My Two Cents About the USPS and the Fed

My Two Cents About the USPS and the Fed
Morgan Reynolds — January 12, 2006
Printer friendly copy of this article available here.
Nearly every day I hear a pundit on CNBC or read him in the business press saying: “There’s no inflation,” “There’s no inflation in sight,” or “The core rate of inflation, excluding volatile food and energy, is well under control.” The public knows this is all a big lie, of course, as most retail prices march upward but the experts seem not in the least fazed by this fact. The mighty Wurlitzer – the hallowed CIA name for our corporate-government propaganda network – blares on.
By contrast, reality-oriented economists (almost synonymous with so-called Austrian economists) keep the number 95% in mind in the belief that the US dollar – more accurately, the greenback – has lost about 95% of its purchasing power since World War I. Money prices on average, in other words, have gone up about 20-fold. While this order-of-magnitude arises from careful study of commodity and retail prices and tedious construction of price indexes, a remarkable confirmation of the plunging value of our paper dollars arises by looking at the rates charged by the agency nearly every American uses daily, our beloved US Postal Service. On January 8 the snails imposed a “rate change,” as they gently put it, boosting the price of delivery of a first class letter by 2 cents to 39 cents. We were all surprised at this price increase in view of the wondrous USPS productivity improvements we have been told about since its reorganization as a “business” rather than a patronage operation, right?
Consulting the government’s own Historical Statistics of the United States, we find that in 1919 the postal rate was 2 cents for a non-local first class letter. At 39 cents today, the stamp price has gone up 19.5-fold, a spectacular increase. The economist’s 95% general rule of thumb applies quite well here because it takes 37 cents more today to get the same job done as it did in 1919 and 37 cents divided by 39 cents is 94.9%. So in 87 years the dollar lost all but 5.1% of its purchasing power at the Post Office. As recently as 1962 the first class rate was 4 cents, only an increase of 2 cents in 43 years; in the subsequent 44 years the stamp increased 35 cents, or 94.5% of the total increase.
During the 19th century when the dollar was redeemable in silver and gold, imperfect though that money and banking system was, the overall trend in money prices was to decline except during wars. Postal prices fit the pattern. In 1799 it cost 8 cents to mail a one-sheet letter less than 40 miles and 25 cents to deliver it over 500 miles. By 1855 the price was down to 3 cents for delivery of a one-sheet letter 3,000 miles or less and by 1885 it was 2 cents per ounce. Variations in postal subsidies can hardly account for these dramatic price cuts. The fundamental source was economy-wide productivity gains, especially the plunge in inland freight rates. Even a privileged monopoly passes on such huge cost savings.
As you add your 37-cent “first class” stamp to your once-powerful 2-cents, rather than curse the USPS for the debasement, direct your attention to the far more significant cause from Washington, DC, namely, the Federal Reserve Bank, purveyor of cheap money and credit.

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