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Asking the Wrong Questions: Reflections on Amazon, the Post Office, and the Greater Good

The author of this post which was published in April 2018 on Save The Post Office is Mark Jamison, a retired North Carolina Post Master. From time to time, I have featured both Marks and Steve’s post office advocacy on Angry Bear. Steve is a literature professor who teaches “place studies” at the Gallatin School of New York University. One of these days I will visit Mark in the mountains of North Carolina.

“If they can get you asking the wrong questions, they don’t have to worry about answers.” — Thomas Pynchon, Gravity’s Rainbow

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?

(Mark Jamison is a retired postmaster. His articles on Save the Post Office can be found here, and the comments he’s filed with the Postal Regulatory Commission are listed here.)

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7 Million at Risk from Man-made Quakes

Interesting Vox article on natural and manmade earthquakes my fellow Vet and cohort in writing Mark Jamison sent me. This year for the first time ever the USGS is including a map of areas in the US which may be prone to human-induced earthquakes” in addition to areas which are prone to natural earthquakes.

“By including human-induced events, our assessment of earthquake hazards has significantly increased in parts of the U.S.,” said Mark Petersen, Chief of the USGS National Seismic Hazard Mapping Project. “This research also shows that much more of the nation faces a significant chance of having damaging earthquakes over the next year, whether natural or human-induced.”

Natural and Induced Earthquates

From the highest to the lowest potential hazard the USGS has ranked these states: Oklahoma, Kansas, Texas, Colorado, New Mexico and Arkansas. Oklahoma and Texas have the largest populations exposed to induced earthquakes. Small areas of Ohio and Alabama have experienced induced earthquakes; but, this has dropped off with lesser activity. “Wastewater disposal is thought to be the primary reason for the recent increase in earthquakes in the CEUS. While most injection wells are not associated with earthquakes, some other wells have been implicated in published scientific studies, and many states are now regulating wastewater injection in order to limit earthquake hazards.”

Earthquates since 1980 and Recent Areas

Central US has experienced the greatest change in earthquake frequency going from 24 earthquakes per year (1973 to 2008) with an average magnitude of 3.0 to increased frequency year over year 318 per year with a high of 1010 in 2015. From 2009 to 2015, the rate steadily increased, averaging 318 per year and peaking in 2015 with 1,010 earthquakes. The latest data through mid-March shows 226 earthquakes. As fracking and the resulting waste water injection activities picks up in a region, the frequency of earthquakes increases. It is not believed Hydraulic fracking is to be the cause of the increased earthquakes. Testing the maps after one year will verify predictability of location and frequency of earthquakes.

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A Slippery Slope Indeed

Mark Jamison has been a guest columnist of the Smoky Mountain News on several occasions now arguing against the addition of the Koch sponsored Center for Free Enterprise. This is another well written expose of why this addition should not be allowed at Western Carolina University. I would point out the flip-flopping going on as Chancellor Belcher glosses over in his explanation of mistakes being made. In earlier statements by Dr. Robert Lopez, the Provost, and the Trustees, the procedure was followed.

To give this the coverage needed both Yves Smith at Naked Capitalism and Angry Bear have been covering this issue. “UnKoch My Campus” has also picked up on Western Carolina University.

invisible hand In “Sons of Wichita”, his detailed and heavily sourced biography of the Koch family, Daniel Schulman relates a story about Charles Koch’s attempt to apply his libertarian management theory known as Market-Based Management to Wichita Collegiate, the private school located across the street from the Koch compound. The school originally cofounded by Bob Love an associate of Charles’s father Fred Koch from the John Birch Society became embroiled in an “acrimonious uprising” after Charles Koch in his role as chairman of the school’s executive council applied techniques from his Market-Based Management system, a system designed to force everyone in an institution or business into an entrepreneurial role.

Schulman relates how Koch and other trustees meddled in hiring decisions and caused the abrupt resignation of a well-liked headmaster. “Incensed parents threatened to pull their children from the school; faculty members quit; students wore black in protest. Charles stepped down from the board of trustees citing, among other reasons, the school’s refusal to integrate his management style. But in a sign of just how much influence he exerted over the school; Richard Fink, one of Charles’s key advisors and an architect of Market-Based Management was installed as Collegiate’s interim head. The outrage ran so deep that, as Fink tried to tamp down the uproar, he was hung in effigy around campus.”

Fink, who received his PHD in economics from Rutgers later moved to George Mason, a public university in Virginia, to start the Koch sponsored Mercatus Institute. Fink figures prominently in Koch efforts to control and dictate to charities and educational facilities receiving Koch support. Another Koch sponsored enterprise, the Institute for Humane Studies, caused similar disruptions when it was relocated to George Mason. Schulman reports,

“The mission of IHS is to groom libertarian intellectuals by doling out scholarships, sponsoring seminars, and placing students in like-minded organizations.”

Simply providing funding for the promotion of his libertarian ideology was not enough for Charles Koch though. Roderick Long, a philosophy professor from Auburn and an affiliate of IHS is quoted as saying, “Massive micromanagement ensued.” Long went on to say, “the management began to do things like increasing the size of student seminars, packing them in, and then giving the students a political questionnaire at the beginning of the week and another one at the end, to measure how much their political beliefs shifted over the course of the week. (Woe betide any student who needs more than a week to mull new ideas prior to conversion.) They also started running scholarship application essays through a computer to measure how many times the ‘right names’ (Mises, Hayek, Friedman, Rand, Bastiat, etc.) were mentioned – regardless of what was said about them!” (The preceding quotes come from pages 250-251 Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty).

It should be noted that Professor Long is no liberal. He edits “The Journal of Ayn Rand Studies” and is a member of the Ludwig von Mises Institute, an organization that promotes the theories of the dean of Austrian economics.

Both Professor Lopez and Professor Gochenour are products of the George Mason program and Mercatus. In his memo to Andrew Gillen of the Charles Koch Foundation Professor Lopez characterizes the other members of the WCU economics department indicating Professor Gochenour was a student of “Boettke and Caplan”. In a YouTube video seminar, Professor Boettke characterizes himself as “a doctrinaire free-marketer.” In the same memo, Professor Lopez lists his association with IHS. Presumably then both professors are familiar with the sort of metrics and deliverables that are integral to Koch’s Market-Based Management system.

Both Schulman’s book and Jane Mayer’s new book “Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right” go into great detail about the various organizations sponsored and funded by Charles and David Koch. From Americans for Prosperity to academic institutions similar to Mercatus, the Kochs have been active in funding organizations that promote specific ideologies. For better or worse that is something endemic in both our politics and apparently our public universities. Lately Charles Koch has been quite vocal in bemoaning the fact that his political contributions have not yielded an appropriate return on investment as demonstrated in a recent interview in the Financial Times where he said,

“You’d think we could have more influence.”

What is perhaps more troubling is in academic settings the Kochs have sought to exercise an extraordinary degree of control. Between 2007 and 2011 Charles Koch has pumped $31 million into universities for scholarships and programs (within that number the $2 million to WCU seems significant). At Florida State the contract with the university provide $1.5 million to hire two professors included a clause giving the Koch Foundation over the candidates.

