by David Williams
It’s hard to keep track of ever-increasing stamp prices. This month, the U.S. Postal Service (USPS) proposed hiking stamp prices in July from 68 cents to 73 cents, a 7.4% increase. In January, USPS hiked the price of first-class Forever stamps from 66 cents to 68 cents. Six months earlier, the agency raised prices from 63 cents to 66 cents. And six months before that, stamp prices increased from 60 cents to 63 cents. Postal leadership claims that these painful pricing changes are necessary to get the USPS back into the black. But, according to a new report by the non-profit postal watchdog “Keep US Posted,” this revenue-raising gambit is sorely misguided. The USPS cannot solve its dire fiscal issues by gouging hard-working taxpayers and consumers.
America’s mail carrier has tried and failed to use the power of mathematics to figure out pricing. For all the variables that go into the USPS’ pricing equations, the agency completely misses the mark on demand elasticity. Postal bureaucrats assume that, even if the agency continues to hike prices, consumers will have no choice but to keep buying stamps at inflated rates. They are wrong. In the age of the World Wide Web (and prison-bound carrier pigeons), switching away from high-priced stamps is easier than the USPS would like to believe. According to Keep US Posted’s report, “under the current process, the USPS proposes new rate increases before the impact of prior increases can be fully realized. USPS demand models, which are used to justify rate increases, have never been tested in this way. USPS stands to lose considerably from miscalculating its customers’ sensitivity to price.” Keep US Posted estimates that these flawed revenue projections cost the USPS $1.8 billion annually, or roughly one-third of the agency’s $6.5 billion net loss for fiscal year 2023.
The USPS should change its entire forecasting process and embrace greater transparency in pricing stamps. According to Keep US Posted, every January, the “USPS publishes its new demand equations and documentation. In FY2024 there were 63 items in its change log. Such extensive modifications show the large degree of subjectivity when estimating the model.” The USPS should at least explain why such large-scale changes are justified and how such alterations will lead to improved accuracy. Additionally, it’s best practice for researchers to publish a “sensitivity analysis” showing how changes in forecast design (i.e., which variables are included and excluded) can lead to different results. The USPS has failed to explain this, and as a result, researchers have little insight into the strengths and weaknesses of the postal forecasting process.
Most importantly, America’s mail carrier should finally admit that stamp price hikes are not effective for raising revenue. Instead of trying to squeeze more revenue out of taxpayers and consumers, the USPS should take a second look at its costly spending and discounting programs. One problematic program is the “workshare discount” initiative. Each year, the USPS showers $15 billion-worth of discounts on private businesses that perform mailing-related work (e.g., pre-sorting and bar-coding mail) on behalf of the USPS. The basic idea of farming out postal operations and allowing private players to pocket the savings is a solid one, but only if the postage discounts correspond to actual savings. Even though nearly 90% of market-dominant mail (i.e., letters and marketing mail) is workshared, the USPS Office of the Inspector General has found documented savings to be sorely lacking.
According to a February 2024 IG report, the USPS “does not have detailed procedures that document responsibilities for calculating avoided costs and workshare discounts for First-Class Mail and Marketing Mail letters and enable management to effectively monitor those control activities.” In addition, the USPS fails to regularly monitor data inputs that go into its workshare discount pricing models. In other words, the USPS is asking taxpayers and consumers to take a leap of faith and trust that it is properly extending $15 billion in discounts based on mailing companies saving the USPS money.
The USPS needs to figure out a better way to get on firmer fiscal footing. Reassessing workshare savings is a far more promising option than perpetually raising stamp prices. Postal consumers shouldn’t have to mull over carrier pigeons to get their letters and cards delivered.
