Why subsidise the USPS – monopoly ensures that stamp prices will rise

Just when you thought you were shopped out, the January sale season is upon us. A whole new stack of catalogues and flyers is being crammed into our mailboxes, courtesy of the U.S. Postal Service.

There's nothing new about that, but this January is different for postal consumers in two important ways.

First, USPS increased all prices across-the-board by approximately 5.4 percent on Sunday. That pushes the cost of a stamp to 39 cents.

Second, 2006 marks the beginning of the Postal Service's new four-year "Strategic Transformation Plan" – its ballyhooed "blueprint for the future." So what exactly does that future hold?

Bulk advertising.

Bills.

And business correspondence.

The newly released plan doesn't explicitly say what the Postal Service will transform into. But it's pretty clear that USPS envisions a future as a government-subsidized advertising and corporate-communications service.

The transformation plan says that over the next five years, the Postal Service "will focus primarily on advertising mail and package delivery services."

It proudly notes that it will focus on making first-class mail "a more powerful communication tool for advertisers and financial service providers." And it observes that "the Postal Service earns 85 percent of its revenue from businesses and institutions."

You can see why the USPS would choose to focus on this market. After all, the volume of "direct mail" – mostly unsolicited advertising – has risen 10 percent in two years.

The Postal Service's financial reports, meanwhile, indicate that in the fourth quarter of 2004, for the first time ever, the volume of first-class mail fell below the volume of standard mail. First-class mail includes all letters mailed by individuals, from bill payments to Christmas cards. Standard mail is sent in bulk by businesses.

The trend has continued since then, with 23.3 billion pieces of first-class mail delivered in the fourth quarter of 2005, compared to 25.5 billion pieces of standard mail.

There's nothing wrong with the USPS delivering ads. Business mailers, after all, are paying customers just like anyone else, and many people find their solicitations useful. Nor is there anything wrong with the Postal Service behaving in a business-like way, extending discounts to valuable customers and focusing on a growing market.

What isn't at all clear, though, is why taxpayers should continue to support the USPS through a series of indirect subsidies.

Federal subsidies to the Postal Service are extensive. The government protects the USPS from free-market competition by enforcing a monopoly on letter delivery. Only the Postal Service can use your mailbox or deliver a letter for less than $3.

The Postal Service also enjoys exemption from most taxes and the ability to borrow from the Treasury at below-market rates. It also gets cushy legal perks – like immunity from antitrust prosecution, truth-in-advertising laws, SEC transparency requirements and parking tickets.

The ostensibly self-funding USPS, meanwhile, has received some $27 billion in congressional appropriations over the years.

Some say the Postal Service needs all these special privileges so it can afford to deliver your postcard to Aunt Myrtle, who presumably lives at the bottom of the Grand Canyon.

But the new transformation plan puts the lie to that theory. Today's Postal Service is all about catering to businesses and large organizations.

You can't blame the Postal Service for seeing a profitable future in business delivery. But the service's vision of its future raises a critical question: Should the government continue to sponsor such a commercial enterprise?

Trucking firms, telephone companies and Internet service providers all play a crucial role in keeping goods and information flowing. And they all compete in the private sector without the privilege of being government owned and operated. As a result, these industries reward Americans with ever-falling prices and better service.

Meanwhile, stamp prices continue to rise.

(Sam Ryan is a senior fellow at the Lexington Institute, a think tank based in Arlington, Va.)