Wednesday, September 27, 2017

Assigning blame: To the Jones Act, not to Puerto Ricans

Here’s a timely notice from the FiveThirtyEight Significant Digits email.

13 percent
Puerto Rico is in crisis, and the Jones Act, a law that costs an estimated billions of dollars annually to Puerto Rico, is not helping. The Jones Act requires foreign vessels bringing goods to the island to either pay high taxes and tariffs to unload there, or to take a detour to the mainland before an American ship takes the goods to Puerto Rico. This ensures Puerto Rican cost of living is 13 percent higher than other urban areas in the U.S. [The New York Times]

Nelson Denis writes about The Law Strangling Puerto Rico in the referenced NY Times op-ed. It’s a good lesson in history with a message about legislative inertia.

After World War I, America was worried about German U-boats, which had sunk nearly 5,000 ships during the war. Congress enacted the Merchant Marine Act of 1920, a.k.a. the Jones Act, to ensure that the country maintained a shipbuilding industry and seafaring labor force. Section 27 of this law decreed that only American ships could carry goods and passengers from one United States port to another. In addition, every ship must be built, crewed and owned by American citizens.

Almost a century later, there are no U-boats lurking off the coast of Puerto Rico. The Jones Act has outlived its original intent, yet it is strangling the island’s economy.

Under the law, any foreign registry vessel that enters Puerto Rico must pay punitive tariffs, fees and taxes, which are passed on to the Puerto Rican consumer.

The foreign vessel has one other option: It can reroute to Jacksonville, Fla., where all the goods will be transferred to an American vessel, then shipped to Puerto Rico where — again — all the rerouting costs are passed through to the consumer.

Thanks to the law, the price of goods from the United States mainland is at least double that in neighboring islands, including the United States Virgin Islands, which are not covered by the Jones Act. Moreover, the cost of living in Puerto Rico is 13 percent higher than in 325 urban areas elsewhere in the United States, even though per capita income in Puerto Rico is about $18,000, close to half that of Mississippi, the poorest of all 50 states.

A 2012 report by two University of Puerto Rico economists found that the Jones Act caused a $17 billion loss to the island’s economy from 1990 through 2010. Other studies have estimated the Jones Act’s damage to Puerto Rico, Hawaii and Alaska to be $2.8 billion to $9.8 billion per year. According to all these reports, if the Jones Act did not exist, then neither would the public debt of Puerto Rico.

Recovering from the disaster will be difficult no matter what, but the Jones Act will make it that much harder.

Food costs twice as much in Puerto Rico as in Florida. Jones Act relief will save many Puerto Ricans — especially children and seniors — from potential starvation. Jones Act relief will also enable islanders to find medicine, especially Canadian pharmaceuticals, at lifesaving rates. And it will give islanders access to international oil markets — crucial for running its electric grid — devoid of a 30 percent Jones Act markup.

This is not just about recovering from Hurricane Maria. It is also about Puerto Rico’s long-term future. If the Jones Act were suspended, consumer prices would drop by 15 percent to 20 percent and energy costs would plummet. A post-Jones Puerto Rico could modernize its infrastructure and develop its own island-based shipping industry. Indeed, the island could become a shipping hub between South America, the Caribbean and the rest of the world. This industry would generate thousands of jobs and opportunities for skilled laborers and small businesses. On an island with official unemployment over 10 percent (but actually closer to 25 percent), this would energize their entire work force.

So what will the response be? Unfortunately, our President blames the Puerto Ricans for their plight. He prefers bashing athletes for exercising their first amendment rights to requesting disaster aid from Congress.

Paul Reyes charges that Trump’s lack of empathy about Puerto Rico is staggering:

… it wasn’t until Tuesday, six days after Maria hit Puerto Rico, that Trump made a substantive late-to-the-disaster statement during a press conference with the Spanish foreign minister at the White House. … As of Monday, according to an article in New York magazine, party leaders “were waiting for a formal disaster request from the Trump administration.”

But Trump tweeted on: “Much of the island was destroyed, with billions of dollars owed to Wall Street and the banks which, sadly, must be dealt with.”

These comments are unconscionable given that Puerto Rico – right now – has limited communication and is on the verge of a massive humanitarian crisis. The island may be without power for months. The devastation there has been described as “apocalyptic” – and Trump is concerned about what the territory owes to Wall Street and the banks? The lack of empathy is staggering.

About that debt? It’s the Jones Act!

Denis concludes:

A humanitarian crisis is about to explode in Puerto Rico. But the consequences of Jones Act relief would be immediate and powerful. This is not the time to price-gouge the entire population. It is time for Congress to act ethically and responsibly and suspend the Jones Act in Puerto Rico.

What we can do to help Puerto Rico

Often, as in this case, average blokes like you and I feel helpless to influence the course of events. But here is something we all can do now.

Denis observes that "… Outright repeal of the [Jones Act] has already been backed by the Heritage Foundation, Cato Institute, Manhattan Institute and several major publications. The Federal Reserve Bank of New York found that the Jones Act hurts the Puerto Rican economy, and two Republicans, Senator John McCain of Arizona and Representative Gary Palmer of Alabama, have submitted bills to repeal or suspend the law. (The shipbuilding industry supports the law.) [Scriber: of course they do.]

We can write to our Senator McCain and ask that he pushes for a repeal of the Jones Act and thus unburden the millions of Puerto Ricans. If that’s too heavy of a lift, then at least Congress can exempt Puerto Rico from that onerous law just as they have done for the three “American territories [that] are exempt from the Jones Act, including the United States Virgin Islands” - which were exempted in 1992 according to the report on Gary Palmer’s ammendment to the 2016 Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).

Ironically, “PROMESA” is “promise” in Spanish. To this observer, PROMESA treats the symptom (managing debt default) while ignoring the systemic problem (the Jones Act). We need to get Rep. Palmer’s amendment reactivated and get Puerto Rico exempted from Jones. Otherwise, PROMESA is just an empty promise blighting Puerto Rico’s future. Write to McCain.

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