There’s a brouhaha over a special U.S. Postal Service program to serve remote settlements in Alaska. Costing some $76 million, paid for by everyone buying postage, the program doesn’t affect the national economy. But it highlights issues we face as we want more services and social programs while not paying more in taxes and fees.
The program’s details are complex, but the basics are straightforward. The U.S. Postal Service has a mandate to provide mail service to all communities in the nation, including small remote towns, whether in Alaska or rural Minnesota.
Delivering small volumes of mail to thinly populated areas always has been expensive. It is particularly so when it has to be flown in by airplane, especially by Alaska bush planes.
The “bypass” program in question began 42 years ago. Items that could be mailed normally can instead be turned over directly to airlines by the sender. These airlines fly the shipments to destinations where they are picked up by the addressee. This is very similar to private air freight, but it is legally mail, and the Postal Service, not the “mailer” nor the “addressee,” pays the airline. The mailer pays a rate somewhat less than regular parcel-post rates. USPS pays the air carrier an amount determined by the U.S. Department of Transportation.
All other parcel-post packages are limited to 70 pounds, but under the bypass program, pallets of 1,000 pounds are common. And as critics of the program point out, the pallets often contain potato chips, soda pop and toilet paper. Moreover, on small shipments to particularly remote areas, the unit costs are staggering, such as $21 for a 12-pack of pop to a town served only by bush plane.
The net cost to USPS — the amount paid to air carriers minus the postage paid to them by the “mailers” — is running near $77 million per year, up from some $60 million five years ago. That must be made up by other USPS revenues, increasing the cost of service elsewhere, or it adds to the service’s deficit.
The number of people benefited is a few tens of thousands, as most Alaskans live in cities with road connections. So the per-person subsidy is large. And it provides a great deal of revenue for airlines that have USPS contracts.
This seems an egregious abuse of taxpayers and other postal customers. The Postal Service’s inspector general prepared a report critical of the program.
Rep. Darrell Issa, R-Calif., head of the House Committee on Oversight and Government Reform, has the bit in his teeth; other members of Congress from both parties are voicing criticism.
My first reaction was skepticism. Here is a state full of people who avow rugged individualism but who are nursing hungrily at the public udder.
But on second thought, things are not so cut and dried.
Because I grew up on a farm, I spent a chunk of my life nursing at the same source. So have many readers.
The postage my mother paid for orders from Sears or Wards did not pay the full cost of the service provided.
The stamps sold by the postmasters in towns like Chandler, Iona or Lake Wilson fell far short of paying salaries and operating expenses for these offices.
The postal service since has consolidated small town offices, contracted out many and reduced hours.
But the costs still exceed revenue generated.
The per-person subsidy is much less than that of Alaska’s “bypass,” but if you took the full cost of providing mail service in every small town in Minnesota, the aggregate sum would be large.
So rural Alaskans are not the only beneficiaries of cross-subsidies from postal customers in more densely populated areas.
Then there are some core concepts from economics, including the importance of “opportunity cost” and changes “at the margin.” How would total costs and total revenues change if the “bypass” program were curtailed or abolished?
Remember that USPS still must deliver items meeting normal parcel-post size and weight standards.
Wholesalers shipping goods to general stores in remote towns still could use the mail as long as they packaged things in 70-pound packages instead of on 1,000-pound airline pallets.
The cost of packing would go up as many more 70-pound containers would be needed to replace pallets.
This cost increase would hit small-town consumers. They certainly would be worse off. But the Postal Service still would have to pay airlines to carry mail in amounts greater than the postage paid on that mail.
Yes, the higher costs of packaging to regular standards would make it more economical for wholesalers to simply send some things by air freight with no subsidy.
Purchases of some low-value but high-weight items in rural areas would drop. But tens of millions of pounds that now bypass USPS facilities would instead pass through them.
Exactly what that new load on USPS would be is uncertain, but the Service estimates 1.7 million pounds a week, requiring major spending to augment existing capacity.
Airlines serving Alaska would still get large payments for hauling mail. Postal customers in the Lower 48 would still cross-subsidize rural Alaskans.
Free-market champions argue that subsidizing a service to any given geographic area introduces economic inefficiencies. It gives people an incentive to live in places where they wouldn’t if not for the subsidy. They are correct. But we have two centuries’ precedent of high-population-density areas subsidizing postal service for low-density areas. We are not about to alter that now.
So after much pious rhetoric about slashing government waste, we may see some minor changes, like boosting the postage rates on bypass mail to match those paid everywhere else. And if airlines had to bid for the job rather than charging USDOT-determined rates, costs would fall somewhat.
This same pattern of much to-do about some flagrantly wasteful government program only bringing about minor changes repeats itself again and again. This is because issues are more complex than political newcomers realize. It is also because states and congressional districts most prone to elect Tea Party candidates tend to be large net recipients of federal largesse.