Site for Free Markets and Free People

Sunday, May 15, 2011

The Coming Post Office Bailout

The US Postal Service is a typical government agency. While revenue has been falling off a cliff for several years due to fax machines, email and more efficient competitors, the Post Office continues to pass through huge wage and pension increases to its union members. From the WSJ:

The odds of a multibillion-dollar rescue package went way up this week when Postal Service management reported a $2.2 billion loss for the first quarter, more than 25% higher than last year despite the economic recovery. It now appears that the $15 billion line of credit the feds have offered USPS will be used up by the end of this year, with low odds on ever being paid back.

If that isn't ugly enough, the Postal Service expects $42 billion in additional losses over the next four years...

If this were a private business, the obvious response to these losses would be urgent cost-cutting to avoid insolvency. Instead, Postal Service management recently concluded negotiations offering the 205,000-member American Postal Workers Union a new four-and-a-half-year contract that will provide a 3.5% pay raise over three years, dole out automatic cost of living wage hikes after 2012, and expand no-layoff protections.

Obviously, government agencies are not private businesses. They don't care about P&Ls or efficiency since the taxpayers will pick up the tab. They've never dealt with layoffs, so they don't know where to begin unless someone forces it upon them.