Episode 27 The Jones Act Was Built to Protect U.S. Shipping. U.S. Shipbuilding Still Collapsed

[00:00:00] Kevin: This another episode of The Curious Pundits podcast, and today we're gonna talk about the Jones Act, a 1920 maritime law in the United States, that was passed then with the best of intentions and has some interesting ripple effects through the years.

[00:00:18] Emanuel: I'm Emanuel, co-host of the Curious Pundits podcast. I know little to nothing about today's topic, but fortunately, we have a guest that knows more than even Kevin does. And so I'm really curious and as always, I have my notebook ready with a fresh page here and a new pen that I can write all the information I'll learn today.

[00:00:38] But I'm a marketer in my everyday life, and I wouldn't be much of a marketer if I wouldn't ask the audience that's watching this to go to curiouspundits.com, like, share, subscribe, and sign up to follow our podcast. Give us a rating. We're on all the platforms that you can listen to a podcast, being Apple, Spotify, Stitcher, Pandora, I think everywhere, YouTube, and any other that you can think of.

[00:01:04] So curiouspundits.com, that's where you'll see today's recording, previous recordings, and future episodes as well. That said, I'm gonna pass along the virtual microphone to Kevin, who'll introduce our guest. Welcome, first of all.

[00:01:17] Kevin: I'm Kevin, the other co-host, and today's guest, and I'm gonna read from my notes, Professor Rockford Weitz, Director Fletcher Maritime Studies Program, The Fletcher School at Tufts University. I'm gonna borrow a line from another podcast, the Odd Lots podcast on Bloomberg. Rocky is the perfect guest.

[00:01:38] That's something they like to say about all their guests. But he really is the perfect guest for this topic. I was looking for a guest who would not be either for or against from an ideological perspective, but would just talk about what it is, why we did it, and how it came to be.

[00:01:56] Rocky, please introduce yourself and then allow me to explain what I think I understand about the Jones Act.

[00:02:02] Rocky: OK, Great. It's great to be here. And as mentioned, I'm a professor of practice at the Fletcher School, where I run our maritime studies program. And I've been looking at the Jones Act for over 20 years happy to talk about it. And I really do try very hard not to take a partisan view, but just weigh the costs and benefits of the legislation and think about what it means for the US and maybe there are some ways to make it better as we're trying to enhance our maritime capability as a country which is a bipartisan effort.

[00:02:34] With that I'll turn it back to you, Kevin, and we can start the conversation.

[00:02:38] Kevin: So my understanding is that the Jones Act was passed in 1920, and it had two primary objectives. One was to create an American merchant marine fleet, which would basically move goods around the world in competition with all of the other merchant marine fleets in the world. But the other one was to be available to the Defense Department in the event of war. And I can completely understand both of those objectives. Like, at first glance, I'm like, "Yeah, makes a lot of sense." But since then, the American shipping industry has declined considerably to the point where... I've got in my notes that the entire American maritime fleet is 23 ships or take, as of 2023. And that's just not enough ships with which to achieve either of the initial primary objectives.

[00:03:36] So I'm kind of curious, Rocky, what in that did I get wrong and what did I get right?

[00:03:42] Emanuel: And if I might add to that, what is this Jones Act? If you can also make an introduction for those of us, believe it or not, we have people listening from all over the world.

[00:03:52] Rocky: Okay, very good. So the, the Jones Act is a shorthand for the Merchant Marine Act of 1920. And it has other iterations that have gone through, but it's the Jones Act name has stuck because it was introduced and shepherded through the process by Senator Wesley Jones of Washington. Now, to go back to 1920, so Kevin's points on the goals were correct, that what we had found in World War I is that we had been reliant before World War I on other merchant fleets to provide trade for the United States, and that we had really let our own merchant fleet decline. And then once the world stumbled into World War I, we were really at a disadvantage from a trading perspective because everything got very nationalistic, and we were having trouble sourcing for our economy, both imports and exports. And so the Merchant Marine Act is designed to create incentives to have a vibrant merchant marine to serve the US. And so it covers goods that are carried from one US port to another, so it's domestic shipping. The requirements in it is that the ships that carry those goods need to be US owned, US crewed, and US built and US flagged. So four different requirements. And in the end what has happened is that this has worked in certain periods of time.

[00:05:24] For example during World War II, it was really because of World War II that we created a huge merchant marine to service the war. But then afterwards, we ended up selling that off to international shippers. A lot of Greeks, for example bought the old Liberty ships. And we really have declined.

[00:05:43] I think the 23 vessel number probably captures what's a traditional sailing ship, but there are many other vessels. So for example, the barges that cover the riverine trade and even some of the coastal trade by barge, there's a lot of US Jones Act barges out there. That makes the numbers much larger. And then also offshore oil platforms are also considered US ports. And so the ships that go back and forth in the Gulf... Gulf of America, Gulf of Mexico, depending on how you wanna term it, but there's about 1,000 offshore oil platforms there, and those are Jones Act vessels that go back and forth there. So they comply with the law. But they're not the ocean-going vessels. I didn't check the numbers before this podcast, but it wouldn't surprise me that the ocean-going container ships, the ones that service Hawaii, Puerto Rico, and Alaska for goods would be in that sort of double digit number.

[00:06:47] And what we've seen Is that in recent times... so this was meant to encourage US shipbuilding, but for many reasons, which we'll talk about today, are really more focused on changes in the global shipbuilding market and the rise of globalization and US decisions to encourage Japan and South Korea and others to build their shipbuilding industries for really Cold War geopolitics reasons, that we don't produce as many ships as we used to. And there's also domestic reasons why a lot of people... as working waterfronts now have expensive condos on the waterfront, they don't want a working waterfront in front of their condo anymore. So it puts us in this situation where as we think about how we have at least some shipbuilding capability, which I think is a very important bipartisan desire where those are sited, they're not gonna be where the old ones were.

