Economists

Economists


2019 has been a year
of Midwestern floods, international trade wars
and shifts in American ethanol policy. It all culminates in rural
economic uncertainty. But what does
the data show? We dive deeper with a pair
of rural economists on this edition
of Iowa Press. Funding for Iowa Press was
provided by Friends, the Iowa Public Television
Foundation. The Associated General
Contractors of Iowa, the public’s partner in
building Iowa’s highway, bridge and municipal
utility infrastructure. I’m a dad. I am a mom. I’m a kid. I’m a kid at heart. I’m a banker. I’m an Iowa banker. No matter who you are,
there is an Iowa banker who is ready to help you
get where you want to go. Iowa bankers, allowing you
to discover the genuine difference of Iowa banks. ♪♪ For decades Iowa
Press has brought you politicians and newsmakers
from across Iowa and beyond. Now celebrating more than
40 years of broadcast excellence on statewide
Iowa Public Television, this is the Friday,
September 20 edition of Iowa Press. Here is David Yepsen. Yepsen: Parts of rural
America have taken negative economic news on
the chin throughout 2019. Widespread flooding
throughout states like Iowa and Nebraska wreaked
havoc on communities. The Trump administration
has waged a prolonged trade war with the leading
agricultural export market of China. And shifting
administration policy has led to uncertainty in the
American ethanol sector. Two men following the data
are Iowa State University Associate Professor of
Economics Chad Hart and Creighton University
Economics Professor Ernie Goss. Both of them join us now
at the Iowa Press table. Gentlemen, welcome. Hart: Thank you. Goss: Thank you. Yepsen: Thanks for
being with us again. Goss: Good to be here. Yepsen: Journalists
joining us across the table are Erin Murphy, Des
Moines Bureau Chief for Lee Enterprises and Radio
Iowa News Director Kay Henderson. Henderson: Professor Goss,
this week you released an analysis of sort of
an economic picture. Give us sort of a snapshot
of what you found. Goss: Well, as long as
you’re not an area that has significant
manufacturing and agriculture or energy
you’re just fine. In other words, it’s tough
out there in rural areas because that’s exactly
what you’ve got is agriculture,
manufacturing and energy. And all three of those
sectors have been taking it on the chin. Manufacturing in our
survey of — all the surveys include Iowa that
we do and include the other states that this
show is broadcast to — and it’s tough out there. And one of the real tough
things is the volatility, the uncertainty and I
would argue that’s where it is. And if you’re talking
about agriculture you’re dealing with uncertainty
anyway with weather and you’re piling on
uncertainties of the global trade, you’re
piling on uncertainties with interest rates,
you’re piling on uncertainty with what is
happening in the global economy. So all that and you wonder
why folks are a little, feeling fearful out there
and concerned, and that’s what we’re getting
in our surveys. Henderson: Professor Hart,
what is your quick read on the ag economy? Hart: The ag economy, well
first of all it has been struggling for about
five years now. And so it wasn’t just the
trade war that brought this on, the trade war
sort of exacerbated the problems that we’re
seeing out there. And when we’re looking at
net farm income across the country it has been fairly
stable the past three or four years. The only thing that is
making it possibly grow, government support. Murphy: So then question
then is that we’ve all been asking, are these
negative influences leading us towards
a recession? Professor Goss? Goss: Well, Erin, our
surveys would say yes, it is moving in that
direction, the trend is definitely down and the
models, most economists have these models that
include the yield curve, that’s a strong factor, an
important factor I should say and Moody’s just came
out with their model this week and saying the
probability of a recession now is 66%. I’m like, wow. Our model, Creighton’s
model, would say something above 50% and that is
double what it was this time last year. Now what are we using,
what is the primary factor there? Well, it’s just the yield
curve, when short-term rates get higher than
long-term rates, and that has been a very good
predictor of recessions. Now, again, we’re talking
about the probabilities are above 50% for the
first half of 2020 based upon the numbers that
we’re seeing, that would be the employment numbers
which are coming down, the manufacturing numbers
