Wednesday, August 12, 2009

Obama's UPS and Fedex Argument

This is an attempt to answer the "you can't compete against the government" type of argument that I gave the other day.

Not only does it not answer the version of the argument I was giving, it actually supports my case.

My argument was that, because government bureaus have the power to tax, they will have a larger share of the market than they deserve in efficiency terms, and that this is bad because it results in the service being inefficiently provided overall.

First, these three companies must be comparable in terms of quality of service and cost to consumer, or one of them would be out of business. But the PO needs periodic subsidies from the government (the "trouble" Obama says the PO is always having) in order to compete at all. So it is an inefficient provider, compared to the other two.

Does it have the tiny market share that that an inefficient provider deserves? Of course not. In my village, the PO has its own building, and customers are always there. Fedex and UPS share a part of the local box 'n' ship store, and when I go in no one is ever there.Obviously, there is colossal waste going on here. Quid erat demonstrandum.

Further, if ObamaCorp had a market share similar to that of the PO, it would be truly gigantic. Its creation would represent a change in America of staggering proportions. The town hall demonstrators are right to be yelling.

Obama keeps saying we need ObamaCorp to "keep them [ie., the over 3,000 private medical insurance companies] honest." But in his example it obviously is the two private companies that keep the government delivery service honest, not the other way around!
Here is Lew Rockwell's take on "Obama's slip/gaffe/admission."


The Uncredible Hallq said...

I'm having trouble finding information about what the act even does--the official story Obama is putting forth is that even people on the "pulbic option" will see their costs go down, potentially avoiding this problem, but I can't tell how this is supposed to happen.

Lester Hunt said...

It seems like finding out what the bill does is metaphysically impossible. I've been commenting on the House bill, which is pretty radical, but it sound like it has been superceded by a mysterious entity sometimes called "the Senate bill," which is apparently not available to the public.

One mystery that just showed up: just before the above clip begins, BHO says something like " ... if the public option is self-sustaining, if it pays for itself ...". Whoa! That's a new one on me! Getting no money from the government seems to be inconsistent with the distributive justice notions that drive the plan in the first place. Also, everyone knonws the postal service (his example) can't pay for itself in the face of private competition, so it is not at all clear what he is talking about.

As to the public option making costs go down (something we do not normally associate with a shift from private to government provision of a good or service), I can find three things that he might be thinking:

One is that the US spends more per capita than in Euro welfare states on medical care, and that this plan would somehow have the same lower costs that they have (even though it is obviously different from them in various ways).

Another is that Medicare and Medicaid use their monopoly power to deliberately pay lower-than-market prices for everything, and this plan would do the same thing.

Yet another is probably the "keep 'em honest" notion: that competing with Supermedicaid would give the private providers the option: charge lower prices or die!

Maybe I should post about this!

pappy d said...

All these private delivery services seem to be competing just fine with the USPS.

The PO was never meant to be efficient in the market sense. It's required by law to serve as the mail carrier of last resort. It's under a mandate to provide weekly rural mail service to everyone by any means necessary for the price of a stamp. Before FedEx, the urban markets had been subsidising delivery to the vast hinterland. It's no wonder private carriers came into the profitable part of the market & ate their lunch. Now the taxpayers have to pick up the slack.

It's not just the villages, either. If a local bush pilot is needed to fly a weekly circuit to deliver mail to 4 families in Idaho, the contract shouldn't be paid in D.C. If they paid their way, maybe they'd settle on delivery every 2 weeks or paddle & portage to the nearest PO. If it costs them market prices, FedEx & UPS will compete for the business.

It seems beyond the power of US democracy to solve the issue equitably. Idaho may have barely 2 congressional districts, yet it has just as many senators.

It's got to be tricky to set up checks & balances against popular rule without inviting this sort of corruption.

Anonymous said...

Wilson nationalized the railroads. By the 1920's this became an embarrassment, so consumer freight services were spun off into a government-backed venture called Railway Express. The Post Office Dept. and other carriers were forbidden by law to undercut REA's fee structure, to keep it solvent. By the early 50's this proved unworkable; Congress removed the no-compete clause on private carriers--WITHOUT removing the restriction on the POD. On the effective date of that bill, UPS was formed. UPS grew to greatness under an umbrella of federal protection.

UPS and FedEx do not compete with USPS, they compete with the now-defunct Railway Express Agency.

Certainly Obama's comparison was inapt [and inept], but there's a great deal to be learned from the real history of American postal service. It's a pity that the fun of the post office joke inspires widespread ignorance of such a wide-reaching venture.

Anonymous said...

Last I looked, the USPS delivers a one oz letter for 44 cents while FedEX and other carriers charge a minimum of 2 dollars for their version of a priority envelope. Of course if federal mail service was not subsidized, we may think twice about how much mail we send or how much junk mail businesses flood us with.

Michael Milken had the best argument: At the turn of the 20th Century the hospitals were overburdened with pneumonia and typhoid patients which was the leading cause eof death. Improved sanitation, hygene and other low cost measures made these diseases disappear. Today the health care system is overburdened with disease caused by the poor diet corporate America feeds us and they "cure" us with costly high profit prescription drugs. You can see where his argument takes us and it's a good one.

However if the American diet improved drastically we would all live to one hundred and social security plus other entitlements would go broke soner. Better to kill us earlier for profit than let us live longer for bigger deficits.

Anonymous said...

Check this one out:

Lester Hunt said...

Wow, that's remarkable. My wife just said, "this is a great day for chubby women everywhere."