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Postmaster General Stepping Down
Postmaster General John Potter has announced that he is stepping down. The Washington Post speculates on the reason for Potter’s departure:
It is not immediately clear why Potter decided to step down, though USPS staffers and others in the postal community — a wide fraternity including the shipping industry, labor unions and large retailers — signaled recently that he was likely to go after another record year of financial losses and failing to earn greater management flexibilities from Congress.
When Potter testified before a Senate Appropriations subcommittee hearing in March on the USPS’s desire to drop Saturday delivery, I noted that his comments indicated the need to privatize the U.S. Postal Service.
In his testimony, Potter stated:
If the Postal Service were provided with the flexibilities used by businesses in the marketplace to streamline their operations and reduce costs, we would become a more efficient and effective organization. Such a change would also allow us to more quickly adapt to meet the evolving needs, demands, and activities of our customers, now and in the future.
Of course, Congress has shown virtually no interest in giving the USPS, which is bleeding red ink, the greater flexibility it needs. This makes me wonder if Potter will reach the same conclusion that his predecessor, William Henderson, reached following his departure from the USPS.
Three short months after Henderson stepped down as postmaster general in June 2001, he penned an op-ed in the Washington Post that called for the USPS to be privatized.
Henderson wrote:
But for all the ways in which the Postal Service already resembles a private company, it lacks the advantages of any other corporation, such as being able to turn on a dime when it comes to rate changes, perhaps raising prices at times of high demand and lowering prices to entice customers during traditionally slow times, which for the Postal Service means summer. Today, a price change requires the permission of the Postal Rate Commission — a yearlong process.
And unlike a private company, the Postal Service has a universal service obligation, meaning it must deliver everywhere, six days a week, at a regularly scheduled time, making the delivery even for a single piece of mail, which is not cost-effective. And it means delivering in the Grand Canyon and in rural Alaska and in high-risk neighborhoods and lots of other places where delivery is not cost-effective.
The trade-off is that the Postal Service gets monopoly protection; no private company is allowed to compete with it head to head by carrying letter mail or using the mailbox. It should give up that protection for the greater benefits of privatization.
Henderson’s conclusion still rings true almost ten years later:
I can’t believe that 25 years from now the Postal Service will still be owned by the federal government. But the point is that, as with any government asset, this one needs to be maximized. And that means we need to free ourselves from the usual discussion about controlling costs or keeping rates stable or mailing more, all of which is simply a form of denial about the real issue. The model itself is not going to work for the long haul: It must be changed.
Unfortunately, Congress is still in denial. In commenting on Potter’s departure, Sen. Susan Collins (R-ME) offered the vacuous statement that his successor “must strengthen the Postal Service by cutting costs, enticing more customers and putting this vital institution on a sound financial footing.” Instead, Sen. Collins and her colleagues need to recognize that the USPS model “is not going to work for the long haul” so long as politicians ultimately remain in charge.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- When given the choice, people overwhelmingly entrust their donations to private charities, not the government.
- The federal government is still facilitating zero-downpayment mortgages.
- Federal Reserve employee pay soars.
- Office of Personnel Management director John Berry doesn’t appreciate the fact that regular Americans aren’t enthusiastic about funding generous pay and benefits for federal workers.
- Congresswoman Corrine Brown takes the parochial mindset to a new level by using her power to enrich her own family at taxpayer expense.
Earmarked for Corruption
Florida Times-Union reporter Matt Dixon deserves kudos for his detailed exposé of Congresswoman Corrine Brown’s (D-FL) corruption-tainted earmarking. Since 2008, Brown has sought millions for a non-profit in Jacksonville that employs a lobbying outfit that just happens to have Brown’s daughter Shantrel on its staff.
Brown and her daughter have tried to secure $1.1 million for “streetscape improvements and renovations” at a plaza leased by the non-profit. Rep. Brown is currently requesting a direct appropriation of $1 million for it, but interestingly says on her website that “I certify that neither I nor my spouse has any financial interest in this project.” Okay, but what about her daughter?
As the article explains, this isn’t the first time the Browns have collaborated at taxpayer expense:
The Community Rehabilitation Center is not the only client of her daughter’s that Brown has helped.
In 2006, she traveled to the Republic of Georgia shortly before natural gas importer Itera had stopped supplying portions of the country with gas due to $6 million in non-payments. Over an eight-month period that year, Itera paid Shantrel Brown and one other Alcalde and Fay lobbyist more than $80,000 to work on “international debt issues,” lobbying reports indicate.
The Russian company, which has its U.S. headquarters in Jacksonville, has filed 31 separate federal lobbying reports since 2005. It used Shantrel Brown only during the eight months in 2006.
