Why can’t you take a cruise on a major cruise line from New York to Miami or from San Francisco to Honolulu or even from Los Angeles to Seattle? What law contributes to the congestion that we see on major U.S. highways, especially on both coasts? What law not only raises the cost of shipping goods within the United States but also creates extra carbon dioxide?
The answer to the first question is the Passenger Vessel Services Act of 1886. It prohibits foreign ships from transporting passengers between two places in the United States. There is a stiff fine per passenger, currently $762, for every breach of this law. The answer to the second two questions is the Jones Act. The law, whose official title is the Merchant Marine Act of 1920, is named after Wesley Jones, the Republican Senator from Washington who introduced the law that year. It does for cargo what the Passenger Vessel Services Act does to passengers. Specifically, it imposes a four-part test for cargo to be shipped by water between two U.S. ports. The ships must be (1) U.S.-owned, (2) crewed by Americans, (3) registered in the United States, and (4) built in the United States.
This is from my latest Defining Ideas article at Hoover, “How the Jones Act Harms America,” October 7, 2019. In the article, I take on the rationale given by Senator Wesley Jones for his act and point out, as other authors have also, some unintended, but completely predictable, consequences of the Jones Act.
By the way, comments on the Hoover site on my Defining Ideas articles are rarely useful, but in this case I get some civil pushback that is worth looking at.
HT2 Peter Goettler, President and CEO of the Cato Institute, for reminding me, in a talk at Palo Alto last month, that the Jones Act is a live issue.
P.S. Whenever I think about the Jones Act, I think about this song that I heard on the radio at a very early age. My mother and I used to sing it together.
READER COMMENTS
Loquitur Veritatem
Oct 9 2019 at 1:24pm
The Jones Act doesn’t harm “America”, it harms some American consumers. It also helps those Americans who are employed by domestic shipping companies. That’s the point, isn’t it?
David Henderson
Oct 9 2019 at 2:34pm
Yes. As I often remind people, the author rarely gets to choose the title.
You could of course point out that I chose the title of this post. I should have chosen a different one. Were I to choose an accurate title and were I not worried about title length, it would have been something like “The Jones Act hurts hundreds of millions of Americans and benefits under one million and the cost to those millions vastly exceeds the benefits to the fewer than one million.”
Michael Stack
Oct 9 2019 at 3:19pm
Well said. Distributional effects of policies are sometimes important, but in a case like this, it should be easy to understand that the costs are spread and diffuse, while the benefits are concentrated in some elements of the US domestic shipping industry.
Rob Quartel
Oct 9 2019 at 9:03pm
Actually, while the industry claims it creates jobs for 400,000 workers, it likely benefits fewer than 5000 people, not the million you suggest. Most beneficiaries work for barge lines — a highly competitive segment. None of them would lose their jobs if the JA were modfied or repealed.
Airman Spry Shark
Oct 9 2019 at 1:31pm
The Jones Act is the poster child for the value of a sunset clauses (or better yet, an Amendment setting a (short) maximum shelf life for Acts of Congress); if a law couldn’t be passed today, it shouldn’t be the law today.
Jon Murphy
Oct 9 2019 at 3:21pm
I’m glad you bring this up. It’s something I’ve been thinking on. I also think that, on the margin, the Jones Act contributes to traffic fatalities given this increase in congestion.
Warren Platts
Oct 9 2019 at 3:37pm
Adam Smith himself described the British Navigation Acts–compared to which the Jones Act is very weak tea–as about the best law the British government ever passed. And the reason for it is national security, and as Commissioner Smith famously said, “defense is of much more importance than opulence.” Thus the cost argument is utterly beside the point. And it’s not that big of a deal anyways. So what if it costs an extra $3/bbl to ship oil? That adds about 6%, far less than the other gasoline taxes we charge. The overall cost to our citizens amounts to literally the cost of a can of beans.
