The U.S. Postal Service has lost money every year since 2007, and its financial finances aren’t likely to improve any time soon. Thanks to declining mail volume due to greater reliance on email and exorbitant labor costs, the postal service loses billions per year despite a range of benefits that include taxpayer subsidies, a government-enforced monopoly on certain types of mail, and exemptions from state and local taxes.
Yet rather than contract or privatize the agency, some are proposing the terrible idea of expanding it into new sectors of the economy in order to service a social agenda.
Democratic presidential candidate Bernie Sanders suggested in a recent interview that the postal service should get into the businesses of providing loans, particularly to the poor. Existing institutions that provide credit options for the under-banked, such as so-called payday lenders, are facing a regulatory jihad from the Obama administration and provide easy fodder for politicians looking to wage class warfare.
Due to the inherent risks in lending to the poor and others with weak or no credit history, payday lenders have to charge higher interest rates than traditional loans in order to operate. And because their loans are much shorter, those rates when expressed in annual percentage rates like traditional loans appear exorbitant. That’s why Bernie Sanders claims they “rip you off.”
Without those rates, however, the loans themselves wouldn’t be offered. According to an FDIC study, payday lenders earn on average about just nine cents for every dollar lent. Many lenders offering other, less disparaged forms of credit achieve higher returns.
The idea to offer loans through the postal service isn’t new. Sanders’ fellow populist, Sen. Elizabeth Warren, suggested in 2014 that the service could both “provide affordable financial services for underserved families” as well as “shore up its own financial footing.”
This promise of crafting a government agency to achieve both social engineering and financial success is tantalizing, but elusive.
The record shows that such dual mandates are a recipe for disaster. Politicians couldn’t decide whether Fannie Mae and Freddie Mac should be profitable enterprises or serve political goals to increase home ownership among the poor. The agencies tried to do both and succeeded at neither, leading to a housing bubble and expensive taxpayer bailouts.
There’s little reason to believe an already ailing and inefficient postal service will now succeed in the small-dollar loan market while also serving the political agenda of politicians like Sanders and Warren. Expanding the service into new sectors of the economy will do nothing to rectify the problems caused by its status as a government agency. And in the case of banking, it would expose taxpayers to tremendous financial risk.
Congress routinely meddles with the operation of the postal service by preventing closure of little used locations, price varying based on geographical location, or reductions in its costly workforce.
Rather than putting a government-operated postal service into competition with private lenders, lawmakers should finally free it from the government shackles that prevent the innovation and adaptation needed for it to succeed in the 21st century. Numerous nations — including Germany, the Netherlands, Great Britain, and soon Italy — have successfully privatized their postal service systems. American politicians should follow their lead and focus on governing, and leave business to business.