not going to be as simple as that. Insofar as they absorb the additional mailing costs out of their own pockets, they will be able to chalk up 38 percent of the added expense to the Treasury, so that the Government as a whole will only collect 62 cents for each additional dollar charged by the post office. Insofar as the increased costs of mailing succeed in giving a downward push to business. however, the damage will be greater than this initial 38 percent. It would be very difficult to make a reliable estimate of the amount of the reduction in number of pieces mailed that the proposed increases would produce. There would be a substantial reduction in the use of second-, third-, and fourthclass mail under present conditions. This reduction, moreover, would grow cumulatively with the passage of time, as people became adjusted to the new conditions. Each piece of printed matter eliminated reduces profits and employment in the printing, publishing, and paper trades, other than newspapers. A 20 percent reduction in the number of pieces mailed would result in perhaps a 10 percent drop in employment in those industries, and perhaps a 33 to 50 percent drop in their profits. These percentages are offered as guesses on the assumption that perhaps half of all printed matter in the United States, other than newspapers, goes through the mails and that a leverage of 3 to 1 is conservative for profits. To these declines will have to be added the decline in total employment and production, and the resultant loss of incomes previously discussed. There is no simple way of estimating how much income-tax revenue the Treasury would lose by such a cumulative decline in employment and profits. The first impact is likely to be severe; thereafter,, there might come a period of gradual adjustment, but a permanently slower flow of income. The decline in income-tax revenue, plus the increase in unemployment-insurance payments, will in the long run certainly exceed the total net additional revenue obtained by the post office. This becomes self-evident if we take into account the high progressivity of the individual income tax, which means that people pay a rapidly diminishing percentage of tax on declining incomes. VI. PUBLIC POLICY WITH RESPECT TO THE POST OFFICE The proposed rate increases and possible alternative solutions raise major issues of public policy in at least two respects, both connected directly with operations of the post office: namely, with respect to the services rendered and with respect to the efficiency with which these services are rendered. In the foregoing analysis we have proceeded on the basis of three assumptions: (a) That the Postmaster General's estimate of an aggregate deficit of approximately $400,000,000 for the coming fiscal year is reasonable. (b) That the Postmaster General estimates correctly that approximately $150,000,000 of this deficit "would be about equal to the revenue we would obtain if postage were paid on all penalty and franked mail, and if the Post Office Department were paid for free services performed for other departments and agencies of the Government, and if we took into consideration the subsidy in the pay for transportation of mail by air. There could be no justification for passing this cost on to the users of the mail through increased postage rates." (c) That operating economies cannot or will not be put into effect sufficiently promptly or on a sufficiently large scale to make any serious difference to the estimates of expenditures by the Department during the fiscal year 1949–50. (1) As a footnote to the question of efficiency and economies, in the long run it is the policy of all well-managed organizations to reduce the cost of their services to their customers. There is no status quo on efficiency. In the long run, all well-operated organizations can and do reduce costs, chiefly by mechanization, mass-production efficiencies, new inventions. Consequently what we ought to expect from the post office over the decades is continuously better service at lower cost. As an illustration of the benefits to the public that result from a consistent policy of increasing volume and lowering costs, the experience of the aluminum industry is illuminating. (See tagle 6.) The price of aluminum was halved and production rose tenfold in the last 30 years. The Aluminum Co. of America was a monopoly within its own field, jus as the Post Office Department is a monopoly. Moreover, the Aluminum Co. is faced with competition from other metals, just as the monopoly of the Post Office Department is limited by alternative means of communication. Perhaps the operating efficiencies that can be attained by a large distributing organization or a communications enterprise could serve as a closer analogy. Perhaps the American Telephone & Telegraph Co. is a more comparable near monopoly. With growing efficiency and declining toll rates, the number of longdistance telephone calls rose astronomically, giving better service at lower cost to an ever-increasing number of people. Whether the post office has been up to date or negligent in opening up operating economies or in resorting to labor-saving devices is unimportant in this context. The foregoing analogies merely show that the rewards of innovations can be very great in the long run. The inflation of recent years need not have permanent effects on the cost of mail services to the consumer, any more than the effect of previous inflations was permanent for the consumer of aluminum or the user of the telephone. costs and the expenses of doing Wartime inflation has, however, Many goods and services whose It is essential to the American system that things should steadily decline in the long run. produced a major interruption to this trend. prices have gone steadily down as a result of technological improvements or massproduction efficiencies have risen in price in recent years. A small increase in postal rates, after all the infiation of costs that had been experienced, would not have been unreasonable to enact in 1948, while inflation was still in progress, even though the size of the rate increases that went into effect on January 1 may already have overshot the mark somewhat. What is now proposed by the post office is to top the sharp increases of January with still bigger ones. The latter are so large as potentially to change the distribution patterns of the American economy, to reduce the total volume of business, and to weaken the relative position of the rural reader and consumer in the long run. (2) This aspect leads to the second policy consideration: that of the services rendered by the post office as a matter of public policy. City dwellers can protect themselves against cost increases in the mails by walking around the corner to the newsstand, going to the big department stores, or ordering things by telephone. The rural population cannot. Yet, it appears that the services to rural areas are the center of the deficit problem. Accepting at face value the cost-allocation data published by the Post Office Department, it appears that on the first-class post offices-i. e., post offices located in the big cities-the Post Office Department made an operating profit of over $323,000,000 in the fiscal year 1948. Its deficits apparently arose from the collection and distribution of mail through the 39,500 post offices in groups 2, 3, and 4. These latter post offices are in rural areas in which they have no prospect of generating enough mail to pay for their upkeep. If the post office were operating on business principles, these post offices would never have been opened; or, if opened and proved losing, they would have been shut down again. They