Discover more from Monday Morning Economist
USPS is not a public good
I love the US Postal Service and nearly 90% of Americans think favorably of the agency. Of all the agencies out there, it has the most bipartisan support. It continues to play a vital role in the American economy despite not regularly receiving any taxpayer funds. There is a lot of Congressional oversight, and that has been part of the blame for why the postal agency loses so much money. USPS lost $6.9 billion last year. This could change if the Senate passes the Postal Service Reform Act of 2022. Until then, USPS still isn’t (and it likely won’t ever become) a public good.
Economists are very particular with their definitions. I think that’s actually a really good thing, but to a lot of people, it can be really annoying. One of the stickier definitions I talk about in class is how economists classify who is unemployed. The socially acceptable definition is generally a lot broader than the BLS’s definition. This confuses and frustrates people when economists are asked to explain things because our definitions don’t line up with how the general public defines things.
And that’s our issue here. The US Postal Service is not a public good, based on the economic definition. The agency does a lot of good work for the public, but that doesn’t make it a public good. Even if it were publicly funded, that wouldn’t make it a public good either! Public goods have a very particular definition that distinguishes them from other things we might consume.
The two main criteria that distinguish a public good are that it must be nonrivalrous and nonexcludable. Being nonrivalrous implies that the good or service doesn’t decrease in supply as more people consume it. This can also be thought of along the lines of costing a company more to provide additional consumption. If an item is nonexcludable, that means it is available to all citizens of society regardless of whether they pay for the item.
We could build a matrix on these two criteria and classify a lot of different products and services based on these two characteristics:
The non-excludability condition is the easiest criterion to remove because the postal service denies access to their service if you don’t pay for it. In order to send letters and packages, you must pay postage for that item. If you come up short on the postage due, the post office will either let you know at the desk or withhold the letter/package until someone pays. In our matrix above, this moves the postal service up to the first row making either a private good or a club good.
The rivalrous nature of a product is the harder of the two conditions to think about. One way to think about whether a good or service is rival is whether it’s costly for the provider to produce another item for another customer. An example of a nonrival service would be the statistics posted at the bottom of this newsletter (or this newsletter itself!). Any additional person “consuming” the information doesn’t increase the cost for the source of that data (or for me!). For USPS, however, delivering additional packages and letters is costly.
While the initial sorting and acceptance of mail delivery are fairly inexpensive and likely close to a zero cost for the postal service, that isn’t true for the entire process. The cost of mail delivery in the US is so high because of the “last mile” delivery problem. This is the most expensive and time-consuming portion because it requires an individual mail carrier to get to a person’s house and physically deliver the item. It’s actually this service that makes USPS so valuable to so many Americans because the agency doesn’t pass on these added costs to the consumer. The Postal Service bears that added cost. That’s also why the two major private companies, FedEx and UPS, often rely on USPS to deliver some packages.
Now that we’ve better aligned the US Postal Service along those two conditions, it turns out that USPS is… a private good. The US Postal Service, from an economic classification standpoint, is really not much different than your local pizza delivery company. If you don’t pay for the postage or the pizza, it doesn’t get delivered. Pizza Hut and Domino’s may be responsible for feeding us dinner in the evenings, but USPS has fed the nation information for centuries.
The US Postal Service has kept Americans informed with subsidized newspapers and magazines since its founding in the late 1700s. The rise of U.S. innovation in the 1800s has been credited by economists to regional post offices. Some historians go as far as to say that the United States was built on the US Postal Service.
While a lot of news can now be delivered digitally and banking services completed with a cell phone, the post office still serves important functions for many people in the US without access to a computer or banking services. If the Postal Reform Act passes the Senate, it may finally provide some flexibility for the agency to improve efficiency and even increase service to many Americans. Maybe one day, it can finally start fully offering postal banking!
USPS employed 245,769 postal employees in 1926 and 495,941 postal employees in 2020 [USPS]
46% of the world's mail volume is processed & delivered by the U.S. Postal Service [USPS]
As of 2020, there are an estimated 140,837 blue mailboxes operated by USPS [Brookings Institution]
An estimated 7.1 million US households (about 5.4% of the total) did not have at least one family member with a checking or savings account at a bank or credit union [Federal Deposit Insurance Corporation]
Approximately 19 million Americans (6% of the population) lack access to fixed broadband service at threshold speeds. Even in areas where broadband is available, approximately 100 million Americans still do not subscribe [Federal Communications Commission]