Americans are under a fiscal illusion. High and persistent deficits and debt pass a large share of the cost of government spending to future generations. This leads to greater demand for government than if taxpayers were internalizing the full cost today.

According to the Congressional Budget Office (CBO), the annual federal deficit is projected to total roughly $1.6 trillion over the next 10 years. That’s the amount by which federal spending will exceed tax revenue, on average, each year. These deficits will grow the federal debt held by the public to 110 percent of gross domestic product (GDP) by 2032, bringing publicly held debt to its highest level ever by the end of this decade. And this assumes no major unexpected crises or large new spending programs will drive debt to such elevated levels even sooner.

By comparison, annual deficits over the preceding two decades averaged $875 billion from 2003 to 2012 and $1.25 trillion a year from 2013 to 2022 (adjusted for inflation). These periods were also characterized by major crises. During the decade from 2002 to 2011, the U.S. experienced the Great Recession—the most severe economic crisis in the U.S. since the 1930s. The last decade will be remembered for a 100-year pandemic, during which entire economies mostly shut down to reduce the spread of COVID.

This raises the question: why are deficits projected to be so high and persistent into the next decade, even after the pandemic emergency has ended and without CBO projecting a new crisis?

Democracies tend toward perpetual deficits. Politicians gain the favor of their constituents by delivering tangible benefits such as transfer payments and government services. Some programs are broadly popular such as Medicare and Social Security. Even so, they are likely larger than they would otherwise be were it not for fiscal illusion. In other instances, special interests will coalesce to exert pressure on elected officials to support policies that benefit them, even if those policies are not in the best interest of the broader public. This leads to the adoption of policies that provide benefits to a small number of individuals or organizations at a dispersed cost to taxpayers who have far fewer incentives to organize to protect themselves.

This explains why we’ve seen major entitlement expansions over recent decades and why earmarks are so popular among members of Congress. As I’ve written previously, “while inflation‐​adjusted defense spending has remained relatively flat, nondefense spending on entitlements and other social and economic programs, has expanded significantly.” However, paying for such initiatives with additional taxes or spending cuts in other areas could prove unpopular with current voters. It thus seems politically easier to finance government expansions with deficits. Deficits are a way to meet current constituent demands without imposing the associated costs on them.

The late Nobel laureate and economist James M. Buchanan wrote extensively on fiscal illusion in his work on public choice theory. Fiscal illusion arises when the true costs of public policies are obscured or hidden from view, leading individuals to underestimate the policies’ impact. Government programs appear less costly to taxpayers than they are because the current generation bears only part of the burden. Deficit-financing transfers some of the burden to future generations in the form of government debt obligations. This fiscal illusion leads current taxpayers to demand more government than they otherwise would and harms future taxpayers in the process.

Current taxpayers do incur some of the cost today via a relatively less efficient distribution of scarce resources that would otherwise go to more productive non-political uses. Fiscal illusion also contributes to the inefficient allocation of resources, including the overconsumption of certain goods or services, and underinvestment in others, leading to a less efficient and productive economy. In that way, current taxpayers pay some of the cost of current deficits.

Fiscal illusions can take numerous forms, and my Cato colleague Chris Edwards previously summarized nine common techniques, including uneven taxation, inflation, and regulation.

Buchanan argued that taxpayers suffer from fiscal illusion. Transparent taxation can help constituents better internalize the costs of government spending, enabling more appropriate trade-off calculations that weigh benefits against costs. Shifting a large share of those costs to future generations by deficit-financing camouflages the opportunity cost of spending today and thereby undermines effective cost-benefit analysis by taxpayers.

Buchanan’s insights regarding the democratic tendency to incur unsustainable deficits and debt led him to the conclusion that “restoration [of the balanced budget norm] will require a constitutional rule” that is both “legally as well as morally” enforced. We need rules that bind lawmakers to limit the propensity of government to expand and to protect future generations who aren’t yet taxpayers. As Buchanan and George Mason University economist Richard Wagner wrote in Democracy in Deficit, “Budgets cannot be left adrift in the sea of democratic politics.”

