There is no mistaking the intent of the Merchant Marine Act, the 1920 law more commonly known as the Jones Act. Adopted in the aftermath of the First World War, when the demand for maritime services had increased considerably, its purpose was set out in the text of the law itself, which declared the law “necessary for national defense and the proper growth of its foreign and domestic trade. The intent was to ensure that in times of war or other national emergency, America had a high-quality merchant marine fleet “to eventually own and operate.” privately by citizens of the United States.”
When it was passed, the law provided subsidies for building a national maritime industry, while imposing various employment rules and other maritime regulations. It has been amended over the next century, but it continues to prohibit foreign-flagged ships from traveling between U.S. ports, and many of its wage and labor regulations are still in effect, making do belovedalmost obsessively, by the unions.
In one way at least, the Jones Act achieved at least part of its objective: it benefited the domestic shipping industry by protecting it from foreign competition. But he did so at considerable cost to everyone else.
By restricting and regulating shipping through US ports, the Jones Act dramatically increases the cost of transporting goods, which in turn raise prices on everything from food to electronics to textiles. In times of economic prosperity, the Jones Act is a cost borne by the many to bolster the fortunes of the few. In times of global economic instability and high inflation, the Jones Act exacerbates supply chain problems and pushes prices even higher. On a daily basis, it is a force of impoverishment.
And in a real emergency, that’s a crisis in itself. After Hurricane Fiona wreaked havoc in Puerto Rico this summer, Jones Act shipping restrictions made it impossible to get vital supplies, including the diesel fuel needed to power generators. Only after considerable public pressure did the Biden administration is waiving the rule on a “temporary and targeted” basis.
The Jones Act, in other words, was a system of subsidies, labor and regulations designed to promote American security and economic interests by giving advantages to a particular national industry – a classic example of protectionism. and industrial policy. And every day is a demonstration of how both fail.
It is therefore remarkable that President Joe Biden has spent most of this midterm election year promoting what amounts to a new industrial policy as the centerpiece of its economic agenda. What he seems to want is to take the failed ideas of the Jones Act and apply them to the rest of the economy. The president’s big economic idea is, more or less, the Jones Act, but for everything.
Biden has focused on promoting manufacturing, making campaign-style appearances at planned factories and crediting his policies with creating jobs. In September, after Micron announced it would build a new computer memory manufacturing facility in Boise, Idaho, Biden said it was a “great victory for America”. He called the announcement of the new factory, as well as the facilities of other companies, such as Toyota and Honda, a “direct result of my economic plan”.
Pretty much anytime you find a politician taking credit for specific business decisions made by specific companies, you have to be skeptical, worried, or both. In this case, the proximate cause for much of Biden’s factory jobs campaign is the creation of Useful Semiconductor Production Incentives (CHIPS) and the Science Act, a set of industry subsidies from $52 billion that Biden signed into law in August. Manufacturers eligible for these grants have played along, with leadership from Micron saying that its facility is “the first of multiple U.S. investments planned by Micron following passage of the CHIPS and Science Act”. Micron, however, was publicly tease the possibility of new manufacturing facilities as of October 2021, long before the CHIPS law becomes law.
Similarly, Biden touted Intel’s plans for a large computer chip factory outside of Columbus, Ohio, traveling to the state to speak at a inauguration ceremony in September. The facility construction plan was already underway when the CHIPS Act was signed. The first one announcement in January warned that the “reach and pace” would depend “heavily on funding for the CHIPS Act.”
It is almost by definition true that a company like Intel can be expected to revamp its plans in order to make the most of a large stream of government subsidies. But the fact that the company announced a “over $20 billion” build before the CHIPS Act was passed strongly suggests that subsidies were not the deciding factor in the project.
Just as the Jones Act ends up distorting the shipping industry, shaping it in ways that make it less flexible and less responsive to true consumer demand, we should expect the CHIPS Act to push the semi -drivers to make labor and production decisions designed to satisfy politically determined decisions. subsidy requirements rather than real market needs. Subsidies are more likely to encourage inefficiency and dysfunction than genuinely useful production, inflating prices in the process. When grants drive decisions, it means that grant programs, not end users, are the real customer.