The plan Charles Koch with the aid of Richard Fink has enacted is called a “Structure of Social Change” – a sort of business plan for the marketing of ideas. Fink has said about the plan:

“When we apply this model to the realm of ideas and social change, at the higher stages we have the investment in the intellectual raw materials, that is, the exploration and production of abstract concepts and theories. In the public policy arena, these still come primarily (though not exclusively) from the research done by scholars at our universities.” (my emphasis)

As Schulman reports,

“ . . . Cato Institute, Mercatus, and the dozens of other free-market, antiregulatory policy shops that Charles, David, and their foundations have supported over the years . . . churned out reports position papers, and op-eds arguing for the privatization of Social Security; fingering public employee unions for causing state budget crises; attempting to debunk climate science; and making the case for slashing the welfare system and Medicaid.”

The book that Professor Lopez published for the broad market, “Madmen, Intellectuals and Academic Scribblers: The Economic Engine of Political Change” follows closely to the program Fink articulates.

Over the years the gifts from the Koch Foundation to various universities have faced increased scrutiny. The contract with Florida State clearly went against basic academic ethics. There is nothing however to indicate that Charles Koch has retreated in his desire to instill his radical brand of libertarianism into the institutions that create public policy and the universities that provide the research that helps support policy decisions. What has perhaps changed is that Mr. Koch, his foundation, and those he supports have become ever more sophisticated in capturing an outsized amount of influence.

Chancellor Belcher assures us there were mistakes made in the presentation of the current proposal but that the proposal itself meets all the basic criteria for acceptance. The fact that Professor Lopez advertised positions before official acceptance and outside normal channels raises significant questions. The contract may not allow veto power but if the structure of the program and the hiring are filtered through products of Koch programs, we may have a distinction without a difference. Charles Koch and his assistants like Richard Fink have been very clear about their intent and goals. It does not take a great deal of research to uncover statements that clearly speak to intent to indoctrinate. Ad hoc denials aside there is no reason not to take Mr. Koch’s word.

Chancellor Belcher suggests the bringing of a stronger level of scrutiny to the Koch proposal pushes us down a slippery slope. The chancellor is no naïf and surely he knows that in a complicated world we are often presented with slippery slopes – that is why judgment, ethics, and scrutiny exist. Dogmatic and doctrinaire disciplines give a skewed and distorted picture of the world as an either or, or black or white scenario. Hayek, Mises, and other doctrinaire believers in the creed of the free-market tell us the choice is either markets or Stalinism, an inexorable “Road to Serfdom.” Tennyson tells us,

“There lives more faith in honest doubt, believe me, than in half the creeds.”

There is a certain irony bordering on outright cognitive dissonance when the economics department of a publicly funded university embraces a set of theories that denies the need for public education and treats such public funding as an affront to the market. If scrutinizing this proposal puts us onto a slippery slope then accepting it simply sends us to the bottom of the slope.

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Why the “Proposed Koch gift to WCU is a Bad Idea”

invisible hand About a week ago , I wrote about the events leading up to the dilemma faced by Western Carolina University faculty and administration with being offered a $2 million grant from a Koch Brothers foundation. What I did not mention is the recent domination of the North Carolina university system by Republican minded-administrators such as Margaret Spellings former President Bush Secretary of Education adding to the complexity.

Mark Jamison continues with the depiction of the dilemma Western Carolina University faces and provides the argument as to why the faculty and administration should reject this Koch Brothers donation. This article can also be found in the“Smoky Mountain News” as a guest column by Mark.

Mark Jamison

The proposed $2 million gift from the Charles Koch Foundation to WCU for the establishment of a Center of Free Enterprise raises several questions.

• Are gifts like these from private donors appropriate at public institutions? Do they entail a certain quid pro quo regardless of protocols to ensure transparency?

• Are certain types of gifts within certain academic disciplines different in their impact on the mission and perception of the university?

• In an era when we have seen the highest concentrations of wealth in more than a hundred years and when there exists a growing concern about the impact of money on the accountability and accessibility of political institutions do these sorts of gifts further a trend away from democratic institutions and public goods? Is this trend health? Unhealthy?

In 1971 Lewis Powell, a corporate lawyer and member of eleven corporate boards, wrote a memo to the Director of the U.S. Chamber of Commerce. Two months after he submitted the memo, Powell was nominated to the Supreme Court. The memo was essentially a diatribe against American Liberalism and a call for action from American corporate and business interests. It recommended a concerted effort to develop an intellectual infrastructure that would support the interests of American corporatism.

The Powell memo has often been credited as the birthing document of the web of think tanks, associations, and groups that advance conservative thought in this country. Another consequence of the memo was a renewed focus on capturing government and making it work directly for the interests of corporate elites.

Over the last generation we have increasingly seen the effects of Powell’s advice in action; especially as economic gains have concentrated in the upper .01% creating a class of billionaires able to buy an outsized voice and presence in politics and policy making.

Not content to simply fund think tanks that use non-profits to promote, advocate, and espouse particular points of view, the billionaire class has moved into other areas. A recent piece in the New Yorker on the Ford Foundation noted that the Gates Foundation, with an endowment of forty billion dollars, has done notable work in the fight to eliminate malaria. But Gates also “spent two billion dollars over eight years in an effort to break up big public high schools and form smaller ones.” Resulting analysis showed the effort had little impact on educational quality but it did spend millions on creating charter schools. Gates has been called “the nation’s unelected school superintendent”.

Mark Zuckerberg of Facebook fame spent over one hundred million dollars in a similar effort in the Newark schools that ended in dysfunction and controversy.

The owners of Hobby Lobby, famous for their suit against the ACA, have set up a multimillion-dollar foundation to create a Bible museum. The Atlantic has reported that as part of that effort the Green family has been acquiring ancient texts and antiquities, some in transactions that ignore international conventions in the trade of historical items. Scholars are concerned that access to these essential texts may be controlled in ways that limit research and scholarship.

The Walton family has placed a significant amount of its inherited fortune in nonprofit trusts, primarily as a way of avoiding taxes. One purpose of these trusts has been to create one of the largest private art museums in the world, Crystal Bridges. It seems we may be returning to a time before the Enlightment when the wealthy controlled arts and literature and the artist created at the whim of a patron.

In many ways these foundations act as a way of molding society in the image of a particular plutocrat. In some ways these foundations act as Super PACs, especially those that exist to advocate on behalf of political causes. There is one big distinction though, these foundations are created under nonprofit statutes so they are effectively subsidized by taxpayers to the tune of forty percent. The New Yorker piece quotes Judge Richard Posner on treating foundation assets as tax exempt,

”A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody. Unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either. The puzzle for economics is why these foundations are not total scandals.”

The ubiquity of private think tanks and foundations assures that there is more than sufficient opportunity for the dissemination of political and ideological opinion. Here in North Carolina we suffer no lack of presence with Art Pope’s John Locke Society and Civitas.

Why then is it necessary to extend the reach of these essentially political organizations into the publicly funded university system? Even if one concedes that accepting donations from wealthy benefactors can be beneficial to a publicly funded university, does a difference arise with respect to what the benefactor chooses to fund?. Leaving the question of agenda setting aside it would seem that there is a fundamental distinction between funding a Center for Bioresearch and funding a Center for Free Enterprise. The one is largely a pursuit of empirically constrained hard science while the other, as indicated by its name, is a study of ideology. This becomes particularly evident when one looks at the specialty of the proposed director of the CFE, Professor Edward J. Lopez. Dr. Lopez focuses on a branch of economics that comes under the rubric of “Public Choice Theory.”