In a separate 1999 incident involving her daughter, Brown was investigated by an ethics subcommittee after a $50,000 Lexus purchased by African banker Karim Pouye wound up registered in Shantrel’s name. Corrine Brown had lobbied to keep Pouye’s boss, West African millionaire Foutanga Dit Babani Sissoko, out of federal prison after he was accused of stealing $240 million from a bank in the United Arab Emirates. The money wound up in Miami bank accounts controlled by Sissoko. The subcommittee took no action, but in its written report was critical of the Lexus.
Public’s View of Federal Workers
A poll released this week by the Washington Post found that 52 percent of Americans think federal workers are overpaid and 49 percent said they thought federal workers work “less hard” than private sector workers. Also, 75 percent said that federal workers receive better pay and benefits than similar private sector employees.
Post columnist Joe Davidson says the last result in particular left Office of Personnel Management director John Berry “steaming”:
He said he was frustrated that “the Heritage and Cato misinformation campaign has obviously gained traction.” The two Washington, D.C., think tanks have produced widely discussed reports indicating that federal workers are paid too much. A “pretty prolonged misinformation campaign over the last six month leading up to this,” he said, “has worked.”
It’s not surprising that Berry – an individual who has spent his entire career working in government – doesn’t appreciate the fact that regular Americans aren’t enthusiastic about funding generous pay and benefits for federal workers.
While federal workers have received raises in recent years, millions of private sector employees have lost their jobs or have had to take pay and benefit cuts. Joe and Jane Lunchbucket might have less money for their family, but they still have to cough up money to pay for federal raises. If Berry is steamed, many of the nation’s taxpayers are getting burnt to a crisp, as the poll suggests.
An article at GovernmentExecutive.com underscores why Americans think the federal workforce is privileged. Berry’s OPM is “butting heads” with federal worker unions over the ridiculously bureaucratic process of firing employees. Although the article should be read in its entirety to appreciate the eye-glazing details, the fight boils down to OPM’s ability to remove workers who provide false information on official federal documents.
See this Cato essay for more on federal employee pay.
Charitable Donations to the Government
The New York Times took a look at people who voluntarily send money to Washington in order to help pay down the federal debt. Last year, the Bureau of the Public Debt received $3.1 million in such donations. Looking at the federal budget, I found a total of $241 million in “gifts and contributions” for fiscal year 2010.
Charitable donations to the federal government are insignificant when compared to donations made to private charities. A Cato essay on welfare spending points out that Americans contribute more than $300 billion a year to organized private charities and volunteer more than 8 billion hours a year to charitable activities, which can be valued at about $158 billion.
Thus when given the choice, people overwhelmingly entrust their donations to private charities not the government. One can only imagine what donations to private charities would be if government at all levels didn’t confiscate trillions of our dollars in taxes every year.
Warren Buffett, one of the richest men in the world, decided several years ago to leave most of his fortune to private charities. Buffett is notorious for advocating tax increases to support government spending. Yet, when he made the decision to donate his wealth, Buffett went with the private sector instead of the government.
A frustrating aspect of today’s public policy debate is that many pundits seem oblivious to the fact that the private sector could take care of those people truly in need if it was allowed to retain more of its earnings from the clutches of government. The government “crowds out” all kinds of private efforts and resources. If the government were to recede, private sector efforts to aid the needy would expand.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- Could the results of the November elections be a nail in the Obama administration’s high-speed rail coffin? Let’s hope.
- The U.S. Postal Service can’t afford its unions.
- A new study finds that federal and state governments have wasted billions of dollars on subsidies for students who didn’t make it past their first year in college.
- The Obama administration’s plan to fix Head Start with some bureaucratic tinkering is not “almost enough to restore a person’s faith in the federal government.”
- Now is a good time to get rid of farm subsidies.
Note: Chris Edwards will be discussing Downsizing Government on Fox News’ Special Report With Bret Baier on Monday @ 6:00 PM EST.
Good Time to End Farm Subsidies
The Wall Street Journal reports that the agricultural sector is recovering nicely from the recent recession while the rest of the private sector continues to struggle. The counter-cyclical nature of some farm subsidy programs means that the taxpayer bill for the year could be cut in half to only about $12 billion.
From the article:
For many crops, prices are climbing even as big harvests pile up, a rare combination. Farmland values are up while those for some other kinds of real estate languish. Debt on the farm is manageable. Incomes are rising.
And trade, of which many Americans are growing wary, is for agriculture a boon. Asia’s economic vigor and appetites make the farm sector’s reliance on exports—once thought a vulnerability in some quarters—a plus today.
“The farm economy is coming out of the recession far faster than the general economy,” said Don Carson, a senior analyst.
