Facts and observations about the Jones Act

by  Tyler Cowen in

1. In 2011, 67 percent of the vessels operating in the Port of San Juan were foreign flag vessels, often Panamanian.  Of course they were not carrying cargo from the United States.  That limits the economic costs of the Jones Act, but also implies it doesn’t do much to keep up U.S. shipbuilding for military purposes.  I found this GAO report useful.

2. How can we achieve the military purposes of the Jones Act?  Some observers recommend direct subsidies, but those are much more costly and furthermore require targeting and thus a more specific brand of crony capitalism.  We tried such subsidies in the past and abandoned them due to cost.

3. China, South Korea, and Japan account for over 91 percent of the flow of new ships, circa 2015.  That is sourced from this Mercatus study, by Thomas Grennes, which is the best piece I’ve found on the Jones Act and also the source for the points to follow.

4. What counts as an “American ship” for Jones Act purposes is not always defined or enforced very rigorously.  If deep trouble were to hit East Asia, it might not be possible to expand the production of American ships very much, because of reliance on foreign components.

5. In 1960, there were 2,926 large ships in the U.S. fleet, now there are only 169 such ships.  And of those, only 91 are Jones-Act eligible.

6. Wages on American ships are five times higher than on comparable foreign-flag vessels.  The crews for the latter are often Filipino or Chinese.  Part of the Jones Act motivation is to have surge capacity on the crew side, not just on the shipbuilding side.

7. The cost of producing new ships in American shipyards is four to five times higher than in the relevant foreign shipyards.

8. Given changing share ownership, we don’t even know if “American-owned” ships, for Jones Act purposes, are necessarily American-owned or controlled.

9. John McCain introduced a bill to repeal the Jones Act as long ago as 2010.  He has argued the Act serves no useful military purpose, as it still does not leave America with a useful “surge capacity” for military purposes.  This problem remains outstanding.

10. Trump did just temporarily waive the Jones Act for Puerto Rico.  While this is to be applauded, in the short run this still won’t help very much, as the main problem is transport and infrastructure on the island, not shipping per se.

Me on the Thucydides Trap and North Korea

by  Tyler Cowen in

I’m not by any means convinced that conflict [between China and America] is inevitable. I don’t believe in the Thucidydes Trap, and here’s why not. North Korea so far has been China’s thorn in our side. I feel that’s flipped. Chinese public opinion has flipped. Opinion within the Chinese government is in the middle, but has been changing a lot. China would like to undo the current North Korea situation but they don’t know how to do it in a way that doesn’t harm their national interests. North Korea will become our thorn in China’s side over time, pretty quickly. And so if there’s North Korea and a rearming and maybe eventually someday nuclear Japan, and also India, the first line of China containment is India, North Korea (oddly enough) and Japan. I don’t know how that will go, but it’s a kind of buffer between China and us, it can be a force that pulls us into conflict, it could be a kind of buffer that allows us to stay somewhat removed from it.

That is from my dialogue with Bill Kristol, the transcription (with commentary) is from Sam Roggeveen.  He also transcribes this bit:

…for the first time in my life time, in a way the first time ever, America finally has a peer country. The Soviet Union was a peer with its nuclear weapons but not in general. But in terms of human talent, GDP, China right now is in most ways a peer country to the United States. We’re not ready for that, mentally or emotionally.

Draft animals as common property

by  Tyler Cowen in

The full title is “There Will Be Killing: Collectivization and Death of Draft Animals,” by Shuo Chen and Xiaohuan Lan.  Here is the abstract:

The elimination of private property rights can lead to inefficient use of productive assets. In China’s collectivization movement from 1955 to 1957, instead of transferring draft animals to the ownership of the collectives, peasants slaughtered them to keep the meat and hide. By comparing 1,600 counties that launched the movement in different years, the difference-in-differences estimates suggest that the animal loss during the movement was 12 to 15 percent, or 7.4–9.5 million head. Grain output dropped by 7 percent due to lower animal inputs and lower productivity.

Here are earlier, ungated copies.

*Adam Smith: Systematic Philosopher and Public Thinker*

by  Tyler Cowen in

That is the new, excellent, and detailed book by Eric Schliesser, a political scientist at Amsterdam.  I would say that Schliesser is a very learned “left Smithian,” and that you should take the subtitle very very seriously.  Here is one excerpt:

1. I argue that while Smith certainly took experience and empirical science seriously, he should not be understood as a empiricist in epistemology and his moral epistemology; he relies crucially on innate ideas and innate mental structure.

