Just a few years ago, very few people knew or discussed the Jones Act. Now everyone is talking about it. In a colossal but somewhat predictable fiasco, while Puerto Rico was being pummeled by Hurricane Fiona, the Jones Act prevented a cargo ship from docking off its coast to deliver some 300,000 barrels of much-needed diesel fuel. The Act dates to 1920 and is formally known as Article 27 of the Merchant Marine Act. It regulates “cabotage”—a word that sounds sinister but isn’t. Cabotage is territorial maritime commerce between ports within a country. Eighty percent of the world’s coastlineshave cabotage laws. The Jones Act stipulates that those goods traveling between U.S. ports must travel on U.S. ships, constructed in the United States, owned by U.S. citizens, staffed with a crew of U.S citizens or U.S permanent residents—and be flying an American flag.
Last week, as Hurricane Fiona ravaged Puerto Rico, Governor Pedro Pierluisi petitioned President Biden to allow a ship flagged with an open registry, which means it was not registered as a U.S. ship, to deliver diesel at a port in Ponce. The ship had previously been headed to Europe but made a diversion to Puerto Rico. This is the second waiver of the Jones Act in Puerto Rico in five years; the last was offered by President Trump in 2017 during Hurricane Maria.
The Jones Act is promulgated under the guise of national defense. Without much effort we can make anything fall under the category of national defense. It plays to political interests well because it stokes the fears of the moment. For example, some claimed during the COVID pandemic that mask production was a matter of national security, and so all masks should be made domestically. Economics tells a different story, however, and warns of overly burdensome regulations and their untended but very real consequences.
The unintended consequences of the Jones Act are that it serves special interests; makes maritime commerce more expensive by reducing the number of qualifying ships, which in turn means more trucks on the road to transport goods; and thwarts emergency response efforts, especially to Puerto Rico and particularly during hurricanes. In the pursuit of a free and virtuous society, we want to avoid institutionalizing winners and losers. In this case, the losers are spread far and wide—American consumers and those living in the path of hurricanes. The winners are small and better able to organize politically for the preservation of the status quo. The beneficiaries of the Jones Act include U.S. shipbuilders, merchant mariners, and various merchant unions. The cost is estimated annually to be in the tens of billions of dollars in lost output and uncaptured business revenue. This is a situation of concentrated benefits and dispersed costs. The costs are spread out over the American public and, as such, no one person has a powerful enough incentive to fight against the protective measures. The incentives of the “winners” are very powerful because they stand to gain significantly from the protection, so they lobby quite effectively to preserve it.
The costs of the Jones Act, even outside the egregious incident in Puerto Rico last week, are well known. Vox magazine has referred to it as “protectionism and exploitation at its worst.” The Economist magazine, no bastion of free-market thought, decried it back in April as a protectionist measure that pushes up prices and has almost wiped out domestic shipping. These consequences are catastrophic because they come on the heels of a pandemic that brought its own supply chain and transportation challenges. Further, it exacerbates rising prices in the throes of a 40-year peak in inflation.
The Jones Act does not serve American national security interests, nor does it serve Americans. Rather, it institutionalizes privilege, and it makes the rules governing shipping both complex and murky. It imports scientism into maritime commerce, placing an exaggerated trust in the central planners and their methods to know not only what is best but how best to solve large-scale problems. It should strike us as ridiculous that we need the permission of the president of the United States to have a ship dock to deliver needed gas supplies during a hurricane. The policy takes something simple and bureaucratizes it when what we need is to democratize the process of maritime commerce in an effort to discover the best ways to transport goods to the people who need them.
