"Sink the Jones Act" - An Appeal to Ignorance

A new report from the Heritage Foundation tries to discredit the Jones Act. Nice try.

By Tony Munoz 2014-06-13 09:02:00

The Heritage Foundation’s May report, Sink the Jones Act: Restoring America’s Competitive Advantage, is an exercise in pure laissez faire economics. Authored by Brian Slattery, Bryan Riley and Nicolas Loris, the writers seem unable to differentiate between, among other things, U.S. cabotage laws and the international transport of government cargoes by the U.S. Merchant Marine. They also ignore the fact that the maritime industry does not operate on a level playing field.

The report begins by calling the Jones Act a legislative gift to a select few that increases costs and stifles competition for everyone else. It states that the Jones Act fleet can no longer fulfill its intended national defense mission because it numbers just 90 vessels. It cites the Ready Reserve Fleet as another example of why U.S. cabotage laws should be repealed, stating that 30 of its 46 ships are foreign-built.

It categorically dismisses the national security benefits of the Jones Act as simply “nonsensical” despite repeated testimony to the contrary by top civilian and military officials.

The report attacks the shipbuilding and commercial sectors next, arguing that the Jones Act’s ability to sustain U.S. naval superiority is an antiquated idea and that only one U.S. yard builds both warships and commercial ships. It states that foreign ships and mariners are less costly, as if this were something we didn’t already know, and that the country would be better off ceding its U.S.-flag operations to foreign competitors.

However, it begrudgingly admits the Jones Act is not the sole driver of cost differentials in U.S. commerce because U.S. shipbuilders and vessel operators face higher tax rates and operating costs along with burdensome environmental and other government regulations that foreign competitors do not.  

It concludes by stating that repealing the Jones Act would save the U.S. economy $682 million per year.

False Distortions

What the report fails to acknowledge is that the U.S. maritime industry has never been stronger. New vessels are being built. New jobs are being created, and new trade routes established. America’s transportation needs are growing, in large part due to the shale energy revolution. And all this is happening not despite the Jones Act but because of it. The Jones Act ensures that the benefits of increasing energy production, a reviving economy and growing transportation requirements go to Americans.  

Sadly, the Jones Act is not alone on the Heritage Foundation’s hit list, which also includes the Food for Peace program, food stamps, reforming student loans, the extension of unemployment benefits, and collective bargaining by federal, state and union employees. The Foundation did, however, support the $780 billion bailout of Wall Street and banks “too big to fail,” which it defended as totally acceptable and vital to the economy.

Yet it is completely silent on the fact that no single executive has faced prosecution while Americans lost more than a quarter of the nation’s equity in stocks, retirement funds and home values. 

The Foundation also supports the $2 billion in subsidies received by the oil industry each year, which it claims are necessary tax incentives. The oil industry as a whole has gotten more than $11.5 billion in tax incentives for depleting U.S. reserves and another $13.9 billion for intangible drilling costs. These incentives are essential to the well-being of the industry, it argues, despite the fact that BP, Chevron, ConocoPhillips, ExxonMobil and Shell still managed to post $93 billion in combined 2013 earnings after exhausting every loophole possible.

During the 2012 presidential election the U.S. Chamber of Commerce, whose national headquarters are directly across from the White House, hung a massive sign from its building that said one thing: “JOBS.” And that’s really the bottom line, isn’t it? The Jones Act is responsible for nearly a half a million U.S. jobs, which equates to about $29 billion in wages and benefits and $10 billion in federal, state and local taxes.

U.S.-flag operators are today investing billions of dollars in new product tankers and articulated tug-and-barge units to service the oil industry. The new tonnage will increase capacity and create thousands of new jobs, which will further stimulate the economy and, ultimately, reduce energy transportation costs.

The Limits of Laissez Faire

The laissez faire arguments of the Heritage Foundation ignore the fact that there is no level playing field in the maritime industry and that U.S. shipyards and mariners must compete against foreign yards and workers who receive massive government subsidies along with lifetime benefits for retirement and health care.

Its national defense arguments against the Jones Act are uninformed and ill-advised. U.S. cabotage is a key factor in national security because American citizens are on domestic waterways and vigilant against foreign threats and terrorism. While the ivory towers of Wall Street peer down on the populace, it is important to remember that Jones Act vessels and American mariners – both voluntary and professional – provided the single greatest sealift of people in history off Manhattan Island during 9/11.

The Heritage Foundation would do well to understand the difference between U.S. cabotage and international deepwater commerce as well as the impact of more jobs on an economy that sorely needs them. – MarEx

Tony Munoz is the Publisher & Editor-in-Chief of The Maritime Executive. He has 30 years of experience in the maritime industry, which includes working for West Coast steamship lines and PR consulting for some of the industry's largest companies.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.