[00:07:45] For example, here in Boston where I'm based, the Charlestown Navy Yard, a very nice neighborhood now doesn't have really the depth for modern ships anyway. So you probably would site any new major shipyards probably along the Texas coast or other coasts where they would be a new greenfield project and wouldn't get in the way of modern urban centers, 'cause they would just be really opposed to it.

[00:08:13] Kevin: Two questions jumped out at me while you were talking, and the first one was the idea of selling off the fleet after World War II. At what rate did, what I'm gonna call the assets of our maritime shipping industry, get sold off after World War II? Was it very quickly? Was it slowly over time?

[00:08:35] Rocky: It was relatively quickly. I would say in the first five years after World War II wrapped up that most of the Liberty ships were sold to the international markets. And this was important in order to rebuild Europe, especially, and to a lesser extent rebuild Japan. But basically there was lots of needed for goods to be sourced, and there was essentially a huge construction boom after World War II especially around Europe that needed ships, and those European countries were eager to control their own fleets.

[00:09:13] And the US had this excess that was really more than we needed, and so we sold off a lot of them. We still kept some and used them for a long time for our sort of supply logistics fleet to support the Navy. But basically the bulk of them were sold over the first five years.

[00:09:32] Kevin: The other question that jumped out at me is what I'm gonna call-- And it kinda ties into the bulk of them were sold out over the first five years, but the aggregate timeline of the decline ... I'm gonna call it a decline in our merchant fleet, over time in terms of what activities happened when.

[00:09:48] So a number of ships got sold off in the first five years, but we still had, like, shipyards where we could build ships, and they had to be wound down. And presumably there's, I don't know, a maritime insurance adjunct to the whole ecosystem, and that probably wound down. And I'm just kinda curious of the half-life if you will, of the American merchant fleet after World War II.

[00:10:11] Rocky: Yeah. So, I would say since 1920, really it's been it's been a volatile situation with regard to the merchant marine. So large buildup up to World War II and then down. We saw some buildup during the Vietnam War of Jones Act vessels that were carrying

[00:10:32] Kevin: Makes sense.

[00:10:33] Rocky: Goods to Asia. And they have been sustained. And sometimes when we don't have that capacity like we didn't have during the 1991 Gulf War, we had to contract out, essentially have a Jones Act waiver for the US build provision. And so I guess a way to think about it is when we're trying to preserve some maritime capability, the Jones Act is one sort of legislative tool that's meant to create an incentive for a vibrant merchant marine, so a number of trained mariners who can crew the ships. And I think this is very needed, and this is, I think, part of the Jones Act that should certainly be preserved in the sense that you wanna create a set of trained mariners who in the event of some kind of conflict can help ensure that that goods are coming in and out of the United States with US crew. And these tend to be pretty good jobs too. Whether they're employed on cruise ships or on some of the Jones Act cargo vessels or barges that are there. Another piece that I think is important is it's not just the coastal trades, but it's also our riverine trade. And so you can make a better case for from a national security perspective that the riverine trade you would want to have on US vessels, US crewed because you wouldn't want in a kind of a lead-up to a conflict that a number of foreign mariners would have access to some of our dams and locks and could cause some kind of trouble with causing sabotage to those internal waterways.

[00:12:18] So I think that's an important piece of this as well. So you can make the argument for it, but when we look at the US shipbuilding capability, that's where we really see the US lose its edge where the US produces less than, I think it was six vessels last year were produced by US shipbuilders for commercial ships.

[00:12:39] Yeah, so single digits versus 3,000 in China and thousands in Japan and South Korea. It's just a totally different scale like several orders of magnitude smaller. And we really saw that situation after... it started in the 1980s when we... as part of the sort of Reagan revolution of getting rid of subsidies.

[00:13:05] The subsidies for the US shipbuilders to produce Jones Act vessels were cut, and they were just unable to compete with these foreign yards, and so their business just dwindled. And now most shipyards there's a handful that focus on Jones Act vessels, but you really, you can count them on one or two hands. And then most are really focused on US Navy contracts or Coast Guard contracts which are more lucrative. The reason why this is important is that having the ability to rebuild a fleet in the event of war, say a conflict in the Western Pacific between the US and China, where we would almost certainly in any scenario see some US ships sunk, and it would be a real logistical challenge to supply troops forward across the Pacific, that you'd need to rebuild that capability relatively quickly. And so you need all of the skilled shipbuilders and the subcontractors and everything that goes with that entire field, and that's where there's a lot of overlap between the commercial ships and the Navy ships for things like pipe fitters and marine engines and all the things that go into building a ship and having the naval architects and welders and sufficient mariners to crew all of them as well.

[00:14:26] So that's kind of the goal of the act. But what we've learned over time just studying it is that it's not been sufficient because the shipbuilding industry is one of the most subsidized globally, and the Chinese are willing to just subsidize at way higher level than we are. Same for the South Koreans and the Japanese. And then now at this point they've been building a sort of economies of scale edge since the '50s and '60s, and it's very hard to overcome that here in the 2020s.

[00:14:59] Emanuel: Two questions I have so that I was waiting in line. These two questions. First of all, moving goods through domestic ports. Goods, doesn't matter their provenance, where they come from, domestic or foreign. Correct? Just goods between ports.

[00:15:15] Rocky: Goods between ports have to be carried. So we have a lot of international shipping that comes in will drop off goods at say, let's use the West Coast as an example. So say they come into the Port of Seattle, from China. And so they drop off a bunch of containers, and then they go out and they go to Los Angeles, and they drop off a bunch of containers.

[00:15:34] Now, they might pick up some containers too and then they sail back. So that is allowed, but that same ship can't pick up containers in Seattle and drop them off in in Los Angeles. It can only do drops from Asia into the US market, or it could take containers from the US market and then eventually deliver them back to Asia. But not between the two US ports. That's the distinction.

[00:16:01] Emanuel: Fair. And the second, you mentioned the US built six, China built around three thousand and...

[00:16:09] Rocky: Yeah.

[00:16:09] Emanuel: Is there a number for Canada? Do you happen to know?

