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B R I E F LY N O T E D
Does the Jones Act Endanger
American Seamen?
✒ BY THOMAS GRENNES
The Merchant Marine Act of 1920, more commonly known as the Jones Act, requires (among other things) that all goods trans-ported by water between U.S. ports be carried on U.S.-flagged
ships, constructed in the United States, owned by U.S. citizens, and
crewed by U.S. citizens and U.S. permanent residents. This provision
T HOM A S GR EN N E S is professor of economics emeri-
tus at North Carolina State University.
sion was intended to strengthen the
country’s merchant marine and increase
national security.
Now, nearly a century after the law’s
adoption, there is increasing evidence that
it has the opposite effect. Because Ameri-
can-built ships have become increasingly
expensive, shipping companies are slow to
purchase new ones and, as a result, the U.S.
merchant marine fleet has become older
and less safe. This is an example of the unin-
tended consequences of certain policies. It is
doubtful that the original sponsors or the
current defenders of the Jones Act intended
to create conditions that would increase the
dangers faced by American seamen, but that
has been the result.
El Faro tragedy / A recent tragedy illustrates
this point. In 2015, a Jones Act–compliant
ship, the El Faro, sank on a voyage from
Jacksonville, Fla. to Puerto Rico. All 33
crew members died after the ship sailed
into a hurricane.
The El Faro was 40 years old, 31 years
older than the average foreign-flagged ship
of its type. There was strong criticism in
the press about the poor preparation of
the ship for the conditions, and a sharply
worded article in the National Review asked
if the Jones Act was to blame for the deaths.
If old age contributed to the disaster,
exactly what factors were relevant? U.S.
Sen. Bill Nelson (D–FL) and others com-
plained about the inadequacy of the ship’s
open lifeboats. These lifeboats were once
common, but newer ships rarely use them
today. Others complained that a more
modern ship design would have protected
against the loss of propulsion that left the
crew unable to control the El Faro in the
powerful winds. Previous crew members
claimed the ship was in poor general condi-
tion even after its owner spent $21 million
on service and upgrades. In comments
to CNN, they described
the El Faro as a “rusty
bucket” whose “decks
were filled with holes.”
The Coast Guard
commissioned a Marine
Board of Investigation
that held hearings on
the disaster to investi-
gate its causes, possible
misconduct and viola-
tion of laws, and to make
recommendations to
improve future safety.
The board has not yet
issued its report.
Older ships, greater risk
/ Systematic evidence
indicates that Ameri-
can-flagged ships are
older, and older ships
are less safe. Age var-
ies by type of ship, but
over all types, the aver-
age age for U.S. ships in
2016 was 33 years old,
whereas foreign-flagged
ships averaged 13 years,
according to the World
Maritime News. In every
ship category, U.S. vessels were older.
A recent study by a group at Southamp-
ton University analyzed shipping data for
the last 15 years. It concluded that older
ships were associated with more frequent
accidents. Marine insurers have a powerful
incentive to investigate the determinants
of shipping risk, and their trade group, the
International Union of Marine Insurance,
has compiled data also indicating that
older ships have had more frequent acci-
dents. Signee nations of the Paris Memo-
randum of Understanding on Port State
Control, an international agreement on
ship inspections, collect data on inspec-
tions of ships in ports and frequency of
detentions of unsafe ships. Their latest
data for July 2017 indicate that U.S. ships
ranked 36th out of 42 relatively safe coun-
tries. In safety, they ranked below all the
Western European countries and Japan TH
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and China. They also ranked below two of
the leading “flags of convenience” coun-
tries, the Marshall Islands and Liberia.
Comparative advantage / How does the
Jones Act affect the safety of American-
flagged ships? Answering that question
requires an understanding of the econom-
ics of shipbuilding.
American shipbuilders once had a
comparative advantage over other nations
in producing ships because of the U.S.
abundance of forest products. As a result,
American shipbuilders had lower costs
for wooden ships that were powered by
sails and the wind. But American-built
ships today cost approximately five times
as much as comparable ships on the inter-
national market. Over 90% of commercial
ocean-going ships are now produced in
South Korea, Japan, and China. The United
States is a small, high-cost producer with
only three shipyards producing commer-
cial, ocean-going ships.