2. This book gives the first extensive (albeit not exhaustive) study and taxonomy of Smith’s theory of the passions, which I treat as elements of his system (cf. Hume’s treatise 1.1.4.7).  In fact, I argue that the content of a social passion is inherently normative in Smith’s approach.

3. I argue that Smith is decidedly reserved about deploying mathematics within his political economy.

4. I argue that Smith’s account of liberty should not be identified with the so-called liberty of the moderns, or freedom of contract.  While Smith certainly was a defender of freedom of contract, his account of liberty is more expansive (and more attractive).

Sometimes I draw a distinction between “branching” books, whose arguments spread out in many different directions and draw many distinctions, and “channeling” books, which try to put the material into a narrower, common framework.  (Reading each requires quite distinct sets of skills!)  This is a branching book.  You can order it here.

I thank my colleague David Levy for the pointer to this work.

Can an independent Puerto Rico work out?

by  Tyler Cowen in

I don’t think so, here are a few points:

1. Any deal would involve a transition period.  During that period, many more Puerto Ricans would move to the mainland than if there were no deal.  You may or may not think that is a good outcome, but it is not exactly what the “cut them loose” proponents have in mind.  “Let’s make Puerto Rico independent so we can have more Puerto Ricans in the United States” is not a winning rally cry for anyone.

2. The Caribbean as a region has been doing dismally for a few decades now.  Puerto Rico is by far the wealthiest part of the Caribbean, small tax and finance havens aside.   Without a connection to the United States, Puerto Rico might regress to Dominican Republic levels of income, GNI of roughly 24k vs. 15k.

3. The best thing about independence is that the deal might allow a “pure default” by the Puerto Rican government.  Still, that could be arranged under a version of the status quo.  Default plus independence would shred the Puerto Rican safety net at least for a few years, perhaps forever.  If you think their future is one of falling per capita income, that safety net never would recover.  You might believe that such a safety net is in some ways holding Puerto Rico back (true), but if the natural trajectory is to lose both population and per capita income, removing that safety net won’t do much good either.

So it’s simply not clear what is to be gained from independence.  On top of that another referendum would be needed, given that Puerto Ricans have rejected the notion in the past.  What if they still opt for a continuing attachment to the mainland?  That process then will have produced a few years of electoral uncertainty, with no change in the final outcome, as if the UK suddenly decided to reverse its Brexit decision.

Puerto Rico is very likely to remain a part of the United States, one way or another.

My philosophy of interviewing

by  Tyler Cowen in

After I do Conversations with Tyler interviews, I receive emails telling me I should have “stuck it to person X,” rather than “letting them off the hook,” etc.  “How could you not refute them on that topic!”  And so on.  Just to be clear, here is my underlying attitude behind the series:

1. Appreciation is an underappreciated art and skill.  These interviews are most of all about appreciation.

2. I hope to teach people how to learn from other people.

2a. For one thing, you can learn from what the interviewed person says, whether or not you agree with it.  In fact, you do better if you don’t focus on whether or not you agree with it.

2b. You also can learn something through a better understanding of how the person built his or her career into a success, and usually I ask something explicitly along these lines.  The broader conversation is implicitly all about this, of course.

2c. You also can learn something about how I try to learn from these people.  And that is the part of the conversation I have the most control over.  I am trying to teach the art of learning, and that art involves less rather than more contradicting and gainsaying.

3. Follow-up questions are overrated.

4. You want the interviewed person to be maximally open and relaxed, to bring out a steady stream of their best content.

5. If I leave a topic hanging, perhaps it is because I want you, the listener, to think more about it.

6. The best follow-up questions don’t sound like follow-up questions at all.

As I said to Ed Luce before my conversation with him: “You know, most famous people are used to someone trying to make them look bad.  They actually should be more nervous about someone trying to make them look really good.”

The American government pays the NFL to tell its players to stand during the national anthem

by  Tyler Cowen in

Via Alex — the Alex — here is the story.  Excerpt:

It turns out that from 2011-2014, the Department of Defense spent $5.4 million in contracts with 14 NFL teams for flag ceremonies. The National Guard got in on the action too, and gave $6.7 million to the NFL for the same kind of thing from 2013 to 2015.

…Before 2009, football players standing for the national anthem wasn’t even a thing. The teams stayed in the locker room until after “and the hoooome of the braaaave,” and then ran onto the field. No one was offended, and no one was on cable news eliciting tears from disrespected military families. But then, the Department of Defense and the National Guard got involved. They began to pay the NFL millions of dollars to have ostentatious flag ceremonies before games.

There is even a whole Senate report objecting to this entire practice, with John McCain as one of the most vocal critics.  As I’ve suggested lately, maybe the ceremony really isn’t so patriotic after all.

