Bootleggers, Baptists, and The Jones Act

Suppose that a freak Atlantic storm pummels the city of Boston, leaving it flooded for days and cut off from services by land and air—trucks cannot reach it and planes cannot land. But a Canadian transport ship happens to be passing by, loaded with fruits and bottled water, en route from Florida to its home port in Halifax.

What should the ship do?

(a) It should divert from its course and deliver emergency supplies to Boston.

(b) It should do nothing and continue its original trajectory.   

The correct answer is: (b) Nothing. 

In 1920 the United States adopted the Jones Act, requiring that any cargo carried between two US ports be (a) carried only on US-built ships or barges that are (b) mostly manned by US citizens, and (c) that the vessels be owned by US individuals or companies.

Predictably, this regulation has increased shipping costs, raised prices for consumers, and decreased the competitiveness of US shipbuilding companies. It has also led to bizarrely expensive and wasteful but common transport occurrences.

For example:

* Shipping oil from the Gulf Coast to Canada costs $2 per barrel on international ships, but shipping from the Gulf Coast to the US East Coast costs $5-6 on American Jones Act ships.

* After a winter storm, New Jersey faced a rock salt shortage. Officials found 40 tons of rock salt for sale in Maine and a ship available to transport it all in two days. But the ship was flying a Marshall Islands flag, so it couldn't be used. The only US-flagged ship available was a barge that could carry only 9.5 tons per trip. So transporting the salt took 5 trips over 1 month and cost an extra $700,000.

* To get its lumber to Seattle, an Alaskan company found it cheaper to ship from Juneau to Seattle via Tokyo, Japan on international ships rather than directly from Juneau to Seattle on American ships.

The Jones Act was passed shortly after World War I when national security was strongly in everyone's mind. Yet the Jones Act is a classic Bootleggers and Baptists phenomenon, with crony businesses able to profit while other supporters fly the flag of national security needs. Yet while no significant national security needs have been met or materialized from the Act, plenty of connected shipbuilding and shipping companies have blocked competition and collected semi-monopoly rents. Industry incumbents make significant campaign contributions to politicians, and those politicians won't touch the Jones Act.

Geographically remote states such as Hawaii are especially hard hit, as businesses there cannot use competitive international shipping to transport goods between the mainland and Hawaii. (For more information, check out the Hawaii Shippers Council site on the Jones Act and the Grassroot Institute's primer on the Jones Act and its negative impacts on Hawaiian consumers.)

The Jones Act obstructs also emergency aid after natural or manmade disasters, when foreign ships in the area are often prevented by law from offering assistance.

* When the Deepwater Horizon oil rig exploded in 2010, killing eleven people and spilling tens of thousands of barrels of oil per day into US territorial waters in the Gulf of Mexico, foreign ships were prevented from helping with clean-up efforts.

* Hurricane Sandy hit land on October 29, 2012 affecting 24 states along the US eastern seaboard. On November 2—three days later—President Barack Obama issued an exemption. During that three-day gap, no foreign ship could help any of those 24 states by moving supplies or people from one US port to another. Further note that it took a presidential order for emergency help to be allowed. Morally-challenged regulation, indeed.

(A related point about perverse regulatory consequences concerns US state-level licensing requirements: out-of-state plumbers, electricians, and other skilled professionals are forbidden from helping out with disaster relief.)

Wise politicians, however, can and do grant Jones-Act exemptions. A special act of the US Senate was passed to allow a sailboat race. In arguing for the exemption, Senator Dianne Feinstein noted the economic benefits to Americans from allowing the race. But if the benefits of a boat race are obvious, why not allow those economic benefits to be realized more generally?

The year 2020 will be the 100^th anniversary of the Jones Act. Will a century of unintended bad consequences lead to its repeal?