Tag Archives: Puerto Rico

I’d like to expand the Jones act so more ships can do US trade.

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If you visit most any European port city, you’ll see a lot more shipping than in the Midwestern US. In Detroit, where I am, your’ll see an occasional ore boat from Wisconsin, and an occasional tourist cruise, but nothing to compare to German, Belgian, or Turkish ports. The reason for the difference is “The Jones act.”

The port of Istanbul with many ships

The Jones act , also known as “The Merchant Marine Act of 1920”, requires that all ships depositing cargo or people between US ports must be US owned, US built, US captained, US flagged, and at least 70% US manned. This raises costs and reduces options. The result is that few ships can move people or cargo between US cities, and these ships are older and less efficient than you’ll see elsewhere. World wide water traffic costs about 1/8 that of rail traffic per ton-mile, but in the US, the prices are more comparable. The original justification was to make sure the US would always have a merchant marine. The Jones act does that, sort of, but mostly, it just makes goods more expensive and travel more restrictive.

The port of Detroit — we rarely see more than one ship at a time.

Because it does some good, I don’t want to get rid of the Jones act entirely, but I’d like to see US shipping options expanded. Almost any expansion would do, e.g. allowing 50% US manned ships delivering along US rivers, or expanding to allow Canadian built ships or flagged, and ships that are more than 50% US owned, or expanding to any NAFTA vessel that meets safety standards. Any expansion of the number of ships available and would help.

The jones act increase the price of oil transport by a factor of five, about.

Currently, the only exceptions to the Jones act are for emergencies (Trump voided the act during several storms) and for ships that visit a foreign port along the route. This exception is how every cruise ship between California and Hawaii works. They’re all foreign, but they stop in Mexico along the way. Similarly, cruises between Florida and Puerto Rico will stop in Bermuda typically, because the ships are foreign owned. Generally, passengers are not allowed to get off in Puerto Rico, but must sleep on board. This is another aspect of the Maritime act that I’d like to see go away.

Because of the Jones act, there is some US freight-ship building, and a supply of sailors and captains. A new, US ore-ship for the Great Lakes was launched last year, so far it’s been used to carry salt. There is also a US built and operated cruise ship in Hawaii, the “Pride of America,” that makes no stop in Mexico. I’d like to see these numbers expanded, and the suggestions above seem like they’d do more good than harm, lowering prices, and allowing modern container ships plus roll-on-roll-off car transports. Our rivers and lakes are super highways; I’d like to see them used more.

The port of Antwerp – far busier than Detroit.

Another way to expand the Jones act while perhaps increasing the number of US-built and operated ship would be through a deal with Canada so that ships from either country could ply trade on either countries rivers. As things stand, Canada has its own version of the Jones act, called the Coastal Trade Act where Canadian vessels must be used for domestic transport (cabotage) unless no such vessel is available. Maybe we can strike a deal with Canada so that the crew can be Canadian or US, and where built ships in either country are chosen on routes in either country, providing they meet the safety and environmental requirements of both.

Robert Buxbaum, June 14, 2023.

Puerto Rico’s minimum wage and statehood

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Puerto Rico is in deep trouble and it’s getting worse. Unemployment is at 12%, double the next worst state or territory (Alaska), tourism is down, and poverty is at 41%. Tourists have begun to go elsewhere in the Caribbean: Bermuda, Haiti, Jamaica and Cuba. The island is effectively bankrupt and would have filed for bankruptcy last year except that they legally can’t. But neither can they pay their bills. The territory will go into default in less than 2 weeks, on July 1, 2016 unless congress creates a new funding mechanism for them before then. Statehood would allow Puerto Rico to go bankrupt, but there is no way for statehood to be achieved by July 1.

Puerto Rico's minimum wage is vastly too high; here it is compared with other US states.

Puerto Rico’s minimum wage is vastly too high for its median wage. From Preston Cooper, Economics21.

While bankruptcy might help Puerto Rico short-term, as would a new line of credit, it is worthwhile to ask why Puerto Rico is in this bad shape. Why are they worse off than Guam, for example; Guam is far more isolated. Puerto Rico isn’t run particularly well, but it’s no worse than Guam or  Illinois. My first thought of what Puerto Rico should do differently is that they need to lower their minimum wage.

As the chart on the right shows, the wage of the average working Puerto Rican is very nearly the minimum wage. This is because, Puerto Rico’s economy is essentially tourism, and it competes for tourists with lower-wage Caribbean countries, Jamaica, Haiti, and Cuba. Neither Alaska nor Guam compete for tourist dollars with low cost alternatives. And Guam, in particular has a strong military presence; those are their main tourists. Competing for tourist dollars is a disaster for Puerto Rico that they could solve if they could lower their minimum wage. And a lower minimum would not cause people undue suffering because Puerto Rico is a place one can live cheaply. A single person may need to earn $8.50/ hour to live minimally well in Michigan, but his Puerto Rican cousin can get by on far less in Puerto Rico. With a lower minimum wage, tourism would be more attractive, and the government would not spend so much because they could pay their minimal-skill workers less. The net result is more Puerto Ricans would be able to find jobs, and the government would have a better chance to balance its books.

What prevents the territory from lowering its minimum wage is that it’s part of the US, and we set the minimum at $7.25/hour. Many people might prefer to work for less, but they can’t unless the federal government grants them an exemption. Without it, there is no obvious way for Puerto Rico to ever pay its bills.

Four years ago, in my first blog post, I suggested that Detroit should lower its $15/hour ‘living wage‘, a wage unduly burdened the city budget, and added to Detroit’s rampant unemployment and corruption. A year later, the city removed this barrier as part of bankruptcy, and saw significant improvements. I’m not alone in suggesting a lower minimum wage. The alternative is state-hood followed by immediate bankruptcy.

Robert Buxbaum, June 19, 2016.