TIME TO REFORM THE JONES ACT
By Cliff Slater, Maui Divers of Hawaii, Ltd.

Much of our high cost of living in the Islands is due to unnecessarily high shipping costs caused by the federal Jones Act.

Sen Jesse Helms, R-N.C., recently introduces a reform bill that could have a major impact on Hawaii consumers. Over the past 30 years, Congress deregulated most forms of transportation - railroads, trucking and airlines - with great cost benefits for the consumer, but left ocean shipping alone.

The Jones Act still requires that all cargo moved between U.S. ports be carried in expensive U.S. cargo ships with all the attendant costs of union featherbedding and over-regulation. The London Economist calls it "an idiotic rule."

The federal government enacted the Jones Act in 1920 to protect the U.S. merchant fleet. However, it was obviously not successful because U.S. cargo ships have declined by 90 percent since 1948, and maritime jobs even more.

The U.S. International Trade Commission calculated that the excess costs have required consumers nationally to pay about $10 billion annually more than they would otherwise. Guam's Gov. Carl Gutierrez estimates that if Guam were only able to reduce shipping costs a "modest" 30 percent, Guam's families would save $40 million annually, or $1,045 for a family of four.

The U.S. General Accounting Office calculated in 1988 that the Jones Act was costing Alaska's families between $1,921 and $4,821 annually.

Our state administration agrees that the effect on Hawaii consumers is to drive up consumer prices. State Sen. Whitney Anderson estimates that these excess prices cost the average Hawaii family $1,900 annually. The Jones Act Reform Coalition says it is more like $4,000 per family.

The state does not know the exact costs to Hawaii consumers because shipping interests have successfully blocked the funding of a study.

Hawaii's shipping companies, on the other hand, estimate that total ocean transportation rates add less than 5 percent to Hawaii prices. Even so, that is a considerable sum.

Hawaii's opponents of reform - principally the maritime unions and the ship owners - protest that they provide an orderly and reasonably priced service.

However, the arguments they use to project the chaos that reform will bring are the same as those used by the airlines and the trucking and phone companies before the U.S. deregulated them.

Hopefully there will be reform, but the Jones Act is "ferociously defended by dedicated lobbies," as USA Today puts it.

Ship owners and maritime unions make $4 million in political contributions annually. Their industry lobbying group, the Maritime Cabotage Task Force, funds Hawaii's congressional delegation particularly well, with Rep. Neil Abercrombie alone getting more that $70,000 from it during this election.

Congress cannot expect Hawaii consumers to continue to bear the brunt of the Jones Act costs. At the very least, costs should be shared with the country as a whole. With the national spotlight now on the Jones Act, it is time for Hawaii's congressional representatives to help reform this element of our high cost of living.

Whenever the stock market experiences a downturn, investors have three choices: get out and preserve whatever money they have left, stay the course, or invest more. Which choice is best?

History may shed some light on that question. Using hypothetical examples, Mutual Fund News Service recently looked at how investors would have done with each of these choices after the Dow Jones Industrial Average fell 20 percent on Oct. 19, 1987.

The first group of investors took what was left from a $10,000 investment - $7,953 - and put in into certificates of deposit (CDs). By the end of 1995 the account would be worth about $12,800 - they would have recovered the one-day loss and gained more than 28 percent.

The second group left their investment intact. By the end of 1995 the account would be worth more than $28,000 - twice as much as the account of the risk-averse CD investors.

The third group was brave of heart and saw a buying opportunity. They invested an additional $10,000 on Oct. 19, 1987. By the end of 1995, their $20,000 investment grew to more than $63,000.

The primary difference among these three groups of investors is attitude. The first group could not tolerate risk. CDs offer fixed interest rates, and the principal is insured. This eliminates the fluctuation of principal that occurs with stocks.

The second group has a long-range view, understood risk and believed that the market eventually would recover. They looked at historical performance and decided the possible reward outweighed the apparent risk.

The third group completely understood risk. They viewed the market downturn as a rare opportunity to buy quality investments at bargain prices.

This illustration, using the Standard & Poor's 500 Index, is a historical indication of stock market performance, not a specific investment that you can purchase. However, most mutual funds can provide you with the same type of hypothetical illustration using their past performance. It's yours for the asking.

What's the lesson here? One of the worst mistakes you can make when investing in the stock market is to panic about unexpected fluctuations. Too often, investors lose sight of long-range goals and react to short-term situations. This example shows the benefits of long-term commitments and the ability of the stock market to recover - even after one of the most severe one-day declines in history.

For more information contact Geal, at (808) 247-2072.