Posted on: Friday, November 16, 2001

Island Voices
Jones Act position marked by fuzzy math

By Lawrence W. Boyd Jr.
Labor economist with the Center for Labor Education and Research at the University of Hawai'i-West O'ahu

Fuzzy math! This seemed to be the battle cry of the last election when questions were raised concerning then-candidate George Bush's tax plan.

It is far more appropriately applied to the Jones Act reform coalition. In a recent column, Cliff Slater cites this coalition as saying that the Jones Act costs each Hawai'i resident $4,000. Former Sen. Whitney Anderson put that figure at $2,000, and the Hawai'i Shippers Council estimated $3,000.

Working through these last numbers is an interesting exercise in double or triple counting. They first take a high number about the relative price of shipping goods derived from a study done in 1976 that suggested that U.S. shipping costs were 30 to 50 percent higher than foreign shipping costs. They multiply this number by 2.5 (that is, 250 percent) to arrive at an overall loss of about $1 billion. They then divide that number by the total number of households in Hawai'i.

The only problem with this last procedure is the number of households in Hawai'i during the year of the study (1995) were 420,748, not the 333,333 implied by this calculation.

While one could dispute the numbers concerning the 30 percent to 50 percent price differential on freight, this is not the problem with these calculations. Using the state's multiplier for ocean freight is wrong. It should be used to estimate the impact of flows of investment into or out of this industry, not to estimate the effect of the price changes they postulate for our economy. In fact, the multiplier effect should apply to the disinvestment that would occur if the Jones Act were repealed.

Depending on how big a portion of the local shipping industry is shifted to foreign carriers that would mean a loss in income and jobs by Hawai'i residents of between 5,675 to a high of 17,025. The loss in personal income would range from a low of $157,750,000 to a high of $473,250,000.

One could go on, but the problem here is evident. What has happened here is that they have triple-counted. First they inappropriately multiply any potential loss to the economy by 250 percent; second, they do not count the actual job and income losses; and third, they added the gains from the reduction in freight charges to the totals.