Curtain closing on Jones Act

From Grassroot Institute, September 28, 2019

Economic theory declares that protectionist laws drive up costs and prices.

Such is the case with the Jones Act, that 1920 federal maritime law well known to many of us in Hawaii for requiring that all goods carried between U.S. ports be transported on ships that are American built, owned, crewed and flagged.

The Grassroot Institute of Hawaii has long held that the Jones Act is one reason for Hawaii’s high cost of living. We have long recommended that the law be updated for the 21st century, to help lower prices for Hawaii residents and others across the nation who rely on ocean carriers for most of their goods.

Amazingly, there are people who try to dispute the negative economic effects of the Jones Act, which is why it is good to see new research demonstrating that it does, indeed, harm consumers.

What makes the new research even more exciting is the fact that it comes from Hawaii’s own UHERO, aka the Economic Research Organization at the University of Hawaii. 

In a working paper released this month, UHERO research fellow William Olney examined the economic implications of the Jones Act and found that, contrary to one of its goals, both the number and capacity of Jones Act ships has steadily declined in recent decades, which in turn has reduced domestic water shipments between the states. 

Specifically, Olney said, “a 10 percent decline in the capacity of [Jones Act] ships reduces the value of domestic waterborne inflows by 4.7 percent, relative to inflows via other modes of transport.” On the mainland, this has meant shippers turning to less-expensive trucks, railroads and airlines to deliver their goods.

Hawaii, unfortunately, has virtually no alternatives to ocean carriers for bringing in all of the supplies it needs; according to Olney, our national share of waterborne shipments is 19%, exceeded by only Alaska’s, at 31%.

But to what extent is the Jones Act responsible for higher prices? Olney estimated that the decline in Jones Act ships was responsible for 2.6% of the "observed increase in consumer prices in coastal states," including Hawaii, from 1997 to 2016, when the CPI in those states increased overall by 52.6%.

Now, 2.6% might not sound like much — and future studies might show that to be a lowball figure — but it could have been equal to billions of dollars for Hawaii consumers over that time period. Worse, the Jones Act is regressive, like the state’s general excise tax, so hurts Hawaii's low-income residents the most.

Other Jones Act drawbacks cited by Olney include encouraging what is known as “the substitution effect,” whereby U.S. buyers acquire goods that can be delivered less expensively from abroad rather than domestically. This is ironic because Jones Act defenders claim that the law protects American jobs, but actually it has the perverse effect of encouraging more foreign imports rather than supporting U.S. industry.

In addition, Olney finds that by incentivizing domestic shippers to use trucks, railroads and airlines, the Jones Act helps increase highway congestion and encourage transportation options that are more damaging to the environment.

Olney’s study may seem like a complex way of getting to an intuitive truth, but that’s what makes it so important. As the Grassroot Institute of Hawaii works to educate policymakers on the importance of modernizing the Jones Act, studies like this give us the data we need to change the debate. 

Thanks to research like this working paper from UHERO, we are one step closer to demonstrating why it’s good for American consumers and American business to update the Jones Act for the 21st century.

E hana kakou! (Let's work together!)  

Keli'i Akina, Ph.D.

President/CEO