In his book, “Madman, Intellectuals, and Academic Scribblers” Lopez states,

“The basic idea of public choice theory is that economists shouldn’t have one set of theories for a person making a commercial decision and a separate set of theories for that same person making a political decision. Economists working in the public choice tradition argue that if we are going to look at market failure, then it makes sense to see if there is government failure, too. With this perspective in mind, it becomes clear why democracies so often generate inefficient policies and why they allow them to persist.”

The implication is that all the world, every facet of the human experience, is not a stage as Shakespeare wrote; but a market, a market where rational beings make rational choices based solely on profit and loss – maximization of utility.

This is more than merely economics, it encompasses the whole of social sciences as evidenced by a quote Dr. Lopez uses in a book of essays he edited. In “The Pursuit of Justice” (which oddly enough focuses not on theories of justice but on the idea that our legal systems and institutions are fundamentally corrupt because they are victims of pervasive and perverse incentives) Dr. Lopez quotes James Buchanan, one of the founders of the PCT school as saying;

“Public choice should be understood as a research program rather than a discipline or subdiscipline of economics.”

And in fact Dr. Lopez makes it clear throughout his writings Public Choice Theory (PCT) is “intertwined with philosophy, history, finance, psychology, development, linguistics, and other fields;” an all encompassing theory of everything – a dogma.

Matt Yglesias has suggested that PCT fits a syllogism (a logical argument that offers two or more propositions and a conclusion):

P1) Spread skepticism about government officials and their motives

P2) ?

C) Libertarianism

Indeed, this may be a good description of much of Dr. Lopez’s work. The question mark does a great deal of heavy lifting in his arguments but the first proposition is meant to gloss over everything else.

Consider the three questions Dr. Lopez poses in his book, “Madmen, Intellectuals, and Academic Scribblers:”

1. Why do democracies generate policies that are wasteful and unjust?

2. Why do failed policies persist over long periods, even when they are known to be socially wasteful and even when better alternatives exist?

3. Why do some wasteful policies get repealed (for example, airline rate and route regulation) while others endure (such as sugar subsidies and tariffs)?

The first question does not ask “Do democracies generate policies that are wasteful and unjust?”. It assumes that they do which certainly is true in some instances but the framing isn’t about discovering under what circumstances wasteful policies occur, there are no definitions of wasteful, and despite constant references to just or unjust actions Dr. Lopez never gives much of a definition beyond a nebulous reference to “rules” and “property rights”.

As an example Dr. Lopez writes approvingly in a couple of different papers of President Grover Cleveland’s 1887 veto of a disaster relief bill for Texas farmers wiped out by drought. Such aid was not, in Cleveland’s and apparently Lopez’s view, constitutional. Presumably, the implication still holds true.

There is not a great deal of intellectual inquiry here. There is an assumption that we are all homo econimicus, that institutions are subject to the same incentives and rent seeking behavior that individuals always exhibit, and that the answer must therefore be a laissez faire version of society as encompassed entirely by the market.

Throughout his writings Dr. Lopez is adept at telling just- so stories leading us in the direction of his conclusions. For example, in his recent letter to SMN that began with a rebuttal to a previous writer’s assertions about BB&T’s actions during the financial collapse Dr. Lopez references BB&T’s repeated claims that they were forced to take TARP money, a claim that may have some truth but which also ignores the fact that BB&T was also found to be significantly undercapitalized and overleveraged.

Lopez is also much taken with Adam Smith’s metaphor of the invisible hand, perhaps one of the most overused, abused, and misunderstood phrases in the annals of economics. Lopez uses the phrase 11 times in his book while Smith used it three times in his entire body of work; once in a treatise on astronomy; once in “A Theory of Moral Sentiments” in the context of similar needs of both rich and poor for basic necessities ; and once in “The Wealth of Nations” in the context of comparing domestic and foreign manufactures. From those three examples and particularly in the last, a mythology of a self-generating and correcting marketplace has developed to the level of religious or iconic status.

Oddly enough, Lopez never seems to quote Smith during his many discussions of the problems of working folks and the disadvantages and inequalities that labor faces. For example, it is unlikely that Lopez would cite Smith’s take on progressive taxation:

“The rich should contribute to the public expense,” he wrote, “not only in proportion to their revenue, but something more in proportion.” Adam Smith

Dr. Lopez is also adept at portraying his intellectual heroes in the most positive light while subtlety poking figures he is in disagreement with. In one passage, he says about John Maynard Keynes, “He even took both sides in love, not terribly unusual among intellectuals of his circles in that day. As a young scholar, Keynes had male lovers, including the writer and critic Lytton Strachey. But, like Pareto, he later married a Russian woman, the ballerina Lydia Lopokova.”

This puts one in mind of the controversy that arose after the Harvard historian Niall Ferguson took a Keynes quote about how in the long run we are all dead badly out of context and then proceeded to point out that because Keynes was gay and had no children, he had no sensitivity to future generations. I’m not sure what Dr. Lopez hoped to accomplish with this observation but for the life of me I can’t understand how Keynes’s sexual preferences, Russian wife’ or reference to Pareto tell us anything about his economic thinking.

Perhaps Dr. Lopez was trying to make a point that Keynes often changed and adapted his positions, a point that would have been served by offering up this well known quote from Keynes;

“When the facts change, I change my mind. What do you do sir?”

Dr. Lopez has been quoted saying that academic inquiry should not be censored even if unpopular. I heartily agree with him and I would never suggest that his teaching be censored or limited. I would suggest that each instructor, particularly in a public institution, has an obligation to present material in the spirit of intellectual honesty and inquiry and that would include presenting a fair assessment of ideologies or systems that conflict with an instructor’s preferred ideologies or systems. In his book, “Madmen, Intellectuals, and Academic Scribblers” Lopez’s main theme is that ideas should win out in the marketplace. While the marketplace is only a small part of the world and human experience, a point on which Lopez and I would disagree, his basic construction is correct – good ideas; ideas subjected to empirical, logical, and philosophical testing; ideas that advance, expand, or illuminate our concepts of justice; and ideas that have been broadly and fairly debated and contested ought to win our respect.

But the question here is more than what Dr. Lopez teaches or even how he teaches it. At issue is not the legitimacy of one professor’s views. The issue is whether a publicly funded institution ought to take a gift to establish a program with the clear mission to teach a particular ideology, an ideology that is, in fact – broadly contested. This is especially true in a discipline like economics and especially when the proposed center and its proposed leader mix economics, political philosophy, and political science. Maybe the discussion ends up being framed differently if we were talking about a hard science, or medical research, or a purely technical discipline. Even then, there might still be questions about billionaires dictating an agenda but in a discipline that is entirely empirical there are fewer and different problems. The search for facts and the search for truth are two different endeavors; that distinction is both critical and germane to this specific proposal.

Transparency is not the issue, no matter how unstructured the grant the undeniable fact is that $2 million buys influence, it gets phone calls answered, and it gets preferences on the agenda. The simple fact is that one of the basic tenets of the ideology Dr. Lopez preaches is that money talks, it is the measure of the market. More to the point, the ideology that Dr. Lopez espouses argues that institutions, particularly public institutions, are subject to manipulation and perverse incentives. The proposed grant is a demonstration of whatever truth lies in public choice theory.

