PMG: Trust us

At the February 7 hearing on the House postal bill, Postmaster General Megan Brennan gave a very clear description of her policy toward future postage rate increases: trust us.

As defined by
Monopoly [muh-nop-uh-lee] 

  1. exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices.
  2. an exclusive privilege to carry on a business, traffic, or service, granted by a government.
  3. the exclusive possession or control of something.
  4. something that is the subject of such control, as a commodity or service.
  5. company or group that has such control.
  6. the market condition that exists when there is only one seller

Ms. Brennan said more than once that she hopes the Postal Regulatory Commission will within the year change pricing regulation from a Consumer Price Index cap to complete freedom for postal management to set rates. This, in spite of the fact that the United States Postal Service is a government-mandated monopoly that is paid $70 billion for its services by mostly-captive customers.

PMG Megan Brennan

Ms. Brennan’s rationale? She cited her belief that before the CPI cap started in 2007, USPS never imposed large price increases. Of course, from 1971 until 2006, there was a robust rate-setting process run by the Postal Rate Commission which set rates based on USPS claims of future revenue requirements litigated over 10 months in a public process. The rates setting process included extensive multi-party analysis and scrutiny, under oath, of USPS finances and operations. That is quite different from a “trust us” process.

Ms. Brennan also contended that a price cap can never work in a network situation. This has been USPS gospel almost since the price cap was put in place, based on papers written and scenarios run that show only doom and gloom outcomes. Of course, alternative scenarios not run by the Postal Service do show positive outcomes with a price cap. It’s all in the assumptions.

Generally, monopolists charge the highest price they can get away with while not worrying about lower than maximum possible volume. Ms. Brennan, however, said that the Postal Service would be different by emphasizing growth and scaling its operations to demand.

Postmaster General Brennan’s testimony should send chills down the backs of every mailer who is watching and anticipating the results of the PRC regulatory review. The Postal Service is going for the brass ring—unfettered monopoly pricing power.