which are coming down, and the ag numbers which are,
as Cha said, stable but still coming down there. So I would say that’s what
we’re seeing right now. Yepsen: Professor Hart,
what is your answer to Erin’s question? Hart: Well, when we’re
looking at the general economy I think yeah,
the idea is that most economists are looking at
this situation and going, as we look into 2020 it’s
looking like the year of recession. It’s the question of does
it come early in the year or later in the year? And what sort of policy
moves do we make in between to try to hold
that off for a while? Murphy: Speaking of policy
makers, Senator Chuck Grassley on this show
recently said that his concern is that we’re
talking ourselves into a recession and we’ve heard
that from the White House as well. Is that a
legitimate concern? Is that a fair concern? Goss: Well, I think it
hits consumers primarily and hat has been the
strength of our economy has been consumption,
the consumer. And there is some concern
about that, what happens to consumer expectations,
how the consumer sees things and the consumer
still is seeing things pretty well. Employment is
still growing. Unemployment is
still very low. And so you can’t
argue with that. But when you look at the
global economy, when you look out at manufacturing,
when you look at agriculture, when you look
at energy there are so many concerns that you
can’t be that optimistic. Henderson: Professor Hart,
one of the reasons that the Farm Crisis happened
is that farmers were highly leveraged, they
had a lot of loan debt. Is that the case now? Hart: We are more highly
leveraged than we have been in the past but we’re
not as highly leveraged as we saw in the 1980s. So we did learn some
lessons from the 1980s Farm Crisis. The ag community was
tightening its belt over the past four or five
years trying to hold off some of those problems. But we are seeing debt
levels rise, we are starting to see
bankruptcies rise that general melees in the ag
economy over the last five years has taken its toll
and there’s not as much cushion for farmers as
there was in the past. Yepsen: Professor Hart,
what about your answer to the question are we going
to talk ourselves into a recession? As Erin points out the
White House is saying we’re going to do that. The White House will
always say we don’t want — things are better, they
don’t want us to believe things are going in a
downward direction. What is your take. Will we talk
ourselves into this? Hart: We can talk
ourselves into it and as Ernie sort of pointed out
the idea is when you look it’s up to the U.S. consumer. The consumer side of the
equation here, consumer spending is about
two-thirds of our general economy. And so as the consumer
goes so does our economy. But when we’re looking at
the other pieces outside the U.S. consumer we do see a lot
of weakness there and I think that’s why you’ve
got a lot of economists sitting here looking going
yeah, it looks like we’re headed that way, the last
piece to move will be the U.S. consumer. Yepsen: I want you both to
talk a little bit about the rural economy compared
to the whole national economy. In the past, I’m thinking
in the 1920s, for example, rural America was hurting
and the rest of the country was enjoying
a golden age. Are we in a similar
place, Professor Hart? Are things getting tougher
here but nationally it looks better? Hart: I would definitely
argue we’re already there. The idea is that we
started to see the ag economy really take its
lumps, 2014, 2015, 2016. And we’ve been down,
basically staying down since then. The general economy is
starting to reflect what the ag economy has already
been going through for the past five years. So it is eerily similar to
what we saw in the ’20s and ’30s in that sense. Goss: But our surveys
indicate there’s some real concern. We asked the bankers, we
survey bank CEO’s in rural areas in 10 states and
43% said the number one concern they had looking
out was bankruptcies and delinquencies and slow
payments of loans. But even so, as Chad said,
it hasn’t shown up yet. In other words, we may
have some more to go in that regard. But back to the growth
in rural versus urban. It’s about twice the
growth in urban areas that we’re seeing in
the rural areas. Now what does that mean? 1.4% growth for the urban
areas, about 0.7% for rural areas. So it’s still positive
but it’s growing in those industries without tight
linkage to manufacturing, without tight linkage
to agriculture. And you say, well
