Virginia Is for Public-Sector Union Lovers

Richmond Democrats are about to give public employees the ability to hold government hostage.

By Ken Girardin. He is an analyst at the Albany-based Empire Center for Public Policy. Excerpts:

"The Old Dominion, one of a handful of states where public-sector bargaining is forbidden, benefited during the 2007-09 recession from the ability of state and local officials to control costs as tax revenue dipped. Democratic Gov. Tim Kaine saved $198 million in fiscal 2010 alone by postponing scheduled pay raises for state employees. Meanwhile in New York, officials had no choice but to pay 3% raises to the state’s largest public union in spring 2009, even as income-tax receipts dipped almost 6%. The contract forced the state to shell out 4% raises to the same union only a year later.

Virginia’s experience during the financial crisis also compares favorably with that of neighboring Maryland, where local officials struggled to address fiscal realities because of union opposition. The Washington Post editorial page noted Virginia’s advantage and floated the possibility of abolishing public-sector collective bargaining in Maryland as a solution: “Fairfax County [Va.] has managed well without it.”

There’s more at stake than employee pay. Labor contracts in New York’s heavily unionized schools and local governments dictate nearly every facet of public-service delivery. These managerial glue traps block the people’s representatives from making meaningful changes without first getting labor’s blessing. New York’s transit officials, for instance, had to get union permission before they could have subway stations cleaned properly by a private contractor. Captive to New York’s bargaining law, efforts to lengthen school days, trim overtime costs and even thwart crimes against disabled people under state care have all been stymied. Mayors and other officials are routinely saddled with deals negotiated in secret by their predecessors. Nothing in the Virginia legislation would spare its local governments from an identical plight once the ink dried on the first agreements.

While even the worst labor deals eventually expire, New York has a “contract continuity” statute that keeps terms in place until a new agreement has been negotiated—giving unions a much stronger hand at the bargaining table. Employers must keep paying experience-based raises while they negotiate. Other state governments—even the most union-friendly ones—have painstakingly avoided this mistake. Rhode Island Gov. Gina Raimondo vetoed similar legislation in 2017 and said New York “provides an important lesson” for other states. But Richmond isn’t hearing it: Virginia’s proposed legislation has contract-continuity language mirroring New York’s.

The damage done by the Taylor Law is arguably most pronounced in New York’s public schools. Census data recently revealed that annual per pupil spending on K-12 education in the Empire State is $23,091—the highest in the country. The biggest cost is “instructional salaries and benefits,” which are controlled primarily by teachers union contracts. New York, all told, spends almost 43% more on each student than does Massachusetts, where teachers are also unionized but under terms less hostile to school management—and taxpayers.

Virginia students meanwhile either matched or outperformed their New York peers by every major metric on recent National Assessment of Educational Progress tests, even as the Old Dominion’s per pupil spending was less than $12,000."

Wealthy Americans Already Pay Their Share

Arguments to the contrary spurn or wildly distort statistics and cherry-pick anecdotal examples

By Phil Gramm and John F. Early. Excerpts:

"The claim that rich Americans pay a smaller share of their income in taxes than any other households is verifiably false. The nearby graph shows that taxes actually paid, as a percentage of income earned and received in transfer payments, rise steadily from 5.1% in the bottom quintile of households to 39.6% in the top 1%. While it’s too small to show on the graph, the top 0.1% of earners, which included 127,586 households in 2017, had an average gross income of $2,892,434 and paid $1,304,769, or 45.1%, in federal, state and local taxes.

To be sure, the average household in the top 1% retains almost 18 times as much income after taxes and transfer payments as the average bottom-quintile household. But it pays more than 219 times as much in taxes. Even at the very top of the income distribution, the average household in the top 0.1% has more than 31 times as much income as the average bottom-quintile household, but pays almost 482 times as much in total taxes.

Data from the Organization for Economic Cooperation and Development show that the U.S. has the most progressive income tax system in the world, with the top 10% of earners paying 45% of all income taxes, including Social Security and Medicare taxes, compared with only 28% in France and 27% in Sweden. If the U.S. government spent as large a share of gross domestic product and had the same tax structure as France, the top 10% of U.S. earners would pay about what they pay now in income taxes, but the bottom 90% would see their taxes almost double. Although the last OECD tax comparison was made in 2015, before the Tax Cuts and Jobs Act of 2017, the Joint Committee on Taxation has shown that the U.S. tax system, in terms of proportionate tax burden, became more progressive after the 2017 tax cut than it was in 2015."

