Tuesday, July 06, 2010

Stamp Gouging? Stamp Scalping?


WASHINGTON (AP) -- "Buy those Forever stamps now. The cost of mailing a letter is going up again.  Fighting to survive a deepening financial crisis, the Postal Service said Tuesday it wants to increase the price of first-class stamps by 2 cents -- to 46 cents -- starting in January. Other postage costs would rise as well.  The agency's persisting problem: ever-declining mail volume as people and businesses shift to the Internet and the declining economy reduces advertising mail."

MP: Over the last 90+ years, the average retail price of gasoline has increased about 11.7 times, from 25.5 cents per gallon in 1919 to a projected $2.98 per gallon in 2011, according to annual gas price data from the EIA.  That's slightly less than the projected 12.9 time increase in the Consumer Price Index from 1919 to 2011 (see EIA data), meaning that the real price of gas has fallen over this period.  Over the same period, the price of a first-class stamp in the U.S. has increased 23X, from 2 cents in 1919 to 46 cents in 2011 starting next year if the rate increase is approved (historical stamp price data available here).  That means that first-class stamps have gone up in price at about twice the rate of both gasoline prices and overall consumer prices in general. 

The chart above compares stamp prices, retail gas prices and the CPI using an index that is equal to 100 in 1919 for all three series, and includes the CPI index from 1919-2011, also equal to 100 in 1919. If stamp prices had increased over time at "only" the rate of gas prices, a first-class stamp would only cost only about 24 cents today instead of 44-46 cents. If stamp prices had increased at the same rate as consumer prices in general, stamps today would cost about 26 cents.

Update: A comparison of stamp prices to a CPI services index (as Tim Worstall suggests) shows that first-class stamps have increased in price by 14.67 times since 1956 while the CPI for transportation services has increased by 11.2 times over the same period.  

34 Comments:

At 7/06/2010 4:10 PM, Anonymous SuhrMesa said...

It would be interesting to see how numerous government operated or sponsored (say university tuition?) entities compared against the CPI... Operational Excellence brought to you by the federal government.

I think there are still 100 or 200 people that believe the government is the solution... B. Obama, M. Obama, N. Pelosi,.... ok, I'll stop.

 
At 7/06/2010 4:56 PM, Anonymous sprewell said...

Mike, excellent article that you've got to link to, imagine if public employees worked this way? :)

 
At 7/06/2010 5:01 PM, Blogger Jason said...

I would love to see some additional analysis done on this. What factors have contributed to the rise? Pensions, union benefits, other transportation costs? Also, what about home delivery for the overwhelming majority of americans - when did that start? Let's go after the factors one at a time, postal rates are like a tax after all.

And lest we all forget, the USPS operates at a loss. I wish I could operate a business like that, raise prices faster than inflation, operate at a loss every year, workers periodically go on a rage induced blood crazed rampage, apologize to no one.

 
At 7/06/2010 5:04 PM, Blogger Jet Beagle said...

IMO, the inexcusable postage increases occurred from 1970 to about 1995 or 2000. During that period both first class and bulk mail volumes were growing - probably much faster than the number of delivery addresses. USPS should have taken advantage of ever-increasing economies of scale in driving down its costs. A private sector, non-monopoly business would have done so.

As an industrial engineer with FedEx, I helped that company realize such economies of scale in the '80s and '90s. As letter and package volumes increased, the real (inflation adjusted) delivery cost per letter/packages declined steadily.

Why didn't USPS realize increased efficiency when volumes were increasing? Quite simply, there were no market forces pushing them to do so.

 
At 7/06/2010 5:19 PM, Anonymous grant said...

Probably paper mail will disappear altogether but there needs to be a completely secure new type of e-transfer to send secure documents.Until then probably US post will continue to raise prices on falling mail volumes to enable tmem to stay in business.

 
At 7/06/2010 5:33 PM, Anonymous gettingrational said...

The discrepancy is actually higher because of the average 49.5 cent per gallon state and fed tax (combinbed) on a gallon of gasoline. The taxing started in 1919 with Oregon imposing a one cent per gallon tax.

BTW, postal service is mandated in the U.S. Constitution but not six days a week delivery.

