How the Jones Act Hurts Agriculture

Posted on July 31, 2019 by matt ohern
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As we shared with you in a previous column, the Jones Act, signed into law June 5, 1920, was a good idea at the time, but is devastating to U.S. economic interests today. The Jones Act restricts all foreign vessels from operating in inland waterways and from transporting material and cargo between U.S. ports.
You may wonder how such a law came to be. Soon after the Great War, Senator Wesley Jones (R-WA) looked to pass a law based on the country’s lack of shipping capacity during World War I.
“When the war came this lack of shipping [US capacity] costs us hundreds of millions of dollars in higher freight rates or business losses and hundreds of millions of waste in the hasty building of ships to meet the emergency that threatened the overthrow of civilization…” he said.
Senator Jones used the national security argument to claim we could not depend on foreign ships to help us during war time. He accused opponents of his legislation of being more interested in the interests of foreign shippers than American shippers. “The man or the paper who would discourage the upbuilding of our merchant marine is fighting the battle of alien interests…. Counsel must be taken of courage and not of fear. Our competitors will deceive us, scare us, bluff us or destroy us if they can.”
Economic consequences
Jones was well meaning in his attempt to build a strong U.S. merchant marine, but he was dead wrong about the economic impact his act created. Consider these impacts from the Jones Act:

  1. The U.S. is only 1 of 11 countries that excuse foreign vessels from carrying material between ports. A shockingly small 2% of U.S. freight going from U.S. port to U.S. port travels by sea. In Europe, for example, 40% of European freight travels among those countries by ship. In fact, OECD countries studied shipping of freight and found “…the United States is the third-most restrictive among all 38 [European] countries and the most restrictive among OECD countries with respect to maritime freight services.”
  1. According to the Cato Institute, among 56 countries “…only the countries of Brazil, Egypt, Indonesia, Peru, Spain, and the United States have domestic-build requirements.”

Results of the act
Senator Jones felt that he would help create a major maritime industry. Instead, the U.S. shipping industry and its support system have been depleted. According to Cato, 9 of 10 commercial vessels produced in U.S. shipyards since 2010 have been barges or tugboats. The Jones act has created devastation because it limits U.S. shippers from operating vessels built abroad.
A former maritime administrator has testified that “Over the last few decades, the U. S. maritime industry has suffered losses as companies, ships, and jobs moved overseas.” CATO claims “American-built coastal and feeder ships cost between $190 and $250 million, whereas the cost to build a similar vessel in a foreign shipyard is about $30 million.”
Sen. Jones envisioned a vibrant shipbuilding and shipping industry. He could not have been more wrong. Cato sys that in 2015 there were 124 U.S. shipyards, based on U.S. Maritime Administration data. However, in 2015 Japan had 1,000 shipyards. Another interesting statistic listed by Cato lists ships built by gross tonnage between 2014-2016. U.S. shipbuilders’ gross tonnage output was less than 1% of China’s and Korea’s shipbuilders.
Finally, “Of the seven major U.S. shipyards, four produce ships exclusively for the military…”
It is not only agriculture which is harmed by the Jones act – it is the entire shipping industry.
This commentary originally appeared in the July 9 issue of Farm Futures.
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PIRG Deems Highway Mega-Projects “Boondoggles”

Posted on July 30, 2019 by matt ohern
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(Editor’s Note:  The Ralph Nader-inspired Public Interest Research Group, or PIRG, has declared the widening of I-81 in Virginia to be a “boondoggle.”  This is no doubt news to Virginians who have to travel on that highway.  We found Mr. Poole’s arguments against the PIRG report compelling… and PIRG’s arguments spurious at best.)

Ever since 2014, the anti-highways Public Interest Research Group (PIRG) has published periodic “highway boondoggle” reports. The fifth such report, “Highway Boondoggles 5,” was released last month. In 42 pages (with 186 endnotes) it reviews some of its previous targets and then critiques these nine new projects:

  • Complete 540, North Carolina
  • North Houston Highway Improvements, Texas
  • High Desert Freeway, California
  • I-75 Improvements, Michigan
  • Tri-State Tollway Widening, Illinois
  • Connecting Miami, Florida
  • I-83 Widening, Pennsylvania
  • I-5 Rose Corridor Widening, Oregon
  • I-81 Widening, Virginia

The complaints about these projects fall into five main categories. I’ll briefly discuss those, followed by a review of the Miami project, since that’s the one I know the most about.