[00:16:12] Rocky: Canada I think is a little bit higher than the United States actually. Which says something, right? I I don't know for sure, so I should say I don't know. But Canada does have some shipbuilding capability still. And because of how widespread Canada is, it's a very large geographic country with a lot of coastlines and coastal traffic, especially in Eastern Canada around the Maritimes, that there's a domestic market for it.

[00:16:39] Kevin: I just wanna comment a little on this concept of US to US cargo. So the fact that a ship cannot carry cargo from Seattle to Los Angeles, to me that's not like a huge problem because we have trains, we have trucks. But the fact that a ship cannot carry cargo from like Seattle to Anchorage or Los Angeles to Hawaii or Houston to San Juan, like these are problems because, well, Hawaii and San Juan are literally islands.

[00:17:10] But Alaska is kind of an island in terms of transportation routes because it's not as easy to drive through British Columbia and the Yukon as it is just to sail, right? And yeah, I see that as being a huge problem. And my expectation is, and my notes claim this is the case, that every resident of Alaska, Hawaii, and Puerto Rico pays a lot more every year for stuff because of the costs of shipping it there.

[00:17:42] Rocky: Yes. This is true. Those economies still receive foreign shipping, so the cost differential isn't as high as maybe you would expect, but there's no question that it's more expensive to buy basic goods whether it's construction materials, milk, basic food products in Hawaii, Alaska, and Puerto Rico than it is in the continental US. And part of that and there's a lot of disagreement of how much that part is, but part of that is attributed to the Jones Act constraining the number of ships that could be carrying the goods from the mainland ports to those island ports. So the the point is valid. And the other thing you mentioned, and I think this is a really important point on the Jones Act overall is, since it was created in 1920, think about how much has changed on the US land-based infrastructure.

[00:18:36] So significant expansion of the US freight rail system, the building of the interstate highways and the sort of rise of trucking. And so this is what has made it actually very difficult for Jones Act ship owners to be able to compete with those coastal trades because they're basically gonna require some kind of truck delivery from the port.

[00:19:02] They can carry goods from Seattle down to Los Angeles, but on both sides of that, there's gonna be a truck involved. And with the rise of containerization which happened in the '60s the Vietnam War contributed to that. But this standardization of containers means that much of the US transportation system is called intermodal. So you very almost seamlessly can move a container from a ship, put it onto a truck or put it directly onto a rail in some cases, and then ship it quite far away from that destination port and then to the final consumer. And so what we find is actually like there's a lot of ironical trends that you have.

[00:19:44] So for example here in Massachusetts, actually the number one port for containerized trade is actually the Port of Worcester which is a landlocked port because it's the end of the CSX rail line that carries these containerized goods from West Coast ports to Massachusetts, and then from Worcester it's distributed.

[00:20:06] So actually, Worcester outcompetes the Port of Boston because Boston just doesn't have the same volume.

[00:20:12] Kevin: Can you expand a little on the concept of a landlocked port? 'Cause in my mind, as you uttered those words, I'm like, "How do those words go together?"

[00:20:20] Rocky: It's just kind of a joke. So it's called the Port of Worcester, but Worcester doesn't have a river, it just has rail networks. And so you see this sometimes in Midwestern cities. It'll be like the Port of Denver, right? So it's essentially it's a rail port.

[00:20:36] Kevin: Okay.

[00:20:36] Rocky: So it's just a rail port. And sometimes depending on the state, there'll be certain incentives for like a special economic zone in a port. These could be linked to airports as well, so you see these with airports.

[00:20:50] Kevin: Yeah.

[00:20:50] Rocky: So basically the freight rail companies have also built these, so it's just a accident of language more than anything else.

[00:20:58] Kevin: Now, there's something else that I want to ask how it fits in to the Jones Act, but first I gotta explain what it is, and it's something that I heard about on an episode of the Odd Lots podcast, and I'll try and find the specific episode, although it was a few years ago. So something that the general public tends not to think about in terms of maritime traffic is that ships have to get into and out of the ports. And apparently, the Port of Houston basically has two lanes, one in and one out, but the rivers that flow to the Gulf and to other places, they carry silt, and a hurricane will blow through the Gulf of Mexico, and that'll mess it up. So the channel got narrowed to where there was only one lane. So in order to go in, you had to wait for the channel to be clear, and in order to go out, you had to wait for the channel to be clear.

[00:21:48] And dredging the channel to make it two lanes wide was an effort that had to be done, and the Jones Act interfered with the Port of Houston's ability to go for the low-cost bidder. So apparently, a company in the Netherlands said, "We can do it in, like, six months for..." I don't remember the exact number, so I'm just gonna make up numbers. " We can do it in six months for $10 million." But the Jones Act prevented Houston from accepting that bid. They had to go with an American company, so it took significantly longer, and it cost significantly more. So my question is, how does the Jones Act prevent a dredging operation like that?

[00:22:33] Rocky: So I don't know the details of that, so this is mildly speculative. But my hunch is that dredging operation would have to go back and forth between US ports probably the same port, probably the Port of Houston to refuel and either switch crew or have the crew rest. And that would be considered a Jones Act effort. And I'm sure this was sorted out by lawyers who specialize in this. And so there was probably some effort by a local contractor to be like, "This is protected. This is protected by the Jones Act." and they probably had their attorneys write a letter to the Port Authority. To supply the offshore oil platforms, it's the same thing, that it has to be a Jones Act ship because they're going back and forth between between Houston.

[00:23:23] So that's my hunch. I don't, know the details of that. But fundamentally, these are the sort of unforeseen consequences of this law where if you think about it from a big-picture perspective that wasn't the original intent, to prevent the lowest cost dredger, right?

[00:23:43] It was much more to protect the coastal trades and the riverine trades and to create some incentives for these more long-haul shipping services. But that being said as the sort of industry has changed, that law has stayed in the background and it hasn't been amended in any significant way. And it certainly hasn't been repealed. So it informs some of these things that you wouldn't normally think about as a Jones Act effort.

