The United States Postal Servi Essay

This essay has a total of 2351 words and 8 pages.

The United States Postal Servi


In the United States economy most markets can be classified into four different markets
structures. But, each and every market in the United States is completely unique from the
others. Generally the best type of market structure for the general public is perfect
competition because it creates the lowest possible price for the public. There are some
exceptions were perfect competition isn't the best choice for the public on account of
various reasons. The United States Postal Service is one of them and since the Postal
Service is a monopoly, it is its own market. This paper will discuss the budget dilemmas
that the postal service has faced for the past twenty years and if it is in the best
interest of the economy for the United States Postal Service to continue as a monopoly.

The first time there was talk of privatizing the Postal Service was in 1979 when the
Postal Service was losing vast amounts of money in the long run. But since the Postal
Service is a necessity for America, the government had to subsidize the service in order
for it to continue in operation. In 1979 the United States Postal Service had a cash flow
of $22.5 Billion and was additionally receiving $176 million from investing. Even with
this added revenue the Postal Service was still greatly under funded on its own. During
this time it was discussed to privatize the postal service and introduce competition
because of the extreme losses that the service was experiencing. A positive argument for
privatizing the Postal Service was with numerous competitors in the market there would be
more efficiency and the public would receive lower prices. But this would also increase
the usage of resources, for example airplanes and cars. One of the problems the Post
Office had was its receipts from consumer purchases that were submitted the next day after
the transaction. If the receipts were submitted earlier the postal service would receive
more money because they could invest that money sooner. Another way the Postal Service
could increased profits was by competitively selecting banks that would give them higher
interest rates and such. Probably the most relevant and final way to improve the budget of
the Postal Service is to improve the bookkeeping policies and banking techniques.

Not only did the Post Service propose to increase profits but they also proposed to cut
costs in a number of ways. There were three methods that were proposed in 1946 for the
protection of salaries that no longer exists. These have to do with the rural mail
carriers. Under this antiquated method of delivering mail the Postal Service was losing
money to any mail that went to "rural" areas. There are 48,000 mail carriers that deliver
mail to millions of families that are considered to be living in rural settings; this
costs the postal Service 858 million dollars a year. This is a fairly easy problem to fix
considering how much money is being lost. It was proposed that money loss could be
significantly cut down if the Postal Service corrected the following problems. The rural
mail carriers were assigned a certain amount of time to deliver to a specific rural area,
this method was out of date and because of this the carriers have free time for which they
got paid for. The next problem was that other mail routes based pay on how many miles the
route covered, so the carriers were getting paid by the mile. With this problem fixed the
Postal Service could saved 26.8 million a year. There was also an hourly rate that was in
effect which indirectly promoted inefficient service. A stop to this could have saved the
Postal Service $255,000 a year. From the numbers mentioned above, it can be seen why the
United States Postal Service was losing so much money.

These problems did indeed eventually did get solved over the past fifteen years and now
the Postal Service is making record breaking profits. Now in the first quarter of the
fiscal year 1996 the Postal Service already has a net income of $1.2 billion. Now not only
is the Postal Service just breaking even, but they are also making a profit. On top of
that, the 1.2 billion dollar figure is 115 billion dollars better then the quarterly
forecast predicted. It is incredible that they are not only making a reasonable profit but
it is increasing over the years. The Postal Service is also now reducing debts. An example
of this is when the Postal Service redeemed a 1.5 billion dollar loan two years in advance
which will save them 22 million dollars of interest in the next two years.

The Postal Service isn't stopping with the revenue that it is receiving now. The Postal
Service is planning to increase its international revenues of $1.2 billion by twice the
amount in the next five years and tenfold by the year 2005. The Postal Service is
continually working to "streamline" their operations for the future that they are now
running. The Postal Service is continualy looking to cut back on borrowing money. All of
the recent financial borrowing has been through the Federal Financing Bank, but the Postal
Service now is looking into outside sources, such as bonds in the public markets.

Business are starting to get jealous of the Postal Service because of the great profits it
is experiencing. The Postal Service is now making a major impact on the United States
Economy. Business are pointing out that in 1995 the Postal Service had records of $1.8
billion in net income and a 1.7 billion dollar debt reduction. The $54 billion revenue
that the Postal Service is bringing in would put them in 12th place on the Fortune 500
list and 33rd on the Fortune Global 500, with the worlds largest corporations. A recent
study showed that domestic direct mail sales were at $333 billion in the year 1994. This
figure is expected to reach over $500 billion by the year 2000.

It can be seen throughout this paper how the United States Postal Service increased
profits and does not have to borrow as much money as before. It seems that the Postal
Service is doing just fine while it is a monopoly. But there are still two arguments for
and against the Postal Service continuing to remain a monopoly. On one side competition is
thought to make industries in the market more efficient and practice more innovative. But
on the other hand the competition is also thought to lead to "a wide-spread cream
skimming, with the postal service left only the high-cost, unprofitable mar-kets.'; So who
is to know which market would be better for the American economy as far as the Postal
Service goes. But it is speculated if the United States Postal Service does keep
increasing its profits over the years, maybe it will be privatized.

In the United States economy most markets can be classified into four different markets
structures. But, each and every market in the United States is completely unique from the
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