PIRG’s first point is that highway mega-projects “saddle states with debt,” and the report includes a graph showing state DOT debt nearly doubling from 2008 to 2015. But for most people, buying a house also saddles them with debt. In fact, it makes good sense to finance major projects and have people pay for them over the many years during which they enjoy the benefits. And PIRG fails to point out that projects done as toll-financed public-private partnerships (P3s) do not saddle the state with any debt—the P3 company is solely responsible for debt service on the toll revenue bonds.

A bizarre claim is that a “new roadway is expensive to maintain.” Compared to what—an old, potholed roadway? That is just silly. If highway projects are procured (as they should be) based on minimizing their life-cycle-cost, rather than on the lowest construction cost, our infrastructure would be more durable and would need less maintenance than traditional lowest-bid projects.

One of PIRG’s major complaints is that adding highway capacity doesn’t “solve congestion.” As evidence, the report cites the past 40 years of capacity expansion while noting, correctly, that congestion is much higher today than it was in 1980. That’s true, but our population is 44 percent greater, our GDP is nearly three times as much, and annual vehicle miles of travel (VMT) has more than doubled. Highway/freeway lane-miles have nowhere kept pace with this growth. The report also cites the alleged “fundamental law of road congestion,” which claims that any added capacity is quickly filled up and hence is self-defeating. I critiqued the much-cited paper on which this claim is based in my book, “Rethinking America’s Highways,” and will be glad to send that excerpt to readers on request.

Another complaint is that suburban highway expansion fosters “sprawl.” Well, it does provide the transportation access that enables people who prefer suburban living to get to and from other parts of the metro area. And as extensive research has demonstrated, allowing residential and commercial expansion at the urban fringe is the best recipe available for keeping a metro area’s housing costs affordable. (Compare housing costs in car-restricting Los Angeles and San Francisco with housing costs in suburbia-friendly Atlanta, Dallas, Houston, Phoenix, etc.)

PIRG also plays a bit loose with the facts in citing “our car-dependent transportation system” as the country’s “leading source of global warming pollution.” Yet it’s the overall transportation sector (airlines, trucks, buses, seaports, ferries, Amtrak trains, etc.)—not just cars—that contributes the largest share of U.S. CO2 emissions, which PIRG supposedly means. And except on page 15, PIRG largely ignores the significant trend toward electric propulsion, not just for cars but also for medium and heavy trucks.

Also in the report are: (1) the silly claim that if a freeway is eliminated, the traffic it formerly carried will just “melt away,” (2) false claims that P3 projects which entered bankruptcy were bailed out by taxpayers, and (3) out-of-date claims about millennials being in love with transit (rather than becoming the largest share of new-car buyers in recent years).

Now let’s look at the Connecting Miami project, one of PIRG’s 2019 boondoggles. The project aims to fix a horrendous interchange in downtown Miami where three expressways converge: the SR 836 tollway, the I-395 link to the MacArthur Causeway (to Miami Beach and the Port of Miami), and north-south I-95. This interchange handles 450,000 vehicles per day, far more than it was designed for. And when it was built more than 50 years ago, it bisected several low-income communities.

The purpose of this $802 million project is to fix both problems, relieving serious congestion and re-connecting those communities. It does this via a number of lane additions, double-decking a stretch of 836, and creating a signature bridge with an expansive park underneath to reconnect the formerly separated communities. PIRG’s report denounces the park as a scam and claims people will be “strolling just feet from high-speed traffic under I-395” when that traffic on is a several-lane off-ramp to Biscayne Boulevard (whose traffic will be waiting at a stop light much of the time, not whizzing past).