The most important treatise on naval strategy ever written was Mahan’s who stressed that a strong merchant fleet is indispensable for a nation that would presume to be the world’s most powerful naval force. The three rules for prevailing in any military conflict are logistics, logistics, and logistics. Thus the Jones Act should be strengthened, tbqh, along the lines of the olde Navigation Acts: any country that wants to export goods to the USA can do it on a Jones Act ship. That would vastly expand USA’s merchant fleet and ship-building capacity.
But the cost! Again, that is beside the point. And again, so what if shipping costs for imports go up somewhat. At least the money will be made by American mariners, and the increased costs will function as an across-the-board non-tariff tariff, thus protecting U.S. manufacturers somewhat.
As for LNG exports, those should definitely be included under a strengthened Jones Act. One of our best comparative advantages in manufacturing is our cheap energy costs made possible largely by cheap natural gas prices. However, all LNG exports have managed to achieve is to lower natural gas prices for our competitors by like a factor of 3X. Meanwhile, our natural gas producers have still drilled themselves out of business, stock prices are in the tank, and the industry is in yet another bust phase. Also, LNG exports raise home heating and electricity prices for U.S. consumers. While the wonderous low prices of imports are always touted by free traders, somehow the higher cost to consumers of exportables always seems to get lost in the translation.
As for giving up our coasting trade to foreign ships, why stop there? If lowering transportation costs is the summum bonum, then lets hire 3 million foreign truck drivers to drive those 2 million semitrucks, and then pay them $4/hour. Just think of the consumer surplus that would result! The logic is exactly the same. In fact, we are already doing that by allowing foreign flagged ships into our ports. We are bringing in guys without green cards who are doing hard, dangerous work on U.S. soil, and they are not even getting minimum wage. It is disgraceful. We do not even allow foreign agricultural workers without green cards to work under the minimum wage.
As for the benefits of allowing U.S. airlines to fly foreign-built aircraft, that is also highly debatable. You are worried about the pricing power of Boeing, but, then again, where are the McDonnell-Douglases and Lockheeds anymore? Heck, Ford used to be in the airliner business. Forcing our airliner producers to compete with foreign government subsidized builders has reduced competition within the United States. Aerospace dominance is as important as naval dominance. It is not something we can afford to farm out. Because of foreign competition, Boeing, apparently, was forced to farm out the software coding for their main flight control computers to dude’s making $9/hour. And as a result, hundreds of people needlessly died–including my friend Michael Stumo’s beautiful daughter.
As for CO2, that is a complete red herring. The next generation of merchant ships being built in the USA are all LNG powered. Their emissions are half of the old bunker fueled ships. International trade contributes a full 2% of global emissions. If the USA took over the global shipping business, we could lower global emissions by 400 million tonnes per year.
As for the argument that the Jones Act increases semitruck traffic, thus boosting congestion and CO2 emissions, that is hard to believe. There is no need to send a container ship to Boston, and then to Baltimore. Both cities are big enough that they can handle full shiploads. And in any case, shipping via Jones Act ships, pound for pound, is cheaper than shipping by truck. If trucks are preferred in individual cases, that is the result of individual business people making rational choices.
As for the perversity of shipping cattle from Hawaii on airplanes, the globalist free trade system has its own share of perversities, like harvesting crabs in Maryland, shipping them halfway around the world to China for processing, and then shipping the crab meat all the way back to Maryland. In a rational world, does that make sense? Which again shows the fundamental contradiction between wanting to have free trade and wanting to avoid catastrophic climate change through increased CO2 emissions.
Bottom line, though, I appreciate putting the Jones Act out into the public limelight. The message will get amplified, and hopefully we can get a much stronger version of the Jones Act passed!
Mark Z
Oct 9 2019 at 4:21pm
Why not embrace a fully autarkic economy to best prepare ourselves for the constant warfare we apparently ought to expect in the future between industrial powers (in which the strategic relevance of nuclear weapons has for some reason disappeared).
In all seriousness, is there any actual empirical evidence artificially inflating the production levels of civilian air craft and ships increases military readiness, let alone by enough to justify the cost? If not, this sounds like another case of saying “but national security…” as though the mere hypothetical possibility of increasing national security ought to be valued at infinity.
