about those investments holding. A lot of perfectly reasonable assumptions pre-2008 suddenly went out of the window afterwards.
Right, but there's a big difference between "our reasonable RoR estimates were a little off and we unexpectedly needed to add a little more this year" vs "we never funded it to begin with and expected to earn the income to fund this later".
Funding it now makes the promise honest; "we'll find the money later" isn't, and it's wrong for GM or the USPS to do this. For the US government, the promises need to go right into the federal debt, which the 75-year prefund obligation would accomplish.
>I've never heard any ostensibly pro worker advocate say this.
You did, when you advocated the USPS handle its pensions that way, not having to prefund them (modulo time/RoR discount).
In many rural "towns" the post office is basically the only public building or store, everything else is miles away. Rural post offices serve an important public function even if they are not profitable.
Would you prefer to purchase a $60 product with $15 of shipping, or purchase a $75 product with free shipping? Obviously it's the same, but psychologically, most people gravitate towards the latter because it "feels" like it's less. Paying shipping fees, for most people, often feels like a rip-off, so the lure of "Free shipping" is very powerful.
In addition, it's common for some of a retailer's products to lose them money (due to having to subsidize and/or pay for shipping out of the total invoice price), while they make very healthy profits from other products (meaning it averages out to a net profit in the end).
USPS' losses are purely due to being very inefficient. My company ships UPS, FedEX, and USPS. USPS loses the most number of packages on any given week, many of which they have to pay a partial re-reimbursement for (the retailer's cost).
Probably not. If the products are from over-seas, it's likely a great many are being shipped at the same time (a pallet of various products, etc... which cuts down dramatically on shipping fees), then broken out into individual packages once arriving at port.
The cheapest way USPS will ship a regular package is "USPS First Class Flats", which offers no tracking information and is restricted to light-weight and mostly small/flat packaging. It's $0.98 usually (anywhere in the US).
So, if you purchase a $2.00 item with includes "Free shipping", it's safe to assume about $1.00 of the price is for packaging materials and shipping fees. Perhaps another $0.50 is product cost, leaving less than $0.50 in profit after labor is paid for. Seems like very little, but if you ship a large volume every day...
They are not shipped together and broken out at port, they get separate tracking numbers in a separate package. There is no fulfillment middleman on the US side.
Looking at USPS's domestic rate table to understand how most aliexpress shippers get their products to the US isn't likely to be that enlightening. Read up on epacket, which is one program between Hong Kong post and USPS that is used pretty frequently.
Regardless, epacket appears to be a subsidy-like system setup by USPS (yet another reason they are losing money), and masks the true shipping cost.
I understand why you would speculate these things are true, but all the evidence seems to indicate that none of those speculations are correct.
And yes, USPS may be losing money on those packages, but that doesn't really matter to the shipper and certainly doesn't show up in the product pricing.
The US postal service gets no money at all to deliver a package from China, and the Chinese government has free postage to the US for certain small packages.
No, in this case the shipping is not part of the price. When you want to send a post card to someone anywhere in the world you pay USPS for the stamp, but the post service on the other side doesn't get a share - it's delivered for free. If they mail you back they buy a stamp, the proceeds go to their USPS equivalent, but USPS doesn't get a cut. It makes sense as long as the amount of mail sent abroad is similar to what's received from other countries, which probably was the case when postal services were used for actual letters. Shipping goods as "letters" skews the system, because Chinese vendors get to send whatever they want for nothing (subsidized by their govt) and national postal services in destination countries have no other choice than to deliver it for no compensation.
https://www.uspsoig.gov/blog/be-careful-what-you-assume
http://www.bloombergview.com/articles/2012-08-02/understandi...
Non profits can send mail for as little as 10.2¢/piece. http://savepostage.com/bulkmail101/rates.html
Actually, I believe junk mail is a big money maker for USPS.
> "What we want to do is to make standard mail more interesting for customers so we can grow the total volume," Postmaster General Patrick Donahoe said in an interview. "We don't call it junk mail—it's a lucrative avenue for anyone who wants to reach customers."
http://www.wsj.com/articles/SB100014240529702046125045766067...
The solution would be for the USPS to deprecate junk mail, properly price first class, priority, express classes, and start offering banking services to the unbanked.
However, even for Commercial it's tricky to work out the actual costs as they are overhead heavy and they can't charge different prices per region. So, on it's own it's a money loser.
So encouraging Non profits and others to mail more with lower rates just brings in more business, it's not a loss for them.
It totally makes sense for a shrinking business that likely will never grow into new markets. If the USPS cannot afford the pensions they are promising now, how can it ever hope to afford it later.
Unfunded pensions have been a huge disaster at the local level. It's leading Chicago and Illinois into bankruptcy. It's easy for government to promise great retirement benefits if they don't actually have to pay to provide them.
All government should have to fund any accrued benefit for employees.
And for businesses, any sort of accrued benefit goes on their books as a liability. While they don't have to pre-fund it, if they company doesn't, it could make the company insolvent if the amount goes too high.
They don't have to pre-fund for future workers. They only pre-fund over the time it takes for the worker to get a pension. But they have to fund the whole cost of the pension.
So if you are starting as a postman tomorrow, they don't have to save anything. But if it takes 20 years to get a full pension, each year they have to save 1/20th of the total cost of your pension (estimate for the next 75 years).
All government should operate on an accrual basis. I wouldn't demand they hold the funds, but it should count as part of the national debt.
Its a pipedream. There's nowhere you could demand they hold the funds except US Treasuries, which is then you just turning around and giving Congress more money to spend irresponsibly at low interest rates.
I don't believe that's the case. From http://www.gao.gov/assets/660/650511.pdf :
The liability for current employees is a portion of the ultimate liability for their future retiree benefits; the liability accrues steadily over their working years, from zero at date of entry into FEHBP to the full liability at retirement. Contrary to some claims, there is no liability held, nor contributions made, for any future employees who have yet to be hired or yet to be born.
That is, their liability (and the amount they need to be prefunded for) starts at 0 when they're hired and gradually increases.
Congress literally decided to tell USPS owed $125B one day [1], knowing full-and-well that it would take USPS like 60 years to pay that much money. Figuring that the population will grow tired of USPS running a billion dollar (artificial) deficit for decades.