The WSJ article also notes that farmers will still receive direct payments of about $5 billion for basically just being farmers. This subsidy is particularly insulting to taxpayers as the program was created in 1996 to help wean farmers off of subsidies. Instead, these “temporary” payments were turned into a permanent hand-out in 2002.
Better news for taxpayers would be the abolition of farm subsidies. While they obviously remain popular with the beneficiaries and their patrons in Washington, the general public seems to be increasingly aware that the subsidies amount to little more than legalized theft.
Higher Education Subsidies Wasted
A study from the American Institutes of Research finds that federal and state governments have wasted billions of dollars on subsidies for students who didn’t make it past their first year in college. The federal total for first-year college drop outs was $1.5 billion from 2003 to 2008.
Due to data limitations, the figures are only for first year, full-time students at four-year colleges and universities. Community colleges have even higher drop-out rates, and part-time students or students returning to college are more likely to drop out. Therefore, the numbers in the report are “only a fraction of the total costs of first-year attrition the nation and the states face.” Moreover, it doesn’t include the cost for students who drop out some time after their sophomore year.
Federal policymakers from both parties are fond of lavishing subsidies on college students. Proponents argue that without federal subsidies, an insufficient number of future workers will possess the skills necessary to compete in a global economy.
However, a Cato essay on federal higher education subsidies argues that students wishing to attend college already have plenty of incentive to save or borrow from private sources:
Supporters of student aid subsidies argue that higher education is a “public good” that would be underprovided in a free market. However, that is probably not the case. People have a strong incentive to invest in their own education because it will lead to higher earnings. Those with a college degree will earn, on average, 75 percent more during their lifetime than those with just high-school degrees. That is a big incentive for people to save or borrow in private markets to pay for their own college costs. There is no “market failure” here.
In fact, higher education subsidies drive up tuition prices:
It is matter of supply and demand. More and more Americans have sought a college education, which has pushed prices higher. Ordinarily, such upward pressure would be restrained by consumers’ willingness and ability to pay, but as government subsidies have helped absorb tuition increases, the public’s budget constraint has been lifted. Peter Wood, a professor at Boston University noted that federal subsidies “are seen by colleges and universities as money that is there for the taking . . . tuition is set high enough to capture those funds and whatever else we think can be extracted from parents.”
But isn’t it great that Uncle Sam is helping put more young folks in college? Not necessarily:
Many of those additional students may not have been ready, or suited, for college. As evidenced by the rising shares of college students who require remedial work. Further evidence of the problem is that institutions have lowered their standards to adapt to the rise in second-rate students. The American Academy of Arts and Sciences reported that from the mid-1960s to the mid-1990s, college grade point averages grew steadily but Scholastic Aptitude Test scores declined. The share of entering college students who complete degrees has also fallen over the decades. In addition, while college attendance is up, overall adult literacy has barely budged over the last 15 years.
The essay also notes that college students devote 3.2 hours to education on an average weekday, versus 3.9 hours to “leisure and sports,” and that the six-year graduation rate for bachelor’s students is only about 56 percent, indicating that many students are not very serious about education.
Just as housing subsidies incentivized people to purchase homes that they otherwise shouldn’t have, higher education subsidies have incentivized people to go to college who weren’t ready or suited for it. In both cases, the cost to taxpayers has been substantial while the alleged benefits have proven illusory.
Obama and Infrastructure
The President is continuing his push for the federal government to go deeper into debt in order to fund infrastructure projects. While nobody disputes that the country has infrastructure needs, the precarious nature of federal and state finances indicate that policymakers need to starting thinking outside the box. Specifically, policymakers should be looking to make it easier for the private sector to fund and operate infrastructure projects.
As my colleagues Chris Edwards and Peter Van Doren have explained, the main problem with government infrastructure spending is the lack of efficiency:
More roads and transit capacity may or may not make sense depending on whether the benefits exceed the costs. One sure way to find out is to have private provision and user charges. If users are not willing to pay the costs of extra or newer capacity, then calls for taxpayer involvement probably imply subsidy of some at the expense of others rather than efficiency.
A lot of what the the president wishes to spend taxpayer money on — for example, high-speed rail — is of questionable economic value. Unfortunately, policymakers all too often allocate resources on the basis of politics rather than economics.
For more on this topic, interested readers should check out our essays on the Department of Transportation. Also, an essay on privatization argues that “The benefits to the federal budget of privatization would be modest, but the benefits to the economy would be large as newly private businesses would innovate and improve their performance.”
November Nail in Rail Coffin?
The New York Times offers an unintentionally hopeful story on Republican candidates running for governor who could become significant obstacles for the Obama administration’s high-speed rail agenda.