[00:24:13] Kevin: This is a very speculative question, and it comes from, I have no idea what podcast or episode I listened to, but someone was newly elected a mayor of an American city, and I don't even know what city or who the mayor was. It's... The memory is kind of vague, but this one detail jumped out at me. So in the era of AI, one of the questions that everybody gets asked is: How are you using AI?

[00:24:36] And she gave an incredibly good answer, it's "Well, we have years and years and decades of regulations that we don't even know the details of. So basically, we fed all that to an AI. We gave it some kind of criteria of what constitute stupid laws and told it to find them and surface them for us.

[00:25:00] So now we have a list of stupid laws we need to repeal, but we have to go through the legislative process to get them repealed." And I'm just wondering, have you ever heard of any effort of that type at the federal level in the United States or at any other level in the United States?

[00:25:16] Rocky: I haven't, but I bet it's coming would be my hunch. And what's interesting about... So the, Jones Act, it has its very strong supporters, those who benefit from the protection. It does have a logic to the national security side. It also has its really strong detractors, those who just really don't like how it has manipulated the market and raises costs for consumers in certain areas.

[00:25:45] Notably Hawaii, Alaska, Puerto Rico are noted. But in some of the port infrastructure, it makes it harder for the US to be globally competitive. And so you have a quite contentious debate in Washington. But like with so many things, it's a polarized environment.

[00:26:02] So I think that there is probably an opportunity to think about how to amend it to make it better. But I don't see it being repealed because it does have a lot of supporters that make it so it won't be just cast off as a stupid law, because it has some of that national security logic.

[00:26:25] Emanuel: I wouldn't be surprised if they feed 100 laws and say which one is a stupid law to actually leave only with three or four laws that are not stupid.

[00:26:36] Kevin: It's gotta be more than three or four, but that, that would be a worthy exercise at every level of government in every country, I think, right? And I'll try and find out, I mean, with the use of generative AI, I may be able to find out what podcast, what episode, what city, what mayor, and if I can, I'll put it in the show notes.

[00:26:54] So I wanna kinda like ramble for a bit, and I warned you, I have a habit of doing this, but you used three words that struck a nerve with me, and it's the words "manipulated the markets." So bear with me.

[00:27:11] Rocky: Okay.

[00:27:12] Kevin: We have this belief that capitalism is somehow a bottom-up organic thing, people just meeting and transacting and things are happening and it's good, and that every time government sees what's going on and tries to influence what's going on, they are interfering in the operation of the free market.

[00:27:35] This is a common framing in the way we talk about markets. And the irony of that historically is... markets do not work that way in aggregate. There have been small isolated pockets in history of relatively small markets that operated with rules that they made up themselves and worked well for them, and then other authorities or higher authorities in that society didn't interfere with them. But they were more the exception than the rule. And we've been doing this now for about, well, I'm gonna get to what this is in a minute, but we've been doing this now for about 600 years.

[00:28:13] So the dominant theme in the history of capitalism is there is some national security and/or strategic advantage thing which is legitimate and expensive to pursue, and in some cases, highly speculative. Like for example, the Apollo moon landings was a highly speculative strategic advantage kind of thing that no private company could afford to do, right?

[00:28:42] Rocky: Sure.

[00:28:42] Kevin: The earliest one of these that I know of was in Portugal in 1418. It was called the School of Navigation. Interestingly, it ties to maritime expansion. And basically, I'm of the belief that if you were gonna live in medieval, well, anywhere, the best position in society would be a much later son of the king. You wanna be sufficiently late that the odds of you ever becoming king are slim to none, right? But then you've basically got carte blanche to do whatever you want.

[00:29:14] Like, these were the guys in medieval society who had the freedom to pursue their interests. So this guy, he's like the third or fourth son of the King of Portugal, and his interest was maritime expansion.

[00:29:29] Rocky: Henry the Navigator.

[00:29:30] Kevin: Convinced his father to-- that?

[00:29:32] Rocky: Henry the Navigator.

[00:29:34] Kevin: Yeah, he's the kid. He was like the third or fourth son, right?

[00:29:37] I mean, he was an adult by now, so kid is from the perspective of his father, right? So yeah, history knows him as Henry the Navigator, but considering he was Portuguese, his name was probably not Henry.

[00:29:48] It's probably Enrique or something, right? But anyway, he convinced his dad to spend some money pulling people together, exchanging ideas.

[00:29:56] You know, like we would probably call it an R&D center or a skunkworks, right? Pulled these guys together. What do we know about shipbuilding? What do we know about navigation? And this very expensive effort, relative to the economy of Portugal at the time, kicked off the European Age of Expansion.

[00:30:14] Now the objective was to get to India by sailing around Africa. And to us today, that sounds like, yeah, what's the big deal? But they didn't even know if it was possible, and it took them 80 or 90 years to actually achieve it. And in fact, to tie into it, I'm gonna get, I'm gonna get back to the main point in a minute, right? But to tie into it, the reason Christopher Columbus was trying to sail west to get to India was he didn't want to be in direct competition with the Portuguese, 'cause back then, the rules of trade were you could just take a ship, kill everybody, and take their stuff, and that was, like, not necessarily against the rules. He's like, "Well, let's just avoid the Portuguese and get to India by sailing west," right? So this effort to get to India by sea was hugely significant in the history of European expansion and human civilization and blah, blah, blah. But to get back to the main topic, right? So the history of capitalism has repeatedly been one of... someone with incredibly deep pockets, most notably a government of some sort, spending an enormous amount of money on some speculative venture. And the ones that worked created what I'm gonna call these economic ecosystems, and then entrepreneurs came in and filled in all the voids with the stuff that they were doing. So this happened in European maritime expansion. This happened in the building of the transcontinental railroad. It happened with the expansion of canals in the late 18th, 19th century.