what does that leave? Well, there are some
retail establishments, which depend on the
consumer, there are other consumer driven businesses
that are still doing well even in rural areas. Henderson: Professor Hart,
David mentioned at the top of the show the Renewable
Fuel Standard, the ethanol production mandate. How is what is happening
affecting the industry and the countryside? Because 40% of corn that
is grown in Iowa is turned into ethanol. Hart: Yeah, so we have
seen the ethanol industry slowdown. We’ve been watching sort
of week by week, a few plants slowing down, a
couple of plants closing. So we’re seeing
production drop. That indefinitely having
a negative impact. We’re looking at the corn
market, we’re seeing the same thing as we look at
the biodiesel as well. That uncertainty is
leading to, policy uncertainty is leading to
a lot of let’s call it missed opportunities in
marketing as we look at not only the biofuel side
but for the agricultural products that go to
feed that industry. Henderson: Professor
Goss, if the Trump administration makes an
announcement, and we’re taping this program on a
Friday morning, we may have an announcement this
afternoon, how quickly can the biodiesel and ethanol
industries rebound? Goss: I think they can
rebound fairly quickly. But the real problem that
I would argue is the uncertainty. I hate to keep hammering
about that but we’ve got the 81 small refinery
exemptions that have been okayed by the Trump
administration. I don’t argue against,
for or against those, but you’ve got to have
more certainty. What is going to happen? Your Senator, our
Senators, all the Senators in this part of
the country and Representatives are
arguing give us certainty, tell us what’s
going to happen. You can’t continue giving
these exemptions without providing some
certainty, some pathway. Farmers need to know,
ethanol producers need to know and right now with
what we’re seeing in Saudi Arabia, for example, that
is an opportunity for ethanol but it’s only an
opportunity if you’re still in business. We are seeing some
closures and at least ethanol plants going idle. And we’re talking about
the number one area of the country that is ethanol
producers whether it’s Minnesota, Iowa, Nebraska,
South Dakota, those states. Murphy: Speaking of policy
uncertainty, Professor Goss, there is also a new
potential trade deal, international trade deal
between the U.S., Canada and Mexico that is on the
table but not signed yet. How much does that impact? And what is the danger
if that does not get approved, the longer
that is drawn out? Goss: We talk a lot about
China but USMCA, that’s NAFTA 2.0 or whatever you
wish to call it, is much more important and it’s
languishing in Congress. That is unforgivable
in my judgment. That should be pushed
through and passed but it’s not. Again, uncertainty. How do farmers, how
do those connected to agriculture, the
businesses tied to agriculture,
how do you plan? Because you’ve got the
plan for next year, farmers are always looking
ahead, they can’t look past, they can’t even look
at current, they’ve got to look forward. And how do they know
what’s going to happen? And USMCA is very
important, that’s much bigger, the trade with
Canada and Mexico, than China. But even with that
it’s a big deal. Murphy: Professor Hart? Hart: It’s a
gigantic deal. But at the same time too
I think you’re seeing the agricultural industry sort
of go on as though it will get passed. We’re basically behaving
as if NAFTA has continued, the USMCA dresses it up
around the edges, but we’re going forward. And I’ll agree with Ernie,
it is the most important trade deal that we’ve got. When you think about China
and the dispute there it was $20 to $25 billion
of agricultural trade. USMCA, over $40 billion. The idea is Canada and
Mexico are the two very consistent, largest
trading partners not just in agriculture, but in
all the products we have across the entire economy. Yepsen: Professor Hart,
a lot of democrats, democratic members of
Congress are upset that the labor standards in
this are not high enough. What is wrong with asking
other countries to have higher labor standards? Don’t we care about
workers from Mexico? If they have higher labor
standards maybe they won’t be trying to migrate
to the United States. What do you make of this
argument we’ve got to have better labor standards? Hart: Well, I see this
is the Democratic Party looking for okay, what are
the positive changes we can make to the USMCA? I think it was Speaker
Pelosi earlier this week that said she is in favor