I contacted James Wolfe, the Florida Department of Transportation’s district director for the Miami region, who hadn’t seen the PIRG report. He was not amused, and commented, “I find it inconsistent [of PIRG] to criticize the original construction of I-395 in Miami for dividing neighborhoods in the ‘60s, but to oppose the current project that is reconnecting those neighborhoods. The pedestrian, bicycle, and public space features of the I-395 underdeck have been universally applauded by both the neighborhoods it serves and the city of Miami that will maintain and operate it.”

By the way, at the end of the report, PIRG provides a kind of scorecard on the current status of the 42 projects it defined as boondoggles in previous reports. Of that total, 18 have been completed or are under construction, 18 more are still under study or “being revised,” three are on hold, and only three have been cancelled.

This commentary originally appeared in the July issue of Surface Transportation Innovations.

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Virginia Tax on Racinos Among Lowest in Nation

Posted on July 17, 2019 by matt ohern
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If Virginia is going to sell its soul, we should at least get the market price.

The Virginia Racing Commission is starting to publish monthly reports on the cash flow to Colonial Downs and to the government under the new state-granted monopoly to operate gambling dens. Any relationship to horse racing in these establishments is just an elaborate ruse, although there is this interesting new word in the industry: Racinos.

The April, May and June reports, which you can find here, track the slow roll opening of the slot machine facilities in Vinton, Richmond and at the main racetrack site in New Kent County. Only the June report picks up some of the operation at the large facility just opened on Midlothian Turnpike in Richmond, the excitement captured by this Richmond Times-Dispatch account.

By the end of June, the three facilities had collected about $174.4 million from bettors, most of it in June. The real revenue pace won’t be visible until the Richmond operation has a full month and Hampton Roads joins in. State policy and industry practice dictate at least 92 percent of the betting revenue returns in prizes, leaving 8 percent for the casino operator and its government partner to divide. It’s the volume, the churn of winnings bet again, that generates the big bucks.

Virginia takes far less in taxes or fees than most of the other states who have made this deal with the devil, leaving Colonial Downs with potentially one of the highest profit rates in the country. State law sets the tax rate at 1.25 percent of the gross bets, or “handle”, leaving 6.75 percent to the operator. Of that, 60 percent is state (0.75 percent) and 40 percent local (0.50). That’s an effective tax rate of 16 percent.

The tax rate on the same machines in Maryland is between 50 and 62 percent. In Delaware it is 58 percent. In New York, 65 percent. In Florida, 35 percent. In West Virginia, try 53.5 percent. These figures come from a new document that Virginia state tax policy wonks need to add to their reading list, the American Gaming Association’s annual report.

It should be the first document examined by the Joint Legislative Audit and Review Commission as it studies Virginia’s full entry into this brave new world of financing government with casino gambling. The General Assembly has voted for it once, but with a re-enactment clause requiring a second approval. You won’t find this much financial detail in the fiscal impact statement on the bill.

JLARC also needs to look closely at the license fees charged in other states and compare that to the tiny $1,000 per location Colonial Downs is paying.

The low tax rate basically doubles or triples the value of the license Virginia has granted Colonial Downs, according to Jeffrey Hooke, an expert on this business who is also a lecturer at the Johns Hopkins University business school. Hooke said that he tried to reach out to Virginia legislators to ask them why they were being so generous to this monopoly business, but nobody called him back. He described this as “a terrible giveaway to extremely wealthy people.”

His quick estimate is that each of these machines generates $200 per day after prize payouts, and if operated 365 days, that’s $73,000 per year. After giving the state and locality their cut, and paying its operating costs, the operator may be keeping a full 50 percent in profit. The pre-tax profit on 3,000 such machines might be $110 million.

Virginia’s initial tax rate on these first three reports is a bit higher than 16 percent, because the operator did not hold the full 8 percent in those first three months. Virginia and the relevant localities divided $2.1 million. The state and local split on every $1 billion should be no less than $12.5 million. In most of those other states it would be $40-50 million. Virginia is leaving more than $30 million on the table for every $1 billion in bets.

A higher portion of the house’s share kept by government would not lower the winnings shared with players, Hooke said, adding that the data indicates the average player loses $70 per visit. Hooke reached out to the Thomas Jefferson Institute and Bacon’s Rebellion, not the other way around, and his first question was why would the General Assembly set such a ridiculously low value on its franchise?

