Me and Mrs. Jones. We got a thing goin’on. We both know that it’s wrong, but it’s much too strong to let it go now. So begins the 1972 number one single, written by Kenny Gamble, Leon Huff, and Cary Gilbert, and originally recorded by Billy Paul. No truer words can be said about a 100-year-old law that is harming the US economy, while at the same time destroying the very industry it was supposed to protect. Of course, I’m talking about the Jones Act.
I talk a lot about regulations both on the Blog and in our Monthly Manifesto newsletter. (click here to subscribe). This is because righting regulatory wrongs is one of the best ways that the government can boost productivity and economic growth. And there are thousands of regulatory wrongs that can be addressed – both small and large. Small ones are abundant and hopefully rarely enforced. For example, I doubt many police officers write tickets when motorists in Pennsylvania don’t stop every mile to fire a flare in the air. It is also unlikely that the Sheriff in Normal, Oklahoma arrests anybody who decides to make an ugly face at his dog.
But while these ridiculous regulations are simply a waste of paper, other ancient and ill-conceived measures have terrible economic consequences. For example, Section 27 of the Merchant Marine Act of 1920, which was passed by Congress and enacted into law nearly 100 years ago costs consumers and industry billions of dollars every year. This law, known as the Jones Act after its sponsor, Senator Wesley Jones from Washington State, serves as the cabotage law of the United States and requires that all goods transported by water between destinations in the country and its territories, be carried on U.S.-flagged ships, that are constructed in the country, and are owned and substantially crewed by US citizens.
This legacy of the roaring 20’s was designed to help to ensure that the port of Seattle served as the main transshipment point for goods going to what was then the Alaska Territory. And while it was cloaked in language stating that it was designed to ensure that enough American ships were available in times of war, it has witnessed the almost complete disintegration of the nation’s deep-water fleet.
What the Jones Act has done is to hamper the development of the merchant marine and shipbuilding industries in the United States, reduce waterborne coastwise trade, increase prices, harm the environment, and over time has measurably harmed the economy of the Mainland United States and all of its outlying territories and jurisdictions, including most notably Hawaii and Puerto Rico.
We recently conducted a study on the effect of the Jones Act on the economy of Puerto Rico for the Puerto Rico Chamber of Marketing, Industry and Food Distribution (MIDA), https://midapr.com/news/439326/Rechazan-con-datos-la-Ley-de-Cabotaje.htm which we had the pleasure of presenting at a conference at the CATO Institute. (https://www.cato.org/multimedia/events/unnatural-disaster-assessing-jones-acts-impact-puerto-rico) Note that the pudgy one is me.
Our study found that in the case of Puerto Rico alone, the higher costs for shipping imposed by the Jones Act were $568.9 million (per year). This led to $1.1 billion in higher prices for Puerto Rico’s consumers or nearly $375 per resident.
While places like Puerto Rico, Hawaii, Alaska and the outlying US territories such as Guam are the most obviously impacted jurisdictions, the Jones Act also imposes significant effects on the mainland United States. For example, in the past, ships carried passengers between destinations all across the country. Here in New York, the Hudson River Day Line operated passenger service between the City and Albany from the 1860s up until 1971, after which its ships were too old to sail and too expensive to replace with US produced vessels. Those stuck in traffic on Interstate 95 might long for the days when large oceangoing passenger ships carried people daily between New York to Providence, Boston and Philadelphia. The same is true for those traveling between Chicago and Michigan, or from Savannah to Miami. This type of service is no longer possible due to the fact that there are now virtually no US produced or flagged ocean-going vessels that can provide passenger service.
More importantly for the economy, it is difficult and expensive to move freight by water between US ports. Today, rather than shipping oil from Texas to refineries on the east coast by water, pipelines and expensive rail cars must be used. Steel beams used to build the skylines of cities like San Francisco, Seattle and Philadelphia must arrive by truck over very congested and often narrow roads, rather than sailing in on a ship.
While all cargo and passengers would not move by ship were services available, lower costs would encourage at least some to, freeing up congested coastal interstates and crossings. Those lower costs would also pass through to consumers, in effect growing the economy by increasing productivity.
In addition, the current Administration is obsessed by trade deficits, and the Jones Act is one reason why products are imported rather than sourced domestically. It is cheaper to move bulk cargos like salt, sand, steel and grains from foreign ports to the big cities on the east and west coasts by boat than it is to ship them by rail from the midwestern production areas. Service is simply not available from ports in Texas and Louisiana (where barges serving the inland waterways must leave their cargo) due to the lack of ships.
In effect, rather than helping the American shipping industry, the Jones Act has helped to eliminate it as a real force in the world economy. The Jones Act has increases costs for all taxpayers, increased congestion and its associated pollution, and has led to trade deficits. Eliminating this 100 year old regulation would do more for the economy than all of the subsidies that politicians on both sides of the aisle are promoting. But while we all know that it’s wrong, changing laws is difficult. Supporters are simply much too strong to let it go now.