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4 hrs agoLiked by Arnold Kling

"Economists are much more aware than average people of the damage done by ... the Jones Act."

That the Jones Act is a favorite punching bag of Economists goes to show what Economists tend -not- to make themselves aware of.

To explain, let's consider thee other hypothetical acts.

First to pass was the "Global Free Trade in Cement Act", which allowed cement to be imported from any country without tariff or conditions on how it was made. Because cement is heavy and bulky and cheap and transportation costs significant, domestic producers were still able to compete with the cheapest ones abroad.

Next to pass was the "Clean and Fair Domestic Production of Cement Act." This required only the US plants to only hire unionized workers and give them higher than market wages and benefits, to not use coal - the cheapest fuel - to smelt the limestone into clinker, and to comply with the most stringent safety and environmental standards in the world.

So, practically overnight, the entire domestic cement production industry went into liquidation bankruptcy with no hope of reorganization, all the workers were fired, and the plants put up for auction for scrap. Cement consumers paid a few percent more for the product of a sector that was simply offshored, and made in a dirtier way that was less safe and with more net emissions as all that heavy bulk now had to be shipped across the ocean and then trucked to its destination. This was not due to "comparative advantage" except to the extent created by "regulatory arbitrage".

This was arguably unconstitutional, at least in spirit, and if you allow for the possibility that "constitutional" can mean something other that whatever at least five Justices claimed it meant the last time the specific question was considered. A lot of private property was entirely annihilated in value as a consequence of public actions and purportedly for public benefit, which qualifies as a "Taking" under the 5th Amendment, and should have entitled all the economic stakeholders to fair compensation for lost assets and expected dividends and wages, etc.

If there were some kind of fair mechanism for the government to pay the cost of its new laws and to compensate these parties, that might have been the end of it, but instead it was more like simple expropriation.

Then, ten minutes before the sector went entirely extinct, the politicians for districts where most of these plants were operating and workers were employed freaked out at the predictable consequences of laws they supported and didn't have to pay for. In that case, Economists were indeed aware of what was going to happen, and the politicians should have listened. But they didn't, and now they were in a pickle, because, in the nature of popular laws, they couldn't just reverse the regulations they had imposed on the sector. And, in the nature of international trade, they couldn't impose the same regulations on foreign producers (though the US sometimes pretends to try).

So, to "level the playing field" and make it viable for domestic cement producers to both (1) be in business, and also (2) comply with regulations, the government passed "The Johnson Act" (also, "The Domestically-Sourced Cement Act") requiring the consumers of cement to pay the full cost of "clean and fair cement".

And of course the Economists were well aware that the Johnson Act would radically raise the cost of cement for domestic consumers, and thus ripple through the economy, raising the cost of everything closely related to cement, and making lots of potentially and formerly viable projects with cement as a key input now non-viable.

But instead of demonstrating "awareness" of the whole big picture, Economists demonstrate obliviousness, and try to pick on the Johnson Act as if it was fair and valid to consider it in complete isolation of the whole history and circumstances. As such, they only talk about the negative consequences, and are consistently completely silent on the point about regulatory takings and fair compensation and who if anyone should pay the price of compliance with cost-ballooning laws.

If instead of simply calling for abolition of the Johnson Act they -added- that the rules making domestic production of cement so expensive should -also- be abolished, then they would demonstrate "awareness" of what the heck they were talking about. Treating the rest of the equation as "not my problem, so it's valid for me to discuss the topic as if none of that stuff is important or exists" could be called many things, but "awareness" is not one of them.

Any layman - or even laychild - can say, "US stuff expensive, foreign stuff cheap, who knows why, but who cares, lots of money to save, duh!" But the first thing an Economist who wants to be taken seriously as an "aware" scholar and intellectual should ask about the Jones Act is "Why, exactly, is a US-crewed ship, built and flagged in the US, THAT much more expensive than the comparable operation from even rich, developed countries?" Is it fair to have laws that burden entire domestic industries to the point of extinction with -nobody- having to pay the price imposed on that industry except those driven into bankruptcy? Is a lousy way of requiring somebody to pay that price to keep the domestic industry barely alive still not better than letting the whole thing go extinct?

