By Byron Pelton
When Hurricane Fiona swept through Puerto Rico, it left in its wake a lack of power, water, and other essential resources for hundreds of thousands of people. President Biden subsequently mobilized FEMA to help the island territory. However, there is a force working in the opposite direction, preventing aid from reaching people in need. Ironically, the president is charged with upholding this: it’s called the Merchant Marine Act of 1920, though more commonly referred to as the Jones Act.
As written, its goal is to promote “A well-balanced merchant fleet … that will provide shipping service essential for maintaining the flow of foreign commerce … convertible into transport … in a time of national emergency.” For this, the act requires that ships be “Owned and operated as vessels of the United States by citizens of the United States.” This has the effect of preventing foreign vessels from transporting goods between U.S. ports.
Today, it serves the interests of the domestic shipping industry. This law prevents foreign enterprises from competing with them, thus keeping the price of shipping artificially high. In this way, organizations exercise their political influence at the expense of the American consumer, including those in dire distress. In fact, a foreign ship carrying much-needed diesel fuel was stranded outside of Puerto Rico, waiting for the U.S. government to give her permission to unload. This required a waiving of the Jones Act, which was subsequently granted, thus barely avoiding a situation in which the ship was forced to turn around and abandon the battered island.
This raises an important question: If a law needs to be waived in order to save people’s lives, why did the law exist to begin with? It’s obviously not good for the Americans who wanted to use their income on other things than paying more money for shipping. And surely the interests of millions of consumers outweigh those of the shippers who compose less than 2% of the American public. Indeed, The United States International Trade Commission found that lifting Jones Act restrictions would have yielded benefits to human welfare amounting to $1.3 billion dollars!
So why are these laws still in place? It’s a common problem in political action known as concentrated benefits and diffuse costs, meaning that those who benefit from this type of protectionist legislation are much fewer in number than those who pay the price. So, even if everyone else in the economy stood to gain billions of dollars in total, the effect would be spread out over so many people that each person would see little benefit. On the other hand, a gain of fewer dollars looks far greater to each individual in the industry, since it’s spread out over fewer of them. Thus, people who are protected from competition have a strong incentive to be politically active on the issue, while those who pay the costs are not as highly incentivized.
In this case, the victims of protectionism are particularly empathetic. Puerto Rico already has less than half of the median income of Mississippi, the poorest U.S. state.
Worse, trade barriers don’t even necessarily protect their target industry well. For instance, after Trump’s tariffs, manufacturing output in the United States actually fell. This can partly be explained by the fact that consumers will demand fewer goods from companies when those goods become more expensive. If the steel the dock worker unloads is the same steel that makes up the structures in their work environment, and it becomes more expensive to obtain, then they’ll face costs associated with the very actions that were supposed to benefit them!
The interconnectedness of the economy makes the issue of protectionism difficult. Instead of trying to split hairs over which industries are worth benefitting at the expense of others, we should instead be asking ourselves another question: What institutions would lead to the greatest level of fairness and satisfaction for the American public as a whole?
Firstly, Congress should give American territories representation equivalent to that of existing states. For a territory to be dominated economically by a commercial interest, which is given license by a political body over which the territory has no say, is deeply unfair, and is a cut-and-dry instance of economic imperialism.
Secondly, Congress should repeal laws that penalize international trade. A temporary program for displaced workers would be useful to this end. It would help soften the blow by redistributing some of the benefits of liberalized trade to those in need, as well as to build political support.
Though, a better and more lasting solution to the problem of income instability should be to overhaul the current welfare system to better accommodate people in distress by (1) offering benefits that don’t fall off a steep cliff when people get back on their feet, and (2) allowing benefits to be distributed based on tax credits that may be granted to displaced workers. A negative income tax can achieve this.
American voters are burdened with a responsibility to properly steer the largest and most powerful legislative body in human history. There is much to be gained by using this apparatus to break the shackles of archaic, mercantilist trade policies. All that is necessary is a public that becomes aware of the unseen costs of public institutions.
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