Jon Murphy
Oct 9 2019 at 6:29pm
No, he didn’t. He calls the acts of navigation wise, but does not imply they are “about the best [legislation] the British government ever passed.”
Absolutely not! Not even you believe that; I doubt you’d agree with Mark Z’s reductio of your point.
And besides, Smith certainly doesn’t think national defense takes precedence in everything and that cost is “utterly beside the point.” To do so would undermine his entire discussion in the paragraph your quote comes from. The whole discussion is when it may be “generally” desirable to lay prohibitions/restrictions on trade. These are exceptions to his “system of natural liberty,” rather than rules, and they are general rather than absolute. Smith is very concerned about the militaristic attitude being taken too far, as it often leads to a corruption of morals and tyranny (cf TMS and WN, not to mention LJ(B)).
Smith never deals in absolutes. His whole system is one of propriety. In fact, he explicitly rejects absolutist attitudes and explicitly rejects the militarism absolutism you ascribe to him here as a reason for tariffs (CF WN, Book IV, TMS Part VII).
Furthermore, Smith would (and did) object to your expansion of his support for the acts of navigation beyond the narrow sense in which they were passed (Cf his letter to Lord Auckland, the minister in charge of trade, which he wrote in his official capacity as trade commissioner). He staunchly opposes the expansion of the navigation acts and argues they would not be helpful in the colonies (ie America) since America faces different issues.
Warren Platts
Oct 10 2019 at 3:38am
Jon, here are the exact words of the Commissioner for Managing and Causing to be Levied and Collected His Majesty’s Customs, and Subsidies and other Duties in that part of Great Britain called Scotland, and also the Duties of Excise upon all Salt and Rock Salt Imported or to be Imported into that part of Great Britain called Scotland:
Now, either what Commissioner Smith here writes should be dismissed as the most egregious error in Wealth of Nations, or it is true. I choose to believe Smith had good reasons to make this argument–and furthermore, the argument is especially salient for 21st century United States:
Although we are not in a hot war, a state of violent animosity exists between China and USA, just like existed between Holland and England in Smith’s time. Similarly, it is in USA’s interest to see the diminution of China’s naval power, just as it was in England’s interest to see the diminution of Holland’s naval power. Therefore, it is very proper to give the sailors and shipping of the United States the monopoly of the foreign trade of their own country, just as it was very proper to give a monopoly to the sailors and shipping of Great Britain in Smith’s time.
Therefore–if we are to follow Commissioner Adam Smith’s advice–the Jones Act should be radically strengthened to give a monopoly to American shipping of all foreign trade that enters our harbors. Would this be a major violation of WTO rules? Probably, but so what?
john hare
Oct 10 2019 at 4:12am
When the effect of laws trying to create a monopoly is the virtual eradication of the industry one is trying to protect, I think it fair to call this a poor law that harms the country.
Jon Murphy
Oct 10 2019 at 7:38am
Yes, that is the full quote. Notice in the full quote, and even in several of the stops you make bold, Smith is far, far more subtle and cautious about the national defense exception that your interpretation suggests. He discussed the acts in context of a specific situation and even states that any tariff applied from national animosity would be unwise.
When we couple this quote with the entire context of the chapter and his larger corpus (see my citations above and also my Adam Smith Works article on the matter), his argument that tariffs for national defense may be potentially justified is both highly nuanced and requires a high burden of proof on the part of the government to justify. It is not an axiom, it is not a policy prescription, and it definitely is not an argument to ignore costs.
But all this is beside the point. Merely saying the Jones Act is based off the navigation acts which Smith approved of does not imply the Jones Act is good, wise, desirable, or comparable to the navigation acts. Times have changed. The Jones Act must be evaluated on its own terms.
In short: your appeal to Smith is both incorrect and irrelevant.