As I recently discussed, Wisconsin GOP gubernatorial candidate Scott Walker has taken the position that Washington can keep the $810 million it allocated for a “high-speed” rail line between Madison and Milwaukee that would operate at speeds achieved in the 1930s. The Times article shows that Walker isn’t alone:
Similar concerns are threatening to stall many of the nation’s biggest train projects. In Ohio, the Republican candidate for governor, John Kasich, is vowing to kill a $400 million federal stimulus project to link Cleveland, Columbus and Cincinnati by rail. In Florida, Rick Scott, the Republican candidate for governor, has questioned whether the state should invest in the planned rail line from Orlando to Tampa. The state got $1.25 billion in federal stimulus money for the project, but it will cost at least twice that much to complete.
And the nation’s most ambitious high-speed rail project, California’s $45 billion plan to link Los Angeles and San Francisco with trains that would go up to 220 miles per hour, could be delayed if Meg Whitman, a Republican, is elected governor. “In the face of the state’s current fiscal crisis, Meg doesn’t believe we can afford the costs associated with new high-speed rail at this time,” said Tucker Bounds, a campaign spokesman.
Whitman is right: California can’t afford high-speed rail, nor can the rest of the country. A Cato essay on high-speed rail notes that it would cost around $1 trillion to build a nationwide system of high-speed rail. That’s a lot of other people’s money to spend on a mode of transportation that “would not likely capture more than about 1 percent of the nation’s market for passenger travel.”
Randal O’Toole nicely sums up why high-speed rail doesn’t make any sense:
The history of transportation shows that we adopt new technologies when they are faster, more convenient, and less expensive than the technologies they replace. High-speed rail is slower than flying, less convenient than driving, and far more expensive than either one. As a result, it will never serve more than a few marginal travelers.
In the meantime, Amtrak — the poster child for bad federal transportation ideas — recently unveiled a $117 billion, 30-year “vision” for high-speed rail in the Northeast Corridor.
From the Washington Post:
At a news conference at Philadelphia’s 30th Street Station on Tuesday, Amtrak President Joseph Boardman said the proposal is at the visionary stage, and there’s no funding plan in place. It aims for high-speed rail by 2040.
Of course Amtrak has no funding in place – it depends on taxpayer subsidies to remain in operation!
As a series of Cato essays on the Department of Transportation demonstrates, policymakers should be focusing on getting the private sector more involved in the financing and operation of transportation.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- The variation in welfare enrollment among the states points to the desirability of handing off all responsibility for anti-poverty programs to the states.
- A recent stack of audits is a reminder of the bureaucratic bungling that comes with government programs, particularly at HUD.
- Instead of spreading transportation subsidies across every form of transportation, the federal government should cease with the seemingly endless interventions and allow free individuals to figure out what makes the most sense.
- We celebrate the beginning of hockey season with a look at fiscal policy north of the border. First, the Canadian economy boomed during the 1990s and 2000s as government spending was dramatically reduced. Second, the Canadian experience illustrates that a lot of progress can be made if even modest cuts are implemented and then spending is constrained so that it grows at a slower rate than the overall economy.
Unfair Subsidies for Buses
Cato essays on the Department of Transportation contain a common theme: federal subsidies for various modes of transportation have stifled privately funded and operated alternatives. One emerging bright spot is private intercity bus companies.
From a Cato essay on Amtrak subsidies:
If Amtrak is privatized, passenger rail will be in a much better position to compete with resurgent intercity bus services. The rapid growth in bus services in recent years illustrates how private markets can solve our mobility needs if left reasonably unregulated and unsubsidized. A Washington Post reporter detailed her experiences with today’s low-cost intercity buses: “This new species offers curbside pickup and drop-offs, cheap fares, clean restrooms, express service, online reservations, free WiFi and loyalty programs . . . The bus fares undercut Amtrak and, depending on the number of passengers, personal vehicles.”
That’s why a story out of Minnesota is disturbing. According to the Duluth News Tribune, Jefferson Lines, which operates a bus line between Duluth and the Twin Cities, received $2.65 million in federal stimulus money to purchase five of the eight buses it has in service. One of Jefferson Lines’ competitors isn’t happy:
That angers Dave Clark, owner of Skyline Shuttle, which provides transportation from Duluth to the Twin Cities. Clark claims it’s unfair for Jefferson Lines to use government money to compete with his business and cut into his revenue.
“When there’s a market and they are competitors, it should be left to the market without government interference,” Clark said. “They could have taken the risk themselves, but they relied on the taxpayer to take the risk.”
The first problem is that federal taxpayers across the country are being forced to subsidize a private bus line in Minnesota. The second problem is that the government is effectively picking winners and losers in the market for intercity bus services. Instead of spreading transportation subsidies across every form of transportation, the federal government should cease with the seemingly endless interventions and allow free individuals to figure out what makes the most sense.
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