 
At 7/06/2010 5:59 PM, Anonymous lyle said...

What will likely happen is that for routine things like bills it will go all electronic, (most banks provide bill pay, in my case killing 10 or so letters a month). So essentially first class will disappear. UPS/FedEX will handle the certified/registered business in the process. Saturday delivery is toast.
Home delivery started in the cities and reached the rural areas with rural free delivery in 1896 which took some time to spread nationwide but by 1920s was widespread, it made money by handling parcel post as well. But UPS/Fed Ex killed first the Railway Express Agency, and then Parcel post.

 
At 7/06/2010 6:06 PM, Anonymous Critic said...

@gettingrational

No, the US Constitution DOES NOT mandate a postal service. It PERMITS the federal government to operate a postal service. It is a specified power but not a specified mandate. The federal government can discontinue postal service at any time just as it could disband the Army and the Navy at any time.

Also, the Constitution empowers the federal government to "establis post offices and post roads." It says nothing about maintaining a permanent postal service of government employees. The postal service would seem to be implied as a necessary complement to roads and offices. There is nothing in the Constitution which states it cannot allow private services to operate in public offices or on public roads.

Article I, Section 8 empowers Congress to declare war. It certainly doesn't require Congress to do so.

 
At 7/06/2010 6:54 PM, Blogger PeakTrader said...

This may explain why your mail is slow:

Postal Worker Retires At 95, Onion Sandwich In Hand
July 1, 2010

After 37 years on the job, and 95 years on the planet, the nation's oldest postal worker has punched the time clock for the last time.

Chester Reed retired Wednesday with 3,856 hours of sick leave; this mail handler and forklift operator had never called in sick, not a single day.

Reed was already in his late 50s when he started with the Postal Service.

And his key to longevity?

"One thing I do eat a lot of is garlic and onion sandwiches," he tells NPR's Michele Norris. "You say, well, what's an onion sandwich? You take two slices of bread, you put a lot of mayonnaise on both slices of bread, cut a great big slice of onion, and put it in between. It doesn't make a difference if it's a hot or sweet onion, but the vinegar in the mayonnaise will counteract the heat in the onion, and you won't have a hot onion. So you take a sandwich, and you eat it, and they're very healthful."

My comment: That's another inexpensive healthy meal.

Postal Service: End Saturday delivery in 2011
March 29, 2010

"Given the fact that we're facing such a huge deficit, we'd like to move as quickly as possible," Postmaster General John E. Potter told a news conference.

My comment: Looks like they'll move the mail so fast, you won't even see it on Saturdays.

 
At 7/06/2010 10:27 PM, Anonymous gettingrational said...

@ Critic, the Constitution states: "To establish Post Offices..."

I think Justice Roberts and the rest of the Supremes would side with me if they are even somewhat "strict". Establish is a solid mandate and not a permission statement.

 
At 7/07/2010 12:35 AM, Anonymous Anonymous said...

The u.s.a. has a postal system that actually works.

Could the netflix business model of DVD return/delivery via snail mail work in those countries? Nope.

Quit beating down the USA.
Love it or leave it.

 
At 7/07/2010 1:14 AM, Blogger Ron H. said...

gettingrational

Critic is correct.

Constitution - Article 1 Section 8

"The Congress shall have Power...

...To establish Post Offices and post Roads;"

It's NOT a mandate, it is a permission. And, as you pointed out, there is no discussion of delivery at all.

Remember that the Constitution is a RESTRICTION on Federal government. It enumerates what powers government may have. All else is forbidden to it.

I know it's difficult to remember that these days when restrictions are all but ignored.

 
At 7/07/2010 2:26 AM, Blogger PeakTrader said...

Anonymous said...

"The u.s.a. has a postal system that actually works."

It depends how you define "works." Higher prices, reduced services, and yet still operating at huge losses. What if all firms worked that way?

 
At 7/07/2010 3:54 AM, Blogger Tim Worstall said...

I'm not entirely convinced.

Gas is a manufacture: postal service umm, a service.

Services have higher inflation rates than manufactures (Baumol's Cost Disease).

If we had USPS against the services inflation rate I might be more convinced.

 
At 7/07/2010 4:11 AM, Anonymous Titus Pullo said...