Because new Jones Act–compliant ships
are so expensive, domestic shipping com-
panies delay replacing them. Consequently,
the American-flagged fleet is older than the
foreign-flagged fleet.
The lack of competitiveness of American
shipyards is evident from the choices made
by American companies that ship their
products internationally. American export-
ers and importers are not
constrained by the Jones
Act, and they choose for-
eign-flagged ships nearly
all of the time to make
those shipments.
Subjecting American
seamen to greater dan-
ger is an unintended
consequence of U.S.
shipping policy. There
are other examples of
government policies
that have had the unin-
tended effect of making
transportation more
dangerous. For instance,
consider the “fracking”
revolution in natural gas
and oil extraction, which
has resulted in oil being
produced in locations
not served by older pipe-
lines. Strong opposition
to building and extend-
ing pipelines has led to
more oil being carried
by railroads and, as a
result, there have been
widely reported deaths
and substantial damage
as a result of rail accidents. The opponents
of pipelines probably have not intended to
increase the volume of oil carried by rail-
roads, but that is the result.
Jones Act’s durability / Nearly all system-
atic studies have concluded that the Jones
Act has imposed net costs on the American
economy. Its contribu-
tions to national security
have also been called into
question. (See “America’s
Welfare Queen Fleet: The
Need for Maritime Policy
Reform,” Summer 1991.)
Couple that with the
greater danger for Ameri-
can crews, and we’re left to wonder how the
law has survived for nearly 100 years.
The act has the political advantage of
having concentrated benefits but diffuse
costs. The beneficiaries are a small number
of shipbuilders, operators, and their labor
unions. Those groups have formed an effec-
tive lobby in favor of continuing the act.
Conversely, many of the law’s costs are
spread rather evenly among millions of
users of transported products. Most con-
sumers are not aware of the Jones Act, and
the cost per person is small relative to most
items in their budgets. One estimate places
the total consumer cost of the Jones Act
at $1.8 billion per year. Spread that cost
evenly among 325 million Americans, and
the cost per person would be about $5.50
per year. That is little more than the cost
of a couple of gallons of gas and less than
one six-pack of good beer. Hence, individu-
als have little incentive to spend their time
and money lobbying against the Jones Act.
The law also continues to receive strong
support from presidents and members of
Congress in both parties. It has developed
one of the most effective lobbies in Wash-
ington. U.S. Sen. John McCain (R–Ariz.),
one of the few prominent opponents of
the act, stated in 2012 that repeal legisla-
tion would not get 20 votes in the Senate.
Earlier attempts to reform the Jones Act,
including the efforts of a former commis-
sioner of the Federal Maritime Commis-
sion, were not successful.
Because compliant ships are so expen-
sive, domestic shipping companies delay
replacing them, making the American
fleet much older than the foreign fleet.
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B R I E F L Y N O T E D
SA M BAT K I NS is director of strategy and research at
Mastercard. IK E BR A N NON is a Cato Institute visiting
fellow and president of Capital Policy Analytics. The
views expressed in this article are their own.
Deregulation through
No Regulation?
✒ BY SAM BATKINS AND IKE BRANNON
In the first few months of Donald Trump’s administration, Con-gress has passed and the president has signed a record 14 Congres-sional Review Act (CRA) resolutions of disapproval, withdrawing
rules implemented by Barack Obama’s administration in its final
months in office. These CRA actions will save a total of $1.1 billion
in annual compliance costs. In addition,
Trump issued an executive order call-
ing for the repeal or amendment of two
existing rules for each new rule an agency
implements.
Some advocates of limited government
have complained that, so far, the adminis-
tration’s regulatory accomplishments have
largely been limited to those CRA votes.
They hope Congress will undertake expan-
sive deregulation of financial services, health
care, and energy in the coming months.
But one feature of Trump’s regulatory
policy is being overlooked: the decline in
the issuance of new rules. There has been
a massive slowdown in regulatory output,
which Trump’s supporters should take as
proof that his administration is serious
about regulatory reform.
