“If they can get you asking the wrong questions, they don’t have to worry about answers.” — Thomas Pynchon, Gravity’s Rainbow
Originally written in 2018 on the Save The Post Office blog and featured at Angry Bear in 2019, retired North Carolina Post Master Mark Jamison wrote on the issues facing USPS while in competition with Amazon, UPS, and FedX. The same issue has been brought to the forefront again with President Trump refusing to give a subsidy to the USPS, unless the USPS raises prices to deliver packages for Amazon, and also punishes Amazon’s Owner Bezos. The answer remains the same, “no” and Mark explains why.
I have not written or said much about postal issues for the last couple of years. After seven years of writing articles for Save the Post Office and other websites, as well as contributing numerous comments to the Postal Regulatory Commission, what more was there to say?
I spent thirty years of my working life at the Postal Service. I’ve put in countless hours reading USPS reports, OIG reports, GAO reports, and who knows how many pleadings before the PRC. I have written numerous articles about the general idea of the postal network as an essential public infrastructure, the arcane minutiae of postal costing and the actions of the PRC, and the machinations of a Congress that seemed more inclined to bloviate and posture than attempt to solve a serious problem affecting millions of Americans and thousands of communities, large and small, rural and urban.
I never stopped thinking about these issues, but what more was there to say? And why bother, really, when the politicians and managers that could actually make changes seemed inclined to let inertia and the status quo slowly erode the capabilities of the postal network while degrading hundreds of thousands of good middle-class jobs?
And then President Trump had one of those brain farts he periodically shovels out over Twitter.
Motivated by his dislike for Jeff Bezos — who has far more money than Mr. Trump will ever have or imagine having and who also owns the Washington Post, which tends to say things that are not particularly complimentary of Mr. Trump and his Alphonse-and-Gaston act as president — the president let forth a blast about how Amazon was ripping off the Postal Service.
It was obvious from his Tweets and subsequent comments Mr. Trump did not have a clue about postal policy, let alone any sort of command of the details. Then again, when the president speaks, people tend to listen. And, as the English poet William Cowper once observed, “A fool must now and then be right, by chance.” (Here in the mountains of North Carolina we might say that even a blind hog finds an acorn once in a while).
But was Mr. Trump right about Amazon? A good many folks in the media wanted to know, since if the president says it, it may not be true but it is certainly news.
As it happens, I had written a number of pieces here on STPO specifically about Amazon’s Negotiated Service Agreement with the Postal Service and about package costing and pricing methods in general. In 2013, I also filed a motion with the Postal Regulatory Commission seeking access to the non-public materials in the PRC docket approving Amazon’s NSA. Both the Postal Service and Amazon immediately filed comments opposing my request.
Not content with making an argument for why the NSA should remain secret, Amazon went on to disparage me personally by quoting my articles on Save the Post Office. Amazon observed that I had written that the “postal rate system has become a morass of embedded privilege, “business mailers are doing fine,” and the Postal Service is a “wholly owned subsidiary of Mailers Inc.” I had also opined, noted Amazon, that PMG Donahoe lied in recent testimony to the Senate, and “Donahoe and the [Board of Governors] have demonstrated an unrestrained contempt for Congress, the rule of law, and most importantly, the American people.”
For what it’s worth, the PMG did give “misleading testimony, and later said he “misspoke.” Everything else I wrote about the rate system, the mailers, and the BOG was true, too. Not that this should have had anything to do with the PRC’s decision not to allow me to see the Amazon NSA it had approved
Anyway, Google being what it is, my pieces about Amazon and the post office showed up in searches, and a few intrepid or at least curious reporters contacted me with questions.
I should give those reporters credit for caring enough about their work to attempt a thorough job. While some of them just wanted a simple answer to, “Is Trump right or wrong?” a couple of these reporters really did want to understand the issues that were involved. Rather than go with a Citibank report that was seriously flawed both methodologically and factually (which just goes to show that highly paid financial analysts writing for elite firms are just as prone to self-delusion and tipping the scales towards their preferred narrative as the rest of us), there were at least a couple of outlets that made the effort to dig beyond the headlines.
The problem is that even the more thorough journalists were asking the wrong questions. Their questions were based on an ingrained narrative about the post office. And, as has become the case in much of our political dialogue, the narratives that prevail and the agendas that drive them originate not from a broad civic space balancing the interests of the American people but from relatively narrow interests. As discussed in a recent post here on STPO about postal retirement and benefit liabilities, it is these agendas that tend to drive the policy prescriptions.
In 2015 I wrote a piece titled “ When Titans Collide: UPS petitions the PRC to change USPS costing methodologies.” The piece examined a year long attempt to gerrymander postal costing and pricing systems in ways that best served those in the mailing and package delivery industries. Some of the players have changed over the years as the mail mix has changed, but the goal remains the same – find a way to defenestrate the Postal Service.