How do the price increases in UPS/Fed Ex compare over the last 30 years?

 
At 7/07/2010 6:29 AM, Anonymous geoih said...

Qoute from gettingrational: "I think Justice Roberts and the rest of the Supremes would side with me ..."

And who better to decide the limits of the Federal state than the Federal state.

I think this is a good example of the effects of government monopoly.

 
At 7/07/2010 8:06 AM, Anonymous Anonymous said...

My brother tells a funny story about the post office department. some years back FedEx had an advertising campaign that was unflattering to the post office department. My brother worked for a company that taped news stories and that sort of thing and provided clips to interested politicians and lobbyists and the like.

The Postal service hired my brothers company to provide them with copies of the unflattering commercials. When they were in a particular hurry to get a copy of the latest FedEx insult, my brother sent it to the postal department.

Via FedEx.

The Postal Service was not the least bit amused.


=============================

I'm with Jason though, I don't think this post tells the whole story.

 
At 7/07/2010 9:45 AM, Blogger Jet Beagle said...

It's interesting to read the predictions by some commentors about the upcoming demise of the postal service. USPS volumes and revenues have sufferred during the current recession. But the service is a long, long way from going out of business:

Volumes of mail (billions)
Total and 1st class

1950 ... 45 ... 23
1960 ... 64 ... 35
1970 ... 85 ... 50
1980 .. 106 ... 60
1990 .. 167 ... 89
2000 .. 208 .. 104
2007 .. 211 ... 96
2008 .. 203 ... 92
2009 .. 177 ... 84

Source: U.S. Statistical Abstracts

Yes, the recession has hurt USPS. But pre-recession volumes in 2007 and 2008 were still much higher than a few decades ago, despite the rise of email and the internet.

 
At 7/07/2010 9:51 AM, Blogger Jet Beagle said...

Lyle: "But UPS/Fed Ex killed first the Railway Express Agency, and then Parcel post."

I agree that UPS and my former employer, FedEx, have taken a large chunk of the package delivery business from USPS. But USPS still earned $1.8 billion in 2008 and $1.7 billion in 2007 from its package business. That's hardly a dead business.

IMO, what UPS and FedEx realy have done is expand the market for priority delivery. Where consumers once accepted package delivery times of 2-3 weeks, they now expect to get deliveries in less than one week, and will often pay for overnight delivery.

 
At 7/07/2010 9:54 AM, Blogger Jet Beagle said...

Correction to my last post:

"USPS still earned $1.8 billion in 2008 and $1.7 billion in 2009 from its package business."

 
At 7/07/2010 10:08 AM, Anonymous geoih said...

Quote from Jet Beagle: "But the service is a long, long way from going out of business: ..."

Because it's got a monopoly enforced by the Federal state. Funny how an incompetent 'business' can keep going when enforced by guns and threats of violence.

 
At 7/07/2010 11:09 AM, Blogger Jet Beagle said...

geoih: "Because it's got a monopoly enforced by the Federal state."

I agree. But others were asserting USPS would be gone despite the monopoly protection. My point was that there is still a huge demand for delivery of letters and bulk mail. USPS earned $60 billion revenue in FY2009, almost all of which was first class and standard mail.

I think someone else implied or explicitly stated that delivering the mail should be turned over to a private company. Not sure about UPS, but I doubt FedEx would want to take over the USPS non-priority mail business. It's just too big and too low margin for them to want to handle it. It doesn't fit their strategic goals.

 
At 7/07/2010 12:24 PM, Blogger Ron H. said...

"If we had USPS against the services inflation rate I might be more convinced."

Better yet, how about comparing USPS to similar delivery service companies like FedEx, UPS etc. I think you will find they outperform the USPS in every area they are allowed to compete in. They would likely outperform in 1st class mail as well, but are forbidden by law to do so.

 
At 7/07/2010 12:37 PM, Blogger Ron H. said...

JetBeagle said: - "IMO, what UPS and FedEx realy have done is expand the market for priority delivery. Where consumers once accepted package delivery times of 2-3 weeks, they now expect to get deliveries in less than one week, and will often pay for overnight delivery."