The land grant colleges and public university systems were built to serve as great equalizers. These public institutions were built to give average folks the opportunity to acquire knowledge and pursue intellectual inquiry. Sadly as our world has graduated from a market economy to a market society, much of the mission of our public institutions has been lost. In a world where billionaires and corporate sponsors face few constraints in their ability to dictate public policy and control public discourse we ought not blithely encourage yet another venue for indoctrination, no matter how much the enticement. I would make this argument regardless of the source of the money whether it comes from the Kochs or some liberal bogeyman like George Soros.

Let Dr. Lopez teach what he wants but let WCU retain its integrity as a public institution, something it cannot do under any conditions if it accepts this gift.

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Universities and Donations – Western Carolina University

invisible hand What does a public university do when a donation to it comes with strings? This is the situation Western Carolina University finds itself in today as a $2 million donation is being given to it by a Charles Koch Foundation to establish a Center for the Study of Free Enterprise under BB&T bank sponsored department chair Dr. Robert Lopez.

Just to be clear, this is not the only donation ever made by a Charles Koch Foundation to a college or university, the “Koch brothers and their various funding arms awarded $108 million to 366 colleges and universities from 2005 to 2014 — with $19.3 million across 210 college campuses in 2013 alone — according to political funding analysis by the Institute for Southern Studies and Center for Public Integrity.” More and more, we can see moneyed and political interests making large donations no longer tied to just a name on a building in memory of that person: but, the donations are tied to a particular and current interest with an active participation. This is not only happening at universities or colleges, you can see conservative or other groups showing interest in think tanks such as CAP and Brookings for topics such as student loans and changing the law with regard to “mens rea.” The later being a direct attempt to change the law so as to protect their business. It is difficult for a college or a university, much less a think-tank, to accept a donation from an outside interest with ties to an ideology or interest without favoring it in the future.

In answer to WCU Provost Alison Morrison-Shetlar questioning whether Faculty Senate Leader opinion really reflected the overall view of the faculty. “The Faculty Senate voted in majority opposing the establishment of this new center, which is consistent with what I have heard from the general faculty,” said Dr. Bill Yang, chair of the faculty senate rules committee. There does not appear to be a conflict here to what WCU Provost Alison Morrison-Shetlar and what Senate Faculty Chair Dr. David. MCord said; “It is not a small stakes issue here. This is the academic integrity of the institution over the long run” and suggesting it is “fairly unique” to have the overwhelming majority of faculty take a stand one-way and the administration do the opposite.

In a subsequent interview WCU Provost Alison Morrison-Shetlar claimed “the majority of written comments from faculty support the creation of a free enterprise center. She said only one-third of those who submitted comments opposed it.” According to an analysis of the written faculty responses by The Smoky Mountain News; “The written comments showed 20 were against the center, 14 were for it and three were in the middle.” Still a majority against the donation.

The Free Trade Center was originally pitched in August 2105 and Dr. Lopez was given the go-ahead to pursue the Center and construct a proposal with only the Provost’s and the Dean of the School of Business’s knowledge. Coming up for a vote to approve, both the Dean and the Provost came to “finally” realize they would need faculty input before the meeting and the planning stage. Coming out of the October 1st Provost Council meeting, it was decided to present the proposal to the faculty and on October 14 (don’t they have documented rules [like Robert’s] for this stuff?) it was accomplished with a stipulation a decison was to be reached by the next Provost meeting November 1. The failure of the Dean, the Provost and Dr. Lopez to notify faculty members left something to be desired leaving a bad taste in the mouths of some as the process was hurried and not transparent.

One email as disclosed by the Smokey Mountain News gives the impression the center was a foregone conclusion as the administration was on board from the beginning or shortly after Dr. Lopez was given the go ahead. Dating back to late September, the email states; “The Chancellor would like for the proposal to be to the Board of Trustees by the last meeting of this semester. That means we will have to get this turned around and back to the Provost Council in a timely manner,” Dean Darrell Parker wrote in an email to Dr. Brian Kloeppel, the dean named to handle the faculty input process.

Ahhh, but there are University policy rules to be followed. The email “predates several steps outlined in university policy governing the creation of a new center or institute. Administration was already angling to have the center on the desk of trustees within a couple months, despite two rounds of faculty input still needed and a two-phased approval by the provost council.”

“I am not aware of criticisms the policy wasn’t followed,” Lopez said. “This decision is the end of a process that from the very beginning was transparent and inclusive.”

– Wardell Townsend, chair of the WCU board of trustees, said university policy related to the center’s creation was followed, based on what he was told by the provost.

Provost “Morrison-Shetlar said in an interview the policy was ‘followed to the letter.’”

So much for the complaints of the faculty about not following policy and it being truncated.

The process to start a Center for Free Enterprise was well on the way by the time the faculty was informed. In early October, Distinguished Professor of Capitalism Dr. Lopez had already penned a job description “two months before the free enterprise center would come before the board of trustees for a vote” and the position would “participate in a new interdisciplinary center for free enterprise research.”

The position would be a part of the Center for Free Enterprise as the Gimelstob-Landry Distinguished Professor of Regional Economic Development. The position was also announced the previous year with no candidates found to fulfill the role. It was thought at the time the mention of a Free Enterprise Center may prejudice candidates and only those candidates of this mindset might apply. A concern by those opposing the center was the funders might influence who was selected to fill the professorship.

“As far as I’m involved, there is no chance that any donor will appoint any university personnel, full stop,” Lopez said.

References:

“WCU leaders, faculty at odds over Koch-funded free enterprise center” Smoky Mountain News, Becky Johnson

“WCU community grapples with academic pursuits in the face of politically-charged outside funding” Smoky Mountain News, Becky Johnson

” WCU chancellor pledges transparency, faculty involvement to vet controversial Koch money” Smoky Mountain News, Becky Johnson

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How prefunding retiree health benefits impacts the Postal Service’s bottom line – and how Brookings got it wrong . . .

invisible hand The author Steve Hutkins is a literature professor who teaches “place studies” at the Gallatin School of New York University. He has no affiliation with the U.S. Postal Service—he doesn’t work for it, nor does anyone in his family. Save The Post Office (his website) provides information about the post office closings and consolidations that are taking place, the historic post office buildings that are being sold off, the efforts people are taking to protect their post offices, and the things citizens can do to save their post office when it ends up on the closure list.

In October, the Washington Post ran a column by Lisa Rein entitled “Should the Postal Service be sold to save it?”

The article was about a recent paper by Elaine Kamarck published on the Brookings Institute’s website. Kamarck is the Founding Director of the Center for Effective Public Management at Brookings, as well as being a Senior Fellow in Brooking’s Governance Studies. Her paper is entitled “Delaying the inevitable: Political stalemate and the U.S. Postal Service.”

Kamarck’s thesis is that the Postal Service is going through a “crisis of obsolescence,” its financial losses are unsustainable, and “the political system is stuck and unable to do anything about it.” The thing to do now, concludes Kamarck, is split the Postal Service in two. One organization would fulfill the universal service obligation by delivering market-dominant mail. The other part would be privatized and take over competitive products (Priority Mail and package shipping); it would also be given the freedom to expand into new areas of business now prohibited for the Postal Service.

The article prompted several critical responses, including pieces by Dave Johnson in Crooks & Liars and Zaid Jilani in AlterNet. Rein also did a follow-up article in the WaPo — “Why sell off the Postal Service if it’s making money?” — in which she goes more deeply into the conflicting explanations for the Postal Service’s financial problems.