The piece looked at the issues that were at the crux of Mr. Trump’s complaint – the Postal Service wasn’t charging enough and it was making “bad deals.” I looked in detail at some of the costing and pricing methods and tried to engage those specific arguments. But the heart of the matter was that the Postal Accountability and Enhancement Act, the 2006 law that in many ways governs the operation of the Postal Service, had set up an impossible and counterproductive environment that failed to recognize the value of the postal network as an essential national infrastructure.
PAEA had many aims but good policy wasn’t really the focus. After decades of trying to fit the Postal Service into a box it was ill-suited to occupy — that of simply another mailing business rather than an infrastructure — PAEA took a big step in the direction of privatization. By separating postal products into market-dominant and competitive categories and by creating a rate mechanism designed more to satisfy mailing interests than create and sustain a reliable and ongoing postal network, PAEA set up a system that would engage a lobbyist’s feeding frenzy. Other provisions of PAEA were designed to lead to the elimination of postal jobs by saddling the Postal Service with unwarranted and punitive liabilities for its retirees. Though the legislation was filled with all manner of technical provisions, it was largely ideological.
After examining all the arguments in the PRC docket on costs and prices, all the briefs and studies presented by the Postal Service, UPS, the PRC’s Public Representative, and various stakeholders, I came to the conclusion that we had lost the forest for the trees. We had lost sight of the big picture in the sense that the ideas of universal service and access became wholly secondary considerations. We were no longer discussing the broadly-based concerns of national infrastructure. Instead, we had waded into a swamp of special interests where every group of mailers sought the best and highest advantage.
I sent a link of the Titans piece to the journalists who called wanting to understand the current kerfuffle created by Mr. Trump’s comments. I suppose it’s immodest of me to include the response I got from one of the journalists, but I will because it makes a greater point. After reading the piece he e-mailed: “I think this is probably the most insightful and brilliant blog post that synthesizes a generation of (misguided) political thinking and explains how that altered the trajectory of the USPS.”
He said some other nice things, went on to thank me for spending an hour and a half on the phone with him, and then continued to call and email with more questions. But despite my efforts to get him to look at the big picture, he kept coming back to the issue of whether or not the Postal Service could and should be charging more for Amazon packages and if other mailers were also getting sweetheart deals.
So there we were, back to talking about the wrong questions.
What we should have been talking about is how to preserve an essential national infrastructure that connects every American while providing good solid middle-class jobs with salaries and benefits that sustain families and get spent in local communities, an infrastructure that provides affordable rates that benefit American consumers and businesses.
Instead we were arguing about whether charging more for packages would make the Postal Service more profitable and whether big companies like Amazon ought to be paying more, while neglecting to factor in that most increases in package prices would simply be passed on to consumers while allowing UPS and FedEx more freedom to raise prices.
At this point I thought that maybe I was missing something, so I went back and looked at a couple of PRC dockets and recent Annual Compliance Determinations, which review how well the Postal Service is fulfilling its general legal obligations. I also looked at a recent docket on costing methodologies, a subject UPS has repeatedly sought to litigate even though they have never made a credible case the methodologies currently in use aren’t reasonable. Most particularly I looked at RM2017-1, the PRC docket that reviewed the level of institutional contribution that competitive products had to make. This was the one area where I thought UPS had at least a reasonable point in its 2015 filings.
After reading a few hundred pages of legalese and lobbyist pleadings and maneuverings, I came to the conclusion maybe Macbeth had a point, this was all sound and fury signifying nothing. (Macbeth’s greater point is that it still ends in death.)
But Mr. Trump Tweeted.
Recalling Mr. Cowper’s admonishment that a fool could be right and still be a fool, I thought maybe we should look for some validity in his Tweet. Mr. Trump seemed to be making two points. First, the Postal Service was making bad deals, and second that Amazon was destroying retail across America. Let’s take the second one first: Is Amazon destroying local retail?
Maybe, perhaps probably, but that’s not a new phenomenon. Before there was Amazon there was Wal-Mart. In 2006 Tom Slee wrote a wonderful little book titled “No One Makes You Shop at Wal-Mart: The Surprising Deception of Individual Choice.” Slee uses game theory to demonstrate that the cumulative total of what appears to be a series of rational choices by individuals turns out to have a vastly negative aspect for local communities.
Actually, it’s not a new idea. Back in the 1930’s, Keynes made the same observation in describing what he called “ The Paradox of Thrift.” Keynes noticed that in an economic downturn, individuals make the rational choice of spending less and saving more. If the economy is sour, it’s better to be conservative than a spendthrift. That makes a lot of sense for the individual, but when lots of individuals make that same perfectly rational decision, the end result is that consumer spending dries up, which makes the downturn even worse.