owe their existence to the fact that the Post Office Department is by statute at least in part a service organization. The maintenance of these 39,500 small post offices is vital to the development of the rural communities involved. The deficit incurred by them, or in carrying mail to and from them, should not form the basis of consideration of postal revenues and expenditures, any more than the deficits caused by franking privileges or other free services should. Not only the items listed by the Postmaster General, but the bulk of the operating cost of thousands of small post offices should be charged to public service, since they were initiated and are maintained for the benefit of rural agricultural communities, without any pretense of commercial profitability. The point at issue here is purely one of Government policy. The small communities can emerge from their relative isolation only if every effort is made to foster their merging into the main stream of American life and activities. While obviously the radio has contributed greatly to eliminating the isolation of such areas, the post office and the postal services are the most direct and the most universal connection that they have with the rest of the economy as well as with the cultural life of the rest of the country. Both publishers and the thousands of mail advertisers, small and large, have benefited from the availability of mail service to these outlying districts. As long as publishing and retail distribution are privately owned, it is inevitable that they should try to operate at a profit and that they should take advantage of whatever opportunities there are to perform a service that will yield a reward to its performer. When the United States Government as a matter of policy considers certain things desirable, it provides incentives to draw people into the desirable occupations. If it is desirable that the people of the outlying areas should become more and more part of the main stream of American life, it must be permitted that people earn a profit from serving more remote areas, whether by buying from them or selling to them through the most economical means available. It is the rural voter, who has no other means than the post office to communicate with the outside world, that is most dependent on the rural postal services. The rates on these rural postal services must be determined so that he should have an equal opportunity with people living elsewhere to obtain access to books, literature, low-cost merchandise, or the necessities of the American standard of living. High mail rates divert advertising, circulating, and distributing efforts from the mails to other distributing channels. That process hurts those most who are most dependent on the mails: i. e., the rural population and the small advertiser. For the rural districts, the reduction of access to markets, the reduced access to reading matter, to new ideas, and the reduced access to low-cost merchandise would represent a major hardship and a major step backward. They would become more isolated, when the tendency for decades has been to make them less isolated, and good public policy would obviously demand that this tendency should continue. Moreover, it is obviously contrary to public policy to put the small publishers and advertisers at more of a disadvantage as compared to their strongest and biggest competitors, which is what mail-rate increases of the proposed type will do. The mail-rate increases proposed are so drastic that they represent a major long-term departure from past policy. To date, the long-term policy of the Government has been to stimulate communication, transportation, and distribution, and to stimulate, as far as possible, competition in business. This policy has produced splendid results in the rapid development of the American economy to levels unattained in any foreign country. Reversing this policy will mean a decline in the rate of growth of the American economy, a lower standard of living than would otherwise be attained. The dislocation it causes will hit the rural areas and the most isolated areas hardest. That to foster a long-term decline in competition, a lower standard of living, and a decline in the rate of growth of the American economy is not the purpose of the Post Office Department is self-evident. What is less self-evident is that the proposed rate increase will do just that. Higher rates would constitute an indirect tax on the printing trades, reduce the tax revenues of the Treasury, reduce the total volume of retail sales, and therefore of manufacturing employment. They would weaken the small publishers and mail advertisers in favor of the biggest ones. They would surround the anyway relatively isolated rural population by a new tariff wall. It would seem that what is needed is: (a) To reaffirm that the post office is in part a national service institution; (b) To make it operate as efficiently and economically as it can, but not on the wholly fictitious principle that it is a business; (c) Under no conditions to pick a time of decline, such as the present, for increasing its rates. TABLE 1.-Treasury cash operating income, gross postal revenue, and national For fiscal years. Source: Treasury Bulletin, January, 1940; January, 1943; February, 1949. The figures for years after 1940 are revised. For fiscal years. Sources: Statistical Abstract of the United States, 1948; Annual Report of the Postmaster General, 1947; House Appropriations Subcommittee Hearings on the Post Office Appropriation Bill for 1950. For calendar years. Source: Survey of Current Business, July, 1948; February, 1949. • Estimated. 1 Annual Report of the Postmaster General, 1947, p. 61. Source: Statistical Abstract of the United States, 1948, p. 485. TABLE 3.-Cash operating income and outgo of the U. S. Treasury Source: Treasury Bulletin: January 1940; January 1943; February 1949. The figures for years after 1940 have undergone a minor revision. (See Treasury Bulletin, September 1947, p. 14.) TABLE 4.-Personal income and disposition of income Source: Survey of Current Business, February and July, 1948; February 1949. TABLE 5.-New orders Index (average month 1939-100) Total new orders. Durable goods industries. Iron, steel, and products.. Machinery (including electrical). 242 209 330 (June). Other durable goods excluding transportation equipment. 276 (September). Source: Survey of Current Business, March 1949, p. S-3. 242 (September) Mr. DEVEGH. Since the statement is available for the record, I would like, if I may, to answer extemporaneously the fundamental question that you raised 5 minutes ago, namely, the question of these long-term policy aspects from the viewpoint of what are the economics of the Post Office, and what kind of a position the Post Office occupies in the national economy, and therefore what ought to be done with it. Senator ECTON. I think that you are the witness that we have been waiting for, Mr. de Vegh. Mr. DEVEGH. Well, sir, I submit as a first proposition that the Post Office Department is one of the largest businesses-I use the word "businesses" in quotes, because it is not altogether a business-but as a business operation it is very large. It has total revenues of something like 12 billion dollars, and there are very few businesses in the country that have yearly revenues of that order. The other thing that we know about the Post Office Department is that these revenues now are three times what they were before the war, or during the depression years, or 211⁄2 times what they were immediately before the war. They have risen with national income, and they have risen with the Treasury cash operating income, as can be seen on this chart. |