Are the American people and their legislators motivated to correct the unsustainable deficit spending that characterizes current U.S. budget policy? Or will it take a fiscal crisis to force a correction? It remains to be seen. The most recent fiscal restraint enacted by members of Congress as part of a debt limit increase came on the heels of a global financial crisis that birthed a political movement (the Tea Party) that demanded more responsible budget policy. The Budget Control Act of 2011 (BCA) proved inadequate, and its limited success was short-lived. The BCA also required Congress to vote on a balanced budget amendment, which failed.

Nevertheless, there is still hope. The 118th Congress will confront the federal debt limit in 2023. This is a key legislative opportunity to pursue a fiscal stabilization package that pairs the inevitable increase in the debt limit with policies that stabilize the growth in the debt. Legislators should focus on reforming entitlement programs, reducing and capping discretionary spending, and banning earmarks. They should also adopt a more transparent and effective budget process, including rules that limit the tendency of our democratic system of government to accumulate deficits. Will they?

In the midst of the Senate hearing investigating the fall of the cryptocurrency exchange FTX, Senator Elizabeth Warren (D‑MA) introduced a new bill—the Digital Asset Anti-Money Laundering Act of 2022—seeking to heighten the financial surveillance of individuals. Although the bill does little to nothing to address the issues behind FTX, it would levy a hefty blow to financial privacy for American citizens.

Self-Hosted Wallets

The bill first seeks to classify self-hosted wallets as money service businesses. For those unfamiliar, self-hosted wallets are merely the digital equivalent of a wallet in your pocket or purse. Although one may enjoy certain comforts and conveniences from using a third-party service like Coinbase to custody cryptocurrencies, self-hosted wallets allow individuals to have full ownership of their cryptocurrency. More so, where much of the financial surveillance in the United States depends on what’s known as the third-party doctrine, self-hosted wallets offer individuals protection from government surveillance and censorship.

Yet Senator Warren’s bill would put an end to that protection by ordering the Financial Crimes Enforcement Network (FinCEN) to finalize its infamous wallet rule. That rule originally came just days before Christmas in 2020 when FinCEN opened a brief comment period. If established, the wallet rule would have forced companies to report know-your-customer (KYC) information, among other things. However, the rule generated so much public backlash that Representative Warren Davidson (R‑OH) later introduced a bill—the Keep Your Coins Act—specifically to protect Americans from such policies. Yet, it seems Senator Warren seeks the opposite.

Were that not enough, the bill seeks to classify cryptocurrency miners, validators, and network participants as money service businesses as well—worsening many of the still unfixed issues in the Infrastructure Investment and Jobs Act.

Mixers

The bill also sets its sights on cryptocurrency mixers. Again, for those unfamiliar, mixers offer individuals the opportunity to enhance their privacy when using cryptocurrencies on public blockchains where transactions are visible for anyone to see. Mixers, as the name suggests, mix funds and then return them to the customer for a fee—a valuable service when using a publicly transparent ledger. Both the Department of Justice and Chainalysis have noted that mixers do not make funds impossible to trace for law enforcement purposes. Instead, they just offer the opportunity to improve one’s financial privacy.

Not content with the chance of that occurring, however, Senator Warren’s bill would prohibit banks and other financial institutions from using mixers or handling cryptocurrencies that have been run through mixers in the past. This type of prohibition brings up many of the concerns that came up earlier this year with the sanctions placed on Tornado Cash—an open-source mixer. For instance, it’s not clear how the law would be enforced. Are cryptocurrencies permanently blacklisted after being sent through a mixer? Or will a certain number of public transactions make them “legal” again? More so, how is the public expected to comply with these rules? As it is currently written, the bill’s requirement is akin to forcing financial institutions to trace the life of every penny before accepting deposits.

Forced Reporting

One other notable piece of the bill is the requirement for Americans to report to FinCEN if they transact more than $10,000 in cryptocurrency if at least one party in the transaction is outside the United States. The Infrastructure Investment and Jobs Act already changed the law to soon force individuals to report on one another when using $10,000 or more in cryptocurrency. However, it appears Senator Warren’s bill would require a second report to be filed on top of that for cross-border purposes—an interesting strategy given the Infrastructure Act continues to face legal challenges.