We examined the data and found ample
evidence to support the perspective that
rulemaking has slowed dramatically since
Inauguration Day. Through its first five
months, the Trump administration has
imposed just 1.9% of the average number
of rulemakings for that same length of
time since 1994.
Methodology / To carry out our analysis,
we compiled data from the Office of Infor-
mation and Regulatory Affairs (OIRA)
from 1994 to present. We used 1994 as our
start year because it was the first full year
after President Bill Clinton issued Execu-
tive Order 12,866, which mandated that
all major regulations—that is, those that
have a compliance cost of $100 million or
more—undergo cost-benefit analysis. The
order dramatically narrowed and focused
the scope of OIRA’s scrutiny. In 1992 OIRA
However, the safety issue could weaken
the support of some members of Congress
for the act. Surely no Jones Act supporters
intend to increase the risk faced by Ameri-
can seamen when they do their jobs. The
huge cost differences in ships are indisput-
able, and the high cost of American-built
ships has resulted in an older and less safe
American-flagged fleet. Less safety is an
unintended consequence of the Jones Act.
Union leaders are strong supporters
of the Jones Act. Do they represent their
members well if the Jones Act results
in less safe working conditions? Or are
union leaders subject to the same agency
problem faced by heads of corporations?
Many shareholders have complained that
CEOs have represented their own personal
interests rather than the best interests of
shareholders. Are union leaders ignoring
the additional risks faced by officers and
crews of older and less safe Jones Act ships?
Reform / The Jones Act’s perverse incentives
that make American ships older and more
dangerous could be eliminated by simply
repealing it. Unfortunately, the political
realities noted above make it unlikely full
repeal will happen anytime soon. However,
a more modest reform would reduce the
incentive to use older ships on some of the
most dangerous routes.
Ocean-going ships traveling to and
from the non-contiguous regions (Hawaii,
Alaska, and Puerto Rico) could be exempted
from the Jones Act mandate to use the
more expensive American-built ships. This
exemption would allow carriers to buy the
much cheaper and more modern foreign-
built ships and replace them more fre-
quently. This exemption has been formally
proposed by the Hawaiian Shippers’ Coun-
cil. Other features of the Jones Act, such as
requiring American crews, ownership, and
registration, could remain in force.
Support for this modest reform could be
increased by offering to compensate some
shipbuilders for possible loss of jobs. Buy-
outs of special-interest groups that gained
from historical protectionist policies are
controversial, but they have been used suc-
cessfully to end some old and inefficient
programs, such as the U.S. tobacco and pea-
nut support programs that dated back to
the 1930s. Even with the cost of the buyout,
those initiatives have benefited the general
public by removing a gross inefficiency.
Conclusion / Requiring Americans to use
American-built ships on domestic routes
increases shipping costs in the short-run
and reduces innovation and slows growth
in the long-run. In addition, the Jones Act
makes the American-flagged fleet older
and less safe than it would otherwise be.
Instead of producing a stronger merchant
marine, the Jones Act has contributed to
a smaller and older domestic shipping
industry with more dangerous conditions
for American seamen.
READINGS
■■ “An Economic Analysis of the Jones Act,” by
Thomas Grennes. Mercatus Center Research Paper,
April 2017.
■■ “Bad Regulations Can Kill: El Faro’s Sinking Is a
Tragic Example,” by Eftychis John Gregos-Mourginakis
and Joshua Jacobs. National Review, October 12, 2015.
■■ “Protectionist Shipping Law Hinders Gulf
Cleanup,” by Dan Griswold. Cato-at-Liberty (Cato
Institute blog), June 23, 2010.
■■ “US-Built Fleet Much Older than Global Fleet Due
to Jones Act,” published World Maritime News, March
22, 2016.
R
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UPHOLDING THE JONES ACT
McAllister, Buckley
Marine Log; Jun 2013; 118, 6; ProQuest
pg. 17
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Myth and Conjecture? The “Cost” of the Jones Act
Beason, Sarah;Conner, Darrell;Milonas, Nickolas;Ruge, Mark
Journal of Maritime Law and Commerce; Jan 2015; 46, 1; ProQuest
pg. 23
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