Debunking the Forever Stamp Meme

In a recent commentary, Newt Gingrich repeated a mistaken understanding of the Postal Service's business and the impact that the forever stamp will have on Postal Service finances.   According to the latest polls, Newt Gingrich is one of the top four contenders for the Republican nomination for President so his comments on the Postal Service need to be taken seriously as they will influence the debate among Republicans about the future of the Postal Service.
Unfortunately for postal stakeholders, Newt Gingrich's comments are problematic in three ways:

• First, they suggest a significant misunderstanding of the business of the Postal Service and in particular the financial impact of the forever stamp.   
• Second, his reference to his comments on the Postal Service that are contained in his book, "To Save America," reflect a dated critique of Postal management that do little more than bash postal employees and their unions without an understanding that his solution would not be sufficient to solve the long-term financial problems of the Postal Service.  
• Third, his comments reflect an understanding of the Postal Service workforce management strategy that has been placed in the waste bin by the new Postmaster General Pat Donohue.

This post will provide some comments on the forever stamps that I hope Mr. Gingrich and others that look to him for guidance for conservative public policy thinking read in order to allow them to begin talking about the Postal Service and its problems in a manner that seriously works to ensure that core delivery component of an industry that employs more than 8 million people and generates sales of well over one trillion in revenue in the private sector.

The Facts on the Forever Stamps

Congressman Gingrich argued that "Congress should block the Post Office from implementing this genuinely dumb move" [making all First Class stamps, forever stamps.]   What Mr. Gingrich misses is that the forever stamp is popular with the Postal Service Customers, reduces the Postal Service revenue minimally and saves significant costs by eliminating transactions for the purchase of 1 and 2 cent stamps when rates change.

The following bullets provide a rough estimate of the lost revenue of the forever stamp.

• The Postal Service in FY 2010 sold $8.8 billion in stamps, most of which were forever stamps.  
• Based upon the calculations reported in the United States Postal Service - Inspector General Report on postage in the hands of public, 69% of the postage sold but not yet used is in the form of unused stamps.   
• At the end of FY 2010 the Postal Service had $2.584 billion in deferred postage revenue.   Therefore, the value of unused stamps is $1.782 billion.
• Unused stamps represent the equivalent of 2.4 months spending on stamps.  This suggests that most "old" forever stamps will be used within three months of purchase.   
• If all unused postage is one-ounce letter stamps, then the $1.782 billion in postage represents 4.05 billion stamps outstanding.
• A rate increase of one cent would "cost" the Postal Service $40.5 million from those not purchasing make-up stamps.

Now, how much would it cost to sell those $40.5 million in 1 cent stamps?   The answer depends on how many people buy at a time.   Assuming that individuals buy ten make-ups stamps at a time, selling make up stamps will involve around 405.2 million retail transactions.    At one minute per transaction, and a clerk's cost of $24 per hour, selling those makeup stamps would cost the Postal Service $163 million.   (405.2 million transactions x $24 per hour/60 minutes per hour)

So getting the $40 million in lost revenue of offering forever stamps would cost the Postal Service $163 million.  The shift was clearly a good business decision for an enterprise looking to cut costs where ever possible. 

Mr. Gingrich needs to reverse his comments on the forever stamp and praise the Postal Service for making this move rather than calling for Congress to overturn it.