"To give the monopoly of the home-market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful." Adam Smith
Before reading on, please click the following link and watch the three minute video:
CNBC's Jim Cramer, Brian Sullivan and Mandy Drury on Philadelphia's ship building boom...
While Cramer, Sullivan and Drury are unabashedly sincere in their opinions, they, sadly, happen to be unequivocally wrong. The fact that, at first blush, this line of thinking seems to make so much sense is a huge economic problem for America today. Here's why:
The near-completed ship and the next in line---purchased by Exxon---each come with a $200 million price tag. According to Marine Money International, ships with the same capacity can be built in South Korea for $46 million a piece. If Exxon had the freedom---which, due to the Jones Act, it doesn't---to "go into a culture of cheap" as Mr. Sullivan put it, yes (if you happen to live in Philadelphia) you may have a neighbor who wouldn't have a job on the shipyard. But what, if anything, would be gained?
For starters, according to Ed Morse, Citigroup's chief commodity analyst, the costs associated with the Jones Act often make it cheaper to transport oil to Brazil than to New York City. One estimate has the Jones Act premium on a gallon of gas in the North East and Florida at 20 to 30 cents. That's a monster number, considering how many gallons of gas are purchased each day in the North East and Florida (not to mention the rest of the country). Suddenly, protecting someone's neighbor in Philadelphia looks to be a very expensive proposition. But that's not all.
Think about how the savings in the price of a gallon of gas would meander its way through the economy. Imagine the jobs in other industries created for other people's neighbors. But that's still not all.
In a free market for ships, Exxon would save $312 million dollars on just those two. Imagine the resulting investment in other areas, imagine the jobs, imagine the gains in productivity, imagine the potential further savings in fuel prices, and, once again, imagine the jobs. But that's still not all.
The South Koreans' willingness to build ships for 46 million U.S. dollars a piece means that they (and/or their other trading partners) desire goods and services produced in the U.S. Which means business for U.S. exporters. Which means jobs for other people's neighbors. I'll stop here for now, but that's still not all.
Honestly, I could fill a book (which is in the works by the way) on the topic. The bottom line is that the cost of protecting a select industry, while not apparent to all, is suffered by all.
Here, once again, is that visual (the Jones Act has virtually the same effect as the tariff on tires):