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The Public Option and the Post Office

August 16, 2009 at 3:24 pm Matt Leave a comment Go to comments

Zach Lahn of the University of Colorado asks ObamaCare’s public option, and to show private businesses can compete against government services he uses UPS and FedEx as an example:

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But the problem is, as Professor John Lott noted in his book Freedomnomics and in a recent column, the Post Office does EXACTLY what those opposed to ObamaCare is worried about:

A second problem with government-run firms is that they typically engage in what is called “predatory pricing.” Obviously public schools don’t charge anything for students attending them, limiting competition from private schools. Also take the post office. The U.S. Postal Service would often increase its first-class mail rate, where it had a monopoly, to raise money to subsidize its overnight delivery service where it faced stiff competition. For example, it raised first-class mail to thirty-three cents in January 1999 and simultaneously reduced the price of domestic overnight express mail from $15.00 to $13.70, even though it was already losing money at the $15.00 rate. The price, which was lowered in response to increasingly successful competition in overnight delivery from FedEx and UPS Overnight, remained below $15.00 for the next seven years. Clearly the Postal Service was not able to drive its competitors out of business with this maneuver, in part because its on-time delivery record and quality was poorer.

The Postal Service lost money on its overnight deliveries despite advantages that FedEx and UPS could only dream of. The Postal Service is exempt from paying state sales, property and income taxes. And it uses some of the most expensive real estate in the country — rent-free.

And unlike a private business, the government doesn’t have to be profitable and can kill of competition in ways that are impossible in the private sector. Even Senator Sherrod Brown, who has written an entire nutty book about why free markets don’t work and said at his sham health care town hall last week that President Obama doesn’t support single payer, is still smart enough to know what the proposed health care legislation will lead to a single payer system.

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