Slee’s updated version of Keynes’s insight is that people rationally value low prices. They also have preferences for nice communities, for vibrant downtowns, and a healthy local business sector. But in most cases those other preferences are somewhat indistinct or at least not entirely obvious.
What is obvious is that saving a few cents on a loaf of bread is a good thing. And while many of us valued wandering around the local grocery market and hardware store, talking to the local owner who probably knew a little bit about a lot of things, we also value the convenience of one-stop shopping. It’s just convenient to be able to look at that new drill in the same store where I’m doing my grocery shopping, and the fact the new drill costs a few dollars less doesn’t hurt.
So lots of folks make the perfectly rational decision to shop at the big box everything store because it’s convenient and cheaper. Oh maybe a few diehards make a conscious effort to give at least some business to local retailers, but margins are slim for local businesses, so the loss of a few customers makes a big difference. So one day we wake up and that vibrant local downtown suddenly has several vacant stores. And because Wal-Mart is big, it can exercise economies of scale like squeezing suppliers for lower prices. And as local retail businesses die so do jobs, which gives Wal-Mart more power in dictating wages.
One day we wake up and those cheap prices we rationally valued have cost us a lot of elements that we valued in our community. Things seem to tilt towards the lowest common denominator. The end result filters through all parts of the community. There’s been no end of reporting on how Wal-Mart instructed employees how to apply for food stamps or Medicaid or other benefits since they didn’t make enough to afford the basics. On balance local tax revenues may suffer. Perhaps the hardest things to measure are the damages to the quality of life and community cohesion.
Amazon is Wal-Mart writ large for the internet age. Amazon started out selling books, but now it calls itself “The Everything Store.” More importantly Amazon is much more than a retailer. It’s a logistics company. Jeff Bezos has simply used retail to generate the revenues to build a vast network of warehouses and backroom data support services. Amazon has a presence in nearly every sector of the economy.
It appears that we love it too, or at least the stock market which, unfortunately, seems to be the gauge by which we measure the success not only of the economy but of our communities and lives. The last I looked Amazon’s P/E ratio was nearly ten times higher than that of the average of the market generally. That means that investors value the company so much that the price of its stock is at historically high multiples of earnings.
Is Amazon killing American retail? Probably, but as Tom Slee might point out, no one makes you shop there.
That brings us to Mr. Trump’s other complaint, that the Postal Service is making terrible deals. Maybe but maybe not. If he’s basing that argument on the fact that the Postal Service is losing money, it’s important to remember that the Postal Service was designed to lose money. It is intentionally built to shovel funds back into the Federal budget, not through profits but from accounting trickery that saddles it with excess liabilities.
By all measures the package business that Mr. Trump focused on is adding to the bottom line with regularity. It’s also important to remember that the Postal Service has only about a 16% share of the package delivery market. It really isn’t in a position to dictate prices.
Much of the noise that followed Mr. Trump’s Tweets seemed to ignore the fact that forcing the Postal Service to charge more for packages would give its competitors, UPS and FedEx, an excuse to raise their prices. In the end, consumers would end up paying higher prices. Plus, forcing the Postal Service to charge more for packages would not only violate the basic market principles it has supposedly been designed to serve but also the structure of the free market itself.
We’re asking the wrong questions and it’s not because we’re stupid. We’re asking the wrong questions because those are the questions a large part of corporate America and the financial elites want us to ask. Mr. Trump got elected by sleight of hand – promising this and doing that – and that’s exactly what is happening with respect to the Postal Service.
So what are the right questions?
First of all, if competition is so important, why is 85% of the package delivery market controlled by two companies? Why aren’t the FTC and the Anti-Trust division of the Justice Department paying attention to this?
Do we value good jobs, local communities, and quality of life? Or do we value low prices more than anything else? If Amazon is too big and powerful, if it’s doing the same thing to local retail that Wal-Mart did a generation ago, then perhaps we should be asking ourselves what it is we really value.
Are we being given an honest accounting of the consequences of government policies? Why, given that 94% of the American public favored some form of protections for Net neutrality, did the FCC ruled in favor of monopoly providers? After a tax cut that was supposed to encourage more investment in the economy and higher wages for workers, why are we just seeing more stock buybacks? And are we going to have to pay for those tax cuts and avoid crippling deficits by cutting the wages and benefits of workers and further eviscerating the safety net?
Do we value the institutions that leveled the playing field and brought to millions of people the benefits of an economy that worked for the many and not merely the few? Do we value essential infrastructures like the postal network?
And finally, this. Are we content to play the duped mark in an oligarch’s confidence game? Are we going to watch valuable public assets and healthy public spaces and public participation in the economy get shuffled around in a game of three-card monte when the winner can only be the entitled elite?