Many issues come out of this proposal. First, cryptocurrencies do not discriminate based on geographic location. In fact, there is often zero indication of where a transaction is taking place as blockchains are borderless by design. Therefore, it’s unclear how citizens are expected to comply here. But even if compliance was possible, this measure is fundamentally at odds with the Constitution. No American should be forced to report their private, financial transactions to the government if the government is unable to provide a warrant.

Conclusion

There are many issues to talk about regarding FTX and its management, but this bill adds nothing to the conversation. It merely uses the dust from the company’s collapse as a cover for increasing financial surveillance.

69% worry their kids and grandkids won’t be able to afford a home, 64% would support building more homes if it helped making housing more affordable

The Cato 2022 Housing Affordability Survey, a new national poll of 2,000 U.S. adults, finds that 87% of Americans are concerned about the cost of housing. With housing prices up more than 40% nationally since 2019 and interest rates on the rise, it’s no surprise that 76% of Americans say that now is a bad time to buy a house. Moreover, more than two-thirds (69%) worry their children and grandchildren won’t be able to afford a home. For most Americans, it seems like a dream that is slipping out of reach.

READ THE FULL REPORT HERE

Americans are modestly supportive (51%) of zoning reforms that would allow more building of homes, condos, and apartments in their community. However, support rises more than 20 points to 72% in favor if construction made housing more affordable for young people and young families.

Democrats, Renters, and City Residents are Most Supportive of Zoning Reform

A slim majority (51%) of Americans support building more homes, apartments, or condos in their community, an action that has the potential to decrease housing costs. While nearly two-thirds (63%) of Democrats support more home construction in their community, majorities of Republicans (61%) and independents (53%) oppose it. In a similar fashion, 65% of renters support more home building while a majority (57%) of current homeowners oppose it. In addition, those who live in big cities are more supportive of additional housing (61%) than those who live in suburbs (47%) and those who live in rural areas (37%).

People Support More Construction if it Helped Kids and Grandkids Buy Homes

Americans become more supportive of building additional housing if it makes homes more affordable for “people” (64%), young people and young families (72%), people of color (67%), and people with low incomes (63%).

Republicans are especially persuaded by the idea that additional housing will help make homes more affordable for young people and young families. While only 39% of Republicans support building more homes generally, 64% support building if it makes housing more affordable for young people and young families. Democratic support rises even higher to 82% if more construction made it easier for young people to move in. Emily Ekins, the Director of Polling explained, “The data indicates that a bipartisan consensus for zoning reform emerges when people consider the needs of future generations–especially their kids and grandkids.”

86% of Americans Prefer Owning a Home to Renting, 89% Favor a Single-Family Home

For most Americans (86%), owning their own home is preferable to renting. This includes 90% of Republicans and 84% of Democrats. Most Americans also idealize the single-family home: 89% of Americans, including 86% of Democrats and 95% of Republicans, would prefer living in a single-family home to living in a condo or townhome.

But people differ in where they want that single-family home to reside. Republicans (58%) would prefer a single-family home in the countryside, while Democrats would prefer a single-family home in a city (22%) or the suburbs of a city (34%). In addition, 62% of Republicans prefer a home that is larger and further from other homes, at the expense of proximity to schools, stores, and restaurants, compared to only 36% of Democrats.

Americans are deeply concerned about the cost of housing in the United States. They are also pessimistic about the options future generations will have to buy their own homes. However, the public is open to zoning reforms that would make it easier to build single-family homes, townhomes, and condos–especially if it helps young families move in.

READ THE FULL REPORT HERE

Methodology

The Cato Institute 2022 Housing Affordability Survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online August 17–23, 2022, from a national sample of 2,000 Americans, 18 years of age and older. Restrictions are put in place to ensure that only the people selected and contacted by YouGov are allowed to participate. The margin of error for the survey is +/- 2.39 percentage points at the 95% level of confidence.

The War in Yemen is the worst manmade humanitarian disaster in the 21^st century, and the United States has sponsored it from the start. Nevertheless, on December 13, 2022, the Senate will vote to discharge S.J. Resolution 56, also known as the Yemen War Powers Resolution, from committee. If passed, the legislation would “remove U.S. Armed Forces from hostilities against the Houthis in Yemen within 30 days of the enactment of this joint resolution unless Congress authorizes a later withdrawal date, issues a declaration of war, or specifically authorizes the use of the Armed Forces.” Taking such action does not end all U.S. arms sales to Saudi Arabia, nor does it force them to stop fighting. It simply requires the Biden administration to reduce the amount of support it provides to the kingdom.