of the agreement but wants to see a little bit
stronger standards there on the enforcement
mechanisms. And so I think we’re
approaching let’s call it the end zone here in terms
of getting this across to where we can get to a vote
but we’re still not quite there yet. Goss: I just think you
have to take what we’ve got there, go with it and
maybe refine it sometime later. But you start nipping in
this with everybody, 435 congressional
representatives, each of them having a shot at
that, we’ll never get that thing passed and throwing
it off the table is very dangerous to all of us and
that’s not just those of us who live in this part
of the country but the nation. That’s very important
to this nation. Hart: If I may, I want to
go back and if you think about when NAFTA was
ratified we saw these same sorts of arguments. We really literally just
went up to the end line, when is the deadline of
where we have to have this. We’re doing the same
thing with the USMCA. Henderson: Professor Goss,
what is the economic impact of the impasse in
trade negotiations between the U.S. and China? Goss: Significant. It’s significant in the
sense of certain products of course. But in my judgment the
real significance is changing supply
chain arrangements. In other words, once you
lose a customer do you get the customer back again? And of course in terms of
soybeans and pork, two industries, two products
very important to this part of the country,
that’s bigtime money and right now China we’re
seeing them blink. Xi Jinping doesn’t have
to get re-elected but President Trump does. I don’t know if he has
to get re-elected but he wants to get re-elected. And a lot of it depends
we’re talking about one of the big things, one of the
favorable things is the Iowa Caucuses. Find me some presidential
candidate that is going to talk against ethanol. I don’t know, we had one
last time that talked against it, he did not end
up winning the nomination. I think that’s a good
thing, at least from my judgment. And so it’s
very important. Henderson: Professor Hart,
do you think that American farmers have permanently
lost markets in China? Hart: We haven’t
permanently lost the markets but we’ve lost
some market share. Whenever we have disputes
like this we do tend to see that market share
is permanently reduced. As Ernie said, global
supply chains have changed and they’re going to
remain evolved, if you will, over time. Henderson: Because they’re
buying soybeans from Brazil. Hart: They’re buying from
Brazil, they’re buying from the Ukraine. When we’re looking at the
sort of the double barrel combination of the trade
war plus African swine fever that is changing
the dynamics of the whole global pork industry. Yepsen: The swine fever
has decimated Chinese pork production. Prices in China at 40%. The Chinese government is
really feeling the heat. Isn’t that an opportunity
for pork producers? Goss: Absolutely. And you’ve seen the
Chinese, I would argue, blinking. Now the President has
blinked as well, our President. And we both are moving
toward I won’t say a deal but they’re certainly
moving and you’re seeing some action there. But in my judgment the
real problem from an economist’s standpoint,
I’m not a politician nor could I be, but
nonetheless you’re talking about three sectors. You’re talking about
manufacturing, agriculture, energy. No one can compete with
our nation, this part of the country in terms of —
we have this fear, this fear of competition
it seems. Let’s bring back all of
the jobs to the U.S. We’ve got them. Yepsen: Professor Hart,
one of the reasons we’re in this trade war with
China is that President Trump said they’re
stealing our secrets and we’ve got to get tough and
we’ve got to do something about it. The rural ag community
has essentially said politically, yeah he’s
right, we’ve got to play hardball. What can be done to keep
the Chinese from stealing U.S. intellectual property? Hart: Well, I think what
we’re looking for is to move Chinese law closer
to what we would consider typical international
law when it comes to intellectual property
rights which they do not uphold. And I think it comes down
to when you look at the fundamentals of the two
governments, the idea is that we’re here in a
capitalist democracy where we believe if you develop
something you own the property rights, they’re
still at heart a Communist country where if you
create something it’s there for the
good of the state. Yepsen: Same question. Goss: What is concerning
to me is everything, non-trade issues,