So the problem is that Economists are often not aware that they are being overconfident in how "aware" they are.

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I don’t know what economists are aware of. What if the hypothetical regulations increased domestic welfare? Is the economist required to consider that in any degree, or can the economist define welfare solely in terms of price? And in terms of the one quantity the profession really values as more than a quantity, more poor people?

Should there be a law freezing in place how things are done, no matter the externalities, pollution, etc. in obeisance to the norms of whichever culture is most indifferent to such things? That doesn’t sound precisely like sovereignty to me.

Should we have a Jones Act allowing for the processing of the body parts of endangered animals, in America, so as to be competitive with China in this industry?

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You aren't wrong, but neither is Kling. Economists are far more aware than normal people, but fall far, far short of total awareness. The problem is that the amount of regulation is almost farcically immense, well beyond the ability of any thousand people to fully comprehend. Not just the raw written word, but also the multifarious interactions and unintended consequences.

To me, that is the primary reason to prevent government from messing around like that; it is effectively impossible to know what one is doing, so the results are almost always going to be negative (because most things one can do make a given situation worse while only a tiny subset tends to make it better, so effectively randomly selecting actions is almost certainly bad.) Take all the regulation and burn it to the ground.

WRT the Jones Act, it does seem a little strange to keep it in place when it seems to do more harm than good even given the current state of regulation. I don't know enough about the current state to ensure that, of course, but starting to chip it away doesn't seem like a bad idea, especially since we seem to have killed the entire domestic shipping industry decades ago anyway. We should start removing the stakes that ensured that as well, of course.

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"especially since we seem to have killed the entire domestic shipping industry decades ago"

Not the entire industry. There are still just under 100 Jones Act ships left, mostly huge oil tankers moving petroleum from Alaska, and some special cases involving distant islands like Hawaii and Puerto Rico (and one can think of Alaska as kind of like an 'island' in some ways), and a builder or two which replaces the turnover of the old ships that get retired from domestic service.

Probably a few billion dollars of the value of that industry gets wiped out if the Jones Act is repealed, but as the Jones Act -not- being repealed is one of those "reasonable investment-backed expectations", any talk of repealing it should include -paying- these companies and workers what they stand to lose in the name of the purported public benefit.

Except, what benefit? Here's another thing the "aware" Economists tend to talk as if they are not "aware" of. The Jones Act doesn't make a lot of maritime shipping more expensive than it needs to be, it makes a lot of maritime shipping -not happen at all-. A bunch of stuff that moves up and down the East Coast, for example, goes by truck or rail because they out-compete even the cheapest Jones Act-compliant alternative.

Ok, so let's say foreign-built, foreign-crewed, foreign-flagged ships would be cheaper enough to compete with truck and rail. Now all the logistics industry has to do is divert all those shipments to all that spare capacity at those very efficient and world-class existing US ports today and soon to all those new US ports which will pop up in the near future because the US makes these totally easy, cheap, and fast to build and ...

LOLOLOLOLOLOL

Oh, that's right. US ports are not so good. They are expensive, inefficient, slow, antiquated, and don't have spare capacity. The cost, time, and burden of getting new capacity or, heaven forbid, whole new big ports built is so prohibitive that most of that freight is going to still be moved over truck and rail for a very long time.

And what that means is that the consumer benefit from repealing the Jones Act in the near to medium term is marginal at best (perhaps except for Hawaii and Puerto Rico) and perhaps not even exceeding the amount that -ought- to fairly be paid to what you might call the Jones Act compliance industry for their lost "rents". We are supposed to hate rent-seeking, but after a certain amount of time of formerly sought rents being obtained and now well-established and upon the continuance of which parties can reasonably rely, they are more accurately viewed as "property rights", and if taken away, ought to be paid for.

So, for example, I think the Jones Act should be repealed, as well as all the laws which make Jones Act Compliance really, really expensive, as well paying just compensation to all those harms, as well as making it easy, quick, and cheap to build, automate, and expand US port operations. And since that whole package is apparently currently impossible to the third power, the least worst option is unfortunately to keep the current flawed system in place.