"Warren Buffett has donated billions to charity. And though he may be worth hundreds of millions of dollars a year to Berkshire Hathaway, he pays himself only a nominal salary. Because he rarely sells assets and makes considerable charitable donations, Mr. Buffett might, as he often says, actually pay a lower effective tax rate than his secretary.

The Buffett case illustrates the left’s argument that the megarich avoid taxes by simply avoiding income. Fair-minded people can debate whether a chronic wealth accumulator like Mr. Buffett, who spends so little of his wealth, is paying his fair share. But there’s a strong case to be made that he’s a public benefactor."

"Mr. Buffett simply accumulates and does not consume, his wealth is creating jobs and promoting the general prosperity rather than benefiting him personally."

Obama Did Persecute For-Profit Colleges

Lots of nonprofit programs flunk the Gainful Employment rules he imposed

By Andrew Gillen and Richard Vedder.

"The Obama administration crafted a set of “Gainful Employment” regulations primarily targeting these programs. If a pool of graduates had too much debt relative to earnings, the government would cut off financial aid to its students. These and other regulations helped drive a sharp decline in for-profit enrollment. But new data released by the Education Department reveals just how misguided these policies were.

It isn’t only for-profit colleges that are selling dud degrees. Public and nonprofit schools, including some of the most prestigious, have many programs that fail an updated Gainful Employment test too. With the test updated to fit current Education Department data gathering, at Columbia the bachelor’s program in rhetoric and composition/writing studies falls short (median earnings $19,700, median debt $28,556), as does the program in visual and performing arts (median earnings $21,800, median debt $25,500). Those getting a master’s degree in fine and studio arts at Yale have meager median annual earnings of $17,200 and median debt of $21,200. Nor is the problem limited to the arts and humanities. Professional programs in law at the University of North Carolina at Chapel Hill, in optometry at the University of California, Berkeley, and in dentistry at Harvard fail too."

"72% of financial aid recipients who graduate from failing public and nonprofit programs."

Adam J. White reviews Supreme Inequality by Adam Cohen

‘Supreme Inequality’ Review: The Meaning of Justice: Framing the Supreme Court’s duties in terms of economic inequality—and criticizing the court for failing to do what might reduce it. Mr. White is a resident scholar at the American Enterprise Institute and an assistant professor at Antonin Scalia Law School, George Mason University.

Excerpts:

"Mr. Cohen omits the biography of the modern justice who experienced poverty more acutely than any of his colleagues: Clarence Thomas. (A just-released film documentary, “Created Equal: Clarence Thomas in His Own Words,” recounts his upbringing in vivid detail.) Admitting no connection between Justice Thomas’s impoverished childhood and his view of constitutional equality—a view at odds with the one in “Supreme Inequality”—Mr. Cohen saves mention of the justice’s biography for a late chapter on cases involving unions, asserting that “Thomas had little sympathy for society’s downtrodden,” and suggesting that Thomas held “a grudge against labor unions” that “supported Anita Hill and opposed his confirmation.”

The chapter on unions is titled “Workers,” but Mr. Cohen prefers unions to workers. In Janus v. American Federation of State, County, and Municipal Employees (2018), the court declared that the First Amendment protects public-sector employees from being forced to fund unions’ political agendas—a win for millions of workers whose paychecks were being docked by union leaders. After Janus, Mr. Cohen reports, “4.8 million workers were instantly given the right to not pay at all” for unions they had not joined. He doesn’t mean this as a compliment; so much for workers’ rights.

Janus, like Citizens United v. FEC (2010) and other cases striking down laws that Mr. Cohen would leave alone, were grounded in specific constitutional guarantees, especially in the First Amendment. Citizens United judged certain restrictions on independent political expenditures to be an abridgment of the speech rights of unions and corporations. Yet Mr. Cohen criticizes such decisions with minimal analysis while pining for a court that, with much less constitutional basis, would nullify a host of state laws.

A “different set of blueprints would have built a different society,” Mr. Cohen concludes. The blueprints he prefers are not the Constitution’s original meaning but progressive activists’ modern agenda. But some progressives know better. In a 2001 interview, Barack Obama rejected suggestions that the Warren Court should have announced broader economic rights. The court “never ventured into the issues of redistribution of wealth and sort of more basic issues of political and economic justice in this society,” he said, because “the court’s just not very good at it, and politically it’s just very hard to legitimize opinions from the court in that regard.”"