non-economic issues, although it is economic
to a large degree, we’re using the economic
pressure to get our outcomes. For example, now in Saudi
Arabia, the issue there. As an economist I’m
concerned that everything turns and runs on well
we’re going to hit you with sanctions, we’re
going to do this, we’re going to do that and it’s
all about economics. And when economics and
politics collide economics loses every time. And it’s very concerning
that this U.S. economy is slowing down
and potentially moving into a recession. So I think we need a deal. Now, we do need those
non-economic issues settled, no
doubt about it. But I’m concerned that
we’re focusing too much on them, as an economist. Murphy: Gentlemen, we
wanted to ask you about climate issues relative
to the economy. We had obviously some
devastating flooding in Iowa this year, especially
in the western side. How much has that impacted
Iowa’s economy with the fallout from the
destruction of roads and people having to be
uprooted from their homes? How much has that been a
drag on the state economy? Hart: Well, as you
mentioned, what we’ve taken is a big hit on our
rural infrastructure due to all these natural
disasters occurring. It has either been too wet
or too dry, we can’t find the Goldilocks spot. And especially in
agriculture when you’re looking here it’s the
combination of okay, we lost some crops due to the
flooding, especially along the Missouri River, we
were delayed in the planting of those crops,
those crops are slow to mature now, we’re going to
look at more cost to get the crop to the
marketplace. And so you’re seeing all
these little, for lack of a better term, drag
shoots, lining up against the rural economy as we
move forward because there are all these additional
costs due to the weather problems that we’ve had. Murphy: Professor Goss,
how much of a drag does that cause? What is the impact
of all that? Goss: Oh, significant, but
I’m not an ag economist. I’ll defer to
Chad on this. But what we’ve seen now I
think, I’ll again defer to Chad, is the prices right
now aren’t reflecting what we may see later. I expect these commodity
prices, particularly corn and soybean and wheat
even, to be rising because of some of this
destruction of crops out there and I’m just not
sure it’s reflected in prices right now. As we speak today, right
now the Missouri is rising again, we’re seeing
flooding down I-29, Interstate 29 between
western Iowa and eastern Nebraska and we’re talking
about flooding fields again. Now this is a small part
but I think it’s also we saw that in Illinois,
we’ve seen it in Ohio. So there is some of that. But nonetheless I’m not
qualified to comment on climate change, I’m a
little skeptical sometimes of everybody becomes a
climate expert and I’m certainly not one of those
and I won’t claim any. But the destruction, we
had some of the ethanol plants reporting in
Nebraska, for example, that the roads to the
ethanol plant were washed out, they could not get
input in or output out so it has been
significant this year. Murphy: Speaking of those
experts, there was some science, Professor Hart,
there were some scientists this week that produced a
report that talked about, among the things in the
report was talking about increased temperatures and
the impact that could have on raising and
producing livestock. Just as we see whatever
the causes of them are, these extreme weather
events and these changes in climate, how much of a
concern is that and the way it’s impacting the ag
economy in this state? Hart: It’s definitely a
concern but it’s something that, give farmers some
time they will evolve. And arguably what you’ve
seen the agriculture community doing is
evolving to the different conditions we’ve
been facing. Yepsen: Is the
market evolving? There’s a whole lot of
people out there who are saying we should quit
eating so much beef and meat because it creates a
methane problem and that creates a climate problem. Do you expect the market
to change to undercut producers? Hart: I’m going to argue
that the market is always evolving. When you think about it
we’ve seen movements towards hormone free,
organic, local, natural. You see this all the time
and we continue to see this. Yepsen: Professor Goss,
you shook your head. Goss: Yeah, it’s just a
lot of hucksters out there making a lot of
money off this. And I’m not saying it’s
not a fact or it’s not an issue. But the fact is that we
had a Vice President about 12 years ago that said the
world was going to come to an end in 10 or 12