In addition, the subsidies often end up benefiting companies that are already doing well and therefore have the ability to reorient themselves to obtain the subsidies. In January, Intel said that in 2021 it had more than $74 billion in revenue, making it what a company slide described as its “best year ever.” Biden’s industrial policy distributes big benefits to giant corporations that were already booming.
None of this has stopped the Biden administration from bragging about its ill-conceived plans. This month, the president traveled to Poughkeepsie, New York, to welcome a planned IBM installation. “The industrial strategy is really helping to spur a renaissance in American manufacturing and domestic investment…that we haven’t seen in generations,” said White House National Economic Director Brian Deese. said during the trip. In the 1990s, IBM moved some domestic manufacturing overseas. Biden played the reversal, saying“The supply chain will start here and end here in the United States.” Along the same lines, the White House has promoted the idea that CHIPS will “strengthen our national security by making us less dependent on foreign sources of semiconductors.”
Yet if the Jones Act has shown us anything over the past century, it’s that the subsidies, labor requirements, and regulatory regimes designed to protect American jobs and industries deemed vital to the national security end up increasing costs in ordinary times while leaving America more vulnerable. in times of crisis.
CHIPS is just one aspect of Biden’s Jones-Act-for-everything approach to economics. His “Buy American” plan, for example, is a reckless attempt to promote domestic manufacturing with a Trump-era rule that mostly drives up prices for American consumers, all under the guise of economic patriotism.
Biden’s labor department also recently proposed a rule that would see millions of independent contractors reclassified as employees. It’s described as a move to protect workers, but by forcing them into full-time status, it would eliminate the flexibility and adaptability of large swaths of the workforce, making the US economy less efficient. and less resilient.
The Labor Department’s proposal is best understood as an extension of Biden’s outspokenness penchant for union work and one springboard to an eventual surge of unionization for many such jobs. And what are unions if not the engines of workforce sclerosis, bent on imposing labor rules that make organizations of all kinds less nimble and less adaptable to changing circumstances? It is not for nothing that the unions strongly support the Jones Act.
Even Biden’s fiscal policy maneuvers have enabled heavyweight forms of industrial policy. As a Cato Institute trade policy scholar, Scott Lincicome – a sworn nemesis of the Jones Act and an exhaustive and entertaining catalog of industrial policy failures – recently Noted on Twitter, states are using excess funds from the American Rescue Plan (ARP) to bid for electric vehicle factories, “costing taxpayers billions for, at best, modest overall economic benefits and, at worst, boondoggles totals”.
States are using leftover (never needed) funds from the US bailout to engage in a bidding war for electric vehicle factories, costing taxpayers billions for, at best, modest overall economic benefits and, at best, worse, total mess.
Industrial Policy 101. https://t.co/BYdhofZ2aT pic.twitter.com/5xxYEABCx6
— Scott Lincicome (@scottlincicome) October 14, 2022
This one deserves a brief unboxing, as it shows how Biden’s economic follies are intertwined. The ARP was a $2 trillion deficit-funded stimulus package that congressional Democrats passed on party lines shortly after Biden took office in 2021. The bill was sold as an economic lifeline, but economists right and left have warned that it is oversized and poorly targeted and will inevitably lead to inflation. Inflation has now arrived, but misdirected funds continue to find their way into the economy, with states spending borrowed federal money to fund green energy projects of dubious economic value that at best , will result in factory jobs at an astronomical public cost…in some cases well over $400,000 per permanent position.
Biden’s factory jobs revolution is just a series of costly taxpayer-funded boons, and his fanciful vision of a manufacturing economy revitalized by subsidies and labor regulation is, in reality, a vision of vastly expanded Jones Act-style top-down economic planning. It might, as Biden seems so eager to pretend, be a direct result of his economic policy, but it’s hardly a win for America.