One of the main issues in the debate has been the Retiree Health Benefit Fund (RHBF). The critics of Kamarck’s paper (and Rein’s column about it) argue that were it not for the RHBF prefunding established in 2006 by the Postal Accountability and Enhancement Act (PAEA), the Postal Service would not have been posting huge losses. The core of the financial problem facing the Postal Service is the requirement to fully fund decades of future retiree health costs with ten annual payments of about $5.6 billion, an obligation imposed on no other business or government agency.

Kamarck anticipates this claim about the RHBF, and her paper tries to set it aside. In so doing, however, she makes an error that’s worth looking at in some detail.

The fly in the ointment

Kamarck’s paper addresses the argument about the prefunding as follows:

Many believe that the prefunding requirement for retiree health benefits accounts for all of the Postal Service’s financial problems. Although the prefunding requirement does account for a large share of net losses, retiree health benefits caused $22,417 million in expenses out of a total net loss of $5.5 billion in fiscal year 2014.

Kamarck is trying to make the case that prefunding the RHBF does not explain the Postal Service’s huge losses, which she thinks can only be explained by the declining mail volumes caused by the Internet. To make this point, she says that prefunding accounted for $22,417 million (or $22.4 billion) of the $5.5 billion loss in FY 2014.

This doesn’t make sense. She’s trying to show that the RHBF expense doesn’t account for such a large portion of the net loss, but according to her numbers, the expense was four times greater than the loss.

That’s not just illogical, it’s wrong. The RHBF expense in FY 2014 was not $22.4 billion. It was $5.7 billion, as stated in the USPS 10-K report. And the expense did not account for just a portion of the $5.5 billion net loss. It accounted for all of it. If it weren’t for prefunding, the Postal Service would have posted a profit in 2014.

I notified the Brookings Institute about the error in Kamarck’s paper on September 22, the day after the paper was posted on the Brookings website, but so far I’ve received no response, and the error still appears in the paper on their website. (run75441: This is not unusual for a source not to acknowledge an error and I have done it also with reports and studies. They just do not respond and the error goes forward as the truth even though challenged.)

Anyway, it seems like a pretty minor mistake, hardly worth noting, but it goes to the heart of Kamarck’s argument. She’s trying to refute the claim that prefunding explains the Postal Service’s financial problems, but the number she presents is wrong, and that’s all she has to say about the claim. If prefunding really is the cause for the Postal Service’s financial problems, the solution is obviously to fix the prefunding — not sell off and privatize the competitive products business, the one area that’s actually growing.

The Source of the Error

The error in Kamarck paper is derived from a misreading of a table in a financial analysis by the Postal Regulatory Commission, which is cited in footnote #8. On page 21 of the PRC report, there’s a table showing “Structure of Assets and Liabilities” for the Postal Service. [(You can see the table here.)

The table shows that as of September 30, 2014, there was a liability of “$22,417 million” for “retiree health benefits.” But this figure is not the expense for the retiree health benefit expense in FY 2014, as Kamarck says in her paper. Rather, as the PRC explains in the text following the table, “The Postal Service has not yet paid RHBF statutory prefunding obligations for FY 2011 through FY 2014, which total $22.4 billion and comprise 52.7 percent of current liabilities.”

In other words, the Postal Service did not pay $22.4 billion into the RHBF as required for 2011-2014 (it defaulted on these payments), so the total for these unpaid obligations appears as a liability for retiree health benefits in the table. The $22,417 million cited by Kamarck is the cumulative expense for four years, as of the end of FY 2014, not the expense for FY 2014 itself.

Kamarck is wrong on the larger point as well. Prefunding is clearly the primary cause of the Postal Service’s net losses, and to a significant extent.

The Impact of Prefunding

Kamarck acknowledges that the “prefunding requirement does account for a large share of net losses,” but she doesn’t say how large that share is.

The following table shows what’s happened since prefunding began. It shows each year’s net loss, as reported in the PRC financial analysis (p. 26), along with the prefunding payment for the year and what the profit or loss would have been without the prefunding.

The prefunding for 2007 includes $5.4 billion for the first annual RHBF payment and another $3 billion transferred into the fund from an escrow account, (An earlier version of this article neglected to include the escrow transfer, but it is included in the $5.1 billion net loss, as explained in the 10-K report for 2007.) The unusually large net loss in 2012 was due to the fact that the Postal Service was permitted by Congress to skip the RHBF payment in 2011, but then owed a double payment in 2012. The figures for FY 2015 are estimates based on the first eleven months of the year, as reported in the USPS financial report for August.

As the table shows, over the past nine years, the Postal Service has posted losses totaling about $56 billion. Almost $49 billion of it — 87 percent — was due to prefunding.

Over the past nine years, there were four years when the Postal Service would have posted a loss if it weren’t for prefunding — the years of the Great Recession and its aftermath. In the two years before the economy tanked, the Postal Service would have shown a profit if it weren’t for prefunding. In 2013 and 2014, with the economy improving and postal revenues stabilizing, the Postal Service would again have shown profits if it weren’t for prefunding.

The same will be true for FY 2015. As of September 1, 2015, eleven months into the fiscal year, the Postal Service had a net loss of $4.1 billion, including a RHBF expense of $5.2 billion. Depending on the size of the workers comp adjustment for September, the Postal Service will end the year with a net loss of something like $4.6 billion. But without the RHBF expense, it would show a profit of about $1 billion, about the same as last year.

Kamarck writes that “many believe that the prefunding requirement for retiree health benefits accounts for all of the Postal Service’s financial problems.” No one believes that prefunding accounts for all of the financial problems, but clearly it accounts for a huge part. This is not a matter of belief. It’s a fact.

The Origins of Prefunding

Congress should have fixed the prefunding problem back in 2009 or 2010, as soon as it became clear that the size of the payments was unmanageable in a recession. Unfortunately, privatization advocates in Congress (like Darrel Issa) wanted to use the crisis as justification for legislation designed to dismantle the Postal Service. Fortunately, there were others in Congress, Democrats and Republicans, who saw the value of having a vital public postal system. That’s why there’s been a political stalemate.

But Congress should never have imposed the prefunding payments to begin with. It’s worth recalling how that happened.

In 2002 the Office of Personnel Management (OPM) determined that the Postal Service was overpaying billions of dollars into one of its pension plans, but reducing the pension payments to the Treasury would have had a negative impact on the unified budget of the federal government — something that the Bush administration would not permit.

So when PAEA was winding its way through Congress, a deal was hatched between the bill’s creators and the Bush administration, specifically the Office of Management and Budget (OMB). Rather than paying for retiree health costs on a pay-as-you-go basis, as it had always done and probably could have continued to do, the Postal Service would begin setting aside funds for future retirees, decades in advance.

The idea for the fund may have come from Postmaster General John Potter, who in 2003 recommended to Congress that a different pension overpayment (involving postal workers who were vets) might be transferred to a new Retiree Health Benefit Fund. It was the next best thing to getting a refund on the overpayment, which Potter knew Congress would never approve. The Postal Service’s proposal to create such a fund is analyzed in more detail in this 2003 GAO report, which explains how the plan would be “scored,” i.e., how it would impact the federal budget.