[00:31:49] And over and over again. So this concept of markets that exist independent of government interference... all markets have rules. Markets cannot exist without rules. And in any market, a subset of the people wind up making the rules. If you go back to these Middle Ages European markets where the royals and the aristocracy didn't even know about them yet, there were a bunch of guys who lived in geographic proximity to each other who came together and everybody showed up every Saturday morning or whatever at the market, and a small subset of guys made the rules that everybody else lived by. And when you expand that to larger and more complex economies, you get governments, right? So the idea that markets exist independent of governments, like that's really not a thing. And yet linguistically, we talk about governments interfering in the free markets, et cetera, et cetera. So I'm gonna layer on top of this the fact that every country that became rich, became rich with and in many cases, as a direct result of what we would call government intervention, industrial policy, strategic tariffs to boost or bolster domestic industries, and subsidies for critically important industries, including shipbuilding, including arms manufacturing, including just all kinds of stuff, right?

[00:33:22] Rocky: Yeah.

[00:33:23] Kevin: There's a question in here at the end, and that's, how did we collectively shift from we need an American merchant marine industry for these two primary purposes, to subsidies are bad? Like, how did we make that transition?

[00:33:42] Rocky: I think it was just the politics of the Reagan administration in the '80s, right? I agree with your point. So obviously, every market is built on some kind of rules that government's put in. There's no question about that. I think where the Jones Act often gets labeled as being protectionist is that it is different from what we see in most of the other wealthy countries around the world, where they're more open with international trade.

[00:34:09] So there's not really a Jones Act equivalent in Europe maybe 'cause they're a bunch of small states, so they compete with each other, right?

[00:34:18] Kevin: Yeah.

[00:34:18] Rocky: Or in the sort of larger Asian trading countries, Japan or China, where they tend to be a little bit more open.

[00:34:25] But also they've invested a lot in their capability with a lot of government incentives and it has been over the last 70 years, a combination of tariffs and subsidies where they have built up an advantage of scale because of their industrial policy. And we did enable that in the Cold War 'cause we were eager to help Japan rebuild, and we saw that they had these large shipyards. And so we started encouraging that actually in the '50s. And so that's where you start to see the decline of US shipping and shipbuilding, which again, is another government decision. We created this internationalist order the free trade system and the most favored nation status, which is now under a lot of pressure from modern politics.

[00:35:11] And so that's undermined the efforts of the Jones Act. They became essentially outdated because of those more global trends. But all of that is a different set of market rules by government. You're not wrong about that.

[00:35:26] Kevin: So that sort of segues into another idea. So I've become a bit of a macroeconomics nerd over the past several years, and sometimes it annoys people. But you see very large patterns in the broad sweep of history.

[00:35:40] Rocky: Yes.

[00:35:41] Kevin: So prior to World War II, the concept of laissez-faire economics was kind of dominant.

[00:35:48] The way people talk about it is the government should not interfere, but what it really means is the government should keep the rules the way they are and not change them, right? And then we had the Great Depression, we had World War II, and that ushered in the era of big government, the welfare state.

[00:36:04] It was more the Depression than the war, but the war was kind of like a justification for doing it. Governments had to spend big because of the war, right?

[00:36:12] Rocky: Right.

[00:36:13] Kevin: And then after thirty or forty years, the Keynesian welfare state structure started to crack, right? And then what came in is called the neoliberal consensus, which is Reagan, Thatcher's just privatize everything. Governments are always the problem.

[00:36:27] And now, that's starting to crack, with the increase in inequality. The degree of income and wealth inequality in industrial economies today is even greater than the Gilded Age of the 1920s, right?

[00:36:41] And if we allow that to continue unabated in the future, one of two things is gonna happen.

[00:36:46] We're gonna have a police state like The Hunger Games or we're gonna have a revolution like the French Revolution. It always ends in one of those two, right? So my question is... the concept of government interference in the market, strategic tariffs, and I'm saying that to distinguish between the broad tariffs of the Trump administration, which allow me to rant for a minute, right?

[00:37:11] But why do we have tariffs on coffee? Like, do we think there's going to be a strategically important American coffee industry, right?

[00:37:21] Rocky: So, I think to bring it back to our conversation. The Trump administration, and this does have a lot of bipartisan support in Congress, has been trying to think about how to rebuild the US maritime industries. And so these include sufficient mariners to crew ships so reinvesting in the merchant marine academies, whether it's the, the ones in New York or Maine or Massachusetts and in California as well. And creating some incentives by charging... they've been talking about charging essentially a kind of a tariff on if a container comes in on a non-US built container ship, that then there's a tariff on that, on that container. And so what they're trying to do is create a way of creating an incentive that doesn't involve the federal government, because the federal government at least under this administration, still not really into collecting general taxes and subsidizing industries, right?

[00:38:24] So that part of the sort of Reagan legacy, the neoliberal legacy still exists, but they wanna use the fact that the US imports all these containers, and essentially it would add something to the cost of imports and create an incentive for the shipyards to do it. It's unclear if this is gonna happen, because these have been passed by executive order, and it takes a long time to invest in a shipyard and then to build a ship. And I think that the industry hasn't really leapt at this incentive because they think it could disappear once Trump is out of office. Trump sort of famously has said that his favorite word in the US dictionary is tariff. That's becoming less popular, obviously, as just the polls say people appreciate the tariffs end up raising costs and affordability is such a big issue. But I do think that there is room for some bipartisan legislation that thinks about how we preserve at least some shipbuilding capability in the United States, how we encourage more merchant mariners to pursue those careers and create incentives so that they have good jobs at the end of that.

[00:39:37] And that will involve essentially the Jones Act assists in that by creating this captive market for US domestic trade and riverine trade and there's also... the cruise ships actually tend to be international because they'll stop in Canada on their way, or they'll stop at a Caribbean island on the way, so then they can be a US-built cruise ship. But those cruise ships do employ a lot of US merchant mariners. And so you can see where you could have some US government incentives that say, "If you're calling into US ports we're gonna give you some incentives to hire US mariners." And we are gonna invest in some additional navy ships for our logistics fleet, which is really underfunded.

