Sunday, September 25, 2011

Protecting postal service while harassing Google is twisted

Published in The Tennessean, Sunday, September 25, 2011

by Richard J. Grant

While financial markets focus on the latest version of “Operation Twist” in which the Federal Reserve attempts to “twist” the yield curve by reducing long-term interest rates relative to short-term rates, there is another kind of twist going on between businesses that are owned or favored by the government and those that are private. One group is subsidized or protected while the other is taxed or harassed.

The U.S. Postal Service is in serious financial trouble. Like any spoiled child of government, it just can't get the hang of acting like a real business. Despite its privileged position, it faces the prospect of cutting service and very likely defaulting on obligations promised to employees.

Article I of the Constitution gives Congress the power “To establish Post Offices and post Roads;” but it does not give it the obligation to do so. Also, there does not appear to be any command in the Constitution that requires Congress to ban private businesses from delivering first-class mail. But Congress has done just that, thereby giving the U.S. Postal Service a monopoly.

Perhaps Congress should think about this, especially in the wake of Senate hearings held to interrogate Google chairman Eric Schmidt over allegations of anticompetitive behavior. While none of us can remember a time when there was no U.S. Postal Service, most of us had never heard of Google a dozen years ago. Another dozen years from now, neither of these businesses is likely to be operating in the same way if at all.

Whenever a company offers its services with a high-enough quality and a low-enough price to attract the majority of customers in a particular market segment, there is a temptation for politicians and even competitors to hurl charges of monopoly. If “monopoly” means merely “single seller,” then historians would be hard pressed to find any example of a private monopoly that is not protected by government. Certainly Google has a “monopoly” in the use of its name and any technology that it has patented or is able to keep secret. But the same can be said about its competitors in the past, the present, and the future.

The first company to introduce an internet search engine could be said to have had a monopoly at that moment, but it sure didn't last very long. And where is that company now? The freedom to bring your ideas to market means that all existing companies must strive unceasingly to serve their customers better or risk losing them to you. “Lock-in” is never guaranteed when innovators are free to compete.

Ironically, Google offers services that compete with those of the Post Office. But there is a moral dissonance in the different ways that Congress treats the two companies. The Post Office is protected by statute from direct competition to its core product. Until this is changed we will never know how a private entrepreneur might have served this market. Meanwhile, Google faces this threat of competition every day; and a group of senators seem to believe that the company's chairman has nothing more productive to do than to ward off their attempts to look tough on monopoly.

Instead of looking tough and perpetuating the anti-monopoly charade, congressmen would better serve us by focusing on the refinement of laws that actually protect us from theft, force, and fraud – and from twisting.


Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Beacon Center of Tennessee. His column appears on Sundays. E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2011