We have written throughout the year on the War in Yemen.

• After the United States voted in favor of UNSCR 2216 at the behest of the UAE in March. Jonathan wrote at the time, “Washington backed the UAE’s resolution despite fears that it could delay peace and scare off private importers who provide most of Yemen’s food.”
• We wrote in April that Saudi Arabia and the United Arab Emirates hope to entangle the United States in their conflict by increasingly purchasing U.S. weapons and seeking reassurances – all without offering anything in return.
• Jordan wrote in June that proponents of arms sales to Saudi Arabia say they cannot stop because it is too time-consuming to review the human rights records of recipients.
• In July, Jordan wrote that Biden’s acceptance of the Saudi government – and willingness to break campaign promises on their behalf – is baffling.
• In September, we wrote that weapons sales do not improve the human rights situation in Saudi Arabia and Yemen, provide Washington leverage over Riyadh, or compel Washington to use any leverage it has.
• As we wrote in October, current U.S. arms sales procedures grant near-absolute power to the Executive Branch absent a 2/3 majority in both chambers of Congress. The Yemen War Powers Act provides another avenue that is yet to be used.
• Because U.S. arms sales directly helped cause the atrocities, we wrote in November that the United States owes the Yemenis assistance to save the population from starvation. While immediate aid is needed to save lives, the situation in Yemen cannot truly improve until hostilities have ended.

Saudi Arabia’s war in Yemen is one of the greatest humanitarian tragedies in history. Due to both a lack of plausible options to stop individual weapons sales to the Saudis and the Biden administration’s desire to continue support to Riyadh, Congress has failed to end sales. The U.S. relationship with the Saudis enables this humanitarian catastrophe and provides no return on investment for Washington.

In October I wrote, “CPI Less Rent Was Zero for 3 Months; CPI Rent Is Wrong.”

Nobody appeared to find that interesting.

Now, CPI less rent has shown zero inflation for 5 months.

How long can zero remain uninteresting?

Some prices went up over the past five months and others went down, but the weighted average increase for everything in the average consumer’s shopping basket was nil ­once we properly exclude disingenuous and outdated estimates of shelter inflation.

The Federal Open Market Committee (FOMC) and Chairman Powell have acknowledged that Bureau of Labor Statistics surveys of rent and owner-equivalent rent estimates are extremely lagged. The FOMC knows that recent months of falling house prices and rents will show up as low housing inflation in next year’s numbers. In the meantime, recent shelter inflation measures (supposedly up again 0.7% last month) have been statistical rubbish.

For more than a month, the interest rate on 3‑month Treasury bill rates has been higher than the yield on 10-year bonds – an “inverted yield curve” that always ends in recession, unless the fed funds and IOR rates are reduced before that happens. Yet the Federal Open Market Committee is said to be determined to push short-term rates a half-point higher by raising the interest rate the Fed pays on bank reserves (IOR) from 3.9% to 4.4% (in the guise of a symbolic maximum federal funds rate of 4.5%). The question is why?

The Federal Reserve Board’s Chairman Jerome Powell now faces the unenviable task of trying to explain why the Fed is trying to steepen the already perilous inversion of the yield curve despite very little inflation since June (aside from a statistical illusion in the way the BLS slowly collects and estimates from outdated rent data).

In an important November 30 talk at the Brookings Institution, Chairman Powell ended with his familiar tagline: “History cautions strongly against prematurely loosening policy.” The specific history he meant, his August 25 Jackson hole speech explained, is the period between the Arab oil crisis in 1974 and Iranian oil crisis in 1980:

“The successful Volcker disinflation in the early 1980s,” according to Chair Powell, “followed multiple failed attempts to lower inflation over the previous 15 years.” That had nothing to do with premature easing, and everything to with two infamous spikes in world oil prices. Inflation and the federal funds rate rose with soaring oil prices in the 1974 oil crisis, both came down a few years but then rose again with the 1980 crisis, and inflation came down much faster than fed funds again as oil prices did. Harsh hard landings during oil crises caution strongly against belatedly easing policy until recessions become unstoppable and severe.

