How to Reform: Postal Service Business Model Doesn’t Work for 21st Century
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Aug 16, 2011
The U.S. Postal Service has been struggling financially for years, and on Friday, it presented a plan to Congress that would cut the USPS workforce by more than one-third by 2015. The federal government needs to decide if the postal service is a business or a welfare/charity organization. It’s trying to run a 1920s business in a 21st Century economy.
Congress is not allowing the postal service to make the business decisions it needs to make in order to be competitive today. These decisions include having control over closing post offices, laying off workers, and the price of postage.
The current system is poorly configured with archaic facilities in the wrong places. Post offices should be where people go, like grocery stores and malls, so people don’t have to make a special trip.
In order to compete with UPS and FedEx, the postal service needs to meet their standard of quality. It needs to develop a strategic goal of delivering all the mail in every significant community in the United States within 24 hrs. It can’t develop a strategy like that with Congress micro-managing its affairs. Delivery quality is already poor, so a solution like moving to a three-day delivery schedule would be suicide.
The real responsibility of government is to make sure that we have the means to communicate with each other, and physically move goods from one place to another. However, it’s not the government’s role to provide that service.
Uncertainty Causing Lackluster Economic Growth
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Aug 26, 2011
Associate Professor of Economics, Duquesne University
The threat of increased regulatory requirements, combined with the threat of increased tax rates, as well as anticipation of the health care overhaul coming into effect in 2013 is causing businesses and consumers to sit on the sidelines.
Consumers and business owners don’t want to make big ticket purchases or undertake new investments if the future is uncertain. To the extent that we even have growth in the upcoming year, it is going to continue to be lackluster because of uncertainty.
While there is some good news in the latest revisions of the second quarter GDP numbers, with our standard of living improving because the economy grew faster than the population, the bad news is that the growth is much smaller than we would expect coming out of a recession.
In the past three years, the economy has experienced more uncertainty – both due to random natural events, like the earthquake in Japan, and self-inflicted events, such as new fuel standards, new financial regulations and regulatory bodies, new health care taxes – than it has in decades.
IL Pension Battle Will Fall on the State's Constitution
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Aug 23, 2011
Even as Illinois’ legislature considers addressing major pension reform this fall, Mercatus Center economist Eileen Norcross, who has researched Illinois’ budget, says that the real obstacle to reducing the massive liability facing the state is the debate over Illinois' 1970 Constitution.
“The state’s Constitution has been interpreted by at least one retired appellate judge as guaranteeing a pension plan as specified in formula on the day a worker is hired and that the benefit formula cannot be changed,” said Norcross.
“If this interpretation is correct, then that leads to a politically difficult but ultimately necessary rule change,” she said. “In Illinois, pension reform is a matter of constitutional clarification or modification. Absent that, in a few short years, we will discover how these benefit promises will be settled.”
“The bigger the state allows the liability to get, the uglier the solution will have to be,” said Norcross. “There is a glimmer of hope if the state is willing to press on the rule that prevents it from making serious changes. Modifying benefits for future workers doesn’t help, as they don’t need pension payouts for 30 years. The problem is now.”
Should We ‘Stay the Course’ with Fannie, Freddie?
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Aug 17, 2011
Economists and policy experts are questioning the Obama administration’s call for a continued government presence in the U.S. mortgage market, citing concerns that Government Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac aren’t the way to save America’s sagging housing industry.
“The overall sense of some that Fannie and Freddie serve some vital ‘public service’ is a clear demonstration they simply do not understand the issue,” said Satya Thallam, director of the Mercatus Center’s Financial Markets Working Group.
“These GSEs are not a ‘helping hand’ for the poor and middle class – they’re a subsidy from low-cost Midwestern areas to the coasts,” Thallam said.
There’s also concern that continuing to preserve the role of GSEs could inevitably lead to another bailout.
“We can’t simply wave our hands and say ‘we’re not going to bail you out again.’ Pretty much everyone in the Bush administration would’ve felt confident saying that prior to March 2008,” cautioned Thallam.
More to the point, the Treasury Department might have to accept a bailout even if they want to resist calls for one in the future.
“By explicitly backstopping mortgage-backed-securities, they have essentially tied their hands should we see another liquidity crunch,” he said. “Stoicism doesn’t wear well on a Treasury Secretary in a time of crisis.”
The broader issue, according to Thallam, is that our housing policy in general is focusing on the wrong issues.
“This whole idea, for example, of the 30 year fixed-rate-mortgage as the Holy Grail of mortgages just gets repeated without any consideration,” said Thallam. “A reasonable position to take is that, absent explicit federal support for this type of product, it’ll still continue to exist but have a smaller market share. Even if it did disappear completely once we wind down the GSEs, wouldn’t that tell you something?”
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