What shocked colonists like George Washington into war? Britain’s imperious actions in Boston (Gordon Wood Counters The 1619 Project)

See ‘1774’ Review: The Year That Changed the World. Excerpts:

"The 1619 Project, launched in August 2019 by the New York Times and designed to revise the teaching of American history in schools, claims that one of the primary reasons the Americans decided to declare independence from Great Britain in 1776 was to protect their institution of slavery. To back up this remarkable claim, the editor of the New York Times Magazine, where the project first appeared, cited the November 1775 proclamation of Lord Dunmore, the royal governor of Virginia, offering freedom to any enslaved person fleeing to the British army—a military expedient only. Then, to confirm the importance of this proclamation, the editor quoted the words of historian Jill Lepore from her recent history of the United States: “Not the taxes and the tea, not the shots at Lexington and Concord, not the siege of Boston; rather, it was this act, Dunmore’s offer of freedom to slaves, that tipped the scales in favor of American independence.”

Mary Beth Norton, in her new book, “1774,” suggests otherwise. Her account of the long year 1774, from the Boston Tea Party in December 1773 to the outbreak of hostilities in April 1775, shows conclusively that the scales had been tipped in favor of independence long before Dunmore issued his proclamation. Ms. Norton, who is professor of history at Cornell and a former president of the American Historical Association, does not fundamentally challenge the traditional trajectory of events in that decisive year. What she does do is enrich the narrative, filling in the story with a staggering amount of detail based on prodigious research in an enormous number of archives. She doesn’t just tell us how many pounds of tea (“nearly 600,000”) the East India Co. placed on seven ships sailing to Boston, New York, Philadelphia and Charleston, S.C., in late 1773, but she describes the kind of tea that was sent: “1,586 chests of Bohea, 70 chests of Congou, 290 chests Singlo, 70 chests of Hyson, and 35 chests of Souchong.” Some readers might think this is specification run wild."

"By the early 1770s, the crisis between Great Britain and its colonies that had begun with the Stamp Act in 1765 seemed to have eased. Faced with mobs and boycotts of British goods, the British government had twice backed away from trying to tax the colonists. It had repealed the Stamp Act in 1766, and, in 1770, it had withdrawn the Townshend duties, keeping only the duty on tea as a symbol of Britain’s authority to tax the colonists. This proved to be a big mistake. 

The Americans had generally ignored or dismissed this remaining duty on tea until the British inadvertently called attention to it, and disaster followed. In 1773 the British government decided to bail out a nearly bankrupt East India Co. by giving it a monopoly of the American market for tea. Although the British government had not intended this Tea Act as a means of forcing the colonists to accept Parliament’s right to tax them, Americans interpreted it that way. 

Ms. Norton painstakingly describes the colonists’ emerging opposition to the imported tea. The opposition took different forms in each of the ports, in some cases forcing the resignations of the merchants consigned to receive the tea, in others compelling the ships carrying the tea to sail back to England with their cargoes intact. Boston was different. The consignees refused to resign, and Gov. Thomas Hutchinson, a stickler for the law that prevented any ship once docked from departing without paying duties, refused to allow the tea ships to sail back to England with their cargoes. On Dec. 16, 1773, the night before the tea was to be unloaded and taxed, a band of men disguised as “Mohawks” threw 342 chests containing more than 46 tons of tea worth more than £9,000 into Boston Harbor. This became the famous “Tea Party.”

The colonists’ reaction to this destruction of private property was immediate but mixed, some condemning it, others celebrating it, with many remaining uneasy and uncertain about what to say or do. Although nearly all Americans remained adamantly opposed to paying tea duties, many suggested that Boston, or perhaps all the colonies, ought at least to pay for the destroyed tea. Many colonists outside of New England worried that the hot-headed Bostonians were much too rash and violent.

But, of course, the British government came to the rescue of the Bostonians’ reputation. British leaders were furious at the destruction of the tea. They had for far too long appeased the colonists, repealing acts of Parliament and retreating at every sign of colonial opposition. It was high time, the government declared, to show the colonists the power the British nation could wield over its dependencies. 