Three years later, Congress created the RHBF to address a different pension overpayment problem. The overpayments were essentially shifted to the new fund, and they had to be as large as they were in order to offset the reduction in pension payments.

A 2009 committee report in the House of Representatives about PAEA explained it this way:

The payment schedule for the first 10 years was established primarily to make the PAEA budget neutral, responding to the concerns of the Office of Management and Budget at the time the PAEA was passed, rather than corresponding to actuarial requirements or financial conditions at the Postal Service.

There was no urgent need requiring ten years of huge RHBF payments. If Congress thought that it was a good idea to prefund retiree health costs, it could have spread out the liabilities on a 40-year amortization schedule, as Dan Blair, then the Acting Director of the OPM, had recommended in testimony to Congress in 2005. But Congress was using the new fund to solve the pension overpayment problem, and small RHBF payments wouldn’t have solved the problem.

USPS Inspector General David Williams tells the same story about the origin of the RHBF in a letter he wrote to the GAO about one of its reports expressing concern about postal liabilities.

“The Postal Service started prefunding its retiree health benefits as a result of the discovery that, due to external fund management misjudgments, it was on track to seriously overfund its pension obligations by $78 billion,” wrote Williams. “The aggressive payment schedule appears to have been set based on byzantine ‘budget scoring’ considerations rather than actuarial assumptions or an evaluation of the Postal service’s ability to make the payments.”

So that’s how the whole mess got started. Congress was trying to fix the pension problem, and it created a new problem in the process. but it was the Bush administration’s OMB that was ultimately responsible for the payment schedule. The Postal Service — and its workers and ratepayers — ended up with a huge burden, all so that PAEA would be “budget neutral.”

(There’s more about the origins of prefunding in this previous post.)

Fixing the problem

Congress and the Bush administration created the prefunding problem, and one day Congress will have to fix it. The latest bill proposed by Senator Tom Carper, one of those who helped craft PAEA, tries to do exactly that. It would eliminate the existing payment schedule, cancel any outstanding payments, reduce the prefunding goal to 80 percent of projected obligations, and amortize payments over 40 years.

Congress should have passed a bill five years ago saying just that and only that. Perhaps then we would not have had to endure the endless stream of news articles about billion dollar losses, bleeding red ink, defaults on payments, and the obsolescence of the postal system.

Perhaps then the Postal Service might not have found it necessary to increase rates, lower delivery standards, close post offices and plants, sell historic buildings, and make draconian cuts to its workforce. And perhaps we would not be hearing from the Brookings Institute about why it’s a good idea to privatize the Postal Service.

References:

(Photo credit: Brookings’ panel on “The Future of the United States Postal Service”)

How prefunding retiree health benefits impacts the Postal Service’s bottom line – and how Brookings got it wrong Steve Hutkins, Save The Post Office blog

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When Titans collide: UPS petitions the PRC to change USPS costing methodologies

USPS_UPS_crash1-540x528

BY

MARK JAMISON

(A North Carolina Retired Postmaster). First posted at Save The Post Office

The United Parcel Service is very concerned that you might be paying too much for a postage stamp.

If you’re wondering why UPS would be worried about something like that, it has to do with the way postal rates are set. According to the law, each USPS product is supposed to cover its share of the Postal Service’s operating costs, which includes costs attributable to that product as well as a share of total institutional costs.

UPS believes that market-dominant products — First Class mail, Standard mail, and periodicals — are covering more than their fair share of the Postal Service’s operating costs, while competitive products — Priority and most shipping services — are not paying enough. As a result, argues UPS, the average customer who buys a First-Class stamp is paying too much because part of the stamp’s price is being used to subsidize competitive products. UPS wants the cost allocation methodology changed so that competitive products pay a larger share of the Postal Service’s operating costs.

Then the Postal Service will to have to raise the prices of the products with which UPS competes, which will put UPS in a better competitive position and increase its profits. UPS doesn’t really care that some USPS customers are paying too much for postage. UPS cares about UPS.

The UPS petition

UPS has been complaining about the costing methodology for many years; but in recent weeks, it has intensified its efforts to get the Postal Regulatory Commission to do something about the problem. In a petition recently filed with the PRC, UPS argues that the costing methodology used by the Postal Service and PRC is seriously flawed. It recommends several changes that are intended to make the system fairer and bring it into compliance with the law. (The UPS filing is in PRC Docket NumberRM2016-2.).

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Who Owns the US Post Office?

Guest Post by

MARK JAMISON

at Save The Post Office

invisible hand

Who owns the post office?  Who is the post office designed to serve?  What is the system’s ultimate function?

These questions are fundamental to the future and the fate of the post office, the postal network, and postal services in this country. How we answer them will have a significant impact on businesses, workers, and communities.

We know the Constitution instructs — or more accurately, permits — Congress to make arrangements for post offices and post roads.  That is a good indication that the Founders sawpostal services and the infrastructure that supported them as broadly essential to the nation — nation in their reckoning being the sum of the people.

But Congress has abdicated its responsibilities.  It no longer functions as a deliberative body and has become increasingly ineffective as a legislative body.  The Postal Service’s Board of Governors has proven to be equally ineffective and has left postal managers to run operations as they see fit.  The regulatory system is relatively limited and not really able to represent the interests of the public as a whole.

All in all, the Postal Service is simply not accountable to the American people in the way it should be — or the way it must be if it is to survive as a vibrant public postal system, as envisioned by the Founders

In the debates about the Postal Service, the public interest is too often forgotten.  It’s worth quoting yet again the stirring words of Title 39:

“The United States Postal Service shall be operated as a basic and fundamental service provided to the people by the Government of the United States, authorized by the Constitution, created by Act of Congress, and supported by the people. The Postal Service shall have as its basic function the obligation to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people. It shall provide prompt, reliable, and efficient services to patrons in all areas and shall render postal services to all communities. The costs of establishing and maintaining the Postal Service shall not be apportioned to impair the overall value of such service to the people.”

If these words are to mean anything, the leaders of the Postal Service, Congress, and the Executive branch must be reminded that the Postal Service is there to serve not some narrow economic interests but the people of the United States.

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Prez throws PRC Chair under the bus, WaPo misses the bus completely

invisible hand

Guest Post by Steve Hutkins of Save The Post Office

Josh Hicks has a piece in yesterday’s Washington Post about the announcement that Ruth Goldway (pictured in China) had stepped down as Chairman of the Postal Regulatory Commission, to be replaced by Commissioner Robert Taub as Acting Chairman. It’s entitled “Jet-setting postal regulator replaced amid scrutiny of travel habits.” Hicks begin his piece like this:

“President Obama replaced the globetrotting chairman of the Postal Regulatory Commission this week after years of criticism over frequent trips she charged to U.S. taxpayers.”

Hicks provides no evidence that Goldway was replaced because of the controversy over her “travel habits.” Instead, the WaPo just attacks her as “jet-setting” and a “globetrotter,” as if that explains everything. As for actual facts, Hicks mostly recycles some quotes and statistics from a hatch job the WaPo’s Ed O’Keefe did on Goldway back in 2012.

Hicks also provides some details drawn from a November 4 article in the Washington Free Beacon. The Beacon is a project of the Center for American Freedom, a conservative advocacy group, and it’s not shy about promoting a right-wing ideology. On postal matters, it’s probably not too far from the Washington Post, which has a track record of ill informed op-eds endorsing the dismantling of the Postal Service.