Yes, and IMO most, if not all, improvements in USPS services have been as a result of competition from UPS & FedEx. Without that, we would STILL be accepting delivery times of 2-3 weeks.

I wonder what would happen if 1st class was oppened to competition?

 
At 7/07/2010 12:42 PM, Anonymous gettingrational said...

Ron H, Congress established the Post Office but does not establish war -- they declare war, etc. Establish is permanent in for example Navy and P.O. Declare is an act or segment of time and thus temporary.

 
At 7/07/2010 12:59 PM, Blogger Ron H. said...

Make that "...opened for competition."

 
At 7/07/2010 1:51 PM, Blogger Ron H. said...

gettingrational said...

"Ron H, Congress established the Post Office but does not establish war -- they declare war, etc. Establish is permanent in for example Navy and P.O. Declare is an act or segment of time and thus temporary."

???

What is your point?

In case you are merely instructing me on the definitions of words, here are the ones I use:

establish

declare

If you would like to use different definitions, please provide sources.

You didn't mention the word mandate in your most recent lesson, but it was included in previous comments in connection with the Constitution and the USPS.

So, just in case, here's the definition I use for that word.

 
At 7/07/2010 2:25 PM, Blogger Jet Beagle said...

Ron H: "I wonder what would happen if 1st class was oppened to competition?"

Well, the monopoly was not established all at once, so perhaps it will also be ended gradually.

The Constitution empowered Congress in 1789 to establish “Post Offices and post Roads”. But it was not until 1863 that Congress authorized the Post Office to offer home delivery. Prior to then, local private delivery services in larger cities would deliver letters to homes for a fee it split with the Post Office.

It was not until 1872 that Congress banned private delivery of intracity mail.

The mechanism for deregulating mail could be similar to that used for breaking up AT&T. Local delivery service could be separated from long haul transport and sorting.

The main obstacle to opening up mail service to competition is the structure of Congress. Mail service for rural communities are heavily subsidized by urban communities. If Congress did not have the power to regulate prices, private markets would correct this problem. But our Constitution provides senators from Wyoming, Montana, and Alaska with the same power as senators from New York, Texas, and Caifornia. So the millions of mail consumers in New York City, Houston, and Los Angeles are underrepresented relative to the few thousand mail consumers in Cheyenne, Butte, and Nome. And, IMO, those small state senators will always ban together to prevent free market competition in mail service.

 
At 7/07/2010 2:36 PM, Blogger Tim Worstall said...

"first-class stamps have increased in price by 14.67 times since 1956 while the CPI for transportation services has increased by 11.2 times over the same period. "

That strikes me as a much more fair comparison and gives us the real cost of the governmental monopoly.

A large enough difference to hurt (and one that we might want to think about on such things as health care) and a large enough differene that we probably want to get rid of the monopoly.

 
At 7/07/2010 3:32 PM, Blogger Ron H. said...

JetBeagle, thanks for the interesting background.

 
At 7/07/2010 9:20 PM, Anonymous gettingrational said...

Ron H, your pointer to the dictionary def. makes my point about the establishment of the Post Office. From your link: "1 : to institute (as a law) permanently by enactment or agreement"

Even though it was mandated I am glad there is private competition for the P.O. Six days a week delivery has become the Netflix entitlement.

 
At 7/07/2010 10:32 PM, Blogger Ron H. said...

Come on now, gettingrational, it's OK to admit it when you're wrong. Surely you aren't really so dense as to not understand the distinction between being granted the power to do something and actually doing it.

 
At 7/08/2010 10:29 AM, Anonymous gettingrational said...

Ron H, I am sure you disagree with the Federalist slant of some of the Constitution such as the Navy and P.O extablishment. Please re-read the def. of establishment and then check the specific density of your argument -- because it was sunk like a Berber pirate ship.

 
At 7/08/2010 6:24 PM, Anonymous Anonymous said...

Professor,

Looking at postage rates vis a vis CPI going all the way back to 1919is misleading. Before 1971 - when the Post Office Department became the USPS - the government heavily subsidized mail delivery. After postal reorganization, those subsidies were eliminated and the Postal Service became fully funded through postage.

Take a look at first class postage versus CPI since 1971. You'll see that the curves are pretty darn close.

 

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