Warren Platts
Oct 10 2019 at 3:12pm
That is a misreading of Commissioner Smith’s statement. In fact, you fall victim to the genetic fallacy he is trying to warn you against. What Smith said is that a person could be forgiven for assuming the Navigation Act could have been written hastily out of a spirit of national animosity. But even if that is true, it does not follow that the commercial regulations contained therein are “unwise”. That’s a genetic fallacy: the wisdom of a regulation does not depend on its origin; the wisdom could be the result of pure accident, but that does not change the fact that the regulation is wise. Hence Smith goes on to say that regardless of how or why the regulations were established, “They are as wise, however, as if they had all been dictated by the most deliberate wisdom.”
Jon Murphy
Oct 11 2019 at 10:17am
I don’t see how your comment refutes mine at all. In fact, you agree with it.
True but the approbation of the regulation does (CF TMS, especially Part 7).
Sal Mercogliano
Oct 9 2019 at 8:38pm
Perhaps you should broaden your analysis to look at the history of the act.
When WWI occured, charter rates for ships increased by 2000%, and US goods were piled on the docks.
While the British agreed to transport 49% of the AEF to Europe, they did so out of expedience from the German Spring Offensive of 1918. When it came time to return the AEF, they refused as they diverted their commercial fleet back to the trade routes.
Ther are many issues that account for the decline of the USMM – open registries, interstate highway and pipeline systems, the shift of passengers to airlines freeing up rail space for cargo, the end of differentials in the late 1980s, the shift of the 600 ship Navy to public yards, the defunding of Title XI loans, and the fact that American mariners are paid better than nearly any other one afloat.
While it is easy to take one paragraph from a speech that Jones gave on the entirety of the act, there is much more at play.
If you repeal the Jones Act and end the Maritime Security Program, that eliminates 160 out of 180 ships. Those crews are essential for the surge fleet recently tested and the needed sustainment for American forces stationed overseas.
On the PSSV, are you advocating the use of ships in coastal waters of the US paying wages below standards and in violation of US laws, because that is what it will amount to?
This issue has many facets and the national security aspect was the genesis for the MMA 1920 and its repeal would return the US to a worse position than we were in at the eve of WWI.
https://gcaptain.com/catos-…
Jon Murphy
Oct 10 2019 at 8:54am
Prior to World War 1, the US did not really have an overseas empire (the Philippines excepted). Further, the US was highly isolationist, highly reluctant to focus on areas outside our own hemisphere.
Now, the US does have an overseas empire and one of the largest navies in the world (if not the largest). Repeal of the Jones Act would not “return the US to a worse position than we were in at the eve of WWI.” These ships will not become obsolete overnight.
The justification of the Jones Act as a logistical tool is largely smoke and mirrors.
Jon Murphy
Oct 10 2019 at 9:37am
Let me elaborate on my above point:
If the concern is logistical issues, then the Jones Act is precisely the wrong item to solve that issue.
The Jones Act, by design, acts to give domestic shipbuilders some degree of monopoly (aka market) power in the domestic economy. In other words, domestic firms are complaining that the market price is too low, that they want the ability to raise their prices. So, the domestic government provides them with that power by restricting competition, both foreign (directly through the tax) and indirectly (by implicitly giving domestic firms the right to the value of their profit).
A restriction in competition means that output (in this case, the quantity of ships available in the domestic market) is reduced. In other words, the Jones Act explicitly attempts to reduce, not increase, the number of ships available in the domestic market. That inherently reduces local logistical capabilities. Indeed, we see this in Puerto Rico, where the Jones Act 1) keeps them poorer than even the least wealthy US state, and 2) greatly increased the cost (and thus the quantity) of hurricane relief after Maria last Summer.
Protectionists like to point out that domestic firms’ production of the good likely increases from tariff protections (although that is only true in a static model. In a dynamic model, and one where Public Choice insights are added in, that is not necessarily true), but what they do not discuss is that the total quantity of the good in the market is necessarily reduced. Thus, if the goal of tariffs is to increase the productive capabilities and availability of Good X, they fail by design.