The bogus travel issue was examined in a previous post back in February 2012. It was clear then, as it is now, that attacking Goldway for her travel expenses had nothing to do with the cost of her travels or whether or not her trips are appropriate or necessary. The attacks are about getting Goldway out of the way. Now they’ve finally succeeded.

Since Hicks’ article is short on facts, here are some numbers to consider. According to O’Keefe’s 2012 article, Goldway spent $70,000 on travel between August 2009 (when she became the PRC chair) and January 2012. That comes to about $28,000 a year. According to Hicks’ article yesterday, Goldway spent $71,000 in official travel expenses during her first three years as chairman. That comes to about $23,700 a year.
Hicks notes that the Beacon reported that between 2012 and 2013, Goldway spent over $36,000. It’s not clear if this is the amount for one or two years. If it’s for two, her travel budget was $18,000 a year.

Hicks writes that Goldway’s travel budget during 2009-2012 was “outpacing her predecessor,” but he bases that on O’Keefe’s piece and doesn’t provide any numbers.

The previous chair of the PRC was Dan Blair. According to the WaPo’s 2012 article, Blair spent $58,788 on travel during his two-and-a-half-year tenure (December 2006 through August 2009) — about $23,500 a year.

A report prepared by the PRC in response to the travel controversy provides similar numbers. Between March 2007 and June 2010, Blair spent a total of $70,262: $20,794 in FY 2007; $23,869 in FY 2008; $16,725 in FY 2009; and $8,874 in FY 2010. That averages out to about $1,800 a month or $21,600 annually, and it includes twelve months Blair wasn’t even serving as chairman.

Goldway’s expenses were thus very comparable to her predecessor’s, especially if you consider the rising costs of travel. They were also in the same ballpark as other high-ranking postal officials.

An OIG audit on “Officers’ Travel and Representation Expenses for Fiscal Year 2011” shows that the travel and representation expenses for USPS officers totaled about $700,000. The audit for 2012 shows a total of $806,000, and the audit for 2013 shows a total of $771,000. These budget numbers cover about 40 USPS officers, so the average annual expense per officer would thus come to about $19,000.

The OIG also does an annual audit for the members of the USPS Board of Governors. It appears that they too like to get around. In 2011, they spent $163,000 in travel and miscellaneous expenses; in 2012, they spent $216,000; and in 2013, $153,000. There are supposed to be nine members on the BOG (not including the PMG and Deputy PMG), but there were several vacancies throughout this period. For example, as of Sept. 30, 2013, there were just five members (and at the moment there are only four). The audit reports don’t break the numbers down per person or separate travel from miscellaneous expenses, but there’s enough data to estimate the average annual budget per member: somewhere between $25,000 and $30,000.

One could probably look into the travel expenses incurred by other high-ranking government officials with international responsibilities. The numbers are unlikely to show that Goldway has spent much more on travel than is normal for someone in her position.

It’s also important to remember that the 2006 Postal Accountability and Enhancement Act (PAEA) specifically requires the PRC to play a role in international postal affairs. The PRC website has a whole section on PRC Website, Goldway is “the longest serving, full-time, Senate-confirmed Presidential appointee within the Executive Branch of the United States Government.”
Obama’s decision to replace Goldway raises a couple of important questions. Why did Obama replace a Democratic chairman with a Republican? And why has the president not taken care to give the PRC a Democratic majority?

The PRC normally has five commissioners, so Obama could have easily made sure three of them were Democrats. Instead, he has made appointments giving the Republicans the majority. Currently there are three commissioners — two Republicans and one Democrat. Two appointees are waiting for confirmation — one Republican and one Democrat. Once they’re confirmed, the Commission will thus have a three-to-two Republican majority as well as being chaired by a Republican.

It’s not hard to see where all this going. With the Republicans in control of Congress, with Republicans holding a majority of the PRC and its chairmanship, and with a president that doesn’t seem to care much about preserving the Postal Service, it’s clear that over the next couple of years we’re in for more of the same — more cuts in service, more slowing down of delivery, more cluster boxes, more rate increases, more part-time contract labor, more outsourcing to the private sector, more secret NSA deals with corporate partners like Amazon, more Village Post Offices and postal counters in big box stores, more post office and plant closures, more dismantling of the infrastructure, more piecemeal privatization.

The PRC doesn’t have all that much power to stop any of these things, but with Goldway gone and Taub in place, it will be a bit easier for the next Postmaster General to continue the Potter-Donahoe agenda and for Congress and the President to help her do just that. And that’s what this whole story is about — not a few thousand dollars in travel expenses.

Steve Hutkins of the Save The Post Office Blog and the author, is a literature professor who teaches “place studies” at the Gallatin School of New York University. Steve has no affiliation with the U.S. Postal Service — he doesn’t work for it, nor does anyone in his family. Like millions of Americans, he just likes his local post office, and he doesn’t want to see post offices being closed.

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Why Congress Should Not Get Out of the Way of the Postal Service

invisible hand Guest Post by Mark Jamison, retired Postmaster. News of Ron Johnson the Tea Party favorite from Wisconsin taking over as chair of the Senate committee on Homeland Security & Governmental Affairs has caused an overwhelming sense of panic among progressives and postal workers. Johnson will control oversight of the Postal Service in the Senate.

There may be good reason to think this has the makings of disaster. Johnson is on the record stating that it would be a good idea if the Postal Service went into bankruptcy and got privatized. His training is in accounting, but he has refused, with an aggressive ignorance, to acknowledge the basic tenets of accounting. When witnesses come before his committee, he bullies them and waves his arm abrasively. His dislike of unions is so intense he is willing to set aside his worship of the business principles of a contract to concoct a bankruptcy scheme to abrogate postal labor agreements.

Is the coming of Ron Johnson any reason to panic?

Tom Coburn, the current ranking member on the committee, has said virtually all of the same things as Johnson (in his quiet, deadly way). Several of the other Republicans on the committee — Rand Paul, Mike Enzi, and Kelly Ayotte — have also said many of the same things Johnson has. All of them have shown a disdain for the Postal Service as an institution. All of them have questioned the Postal Service role as a national infrastructure.

Never mind too that Tom Carper, the Democrat from Delaware and current chair of the committee, has endorsed virtually every cut, every closure, every act of outsourcing that PMG Donahoe has engaged in or even imagined. On postal matters, his views are not that far from Johnson’s.

It could be the end

While Ron Johnson will probably just carry on like Carper, Coburn, and the other Republicans on the committee overseeing the Postal Service, the specter of Senator Johnson as chair is haunting progressives.

The sky is falling atThink Progress, where Kira Lerner tells us that with Johnson “it could be the end of the Postal Service as we know it.” Lerner therefore hopes that Congress passes legislation — any legislation at all, bad as it might be — before Johnson can pass something worse.

How likely is any legislation coming out of a lame duck session will be good? Anything likely to come out of the Senate would carve in stone the current agenda of cuts to the workforce, reductions in service, and secret NSA agreements. Plus, any bill passed by the Senate would have to go to conference with whatever Darrell Issa comes up with in the House. The result will be further degradation of the postal network. There is little chance it will make those who care about postal services in this country very happy.

Over at Daily Kos, Laura Clawson seems just as frightened of Johnson as is Lerner. Faced with Johnson’s statement that the Postal Service should go through a bankruptcy process, Clawson says, “Another solution is for Congress to get out of the way of the Postal Service making money providing needed services like banking for tens of millions of people who don’t have access to financial institutions.”