[00:40:21] We felt that in the Iran war, that I think that there's probably a good case for reinvesting in that fleet and then essentially encouraging that fleet to engage in commercial activities during peacetime so that the US government doesn't have to invest in these ships that kind of just sit around and not do much. Though that being said I think you could see the US also deciding that we're going to encourage some of these ships to invest in supplying some of these Pacific Islands where we have bases, and we're gonna probably rebuild those bases. One idea is they could invest in some shipping capability in the United States that would be Jones Act compliant, so US owned, flagged, crewed, and built, that would rebuild some of these airbases in the Pacific Islands.

[00:41:13] That construction effort would require a lot of movement. So you could essentially create a a government subsidized market for the medium term. And then those ships could be built for that and could presumably do other things if there isn't conflict, and they could still be servicing the coastal trades, et cetera, or to Hawaii or Alaska. So that's where the modern logic could apply here. And I do think that there's bipartisan concern about how the logistics fleet that supports the Navy, the Sealift Command, and all of those sorts of dual use ships has atrophied since the Cold War and probably it needs to be invested in just to help us maintain readiness and deterrence.

[00:42:00] Kevin: You actually touched on something that I think is really important and is not spoken about enough, and that's the cost of creating large manufacturing capabilities. People are like, " In America, we should just drill for more oil in America and be oil independent." Well, for whatever reason, we learned from a prior guest that while the United States produces a lot of light sweet crude, our refineries are set up for heavy sour, so we literally cannot refine the oil that we pump out of the ground, and if we were to do so, it would cost billions of dollars and take a decade to get that facility up and running. Same with shipbuilding. So in order for private industry to be willing to invest that kind of money, they need to know that the rules are not going to change, which renders that investment irrelevant. They need some level of certainty.

[00:42:58] Rocky: Yes.

[00:42:58] Kevin: And I'm gonna get to a question in a minute, right? But that certainty seems to be currently, I don't know, missing. I don't know what the right word is, right? But as a professor of law in terms of the maritime, I don't know, genre, do you pay attention to what Congress is doing and thinking and what are current thoughts along those lines in terms of shipbuilding?

[00:43:22] Rocky: Yeah, so there's an act that's been getting presented the last few sessions called the Ships Act. And the idea behind it is to essentially reinvest in shipbuilding in the United States. So I think there is a lot of bipartisan interest in this, and by getting it through as a law, that would by itself provide some stability.

[00:43:44] I totally agree with your take on that, and I know the energy business pretty well. We haven't built a refinery in this country since the early '70s, And I think part of our challenge is we just have stopped building things and don't have that mindset that if there's new light sweet oil being produced, we need to build some new refineries and that would help keep gasoline and diesel prices down in the US. You could make a good political case for it, but we don't have the capacity. One sort of metaphor that I like to use is, so Massachusetts Institute for Technology is down the road from Tufts. They used to have six schools.

[00:44:21] They had a naval architecture school. That school closed after the Cold War. And so part of what we have lost in the last 30 years is that we just don't have enough naval architects. We don't have enough welders. The people haven't been pursuing careers in the maritime industries, in part because Congress has been inconsistent, to put it diplomatically, on how many Navy ships it's gonna build.

[00:44:48] So they'll say, "We're gonna build 30 of these ships," but then it goes over budget, and it gets down to 12, and then it ends up being three. And the shipyards are very reluctant to invest billions of dollars in a capability if they think that Congress will change its mind and say, "Oh in the end, we actually don't need these ships that we contracted for." And so I do think that there would be a huge benefit. I don't know how to do it. A lot of people have thought about how to try this. But to have more bipartisan legislation with regard to US Navy shipbuilding, so that there were consistent contracts and that there was also a big enough pie that you could have some competition.

[00:45:32] 'Cause we just don't seem to have enough yards for the shipbuilding and the repair and so everything gets backlogged and then with the backlogs, all the costs go up. And I think what we're seeing is we just don't have enough capacity. And I think it's nobody's fault, but we let the shipbuilding industry do a lot of consolidation in the '90s because the big budgets of the '80s, the big defense budgets, had gone down, and now we're seeing some of the consequences of that.

[00:46:01] So many of the ships are behind schedule and there's not enough time for repair, and then all of a sudden we find ourselves short of a lot of different vessels. But that's a whole other topic. But with regard to the maritime industry, this is where a strategic imperative that was passed through Congress, essentially a bipartisan maritime strategy that included the commercial shipping industry revitalization, but also investing in the shipbuilding capability of the US Navy and Coast Guard so that we had a more resilient shipbuilding base, that this could be really good for US national interests as we are clearly feeling a lot more geopolitical risks in the 21st century. That we start with some key legislation that helps us have more capacity domestically and that could help stabilize our geopolitical situation because we would essentially be able to more credibly and more cheaply build a larger and more capable Navy and Coast Guard.

[00:47:03] Kevin: It seems to me that one of the things that would provide certainty to any industry, but let's talk about shipbuilding in particular, is that these bills that you're talking about, these bipartisan bills that are hopefully being discussed and maybe even come into existence, that when they're signed into law, they actually contain numbers. We're gonna spend this many billions of dollars per year for this many years with this strategic outcome being intended. So based on the conversations that you're seeing, are there actually numbers being thrown around?

[00:47:39] Rocky: There are certainly pretty large numbers being thrown around Washington these days with the, the National Defense Authorization, right? And the Trump administration's budget request.

[00:47:49] Kevin: Can I interrupt?

[00:47:50] Rocky: Yes, go ahead.

[00:47:52] Kevin: This is actually exactly what I'm talking about, but in the realm of shipbuilding. I didn't make this up, right? The United States government does this with companies who makes missiles.

[00:48:02] Rocky: Correct.

[00:48:02] Kevin: Why don't we do this with companies who make ships?

[00:48:05] Rocky: Yeah.

[00:48:06] We do it with that too. Part of the problem has been is that as Congress has gone back and forth between the parties that even though it was, it's passed in one Congress, then the next Congress doesn't fully fund it, right? And I think that even if you were to pull together something it would be tough, I think.

