Hidden cost of Postal Service’s stamp price cut

We usually do not complain when a commonly used consumer item gets cheaper, but first-class postage presents a bit of a special case. The sudden 2-cent drop in price, from 49 cents to 47 cents, on April 10 makes a mockery of the "Forever" label on the stamps many people bought at the higher price, thinking their indefinite validity would hedge against future price hikes.

Little did they know!

More important for the stability of the already distressed U.S. Postal Service, the price cut represents a financial blow, estimated at $2 billion per year. Stamps went up to 49 cents in January 2014, pursuant to a Postal Regulatory Commission (PRC) ruling intended to help the Postal Service recover from the Great Recession.

However, the increase was considered "exigent" and thus temporary — large-scale postal customers had lobbied heavily against it — and it could be made permanent only by an act of Congress. A bill to do that, as well as relieve some of the USPS's structural health-care cost burden and change its pricing system, is pending in a Senate committee.

On a deeper level, this setback to the Postal Service is a vivid reminder of the institutional dysfunction that led to its predicament. The USPS, we are often told, is supposed to run like a business. How many businesses have to go through a federal commission, or Congress, for permission to set prices on their bread-and-butter product, which is what first-class mail is for the Postal Service?

Tied down like Gulliver by regulators and congressional barons, relentlessly lobbied by everyone from the greeting card industry to rural newspapers, contractually hamstrung by powerful labor unions, the Postal Service's management lacks the autonomy necessary to run the system efficiently.

It is a classic case of responsibility without authority.

Unable to do much of anything else, the USPS has asked the regulatory commission to clarify how broad its upcoming mandatory review of the pricing system will be. The obvious implication is that the USPS needs a complete overhaul if it is to survive.

As Postmaster General Megan J. Brennan said in February, the current system "is unworkable and should be replaced with a system that provides greater pricing flexibility and better reflects the economic challenges facing the Postal Service."

This story was originally published April 17, 2016 at 12:25 PM with the headline "Hidden cost of Postal Service’s stamp price cut."