Someone please give Phil Herr at the GAO a Xanax.  The guy has been focused on USPS doomsday scenarios for so long, it’s apparently making him depressed and clouding his vision.  His new GAO report paints a dire picture of the Postal Service’s future, but it’s based on numbers that seem to be pulled out of thin air.

A few days ago, Herr gave the Senate’s Committee on Homeland Security and Governmental Affairs a new GAO report on the Postal Service entitled “Mail Trends Highlight Need to Fundamentally Change Business Model.”  The report is intended to inform Congressional leaders about how bad the situation is and to provide guidance about what to do.  Its effect, however, will be to heighten the hysteria on Capitol Hill so that only “fundamental” restructuring changes are considered.

And what might those changes be?  The report proposes three: (1) turn the Postal Service into a government-subsidized federal agency (read “taxpayer-funded bail-out”); (2) keep the current structure but give the USPS “additional flexibility” (so that it can “revise” the universal service obligation, outsource more business, close 16,000 post offices, and put 225,000 workers out of work), and (3) privatize the Postal Service completely.

If you’ve been following Herr’s GAO reports and his testimonies to Congress, there’s not much new here, except perhaps the way privatization is increasingly seen as a viable option.  But the numbers in the report are worth noting.

The report begins, “Total mail volume is projected to decrease by 25 percent, First-Class Mail is expected to decrease by 50 percent, and Standard Mail volume is projected to remain flat. While dire, USPS’s projections could prove optimistic if communication continues to move to digital technologies as quickly as in the recent past.”  Accompanying this prediction is the following table.

The table indicates the total mail volume for 2020 is projected to be 127 billion pieces.  But where does this number come from?  The “source” simply states, “USPS,” but that doesn’t help much if you want to locate the data or analysis on which the forecast is based.  The sidebar for the GAO report says, “This summary is based on GAO’s past work, including GAO-11-278 (High-Risk Series: An Update) and GAO-10-455 (USPS: Strategies and Options to Facilitate Progress toward Financial Viability).”  But what do we find if we turn to those earlier reports?

Both of these reports state that mail volume in 2020 is expected to be not 127 billion pieces a year, but rather 150 billion pieces.  The “High Risk” report (Feb. 2011) states, “USPS expects mail volume to decline further to about 150 billion pieces by 2020” (page 44).  And the “Strategies and Options” report contains the following chart showing the same thing (page 8):

The Postal Service’s 2010 Annual Report projects 2020 mail volume around 152 billion pieces in a “best case” scenario.  This projection is consistent with (and perhaps partly based on) a report done in March 2010 for the USPS by Boston Consulting Group, which also predicted a drop in total mail volume to 150 billion pieces, as seen in the following chart:

The BCG report does state that volumes could drop even further as a result of a “sustained period of zero economic growth” (like Japan’s Lost Decade) or the kind of online diversion experienced in the most “Internet-enabled” European countries.  Similarly, the USPS 2010 annual report says a “worse case” scenario might be as bad as 120 billion pieces.  But these are all “worse-case” scenarios, and the new GAO report says its numbers “could prove optimistic” — in other words, they are not part of a worst-case scenario.

Yet somehow the Postal Service and the GAO are now predicting a total volume decline far worse than the BCG report and the GAO’s earlier reports, one of which came out just a few months ago.  Has Internet use skyrocketed over the past few months?

Turning to first-class mail, which is hurting the most, the BCG chart indicates that first-class will continue to decline and fall to about 50 billion pieces a year by 2020.  That’s somewhat worse than projected by the earlier GAO reports, which predicted 58 billion pieces in 2020, as shown in the following chart (from “Strategies and Options,” page 9):

Yet for some reason not explained in its new report, the GAO is now predicting that first-class mail will drop from 78 billion pieces in 2010 to 39 billion pieces in 2020.  Here’s the chart provided by the new report:

Where are these numbers coming from?  Why has the GAO revised its 2020 prediction for first-class mail from 58 billion to 39 billion?  Wasn’t the earlier prediction bad enough?  The “source” says “GAO analysis of USPS data,” but where’s the evidence for these new projections?

The 2020 numbers for both total volume and first-class mail seem to come out of thin air, and the air must be pretty thin in the atmosphere of heightened hysteria that they’re breathing over at the GAO and L’Enfant Plaza.  But it’s easy to make up dire forecasts, especially when it serves your interests and puts everyone in panic mode so that you can justify radical restructuring.

“Electronic diversion” to the Internet is constantly being blamed for recent declines and dismal predictions for the future.  As the GAO report reminds us, “the use of mail will continue to diminish as online communication and e-commerce expand.”  But who can really say how much of an impact the Internet will have on the mail over the coming decade?  As the chart from the BCG report suggests, standard mail may actually increase, and e-commerce depends on low-cost parcel post, available only from the USPS.

If you look at mail volume before the recession began, the Internet does not seem to have had much of an effect.  As illustrated by the chart on total mail volumes, 1971 to 2020, volume increased for decades, even as use of the Internet increased.  Only first-class mail was falling before the recession began, but the rate of decline was relatively modest between the volume peak in 2000 and late 2007, when the recession began.  The serious drops in both total volume and first-class occur exactly when the recession started.

If the economy were to improve significantly and mail volumes continued to decline precipitously, it would be easy to say the Internet is the cause.  But we’re not there yet.  The National Bureau of Economic Research may say the recession ended in June 2009, but many economists question that, and the economy is still in deep trouble.  As long as we’re stuck in this slump, it’s simply impossible to separate the effects of the economy and the effects of the Internet on mail volumes.  (And it’s downright disingenuous of the Postal Service to use recent revenue declines at individual post offices as one of the reasons for closing the post office — a reason cited in numerous closing notices.)

It would be nice if everyone on Capitol Hill, rather than succumbing to the hysteria being spread by the GAO, the Postmaster General, and Darrel Issa, just took a deep breath and looked at the big picture.  A prolonged economic downturn is not the time for a radical restructuring of the Postal Service.

Simply fixing the healthcare pre-funding requirement created by PAEA would address the short-term deficit problem.  The long-term effects of the Internet will be felt gradually, and they can be addressed by gradual changes in the Postal Service — and that doesn’t need to mean downsizing.  It could mean gradually expanding the products and services provided by the Postal Service in ways that take advantage of its extensive infrastructure and that serve the interests of the American people.

But that’s not what’s going to happen.  Instead, Congress will do exactly as directed by Herr’s GAO report.  It will see the condition of the Postal Service as “dire” at best, and it will look at the three alternatives outlined in his report.  The right-leaning members of Congress will cry “bail-out” and push toward privatization, while the left-leaning members will fight against privatization but be afraid to suggest anything resembling taxpayer subsidies.

The “compromise” will be the middle ground outlined by the report — “revise” the universal service obligation, encourage more outsourcing to private businesses, provide less regulatory oversight, get rid of the mailbox monopoly, end Saturday delivery, pull the USPS out of federal pension and health plans, cut the workforce, expand the network of “alternative retail access points” (Wal-Marts, etc.), close post offices, consolidate processing plants and slow delivery.

The irony is that if the Postal Service does these things, the decline in service will ensure that mail volumes and revenues will fall even faster than the GAO is projecting.  The downward spiral will be unstoppable.  When that happens, you can be sure the GAO and the Postal Service will not take the blame — it will all be the fault of the Internet, just as they’ve predicted.