Postal banking might be useful for the millions of unbanked citizens, but it is worth giving this notion of “getting Congress out of the way” a bit more thought. The idea seems to be almost everyone’s answer for what ails the Postal Service. Blaming Congress is apparently something folks everywhere on the political spectrum can agree on.

That should come as no surprise, considering that Congress has become less popular than a shady used car salesman. But would all be right with the Postal Service if Congress just got out of the way?

The answer to that depends a lot on what you want the Postal Service to do with its newfound freedom.

Getting Congress out of the way

For many people, “getting Congress out of the way” means that the Postal Service should be free to compete. It should be allowed to deliver wine and beer, it should be allowed to get into the banking business, and it should be allowed to expand its products and services in many other ways now prevented by law. Even Vermont Senator Bernie Sanders, one of the most enlightened members of Congress, likes to say that the Postal Services needs to be free to compete so that it can increase revenues and sustain itself.

That all sounds fine — unless you’re one of the companies that has to compete with the Postal Service. In fact, one of the reasons that legislation has been stalled for the past four years is there are many interests who don’t want to free the Postal Service to compete. The mailers want cheap rates, the package industry wants a cheap way to fill the last-mile, ideologues on the Right want to kill labor, legislators with rural constituencies want to protect the infrastructure and services that benefit their communities. Everybody wants something, but no one really wants competition.

Other advocates of “getting Congress out of the way” have something else in mind. They’re thinking about how Congress had made it difficult to close post offices, interfered with ending Saturday delivery, and tried to stop the closure of most mail processing plants and ending overnight delivery.

For these folks — like the large mailers who think downsizing will keep their rates down — getting Congress out of the way means giving the leaders of the Postal Service more freedom to do exactly what they have been doing for the past several years — closing plants, reducing service, and all the dismantling we’ve witnessed.

Still another view of “getting Congress out of the way” involves ending the prefunding mandate, i.e., the law passed by Congress in 2006 (the Postal Accountability and Enhancement Act) that unnecessarily requires the Postal Service to prefund its retiree health benefit fund (RHBF) to the tune of $5.5 billion a year. According to this view, the main problem facing the Postal Service is that it is running so deep in the red — a problem caused almost entirely by the RHBF payments.

But prefunding is not really the problem. It is just an excuse. The Board of Governors and the senior leadership in L’Enfant Plaza have been using the crisis created by the RHBF payments — along with the drop in volume associated with the Great Recession — as an excuse to advance an agenda they have long held dear. It is an agenda that goes back way, long before prefunding became an issue.

Transforming the Postal Service

The corporate elite has sought a more corporatized Postal Service, free of regulation and oversight, at least since the Postal Reorganization Act of 1970, if not before. Postal management has consistently helped achieve that goal. Since 2003 when former PMG Jack Potter offered his Transformation Plan, the goal of the Postal Service has been to do exactly what Mr. Donahoe has done over the last five years.

The management of the Postal Service does not want the agency under its stewardship to function as an institution that serves the needs of millions of average Americans. It wants to be a corporate player. So when the leaders of the Postal Service talk about getting Congress out of the way, they’re saying they don’t want government oversight and regulation to interfere with allowing them to turn the Postal Service into a corporation — more specifically, a delivery company.

To that end, then, postal leadership has been very clear about wanting to jettison the retail network, especially thousands of small post offices that do not make significant profits but that have been essential to rural communities across this country. Donahoe, his predecessors, his enablers on the BOG, and politicians of both parties have sought to reduce employment, undermine labor agreements, degrade the mail-processing network, as part of this move toward a corporate model. They continue to sign secret agreements with companies like Amazon, Staples, UPS, and FedEx while reducing service standards for the American public. They have abandoned any pretense of “binding the nation together.”

Yes, the 2006 PAEA put what seemed to be a big impediment in the way of postal progress in the form of the RHBF prefunding payments. But a closer look at the law reveals all sorts of ways in which Congress “got out of the way” — with some very problematic results.

PAEA divided products into two categories, which has led to the Postal Service’s practice of moving products from the more regulated market-dominant category into the competitive category, which is less regulated and often shrouded in secrecy. PAEA has fostered more Negotiated Service Agreements, which has resulted in the likelihood of more, not less, monopoly in the package delivery market. The rate cap regime set up by PAEA may have looked like a grand advance supposedly creating a predictable rate system; but, it further endorsed the idea the Postal Service exists for the benefit of stakeholders, primarily a narrow sector of the mailing industry, and not as an infrastructure designed to benefit the American economy and the American people as a whole.

The public good

The problem is that government — and the Postal Service is a legitimate function of government — does not exist to compete. Government exists to facilitate commerce, communication, transportation, and all the rest. One of its main functions is to build infrastructures that promote the general well being of both the economy and the civic space. The postal network is one of the government’s great infrastructures. It is not supposed to be a competitive player in the marketplace.

We do not expect highway systems to compete. We do not expect water and sewer systems to compete. We expect these infrastructures to function well and to extend access and service broadly.

The postal network, even as technologies change, serves as a fundamental infrastructure for both information and goods. The Founding Fathers saw the value in that sort of infrastructure, and that view is no less valid today. The network that we have created can and should adapt, but it remains essential.

We have lost our appreciation for public goods and the public square. All around us we see the basic fundamental structures of our society being captured by private, rent-seeking interests. We are told that our schools and universities would be better if they competed — in other words, if we introduced the profit motive. The same thing goes for our prisons and law enforcement. Everything will supposedly work better if private enterprise takes over.

This kind of thinking reduces everything in life to a single paradigm of profit and loss. It co-opts and perverts words like “effective” and “efficient,” reducing their meanings to a very narrow slice of human experience.

But different elements of society have different goals, different ways of measuring success, efficiency, and effectiveness. Trying to stuff everything into a model of competition simply doesn’t work. Businesses should pursue profits, schools should educate, infrastructures should facilitate.

The postal network has been built over generations to serve the American people. It has done that job well by connecting every corner of America, by maintaining the most affordable rates in the world, and by adapting to changing technologies. It has done this while providing a sense of identity to thousands of communities and meaningful employment to hundreds of thousands workers.

Yet in spite of all the Postal Service has accomplished, its leaders remain committed to turning the Postal Service from useful infrastructure into nothing more than a delivery company.

Doing the work of the people

The Postal Service does not need to be set loose, and it does not need to be freed from Congressional control. Giving the leaders of the Postal Service a free hand is not going to help matters. They will continue doing exactly what they have been doing.

Instead, the Postal Service needs to be properly managed, properly maintained, and properly directed towards fulfilling its role as a basic national infrastructure, owned by all Americans.

The problem is not that Congress needs to get out of the way but that Congress needs to do its job.

Congress needs to ensure that the Postal Service operates under a robust universal service mandate that is clearly defined. It needs to ensure that the management structure of the Postal Service works for the American people, not its own agenda. It needs to find appropriate means to maintain our existing postal infrastructure while adapting it to 21st century needs and technologies. Congress needs to do its job and properly tend to and care for public goods and national assets.

The new Congress probably isn’t going to do any of those things, but passing bad legislation in a lame-duck session or giving the management of the Postal Service more freedom to degrade the institution is not going to solve anything.

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