The British government passed a series of acts—acts that were so severe, so uncompromising, so drastic, that they fundamentally altered the imperial debate and forever changed the relationship between Britain and its colonies. The government closed the port of Boston, ordered Thomas Hutchinson back to England, and appointed a military general, Thomas Gage, as the new royal governor of Massachusetts.

The closing of the port of Boston shocked all the colonists, but Virginians especially. They had been upset at the clandestine destruction of private property, but the British reaction was too much to take. George Washington declared that “the cause of Boston. . . now is and ever will be considered as the cause of America.” Many colonists suggested a meeting of all the colonies to deal with the crisis. 

The British government followed with two more acts that made matters worse. The first altered the Massachusetts charter by having the council, the middle branch of government, appointed by the Crown rather than elected by the two houses of the colony’s legislature; and it forbade towns to hold more than one meeting a year without permission. The second, dubbed the Murder Act by the colonists, provided that military or customs officials who killed colonists in the performance of their duties would be brought to England for trial rather than face biased colonial juries. The other colonies realized at once that, if Britain could coerce Massachusetts in this outrageous manner, it could do the same to them.

The Massachusetts citizens forced the resignations of most of those appointed to the council, ignored the prohibition on town meetings and effectively closed the colony’s courts. In September a dispirited Gen. Gage told the colonial secretary in London that “civil government is near its end.” And the fever was spreading. No one, he later reported, could have imagined that the acts designed for Massachusetts alone “could have created such a ferment throughout the continent and united the whole in one common cause.”

As the colonies gathered together in a Continental Congress in Philadelphia in September 1774, New Englanders were actually preparing to fight. When a rumor spread that British troops had killed some Bostonians, as many as 20,000 men from various parts of New England mobilized to march on Boston before they learned that the rumor was false. Although Americans in the other colonies were not as jittery as the New Englanders, many realized that the imperial relationship was disintegrating. Whatever royal authority was left in the colonies now simply disappeared. The royal governors stood in helpless astonishment as new, informal, extra-legal governments sprang up around them. These committees and conventions assumed many of the powers of government. Those loyal to the royal governments argued in the press that these extra-legal bodies were dangerous, treasonous and tyrannical, and the patriots responded by justifying their tar-and-feathering and other oppressive actions as expressions of the people’s will. In her detailed descriptions of these debates, Ms. Norton always gives a fair hearing to the views of the loyalists."

"His ministry sent military reinforcements to Boston and ordered Gen. Gage to use force against the Massachusetts rebels if necessary. The British government thought it was dealing with “a rude rabble” that had no substantial backing in the colony and could be put down with ease. Given this kind of misperception of reality, it was inevitable that a military clash would occur, as it did on April 19 in Lexington and Concord.

“By April 19, 1775,” concludes Ms. Norton, “Americans had not yet formally adopted a Declaration of Independence, but their leaders had long since practiced independence in thought and deed.” The colonists didn’t need Tom Paine in his “Common Sense” of January 1776 to tell them that the time was ripe for breaking away from Great Britain. In 1774 Americans had already in fact become independent, as Ms. Norton’s book makes only too clear. And never once in her detailed account of that long year does she declare that the protection of slavery had anything to do with bringing about that independence."

Why Are Nonprofit Hospitals So Highly Profitable?

These institutions receive tax exemptions for community benefits that often don’t really exist.

By Danielle Ofri. Dr. Ofri is a physician at Bellevue Hospital and a clinical professor of medicine at New York University Grossman School of Medicine. Excerpts:

"The real question surrounding nonprofit hospitals is whether the benefits to the community equal what taxpayers donate to these hospitals in the form of tax-exempt status.

On paper, the average value of community benefits for all nonprofits about equals the value of the tax exemption, but there is tremendous variation among individual hospitals, with many falling short. There is also intense disagreement about how those community benefits are calculated and whether they actually serve the community in question.

Charity medical care is what most people think of when it comes to a community benefit, and before 1969 that was the legal requirement for hospitals to qualify for tax-exempt status. In that year, the tax code was changed to allow for a wide range of expenses to qualify as community benefits. Charitable care became optional and it was left up to the hospitals to decide how to pay back that debt. Hospitals could even declare that accepting Medicaid insurance was a community benefit and write off the difference between the Medicaid payment and their own calculations of cost.