Of course, the government skim is only part of the story, as these facilities will also generate real estate, sales and eventually state income taxes. Fully operational the facilities will have a substantial (if not very high paid) workforce, and as part of the deal Colonial Downs is also re-starting real horse race operations at its New Kent facility. The argument that absent this Virginians would just spend their money in another state is valid.

But shouldn’t Virginia at least take the same share as those other states would? Is this a tax or a franchise fee? In the case of the lottery, with its $2 billion plus in annual sales, all the “profits” benefit the government. All the profits on the wholesale liquor business flow to the government through the Alcoholic Beverage Control Board. Maybe Virginia wants to remain a low tax, casino-friendly venue, but at least make that decision fully aware of what the other states are taking off the table.

A version of this commentary originally ran in the July 11 edition of the online Bacon’s Rebellion.


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NEA embraces the woke agenda — but votes down “student learning”

Posted on July 17, 2019 by matt ohern
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By Nat Malkus and RJ Martin
(Editor’s Note: Teachers in Virginia who belong to their local Virginia Education Association unit also belong to the National Education Association, and a portion of their dues goes to the NEA, which is why those dues are so expensive. We thought thoughtful teachers who care about their students’ futures might find it valuable to know what the national organization does with those dues.)
During the first week in July, thousands of teachers gathered in Houston for the National Education Association’s (NEA) annual convention. During the convention, any group of 50 delegates could bring to the floor a new business item, which is a one-year, non-binding resolution directing the union to take a certain action.
Over 160 new business items were proposed, including New Business Item 2, a motion pledging the NEA would “re-dedicate itself to the pursuit of increased student learning in every public school in America.” The resolution also proposed that the “NEA will make student learning the priority of the Association” and that every NEA program should be evaluated by asking, “How does the proposed action promote the development of students as lifelong reflective learners?”
When put to a vote of 6,000 NEA delegates, the motion failed.
It’s unclear why the NEA would vote against re-dedicating itself to “increased student learning,” since the vote happened in a closed door session. But with no obvious poison pills in the item, “supporting student learning” should be the easiest vote that these teachers take.
One would think that this motion’s defeat would be a public relations nightmare, because it could fuel the perception — a perception long denied by unions — that teachers unions look out primarily for teachers rather than students. But so far, that public relations nightmare hasn’t happened: Coverage of the convention in both mainstream media outlets and the education trade press have said almost nothing about the resolution’s failure.
Yet for anyone looking closely, delegates’ decision to vote down the “student learning” resolution comes into sharper relief when compared to resolutions that did pass. When it came to numerous left-leaning ideas — many with seemingly little relation to teaching kids — delegates eagerly voiced their approval. Over the course of the convention, the delegates endorsed “the fundamental right to abortion under Roe v. Wade,” enthused over reparations for slave descendants, and called on the US government to “accept responsibility for the destabilization” of Central American countries and that this destabilization is “a root cause of the recent increase of asylum seekers in the United States.”
And that’s not all. They also voted in favor of helping with the 2020 Census, supporting the Black Lives Matter movement, and teaching the concept of “White Fragility” (which they explain is produced by “white supremacy culture”) in NEA professional development.
Put together, the voting record from this year’s convention makes it pretty clear where NEA delegates’ priorities lie.
A similar focus was evident in the NEA conference agenda. During the convention, there were breakout sessions on topics like “Racial and Social Justice,” “Ethnic and Minority Affairs,” and “Women’s Issues.” Along with those discussions, delegates heard from a smorgasbord of progressive left warriors like Bernie Sanders, Elizabeth Warren, and Bill de Blasio. Meanwhile, per the convention agenda, there wasn’t a single session devoted to curriculum and instruction, nor raising student test scores.
How can this be? The NEA represents 3 million members, mostly public school teachers of all walks of life, from all political persuasions — 60% of whom have identified as Republicans or independents. The vast majority of these members undoubtedly care deeply about helping kids learn. While we see many things differently than the NEA, we also know many members, and they’re reasonable people whom we highly respect. That’s why it’s so bizarre to watch the majority of NEA delegates eagerly dive into politically-fraught abortion and race debates, while voting down a clear commitment to prioritize student learning.
So please, NEA: Can you explain?
The Commentary was originally published  in the July 12 edition of AEIdeas.