years, which is now. Now we have those who
say it’s going to end in another 10 or 12 years. I’m a little skeptical,
just call me a little skeptical. And a lot of folks are
making a lot of money off of that and I’m
a little cynical. I’m not saying climate
change is not occurring but let’s talk about it. But think about this,
you’ve got men and women across the globe that are
putting Botox in their heads, silicone in their
lips and they don’t want to eat GMO corn. I mean, come on. Hart: But I’ll turn this
around and go okay, if the consumer wants to buy that
attribute they have the right to do that. And what we have seen are
consumers are willing to spend that money to
get that on the label. Goss: But how long have we
heard about eating natural and all of a sudden now
we’re going to eat a chemically produced
piece of meat? I for one, I’m going to
continue to eat — Hart: I’m going to say you’re
with the majority of consumers out there. Henderson: We don’t
have much time left. But there is an evolution
happening in technology, especially with farmers. As you have robots farming
how is that going to impact the population
and the economy in rural America? Hart: Well, I’m going to
argue it’s the same type of transition as we move
from horse drawn to machinery. The idea is you’re talking
about a large structural change to how agriculture
interacts with the rural economy because it used
to be that half the population was involved in
agriculture, now it’s well less than 1%. Let’s face it, we’ll make
it even smaller as we can mechanize even more of the
agricultural moves that have to be made. Goss: And how the heck is
it that we’re losing so many jobs to AI,
artificial intelligence, machine learning, when our
unemployment rate is 3.7%, a 50 year low, we’re
adding 150,000 to 200,000 jobs a month, that we have
to fear these changes. It’s nothing to be feared. It has been our friend
for many, many decades. Yepsen: Professor Hart,
we’ve got about a minute left. We’re going into a
recession, people look to the government
to do something. That happened in the 1930s
coming out of the ’20s. What can government do
when we’ve got this huge debt? Can they borrow money
to prime the pump? What can we expect our
federal government to do? Hart: Well, I think
that is going to be the challenge as we’re
looking forward here. One of the concerns I know
Ernie and I were talking about earlier is as we
look at the moves, for example, of the Federal
Reserve, how they’re already making moves that
typically you would see as you’re going into the
recession, now we’re doing that beforehand. Will we run out of our
possible moves, solutions, before we can get there? Yepsen: What about that? Are there no tools
in the toolbox? Goss: With global interest
rates as low as they are, negative in Japan, zero in
Europe, that interest rate bullet is not there. So it’s going to have to
go, we’re going to have to see some fiscal policy
and that would be the government. And there are a lot of
economists out there and politicians that believe
that the deficit, the debt does not matter anymore. So we’re going to
borrow and spend. Yepsen: What matters to me
is time and we’re out of it. Goss: Infrastructure
spending. Yepsen: Thanks
for being here. Hart: Thank you. Goss: Thanks
for having us. Yepsen: And we’ll be back
next week for another edition of Iowa Press when
we sit down with Colorado Senator Michael Bennet as
he pursues the democratic presidential nomination. That’s Iowa Press with
Senator Bennet at our regular times, 7:30 Friday
night and Noon on Sunday. And also stay tuned next
Friday night at 8:30 p.m. for our latest edition of
IPTV’s Conversations with Presidential Candidates. It’s a series we’re
doing at Des Moines Area Community College. We sit down with former
Texas Congressman Beto O’Rourke for an hour-long
town hall style conversation. So for all of us here at
Iowa Public Television, I’m David Yepsen. Thanks for
joining us today. ♪♪ Funding for Iowa
Press was provided by Friends, the Iowa Public
Television Foundation. The Associated General
Contractors of Iowa, the public’s partner in
building Iowa’s highway, bridge and municipal
utility infrastructure. I’m a dad. I am a mom. I’m a kid. I’m a kid at heart. I’m a banker. I’m an Iowa banker. No matter who you are,
there is an Iowa banker who is ready to help you
get where you want to go. Iowa bankers, allowing you
to discover the genuine difference of Iowa banks.

Leave a Reply

Your email address will not be published. Required fields are marked *