An analysis by Politico found that since the full Affordable Care Act coverage expansion, which brought millions more paying customers into the field, revenue in the top seven nonprofit hospitals (as ranked by U.S. News & World Report) increased by 15 percent, while charity care — the most tangible aspect of community benefit — decreased by 35 percent."

"the economic benefits do not always trickle down to the immediate neighborhoods. It is not unusual to see a stark contrast between these gleaming campuses and the disadvantaged neighborhoods that surround them."

"In other communities, the sums of money devoted to lavish expansions, aggressive advertising and eye-popping executive compensation are a source of irritation.

The average chief executive’s package at nonprofit hospitals is worth $3.5 million annually. (According to I.R.S. regulations, “No part of their net earnings is allowed to inure to the benefit of any private shareholder or individual.”) From 2005 to 2015, average chief executive compensation in nonprofit hospitals increased by 93 percent. Over that same period, pediatricians saw a 15 percent salary increase. Nurses got 3 percent."

"Morristown Hospital in New Jersey lost most of its property-tax exemption because it was found to be behaving as a for-profit institution. The judge in the case wrote that if all nonprofit hospitals operated like this, then “modern nonprofit hospitals are essentially legal fictions.”"

"The most profitable nonprofit hospitals tend to be part of huge health care systems. Consolidations are one of the driving forces behind the towering profits, because monopoly hospitals are known to charge more than nonmonopoly hospitals."

"Tax exemption needs to be redefined. Low-impact projects such as community health fairs that function more like marketing shouldn’t be allowed as part of the calculation. Nor should things that primarily benefit the institution, like staff training."

"As many policy scholars have noted, tax exemption is a blunt instrument. For struggling hospitals, particularly in communities with a shortage of health care resources, tax exemption can make sense. In medically saturated areas, where profits and executive compensation approach Wall Street levels, tax exemption should raise eyebrows."

New Maritime Report Marked by Factual Errors and Dubious Claims (Jones Act)

By Colin Grabow of Cato.

"The Center for Strategic and Budgetary Assessments recently released a report on the U.S. maritime sector that has garnered considerable praise from the Jones Act lobby. That’s no surprise. Entitled Strengthening the U.S. Defense Maritime Industrial Base, the report explicitly calls for the Jones Act’s retention. Overlooked amidst the plaudits, however, are factual errors and dubious assertions that call its endorsement of the law into question. This blog post will lay some of these out.

Factual errors

The report includes a number of factual errors. In this section, I note these incorrect claims and provide a fact check.

Claim: “Of these 40,000 vessels [in the Jones Act fleet], about 8,000 are unpowered barges.”
Fact check: The source cited for this claim, the Maritime Administration’s Consolidated Fleet Summary and Change List, does not mention the word “barges” nor features the number 8,000. In fact, the number of Jones Act vessels accounted for by barges is far higher. A 2017 Congressional Research Service (CRS) report notes that 22,000 barges operate on the Mississippi River alone while the industry group representing U.S. barge operators, the American Waterways Operators, places the number of barges at over 31,000 (with another 5,500 tugboats and towboats). This is important because it illustrates that barges, rather than comprising 20 percent of Jones Act vessels, are responsible for 77 percent of this number.

Claim: “Containers, dry cargoes, and petroleum products are often carried across the United States by ship because it is usually cheaper than the transportation and handling needed to move material by truck or train car.”

Fact check: Waterborne container transport is almost non‐​existent among the 48 contiguous states. Every Jones Act‐​eligible containership serves the noncontiguous states and territories where alternative forms of transport such as truck and rail are not available. This lack of competitiveness against alternative forms of transport belies the report’s claim that it is usually cheaper than truck or train car.

Claim: “Today, the U.S.-flagged international fleet comprises 87 ocean‐​going vessels.” 

Fact check: The source that is cited does not contain the number 87 and does not appear to break down the U.S. merchant fleet by ships operating in international versus domestic trades. According to the U.S. Maritime Administration, the number of ships exclusively operating in international trades as of January stood at 86.

Claim: “During Operation Desert Storm, in which the United States relied heavily on chartering foreign vessels, the crews of 13 foreign‐​flagged ships refused to go into a war zone and deliver their cargo.”