[00:48:25] We're gonna see what happens this year. Defense authorization, I don't think is gonna happen this week, and then they're in recess. And so then it's September and it's approaching the midterms. We'll have to see. But if we're facing divided government, I think then there might be some opportunities even in that situation to come up with some bipartisan issues on shipbuilding. Because I do think that there are enough in both parties that want this. So I think it could pass. I'm worried about it in a midterm year just with modern politics where any kind of compromise is not looked on favorably, unfortunately by the politicians.

[00:49:05] Emanuel: I don't think we'll be able to come up with a solution here, although it looks like we're kind of like trying and forcing ourselves.

[00:49:12] Kevin: Well, I just know from reading all kinds of books about the history of economic thought and implementation, like there are certain things that have just worked over and over and over again, right? And every country that became rich did pretty much similar things in similar ways in a similar order, and there's lessons to be learned from that history.

[00:49:36] Rocky: Yeah for sure. So I do think when we look at even our own history, our own 20th century history, that during the Cold War, there was more bipartisan consensus on military readiness and preparedness. And we saw this in the '60s, '70s and '80s, that there was more willingness to provide more stable budgeting with regard to the Navy's shipbuilding budget. And I think that the Navy has also made some big mistakes. I don't wanna get us down that rabbit hole, but they've certainly made some bad choices with regard to some of their shipbuilding misadventures since the end of the Cold War. And this has caused Congress to get really frustrated with them and really not trust them. And so I think that there's some way forward where we could be investing in some of our well-known platforms that we know we're gonna need and that we need to scale accordingly. And I think that there's quite a bit of political power in Washington behind this because I think everyone does want the US Navy to be capable and ready in the event of a conflict. And so that's a bipartisan issue. And the shipbuilding is good jobs and things that are needed. And from a competitive perspective we need to do it.

[00:51:02] I think the challenge will be... and we're seeing this now with the increased automation of sea drones, that it may end up being that we probably do need more shipyards to have a larger sort of traditional platform fleet. But then we also should encourage the development of some of these smaller, more innovative, really startup companies to create some of the drone manufacturing capability so that each sort of Navy platform can be surrounded with a group of autonomous ships that help them with both offense and defense. Part of the challenge is that technology is evolving so quickly, it's very hard to create a long-term plan. But I think what Congress could do is to essentially say, "We do appreciate that there's a lot of this happening, that we need to invest in some new platforms. But we also need to have some of the legacy platforms to be able to have a crewed vessel out there that can essentially be the control center for much of these drone swarms."

[00:52:07] Because there's power in proximity, right? You can't control all of these ships from a desk in Washington, 'cause the satellite feeds and communications can be jammed. But with a local ship, you could have a lot of control over these. And there's a lot of advantages to that.

[00:52:24] But that being said, this is where the Jones Act could actually be helpful in the sense that It's become clear that we do need more investment in the logistic ships that support the Navy operations. I don't think that's a controversial statement.

[00:52:40] That we do need more shipbuilding capacity. We need to be able to produce more ships and be able to repair ships at a much more predictable rate, and that what we've seen in the last 10 years is that our current shipyard capacity just isn't up to that task, and so it needs to be invested in. And both of those goals could be served by investing in the general maritime capability of the United States. And with some... consistent... our long-term planning on this is this... and so the way they structure that defense authorization with regard to shipbuilding capability could be modeled on some of the missile munitions that you mentioned. Because we're in a capitalist system, you have to give the private sector a demand signal that says...

[00:53:28] Kevin: Yeah.

[00:53:28] Rocky: This is important. This is gonna be invested in, and we don't know all the details right now, but we're gonna be allocating funding, and we will work with industry to use this money and spend it wisely.

[00:53:41] And I think that's where there's a lot of distrust because there's been so much of the money has maybe not been spent wisely, to put it diplomatically in the last 30 years. And so we have these platforms that haven't really panned out. Things like the Littoral Combat Ship. And there's a trust deficit. But that being said, I think it is important that at some point we have to hit a reset and try to do things differently, 'cause I think what we've been trying to do is do quite a bit without investing in the sort of industrial base to do it well, and I think you can make an argument for investing in that industrial base. Because

[00:54:21] Kevin: Yes, I completely agree.

[00:54:23] Rocky: You're not going to scale if you don't have the naval architects, the welders, et cetera. You don't just create that instantly. You have to invest in it.

[00:54:31] Kevin: So Rocky you just mentioned something that segues perfectly into a question that I wrote down a few minutes ago, it's something else that I learned in a different episode of the Odd Lots podcast, which I'll try and find and link to again. So we live in an era in the United States right now where defense contract overruns and weapon systems that don't work as intended are much more plentiful than they were in the past. And what I learned from this episode is that there's a very strong correlation between the frequency with which that occurs and the scale with which that occurs, and the consolidation of military procurement into one system. So in the past, the Army, the Navy, the Air Force, and the Coast Guard each had separate procurement systems, and in the name of efficiency, they were all merged into one. And since they were merged into one, our ability to produce stuff that works as specified on budget has been severely compromised. So my question to you is, how much of, I don't know, this Jones Act stuff, for lack of a better word... ties to that?

[00:55:50] Rocky: I think it probably is related, right? In the sense that the centralized contracting, certainly on the Navy side, it definitely, I think has helped undermine innovation among the sea services because they used to be... it's created incentives for these sort of shared platforms. The F-35 is a good example of that, right?

[00:56:12] Kevin: Yes.

[00:56:12] Rocky: It tries to do a little bit of everything and in the end it, even though it looks inefficient on paper, it might be much better to have a number of specialized platforms because they can do different things better than trying to do all in one. And so I think there's a lot to be learned from that, and I think that it's hard to get people passionate about defense acquisition reform. But I do think that it is a really important piece of the puzzle that the way it's ended up, it's too brittle and it doesn't reward agile development and thinking about how to do things with a lot of innovative techniques.

[00:56:52] Because you have to go through all these approval processes and then there's an entire sort of scale that a contractor needs in order to even navigate these centralized systems and be competitive, that it ends up reducing competition because the smaller, more innovative parts of the US... one of the great strengths of the US economy is our innovation ecosystem. This is..

