Why the Postal Service is Aging Out of Solvency
By MICHAEL HODIN,
Posted: December 17, 2011
There is no story more emblematic of the misalignment between 20th century institutions and 21st century demographic realities than the United States Postal Service. Here is a great invention that cannot reform itself to compete with the century’s technological innovations or extricate itself from last century’s love affair with super pensions and retirement benefits for which this century’s demographic arithmetic does not fit. Nor have the facts deterred our lawmakers inside the beltway bubble from ignoring the hard truths -- delaying the shutdown of almost 4,000 of the USPS processing centers -- so Congress can figure out how to save the ailing system.
Yet, can it be saved with the embedded cost structure of its underlying financial obligations to its aging and retired workforce? It's an obligation that law makers are continually failing to acknowledge, especially as the election nears. But the heart of the matter is really quite simple: the USPS -- perhaps one of the defining icons of the American 20th century--is unfit to survive in the 21st century because of its retirement packages and pension programs. With incredible extensions in the human life-span, and with an antiquated federal retirement age (and the subsequent pension packages that follow), the USPS has to write an annual check of $5.5 billion. At $.44 per first-class stamp, that's over 12 billion pieces of mail just to cover pensions.
Sure, more Americans are using e-mail, and in an age of Twitter, Facebook and Linked-in it’s easy to presume that its technology which is dooming the USPS. But, such easy analysis misses that the more profound danger to the USPS is the nation’s antiquated retirement system. When President Roosevelt instituted Social Security during the Great Depression, he imagined a very short-term security net. But, as we’re living longer, we have a federal scheme that pays benefits to individuals for up to three or four decades. As 77 billion baby boomers hit traditional retirement age, and fewer workers as a result of reduced fertility to support that retirement scheme it is the retirement and pension system that’s the real culprit.
Now that the postal service is going bankrupt as a result of the 20th century retirement scheme, what's next? The police? That already happened in a few California cities. Teachers? Look what's going down in North Carolina. The talk on both sides of the Atlantic continues to focus on bank solvency, debt ratios, costs of borrowing, etc. Yet these debates won't amount to much if we can't transform this mindset of retirement into one of active, healthy, and productive aging. As long as we treat our 65-and-over (or even 55) segment as an economic deadweight, we're doomed.
If the United States is to prosper in the 21st century, then we must face demographic facts. Our outdated retirement system--not email, not online bill pay--brought the USPS to a ruinous state. In this Postal story, we read a lot about the heavy costs of a “snail mail system”, or an extra 2 cents on a stamp.
But we’ve seen nothing about restructuring the retirement and pension system, which is the real weight that’s breaking it. If we can get innovative on that one, the Postal Service could transform from a relic of the 20th century and lead us in the 21st on how to turn our aging populations from retired dependents to active economic contributors. It is this solution which will also give our country the competitive advantage globally as so many of our friends in Europe and Asia face these very same aging population challenges.