Fact check: As the U.S. Transportation Command’s history of that conflict points out, most of these 13 ships hesitated but ultimately did enter the war zone and delivered their cargo. Only four ships did not: two feeder vessels as well as the Qatari‐​flagged Trident Dusk (which ended its journey in Oman) and the Banglar Mamata, which saw its crew jump ship in Oakland before its voyage began (and, as a result, the Military Sealift Command canceled its contract with the ship’s operator).

Questionable assertions

In addition to factual errors, the report also makes a number of assertions that lack needed context or rest upon dubious logic. In this section, I present them along with a counterpoint.

Assertion: Around the time of the U.S. Civil War, “Great Britain strengthened its dominance of commercial shipping, aided by U.S. ships that joined its registry and the British government’s establishment of subsidies for the construction and operation of ships using new technologies such as steam propulsion.”

Counterpoint: This is, at best, incomplete. In 1849 Great Britain repealed protectionist laws knows as the Navigation Acts, which—like the Jones Act today—prohibited the use of foreign‐​built ships. Once these laws were removed the sector boomed. As a Library of Congress report points out, “In just over a decade [after the Navigation Acts’ repeal], there was a 52.5% increase in tonnage owned, and the yearly average of British tonnage which entered and cleared from British ports increased by 102.7%.” That the Navigation Acts’ repeal, arguably the most consequential change in British maritime policy of the 19th century, went unmentioned in explaining Britain’s rising fortunes at the time is a notable omission.

Assertion: “Due to improving efficiency and competitive pressures, the number of large ships in both [the Jones Act and international] fleets declined during past three decades.”

Counterpoint: Context here is important. It is true that ships have seen tremendous efficiency gains that enable more goods to be carried by fewer vessels. Yet the Jones Act fleet has not only been declining for decades in terms of ship numbers, but also deadweight tonnage (how much the ships can carry). Even as the U.S. economy and population have experienced considerable growth over the past 50 years, the Jones Act fleet’s deadweight tonnage is slightly less than what it was in 1970.

“Competitive pressures” perhaps offers more explanatory power here, with Jones Act ships operating in coastal waters of the U.S. mainland forced to compete with alternative forms of transport such as pipelines, trucks, and rail. Unmentioned by the report, however, is that the competitiveness of these ships is undermined by the Jones Act’s mandate that these vessels be U.S.-built—a provision that makes these ships up to five times more expensive than on the international market. In other words, this lack of competitiveness is at least partly due to the very law which the report advocates for.
Assertion: “The Jones Act’s requirements also apply to shipping between the contiguous United States and overseas territories and states, including Alaska, Hawaii, and Puerto Rico. Mandating that commercial ships moving between these areas be U.S.-flagged lessens the ability of adversaries to interfere with the integrity of states’ and territories’ commercial links to [the Continental United States (CONUS)]. It guards against the ability of China—with the world’s largest merchant marine and global port management system—to take over shipping to U.S. territories and gain local influence during peacetime, only to threaten or deny shipping to CONUS during a crisis or conflict.”
Counterpoint: It is unclear why concerns about China should be used to justify the Jones Act’s blanket ban on ships from all countries—including those the United States has defense treaties with—from transporting goods between the noncontiguous states and territories and the U.S. mainland. If China is the problem then the logical solution is to grant Jones Act exemptions for U.S. defense allies based on national security concerns. Furthermore, the idea that the Jones Act prevents foreign control of the shipping to the noncontiguous states and territories is wishful thinking. In fact, the truth is closer to the opposite. Faced with the high cost of Jones Act transport to and from the U.S. mainland, the noncontiguous states and territories often instead purchase products from other countries where Jones Act restrictions do not apply. As a CRS report points out:

Comparing waterborne shipping volumes between 1960 and today, one finds that shipments received from the contiguous United States have increased only slightly, while shipments received from foreign sources have increased tremendously. Hawaii and Puerto Rico now receive more cargo from foreign countries than they do from the U.S. mainland. Hawaii and Puerto Rico now receive more cargo from foreign countries than they do from the U.S. mainland.

In some cases, the Jones Act makes it outright impossible for these areas of the country to buy products from the U.S. mainland. For example, the complete lack of LNG carriers in the Jones Act fleet means that Puerto Rico cannot purchase natural gas from the U.S. mainland. Instead, it must be purchased from abroad. Rather than, in the Jones Act’s absence, foreign ships transporting U.S. LNG to Puerto Rico, foreign ships are currently transporting foreign LNG to Puerto Rico. This hardly seems to be a policy improvement for anyone concerned about foreign influence over outlying parts of the United States.