A centerpiece of the Federal Reserve’s favorite institutional self-defense mechanisms has long been to rewrite the history of the 1970s as a contrast between “prematurely loosening” under Chairman Burns and “staying the course” under Chairman Volcker. That fable is entirely false, as I have documented here and here.

Volcker was, in fact, much quicker to cut rates in the 1980 and 1982 recessions than Burns was in 1975, and Volcker cut the funds rate more deeply (by 10 percentage points). Yet the useful mythology about “prematurely loosening in the seventies” (rather than 1980) still exerts mesmerizing influence on policymakers and their compliant media messengers.

All Fed chairmen have always cut rates in recessions, usually by 5–6 percentage points or more. The downside phase of Fed up-down rate cycles usually begins with tiny rate cuts a few months before unemployment has risen significantly. The fed funds rate often keeps falling long after the end of recession (see 2004 and 2015) and then the Fed launches another series of rate increases if the unemployment rate falls below some threshold defined by elastic Phillip Curve estimates about how high unemployment must be to tame inflation.

The last graph shows two “soft landings” praised by former Fed Vice Chairman Alan Blinder after 1984 and 1994 which can be compared with three hard ones. The red line is FOMC targets for the federal funds rate, the green line is the year-to-year change in real GDP (which was public knowledge when the time the Fed changed rate targets). It looks to me as if the Fed was targeting real economic growth per se rather than price inflation. The fed funds rate target rose and fell in reaction to the previous four quarters’ real GDP growth, but with a lag. The U.S. economy was so strong in the Reagan and Clinton years –growing by 4.4% a year from 1983 to 1989 and by 4.0% from 1994 to 2000– that it could handle temporary Fed excesses. The brief rate hike of 1984 was promptly followed by cutting the funds rate nearly five percentage points. The brief rate hike of 1994 was followed by cutting the funds rate nearly two points. Quickly pivoting to lower rates quickly also appears to have worked in 2018–19, although COVID lockdowns complicate a certain verdict.

The FOMC did trim interest rates timidly before the hard landings of 1991, 2001 and 2007-09, but always too little and too late. The fed funds rate was then deeply reduced during and long after these and other hard landings, setting the stage for a rebound of real growth, another cycle of rising rates, and another hard landing.

“We wouldn’t…try to crash the economy and then clean up afterwards,” Chairman Powell recently remarked. “I wouldn’t take that approach at all.” Yet that is, in fact, what every other Fed Chair has done during predictable yield-curve-inversion recessions.

Aside from rare soft landings when the FOMC promptly pivoted toward cutting rates, “crash and cleanup” is an apt description of what happened after every other Fed Chair pushed the federal funds rate above the bond yield ever since 1955 when the federal funds rate was revived as a policy tool (after suffering some disrepute in 1929–33).

The popular YouTube channel “CNBC Make It” recently profiled truck driver Clarissa Rankin, who happily works as an independent “owner-operator” trucker (and budding social media star) and makes good money in the process. Hers is an entertaining and heartening story of American perseverance and success, and the short video (posted below) has already racked up more than 500,000 views and thousands of supportive comments.

If various state and federal policymakers have their way, however, Ms. Rankin’s business model might be soon regulated out of existence — whether she likes it or not.

Rankin, like every other owner-operator truck driver in America, is an independent worker – someone who takes on projects or jobs from different clients, relatively free from the clients’ control. As detailed in my chapter on Independent Contracting and Gig Work in the new Cato book, Empowering the New American Worker, independent work encompasses everything from trucking to rideshare driving to freelance writing to software and app development. Some workers work independently full-time, but most (surveys say anywhere from two-thirds to 80 percent) do it as a part-time “side hustle.” Independent work has also become increasingly popular: according to consulting firm MBO Partners, more than 51 million Americans worked independently at some point in 2021, up from just 38 million in 2020.