Nat Malkus is a resident scholar and the deputy director of education policy at the American Enterprise Institute (AEI), where he specializes in empirical research through the use of quantitative data to analyze K–12 schooling. His twitter account is @natmalkus. RJ Martin is a research assistant at AEI.


RJ Martin is a research assistant at AEI. is a research assistant at AEI.

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The Jones Act: A Hidden Cost to Farmers

Posted on July 17, 2019 by matt ohern
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Do you know about The Jones Act? You should. It has a profoundly negative impact on your farming business.
The Cato Institute recently published Policy Analysis No. 845 The Jones Act: A Burden America can no longer bear. It is the latest in a long list of studies on a little-known federal law known as The Jones Act, a federal law that requires goods shipped between U.S. ports to be transported on ships that are built, owned, and operated by United States citizens or permanent residents.
I became interested in the Act when a client of mine said it cost over $3,000 to ship a container of soybean meal on a boat to the East Coast and it only cost him approximately $1,700 to ship the same container to Japan. The difference in price is caused by the Jones Act which restricts water transportation of cargo between U.S. ports and must be on U.S.- owned, U.S.-crewed, U.S.-registered, and U.S.-built ships.
Outdated law from First World War
The Jones Act passed after the end of the First World War. During the war the U.S. had to depend on foreign-flag vessels to move troops which some said created a weakness in U.S. national security.
U.S. Senator Wesley Jones from Washington State served as Chairman of the Senate Commerce Committee and introduced the bill that today requires moving product from U.S. port to U.S. port be on 75% U.S.-owned and 75% crewed by Americans. Furthermore, the components of the hull and superstructure must be fabricated domestically.
Sen. Jones claimed opponents of his legislation were more concerned about helping foreigners than helping American interests. Sen. Jones wanted to strengthen national security and create a strong shipbuilding industry. The Act created neither.
The Jones Act restricts foreign vessels from transporting cargo between two U.S. ports. According to the Cato report, the “…United States is the third-most restrictive among all 38 countries and the most restrictive among OECD [Organization for Economic Cooperation and Development] countries with respect to maritime freight services.”
This hurts agriculture
The movement of agricultural products has been greatly distorted by the Jones Act. For example, North Carolina and Southeastern farmers find it cheaper to import grains from other countries rather than from the American Midwest. The Mercatus Institute states “Puerto Rico farmers and cattle ranchers have imported feed grain and crop fertilizers from Canada rather than buying from New Jersey because products shipped from New Jersey to Puerto Rico were subject to higher Jones Act freight rates.”
North Carolina hog farmers are also importing soybeans and soybean meal from Brazil because Jones Act restrictions have made it more profitable to import from Brazil and Argentina than from our farms in the Midwest.
Even though the U.S. is the largest producer and second largest exporter of soybeans, parts of the U.S. find the Jones Act transport costs too high and use foreign flagged vessels to import into Wilmington, NC and Norfolk, VA. The Cato claims, “Grain and soybean farmers in the Midwest, for example, must make due with only two dry bulk ocean-going Jones Act vessels to transport their commodities.”
As we know, there are small rate differences between the costs of commodity prices on soybeans, for example, but choosing between a Jones Act carrier and a foreign carrier is not a hard choice. In fact, Jones Act transportation costs are so high that Hawaiian cattlemen have been forced to ship their cattle to Canada before sending them on to the U.S. for slaughter or on some occasions it is less expensive to “fly” their cows to the United States rather than use a Jones Act vessel.
Another example described by the Cato study involves rock salt. In the winter, Cato claims, “Maryland and Virginia, for example, obtain the product for wintertime use from distant Chile instead of domestically, despite the United States being the world’s largest producer of that commodity.”
It is time to repeal this law which impacts agriculture substantially. This will be difficult because of a 100-year accumulation of special interests, regulators and politicians seeking to benefit themselves and not the American farmer or consumer.
A version of this commentary was originally published in the July 2, 2019 issue of Farm Futures.
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