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The prices and costs in medical care are so opaque that it is almost impossible to make rational decisions. If I knew the actual cost (amount paid) for my 4X bypass would only be about the same as my annual medical insurance cost, my decision as a small business owner at the time would have been different.

They had found a problem with my heart in 1980 and our premiums doubled ever 6 mo forcing me into a very high priced insurance. Knowing that the difference between "list price" and "real price" would say that insurance is a form of insanity. Medical pricing makes plumbing or auto parts pricing look rational (if you don't get close to 75% discount below "list price", look for another supplier). I didn't need the bypass until 2004 and that was millions in insurance costs wasted.

Big mistake, never get an angiogram in you real name. Medical insurance is not a "NO CUT" contract and they will dump you the second they see a hint of bad news. To make a no-cut into a disposable contract Prudential will just "re-pool" by taking all the good risks out and doubling the cost to the poor risk members (which is legal). That way they are not sharing the risk which is the purpose of insurance.

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I’m not at all convinced that money for drug addict single mothers provides better nourishment for the kids than food stamps. Which, with effort & a little lost value, can be turned into money. I’m now wondering about food stamp conversions for alcohol and cigarettes.

If money is a little better for the least poor 70%, but much worse for next 25%, and as useless as anything for the bottom 5%, does this mean money is a better policy than food stamps?

The most important thing economists know, but so often fail to elaborate, is that all decisions involve trade offs among imperfect and uncertain outcomes.

Govt building new housing in SF would help reduce the housing problem more than money, since govt regulations are stopping building more than a lack of money.

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"Furman argues for cost-sharing when it comes to health care expenses,"

In theory this sounds great. It sounds simple. Is it?

In practice, how do you do it? The copay that's a nuisance to one person is unaffordable to another. How does one set up a plan with a big enough cost share for one or few visit issues without it being overwhelming for those with chronic conditions requiring many visits and lots of care? Do we make prospective parents share in the childbirth cost to the point where they decide not to have kids? Would we rather have cost be another reason people don't get vaccines or get checked for high blood sugar or hypertension?

How do we do this without it creating a negative tax where some people are better off working less?

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Scott should also include TSA instead of airport-run security and that airports do not price landing rights as another market distortion to Scott's list.

But he leaves out the biggies: mispricing of surface and subsurface water, immigration restrictions, and non-taxation of negative externalities like net CO2 emissions

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What negative externalities of CO2 emissions, Thomas?

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Social Security and Medicare have 2 fiscal problems:

a) The tax and benefit formulae are rigid and are not designed to keep revenues equal to payments

b) The programs are financed with a tax on wages which

i) introduces more volatility into the revenue stream as people become employed/unemployed

ii) are a tax on (only some kinds of) income rather than on consumption.

iii) slightly distorts the firm decision to substitute labor for other factors of production

Using a VAT would solve or at least ameliorate all these problems.

The decision about what the benefits should be (in the case of Medicare if it should be separate from the delinked from employment system) is a different kind of decision.

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"The decision about what the benefits should be"

Other than that Mrs. Lincoln, how was the play?

The logic of VAT versus Income tax applies regardless of what the governments expenditures are.

So the real question your asking is "would adding a VAT on top of income taxes increase the overall tax burden I can get away with as a % of GDP, allowing me to continue shoveling lots of money to old people to buy their votes". I suppose we could achieve European level tax/% GDP with a VAT, and then we can add slow growth to our list of problems.

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A VAT would not address a).

b) i) is of questionable importance.

b) ii) is not a problem. It is simply the difference between a wage wage tax and a consumption tax.

b) iii) is not a problem.

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Furman/Health Insurance. Two problems

a) where to locate the cost-benefit decision(s) about what treatment is appropriate in a given case.

b) how to delink health "insurance" from employment.

My tentative guess for both is tax credit to individuals to purchase community rated private insurance which woud have some (but not much) incentive to structure their benefits to be cost effective and individuals would have some incentive (but not much) to chose the more cost effective plans.

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