Assertion: “The requirement that ships in the domestic fleet be U.S.-flagged and operated by crews of U.S. citizens or permanent residents reduces the likelihood foreign ships and mariners will illegally gain access to America’s inland waterways and associated infrastructure. Although geography limits how far inland large foreign‐​flagged ships would be able to travel, without the Jones Act’s requirements, foreign companies could buy domestic carriers that operate smaller vessels and barges that ply U.S. rivers and intercoastal waterways.”

Counterpoint: As CSBA’s report itself notes, access to U.S. internal waters by foreign‐​flagged ships is limited not by the Jones Act, but rather geographic realities. No oceangoing, deep draft ship is going to steam up the Mississippi to St. Louis in the Jones Act’s absence. It’s not physically possible. So then the objection seems to be that foreign companies could purchase U.S. subsidiaries that own tugboats and barges operating on the country’s rivers (although why this should be regarded as a concern is never explicitly stated).

It worth noting that such investment would almost certainly be subject to the CFIUS (Committee on Foreign Investment in the United States) process designed to identify potential national security red flags. In addition, foreign ownership of important parts of the U.S. maritime industry is nothing new. A number of prominent U.S. shipyards have foreign ownership such as Philly Shipyard (Norway), VT Halter (Singapore), Keppel AmFELS (Singapore), Austal USA (Australia), and Fincantieri Bay (Italy). Why foreign companies should (correctly) be allowed to own U.S. shipyards yet prohibited from owning the vessels produced at these yards, particularly those that operate on the country’s internal waters, is unclear.

Assertion: “[U.S.] waterways are maintained by dredgers and salvage operators…that keep clear more than 400 ports and 25,000 miles of navigation channels throughout the United States. A domestic dredging industry prevents the United States from depending on foreign companies to dredge its dozens of naval facilities, potentially opening up opportunities for sabotage or the depositing of underwater surveillance equipment.”

Counterpoint: The United States, via both the Jones Act and Dredge Act of 1906, is one of the few countries in the world that bans foreign dredge operators from offering their services. As a result, U.S. ports and waterways in need of dredging must choose from U.S. dredging companies that are both small in number and limited in their capabilities. For example, the largest hopper dredger in the U.S. fleet is the Ellis Island, with a capacity of 11,315 cubic meters. Meanwhile, a single Belgian dredging firm, Jan de Nul, offers nine such dredges with larger capacities (and a tenth scheduled for delivery this year). The upshot of being beholden to a small, limited U.S. fleet is higher dredging costs. In other words, the Jones Act and Dredge Act make it more difficult to maintain critical maritime infrastructure.

This is seemingly justified by the possibility of foreign companies engaging in sabotage and surveillance of U.S. naval facilities without these laws. But no evidence is presented to document the scale and significance of this alleged threat. More importantly, if this truly is a threat, why should protectionist laws be viewed as the optimal means of counteracting them? Would it not simply be more efficient to assign dredging work in military installations to a U.S. government agency (such as the U.S. Army Corps of Engineers) while allowing foreign dredgers to bid on civilian projects? This unwillingness to wrestle with trade‐​offs and the costs involved in the adoption of certain policies is one of the report’s unfortunate recurring themes. Indeed, the costs of many policies the report endorses are not even acknowledged.

The Big Picture

In its conclusion the CSBA report states, quite accurately, that the U.S. maritime industry, “is on a path toward continued decline, promising deleterious impacts on U.S. economic prosperity and national security.” This would suggest that a marked departure from current policy is in order. Yet the report recommends that the Jones Act, a longstanding cornerstone of U.S. maritime policy, be retained. But the law has contributed to the very maritime downfall that the report bemoans. The Jones Act, and in particular its domestic build requirement which forces U.S. carriers to pay many multiples the world price for the ships they operate, has proven to be as failed in practice as it is in theory. U.S. commercial shipyards, rather than rising to new heights on the back of this subsidy, are mired in a long‐​term slump reflective of their technological inferiority and inefficiency.

What the maritime industry is crying out for is a rethink of old policies. What this report gives, at least so far as the Jones Act is concerned, is more of the same. So long as the choice is made to embrace protectionism instead of competition the U.S. maritime decline will continue."