Wednesday assorted links

by  Tyler Cowen

1. Why David Roberts doesn’t write about overpopulation.

2. Larry Summers on antitrust against the tech companies.

3. What Tinder knows about you.

4. Rexford Tugwell’s New Deal collectivist dream for Puerto Rico.

5. “As cities are basically two-dimensional in space and one-dimensional in time, this implies that most visits to a place are by people who live nearby (not so surprising), and also by people who visit very infrequently (quite surprising).”  Link here.

6. Photos of Belfast 1955.  And Pigou club for ghosts.

Kill the Jones Act Now!

by  Alex Tabarrok in

The purpose of the 1920 Jones Act was to protect American shipping interests by giving them a monopoly on US port-to-port traffic. The Act requires that all ships transporting goods between U.S. ports have to be constructed in the United States and owned and crewed by U.S. citizens (or permanent residents).

The Act, however, wasn’t enough to save the US industry. As a result, we have the worst possible situation. Extremely expensive US port-to-port shipping and only a tiny US shipping industry to show for it. By one account, there are less than one hundred Jones-Act-eligible ships.

The expense of US water transport pushes shippers to move goods by air and coastal highway which is wasteful but usually not deadly. But as Salim Furth points out the Jones Act could be deadly for Puerto Rico:

Even though Trump granted a brief waiver from the Jones Act following Hurricanes Harvey and Irma, the Department of Homeland Security announced last week that it would not grant a Jones Act waiver to Puerto Rico. It justified its decision on the basis that the Jones Act fleet is sufficient to the task.

But the Jones Act fleet already imposes much higher shipping costs on Puerto Rico than on nearby islands, and it operates near capacity in normal times. To involve mainland American workers and businesses in Puerto Rico’s recovery requires a rapid increase in capacity and speed—something far beyond the ability of America’s moribund crony capitalist shippers.

If the cost to Puerto Rico doesn’t get President Trump’s attention then perhaps this will–The Jones Act benefits socialist Venezuela!

Puerto Rico’s badly damaged energy sector relies on oil imports from Venezuela, a socialist dictatorship that uses its revenue to prop up anti-Americanism in Latin America. If issued a waiver, Puerto Rico could switch to cheaper, cleaner natural gas from sources such as Pennsylvania and Texas.

The Jones Act shouldn’t be temporarily lifted, the Jones Act should be killed.

What if Puerto Rico becomes part of an already existing state?

by  Tyler Cowen in

That is a Twitter suggestion, and I believe this option warrants serious consideration.

The obvious candidate would be New York State, and of course New York could be given more federal funds to ease the fiscal burden.  The state would have more representatives in the House, but there would be no gain of two Democratic Senators for Puerto Rico, which might limit opposition from the Republican Party.  Puerto Rico also might be given some special dispensations regarding the Spanish language and some other cultural markers.

I am not sure how Puerto Rico would feel about such an arrangement at this point, but under many alternative arrangements a big chunk of the island’s population simply empties out, and much of it to New York at that.

On the other hand, Puerto Rico + Alberta could make 52…sorry Monique!

Addendum: As for the shorter run, here is one report of relevance:

While the federal government continues to calculate a damage estimate, responders deployed to the region are focused on logistics like getting food and water to millions of people who remain without power as temperatures hit 90 degrees and humidity hovers above 70 percent.

The administration contends that much of Puerto Rico and the Virgin Islands is so damaged that officials can’t even begin damage assessment, meaning the federal government may not know for weeks how many roads, buildings or power lines will need to be rebuilt.

“The issue is not paying for any of this,” the administration source said. “It’s like: Paying for what?”

Here is the power supply, before and after the storm.  I’ve seen informal reports that over 40 percent of the island does not currently have usable drinking water.  Or what about people who need medications or dialysis?  Here are some photos.

The basic model for Puerto Rico isn’t working any more

by  Tyler Cowen in

That is the topic of my latest Bloomberg column, here is one bit:

Worse yet, the island has about $123 billion in debt and pension obligations, compared with a gross domestic product of slightly more than $100 billion, a number that is sure to fall. In the last decade, the island has lost about 9 percent of its population, including many ambitious and talented individuals. In the past 20 years, Puerto Rico’s labor force shrank by about 20 percent, with the health-care sector being especially hard hit. The population of children under 5 has fallen 37 percent since 2000, and Puerto Rico has more of its population over 60 than any U.S. state.

And then came Hurricane Maria.  According to a recent NYT piece, almost half of American’s don’t know that Puerto Ricans are American citizens.

In my considered opinion, using government money to help Puerto Rico has a much higher humanitarian return than devoting it to the further subsidization of health care.