Bear with me here, this isn't really about Mitt Romney. But I was recently reading his book No Apology: The Case For American Greatness (summary: America is great), and at one point, while describing the virtues of the free market and the pathologies of government, Mitt says, "It has been my experience that almost always government is far less productive than enterprises in the private sector. That's why private companies build roads for government and make equipment for the military. It's also part of the reason why FedEx and UPS can make a profit shipping and delivering packages while the U.S. Postal Service loses money, even with its inherent competitive advantages." This is a common refrain among conservatives -- if you want to see why government stinks, compare money-losing USPS to money-making UPS and FedEx.
There are multiple reasons why this argument is bogus, the most important of which is that unlike any private corporation (or any government agency, for that matter), the Postal Service is required by law to prepay health benefits for future retirees, which costs it about $5 billion a year. We've also come to accept that we should only have to pay 44 cents to send a letter, when sending the same letter via FedEx or UPS will cost you about 20 times as much.
There's another very important reason the Postal Service loses money, and that is because it has no choice but to service areas that are extremely unprofitable, namely rural areas. In fact, a few hundred million times a year, FedEx and UPS take packages to a post office and pay the USPS to deliver them, because it just isn't profitable for them to send their driver to some far-flung unincorporated area just to drop off a package or two. And guess what: There's an ideological component to this, as Matt Yglesias argues with regard to a government program that supports commercial air service to rural areas:
One of the main things the federal government does is transfer resources from high-productivity urban areas to low-productivity rural ones. It does this in part through direct obvious measures like this, in part through agricultural subsidies, in part through universal programs like the Postal Service that mask these subsidies, etc. And in the aggregate, it’s a huge drag on the American economy. Not so much because it costs money (though it does cost money) as because over time it drives misallocation of private sector resources.
In principle, it would be a good idea to change this. In practice, America’s constitutional setup all but guarantees this outcome. Which is what it is. But given the fact that politicians who like to talk about free markets and small government tend to also be the most zealous defenders of these measures, it would be nice if writers and thinkers who like to talk about free markets and small government spent some more time acknowledging that this is one of the main things the government does, and it does it because conservative voters, donors, and activists want it to happen.
If the Postal Service were operating purely according to free-market principles, it would be making a profit, but it would also tell the constituents of the conservative senators and congressmembers from rural states to take a hike, because serving them is so unprofitable. Which of course, those conservative senators and congressmembers would never allow.
Don't get me wrong: I think the Postal Service should deliver mail to everyone. Because that's what government does. It serves everyone, even if you choose to live in North Dakota and become a drag on the rest of us.
-- Paul Waldman
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