Warren Platts
Oct 10 2019 at 2:39pm
This is an incorrect analysis. Restriction of foreign competition increases demand for home produced widgets, raising their price. The quantity supplied by home producers then increases–that, after all, is the goal. Yes, the overall quantity demanded goes down because of the price increase. But the goal of restricting foreign competition is not maximizing home consumption; rather the goal is maximizing home production. It is a national security argument. Imagine if we depended on Chinese shipping and then get in a war with China: What is going to happen to the quantity of available shipping capacity then?
Professor Mercogliano is correct: eliminating the Jones Act would “return the US to a worse position than we were in at the eve of WWI.” Anyway, the Jones Act will never get repealed because the very idea that we are going to let Chinese shippers paying sailors $4/hour control shipping within the Mississippi River is a political non-starter.
As for the claim that such restrictions grants monopoly power to home producers, experience shows that claim to not be the case. For example, before Trump’s tariffs on washing machines, there were about two home producers: Whirlpool and GE. Now, thanks to the tariffs, LG and Samsung are also making washing machines, thus doubling the number of firms competing behind the tariff wall. Conversely, opening up airliner purchases to government subsidized foreign producers has reduced the number of American producers of large commercial airliners to one: Boeing.
Jon Murphy
Oct 10 2019 at 2:49pm
That is true but nota bene that does not contradict my point. But it does weaken yours: lower domestic consumption necessarily means lower industrial capacity; the gains to the domestic producers will be transitory at best. After all, production only serves a use if it is consumable; the quantity available for domestic use falls.
In other words, my analysis stands: while ostentatiously to foster domestic production, protectionism actually and explicitly reduces it.
The exact same thing as the tariff (do the analysis and you’ll see). A tariff is an act of war done by the domestic government on the domestic citizenry. That is why Adam Smith was so cautious, rather than glib, about tariffs.
That is true. And all the more reason to reject Samuelsonian trade models like optimal tariffs or reject trade arguments like the Jones Act or the whole “they’re just bargaining chips” reasoning.
The second you introduce public choice reasoning like that into Hecksher-Ohlin or Samuelsonian models, those models fall apart.
Except the explicit goal of the tariffs is to give monopoly power, as I explain above and as the arguments for tariff protections by Trump, US Steel, and Warren Platts make explicitly clear. Nota bene, “monopoly power” has nothing to do with the number of firms in a market, by definition (CF any standard textbook, or Sobel & Holcombe, Coase, Murphy, Boudreaux and Folsom, Samuelson, Bork, etc. Pretty much any IO/Law & Econ paper written since 1940).
Warren Platts
Oct 10 2019 at 2:52pm
Excellent post Sal, and I highly recommend interested readers to check out his excellent linked-to article. If there is a problem with the Merchant Marine (who BTW was the service suffered the highest casualty rate during WW2–another reason not to rely on foreign shipping for our national security needs) because of the Jones Act, that is because the Jones Act has not kept up with the times: namely unfairly subsidized foreign shipping and the rise of flags of convenience that allows abysmal working conditions and labor standards on international shipping.
Thus the only question is whether the Jones Act should be strengthened or left alone. Given that the current sad state of the Merchant Marine is due to unfair foreign competition, countervailing tariffs to level the playing field would be a good first step. Yes, this will, perhaps, raise prices for American consumers of imports, but, again, defense is of much more importance than opulence.
Jon Murphy
Oct 10 2019 at 10:20pm
I’m confused: is the Jones Act a failure or is it irrelevant?
If it is true that repeal of the Jones Act would “return the US to a worse position than we were in at the eve of WWI,” then it is an abject failure. This state would mean that the Jones Act has failed to allow the US shipbuilding industry to advance at all in the past century. In other words, it failed in its goal of protecting US shipbuilding capacity and resulted in the standard economist’s prediction that protectionism causes stagnation, not progress.
If it is true that “he Jones Act has not kept up with the times” and yet US shipbuilding has continued to rise and thrive, then the Jones Act is irrelevant in the need to protect US shipping.
In short, after reading yours and Sal’s defense of the Act, I am even more convinced of the need to repeal it.
Comments are closed.