Contrary to what you may have heard, most Americans are like Ms. Rankin – they engage in independent work because they prefer the arrangement over traditional employment, not because they’re forced into it by some greedy business owner. A big driver of this preference is the flexibility and control—over schedule, location, clients, public affiliations, etc.—that a standard employee usually lacks. One 2021 study found that nearly half of all independent workers are unable to work a traditional 9–5 job, and a separate survey found that 70 percent of independent workers cited flexibility as the major reason for going into freelance work. As shown below, the vast majority of independent workers are happier and healthier with their work and want to remain in independent work in the future. Just 11 percent of full-time workers want to return to traditional employment. That same survey also found, perhaps surprisingly, that almost 70 percent of full‐​time independent workers in 2021 believed that their work is actually more secure than traditional employment. Other reports show that most independent workers engage in white collar work, not oft-maligned “gig economy” jobs, and can make great money doing so.

Business owners and consumers also gain from independent work arrangements, which have also been shown to provide broader economic and social benefits too. Ridesharing services have reduced drunk driving; food delivery services helped restaurants weather pandemic lockdowns; and new platforms such as Bite Ninja have helped restaurants navigate labor shortages by having gig workers run drive‐​thru windows from home.

Despite these benefits and Americans’ clear preferences for independent work, various laws and regulatory proposals seek to significantly curtail the arrangement. This past October, in fact, the Biden administration released a proposed rule that experts believe would expand the federal definition of “employee” by applying a watered‐​down version of the “ABC Test” that several states adopted to limit independent work. Under that test, a worker may be classified as independent only if he meets all three of the following criteria: A) he’s free from the control of the entity for which the work is performed; B) he performs work that is different from the hiring entity’s usual business; and C) he already works in the same trade, occupation, or business as the work being performed for the hiring entity. California adopted the ABC test in 2019 with the passage of the controversial Assembly Bill 5 (AB 5), and five other states (Connecticut, Massachusetts, New Jersey, Nebraska, and Vermont) also use it.

As these states’ experience shows, applying the ABC test nationally would force hundreds of now‐​independent occupations to be reclassified as employees, regardless of workers’ and employers’ own contracting decisions. This could impose significant economic harms—including for the very workers the proposed rule is supposedly protecting. Traditional employees can be more than 20 percent more expensive for companies to employ than independent workers. Compliance and mandated benefits, such as health insurance, drive up costs, especially for smaller firms. Thus, firms that are unable or unwilling to pay more to rehire previously independent workers could respond by raising prices or cutting the positions entirely.

We’ve seen this play out in California. In 2020, for example, Uber estimated that AB 5 would increase costs by $3,625 per driver in California, could double the price of rides, and would reduce rideshare availability by up to 60 percent. Right after AB 5 passed, Vox terminated more than 200 freelance writers, and many other freelancers were let go around the same time. Thus, California scrambled to exempt more than 100 occupations from AB 5 since 2019, including rideshare drivers, writers, and photographers.

As my Cato colleague Walter Olson recently documented, however, many other occupations didn’t get a carve-out: “Workers hurt by AB 5 included many tutors, performers in music and theater, plumbers, nurse practitioners, writers, photographers, contract software developers, and many others.” Among those others are about 70,000 “owner‐​operator” truck drivers like Ms. Rankin. In fact, when court rulings applied AB 5 to California’s commercial trucking industry in July 2022, hundreds of truckers protested their reclassification as employees and temporarily blockaded the Port of Oakland, one of the busiest shipping hubs in the country. Will a national rule push Ms. Rankin to consider doing the same?

The public commenting period for the Department of Labor’s proposed rule closes today.

(For more on independent work, including tax and other policy recommendations to help Americans who want to engage in the practice, check out the full chapter in Empowering the New American Worker or this Cato Daily Podcast.)

Winter officially begins next week and New England finds itself disturbingly ill-prepared with limited supplies of fuel oil and restricted access to domestic natural gas. That an area of the country known for its bone-chilling temperatures finds itself in this predicament is due to a range of factors including sanctions on Russian energy, refinery closures, and insufficient pipeline capacity. None of that is likely to change anytime soon, and even if new refineries or pipelines were greenlighted their construction would come far too late to alleviate New England’s energy woes in the coming months. But that doesn’t mean policymakers are bereft of options. To encourage the transport of fuel to the region and reduce the possibility of a wintertime calamity Congress should act to exempt energy shipments from the outdated Jones Act.

