Thread on the economics of the Post office

In this thread I will:

1. Explain how mainstream economists justify government programs
2. Explain why they are wrong
3. Explain how this applies to the USPS and why the post office should be defunded, even by their standards

You've probably seen that annoying argument on Twitter: "If we should defund the Post Office, shouldn't we defund the military?"

I'll explain why this argument demonstrates a fundamental lack of understanding of economics.

Imagine you're in Econ 101. You ask the teacher, "Why does the government need to pay for military and roads? Why can't the private sector pay for that?"

She will say, "The government must pay for those programs because they are PUBLIC GOODS."

The term PUBLIC GOODS has a very specific meaning in economics. It doesn't just mean that it does society good to have them. There are lots of things that do good things for society that almost all mainstream economists agree should be provided by the private sector, like food.

To be considered a public good, something must be:

1. Non-excludable

This means it would be prohibitively expensive to keep you from using it. For example, if I clean up the air, there is no way I could prevent you from benefiting from that unless you paid me.

2. Non-rivalrous

This means, if you use the item, it doesn't prevent anyone else from using it. For example, if I use a lighthouse, that doesn't prevent you from also using the lighthouse.

Mainstream economists believe public goods must be provided by the public sector. Why? Because if they are left to the free market, the private sector will not supply enough of that good. I cannot charge sailors for using my lighthouse services, so I won't provide lighthouses.

This is sometimes called the "free rider problem." If the military operates off donations, I might not donate, but I still get the benefit of protection provided by the military. If too many people do this, the military will be underfunded.

This all sounds reasonable.

But why are mainstream economists wrong?

Because they are replacing an imperfect method of allocating scarce resources to public goods with a much worse method of allocating resources.

Economists make a good point that market signals (in the form of payment for lighthouse services) don't fully reflect sailor's preference for lighthouses because of free riders. But that doesn't mean bureaucrats will be better at estimating the ideal number of lighthouses, either

Take military, for example. There is a need for society to have an armed, defensive force. But it is an impossible problem for bureaucrats to determine the ideal amount of resources to allocate to the military.

If military spending was determined by voluntary actions, the military might be underfunded. But compare that to our current situation where bureaucrats and politicians determine military funding. We spend far more than is necessary on a defensive military.

Here is an article, explaining more reasons the "public goods" excuse for government is invalid: https://mises.org/wire/public-goods-excuse-big-government

But how does this relate to the Post Office?

Imagine we accept the Public Goods excuse for government programs. Does the USPS qualify as a public good?

The answer is clearly, no.

Some might argue "The public benefits from having mail delivery." But remember, that does not make it a public good. In order to be a public good it must be:

1. Non-excludable
2. Non-rivalrous

The post office meets neither of those requirements.

1. Non-exludable

It is very easy to exclude people who don't pay for mail delivery from having their mail delivered. In fact, the Post Office already does this efficiently with postage stamps.

It already fails the first test.

2. Non-rivalrous

Mail carriers have a limited amount of time. If I mail a letter, that does decrease the amount of time available to the mail carrier to deliver your letter. That means mail delivery is a rivalrous good.

The USPS fails the second test.

So what is the lesson?

1. Mainstream economists have a persuasive argument for justifying government spending.
2. This argument doesn't hold up to scrutiny.
3. Even if we accept their argument, the USPS isn't a valid government expense.

So how does that relate to that annoying argument? "If we should defund the Post Office, shouldn't we defund the military?" Although I strongly support dramatic cuts to military budget, the truth is it doesn't work. The military qualifies as a public good while the USPS does not.