Thursday, April 28, 2016

Fallacious Logic Informs St Johns River Dredging Project

The most recent development in the ongoing contention over the proposed St Johns River dredging/deepening has the St Johns Riverkeeper filing a legal challenge to block state permitting of the project. While much of the debate over the project has revolved around the environmental impact, and the classic tradeoff between environmental protection and economic growth, there is an even more fundamental question worth asking -- what is the likelihood that the presumed economic gains in jobs and revenue will be realized if the project actually comes to fruition? On that score, one can file a logical challenge against the project and its proponents who repeatedly commit a fundamental logical socio-economic fallacy known as “the fallacy of composition”.

This logical fallacy plagues many proposed economic development panaceas. The tendency is to isolate a single case, in this instance Jacksonville’s port, showing how investing in an infrastructural enhancement will make the port more competitive and result in positive economic benefits. But what appears as individually rational -- for a port to seek public funds in order to finance infrastructural expansion and meet the demands of carriers and shippers – may in fact be collectively irrational. This is because Jaxport is not the only port engaging in this activity. Every major port on the East coast is or will be as deep, or deeper, than Jacksonville. Once one considers the larger east coast port population, all pursuing the same strategies and competing for the same limited amount of containerized cargo, it should be obvious that the result will not be equally beneficial for all parties. Some will be more successful than others based on existing and cumulative advantages; and, collectively, scarce public funds will be expended on redundant infrastructure resulting in overcapacity and underutilization.

Avoiding the fallacy of composition would have led the Army Corp of Engineers to conduct a multiport analysis in determining the wisdom of recommending the St Johns River dredging/deepening project (but they did not). Understanding the fallacy of composition would make clear that when every port seeks to gain an advantage through costly infrastructure and channel deepening it will inevitably result in “destructive competition” where no net competitive advantage is gained by any port, while the bargaining position of the shippers and global carriers is strengthened. As one study of port competition concludes: “…interport competition results in an unnecessary and unrewarded transfer of wealth from local taxpayers and users to global firms.”

There is a second similarly relevant socio-economic fallacy known as Say’s Law -- that supply will create its own demand. This has been translated into the equally fallacious assumption made by advocates of the deepening project that “if we dredge, they will come”. But supplying a container terminal and deep water will not automatically produce a demand for port services, as that is contingent not only on the state of global trade but decisions made by the shippers and carriers, who, it turns out, have expressed a clear preference for Savannah and Charleston over Jacksonville.

Finally, one would be remiss if they did not make reference to the more well-known concept of “opportunity cost”. This refers to the lost benefit or value of an activity not undertaken because another course of action is pursued. As it pertains to the river deepening, one might consider whether the estimated $400 million local share of total project cost would be better directed toward an alternative form of public investment that might generate greater benefits for the citizens of Duval county, such as improved public transportation.

In short, one does not need to conduct a technical econometric analysis in order to assess or challenge the logical shortcomings of the proposed dredging project. It is remarkable, but not entirely surprising, that paid consultants conducting economic impact studies would overlook these fundamental, but inconvenient, socio-economic principles. What will be more inexcusable is if public officials actually decide to expend scarce taxpayer resources, in a time of severe fiscal strain, on such a highly speculative megaproject.

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