Passed in 1920, the Jones Act restricts domestic shipping to vessels that are U.S.-flagged, built, owned, and crewed. But such ships are significantly more costly to build and operate than their international counterparts. They’re few in number too. Of the thousands of tanker ships that ply the high seas the U.S. Maritime Administration lists just 56 that comply with the law, only a subset of which can move fuel to New England (eleven of the 56 are large tankers designed for the transportation of Alaskan crude oil, one is dedicated to transporting molten sulfur, one was recently chartered by the U.S. military making it unavailable for commercial use, and another has been scrapped). The added expense and difficulty of utilizing such vessels has such distorting effects that it can make more sense to ship U.S. fuels abroad than to other parts of the United States.

A pair of recent news stories help illustrate this dynamic.

Noting “legal restrictions on the types of ships that can shuttle fuel between locations in the U.S.”—a clear euphemistic reference to the Jones Act—a November 16 Wall Street Journal article stated that such limitations add costs that encourages fuel to instead be exported overseas. As Citigroup’s global head of commodity research told the paper, “The Gulf Coast is not selling [diesel] to Philadelphia or New York. They’re selling it to Amsterdam and Rotterdam.”

Just the previous day, meanwhile, Reuters reported that five ships laden with fuel were headed to the Northeast United States from Rotterdam, the very place that U.S. fuel is being exported. Such absurd inefficiency would be almost comical if the results weren’t so damaging to the pocketbooks of New England consumers and the region’s energy security.

Indeed, the region finds itself in a precarious position.

Inventories of fuel oil, used by approximately 20 percent of New England households as a primary means of heating, are 50 percent below their 2017–2021 average. If the region is hit by a sustained cold snap—hardly a remote possibility—stocks could quickly dwindle. For perspective, during a 13-day period with below-average temperatures during the 2017–2018 winter over 80 million gallons of fuel oil were used for electricity generation in New England. On-site regional stocks in October stood at 92 million gallons.

“If it gets cold, the lights are going to go out,” warned the head of NEFI, a trade association representing wholesale and retail liquid heating fuel distributors, earlier this month. “There’s no way you can move enough energy via pipeline, trains, and trucks to make up what would be needed in vessels if it’s cold.”

While pipelines are the most efficient means of moving large volumes of fuel, their ability to move product from the Gulf Coast to the East Coast is described as “largely maxed out.” Marine transport would seem an obvious alternative, but tankers that comply with the Jones Act are already fully employed with little excess capacity. That doesn’t leave much margin of error if temperatures drop for a sustained period. The American Fuel and Petrochemical Manufacturers warns that while U.S. refineries produce sufficient volumes to keep the region supplied, “it’s possible high seasonal demands and Jones Act constraints [emphasis added] could cause temporary disruptions.”

As numerous industry participants and analysts have pointed out, the most straightforward way to alleviate such constraints would be to suspend the law or exempt the transport of energy products. That wouldn’t just benefit those that rely on home heating oil but also users of natural gas, which is the region’s dominant fuel for electricity production. While the Jones Act makes the transport of fuel oil to the region more difficult and expensive, it renders the purchase of liquefied natural gas (LNG) from domestic sources outright impossible due to the complete lack Jones Act-compliant LNG tankers.

New England governors, for their part, have expressed their interest in Jones Act waivers to meet the region’s energy needs. There are significant restrictions on the executive branch’s ability to waive the law, however, making it unclear whether this offers a viable option for relief. Given such uncertainty, it’s imperative that Congress act to ensure that nonsensical shipping restrictions don’t leave the region’s homes shivering. Fortunately, Sen. Angus King (I‑Maine) and Sen. Jeanne Shaheen (D‑New Hampshire) are reportedly crafting legislation that would expand the executive branch’s ability to waive the Jones Act to enable expanded shipments of energy supplies to New England.

To be clear, longer-term reforms such as the removal of obstacles to pipeline construction should be embraced to spare New England from the perpetual threat of insufficient energy supplies. But that’s for another day. Right now policymakers need to consider what levers they have at their immediate disposal to provide relief, and Jones Act relief is the most obvious and impactful candidate. Legislation to spare energy shipments from the protectionist law should be passed without delay.