[00:57:17] Kevin: Yep.

[00:57:17] Rocky: I spend quite a bit of time on and I'm a former entrepreneur. So that's one of our great strengths. But with regard to defense acquisition, we tend not to be able to use that strength because it's very hard for those innovative ideas to get taken up at scale by the end users in the Pentagon and in the different armed forces branches.

[00:57:41] So you end up having to go through this subcontracting process and there's so many entrepreneurs I've spoken to where they're just like "it's just not worth it." And that's something we have to fix. I think we have many of the ingredients to be very competitive in the global space with regard to defense technologies and even potentially shipbuilding. There might be... as some of the sort of new technologies come to fore where we might be able to leapfrog and become competitive again, I think particularly in autonomous vessels.

[00:58:16] I had been skeptical of that before, but I've been very encouraged by what I'm seeing with the drone and autonomous technology companies that I'm seeing here in New England. They're very innovative. They have really good platforms. And then the question is: how do we get them to the right end users in the Department of Defense?

[00:58:36] And I think the current system isn't working, and so I do think that there's some merit to what you had heard on that prior session of the podcast.

[00:58:43] Kevin: In my , fairly extensive reading about the history of economics and all that kind of stuff, there are some very common narratives that I think we can say based on empirical data are just not true. And one of them is that consolidation is good because it brings down unit prices. But If you correlate the wealth of an economy with, I'm gonna call it various aspects or attributes of that economy, economies that do the most different stuff tend to be the richest. So one of the key factors of being rich is what is generally called economic complexity. You do lots of different things and it just works. It creates these economic ecosystems and people readily share ideas. So your idea that having one F-35 that does everything is a good thing because it brings down, in theory at least, it brings down the cost per plane, might actually be detrimental because if we had all kinds of different planes, each one of which served different purposes, it would be greater specialization, greater complexity, and greater exchange of ideas as different people were trying to solve different problems. So the question buried in there, and it's kind of a leading question, is what do you think about that?

[01:00:05] Rocky: Yeah I think the, the sort of results speak for themselves. We've seen this consolidation, and what we've seen is that the price tags have just ballooned, and

[01:00:16] Kevin: Yeah.

[01:00:16] Rocky: So I think that there's a lot of merit to that. I think that when we look at the US economy in general, it is a complex economic ecosystem and that's one of our enduring strengths.

[01:00:29] And so we need to figure out ways that we create more competition and more vibrancy in the defense contractor space. And unleash that innovative energy. And I do think that would be better. And I think part of it does involve that you need to think about ways of giving some additional decision-making authority further down in the process to the service branches.

[01:00:58] So Special Operations Command is famous for being able to very quickly innovate with innovators, and there's a reason why that's where a lot of of startup companies gravitate toward, because they can come to a quick decision and it's essentially a fast-track process. It would be nice to see some of that best practice be shared with the other service branches outside of Special Operations with the different combatant commands or with the different service branches so that we could see some of this innovation happen and essentially get our war fighters better technology at a cheaper rate.

[01:01:35] Kevin: I think that makes a lot of sense. Anyway, my very last question for you, Rocky, if you had carte blanche to structure the future Jones Act, what changes would you make?

[01:01:49] Rocky: Okay. So it's a tough question. After thinking a lot about it, I think what I would do is I would ease up the shipbuilding requirement piece of it and try to encourage allied shipbuilding for it. So you would have to encourage the partnerships which are already starting to happen.

[01:02:07] So Hanwha, a Korean shipyard is building a new shipyard in Philadelphia specifically to work on US vessels and Jones Act vessels. I think that's a really good thing, and I think you could encourage that because our allies, Japan, South Korea, have a lot of shipbuilding talent.

[01:02:26] And so we could do this and essentially create a shared marketplace where we could be building some platforms that would enable their technology to come into be. But we would still have... They, would essentially have access to this protected market that we have in the United States.

[01:02:42] So that's one. And another example of that is with regard to icebreakers. We have partnered with Finland and Canada to think about how to source together Arctic icebreakers. And so there are kind of areas where we could do this together.

[01:02:58] I think there's value to having US flagged vessels and owned and crewed, and you don't totally repeal the US build provision, so there's just a bunch of whatever the cheapest is on the next global market, but you essentially help create allied shipbuilding. So I think that is a realistic next step that I would recommend people in Congress take a look at.

[01:03:21] Emanuel: Rocky, if people want to find out more about you, connect with you, and find out about your future plans, how they can do that?

[01:03:29] Rocky: Sure. Yeah. The best way is to find me on the Fletcher School's website fletcher.tufts.edu. I'm the only Rocky on the faculty. You can find my faculty profile there. On that you can find my latest interviews or publications. That's the best way to find me. I'm also on the different social media channels, so LinkedIn, Facebook, X, you can find me there as well.

[01:03:51] Emanuel: Hopefully you'll put this podcast episode as well on that page.

[01:03:55] Rocky: Of course. Absolutely. Thank you. Thank you for having me.

[01:03:58] Emanuel: Thank you for sharing so much information. I was quiet, but I took a lot of notes and I learned a lot, and hopefully, you know, if I find myself on Jeopardy at one point or in any other show, I'll have a slight advantage over my my competitors.

[01:04:15] Rocky: Absolutely.

[01:04:16] Kevin: And I want to thank you as well for taking the time to be with us. Thank you very much.

[01:04:20] Rocky: Kevin, Emanuel, thank you for having me. It was a real pleasure, and really enjoyed it, and look forward to watching it when it's ready for publication. Thank you.

[01:04:29] Emanuel: That's been another episode of the Curious Pundits podcast. You can go to curiouspundits.com to see the previous episodes, this episode. Subscribe to our podcast on your favorite podcast platform, Apple, Stitcher, Spotify, et cetera. That being said, one of the co-hosts, Emanuel, that's me. Until the next episode.

[01:04:52] Kevin: I'm the other co-host, Kevin

[01:04:54] Emanuel: Until the next episode.

[01:04:55] Kevin: Thank you for listening.