Economics

The events of 2020 have reset American life and the impact of statewide shutdowns and prolonged changes to consumer spending have economic consequences as well. We get a pre-election economic update with Chad Hart and Ernie Goss on this edition of Iowa Press. (music)      Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. Iowa PBS is supported in part by Wells Fargo. Fuel Iowa is a voice and a resource for Iowa's fuel industry. Our members offer a diverse range of products including fuel, grocery and convenience items. They help keep Iowans on the move in rural and urban communities. Together we Fuel Iowa. 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. (music)   For decades Iowa Press has brought you politicians and newsmakers from across Iowa and beyond. Celebrating nearly 50 years of broadcast excellence on statewide Iowa PBS, this is the Friday, September 18 edition of Iowa Press. Here is David Yepsen. (music) Yepsen: As a global pandemic swept across America in early spring, the immediate concerns were both health and economic security. Millions of Americans were suddenly unemployed and Congress deployed trillions of dollars to prop up individuals, unemployment insurance and small business payrolls. But six months later, Congress and the White House have yet to push through another pre-election economic recovery package. To get a sense of the rural economic impact here in Iowa we're joined by Chad Hart, Professor of Economics at Iowa State University and Ernie Goss is Professor of Economics at Creighton University. Gentlemen, welcome back to the show. Thanks for making the trip over here. I want our viewers to know that we are taping his program with you on Friday morning. Yepsen: Journalists joining us across the table are Erin Murphy, Des Moines Bureau Chief for Lee Enterprises and Kay Henderson is News Director at Radio Iowa. Henderson: Mr. Goss, if you got to write the COVID relief package that passes Congress and is signed by the President, what would you put in it? Goss: A skinny package for sure. In other words, more towards the republican package that we're seeing than the democrat package, which I think has too much not related to stimulus but more for political payoffs, for example state and local government. So I would add in there some relief for unemployed workers, that would be certainly essential. Some of the PPP, Paycheck Protection Program, that program according to our surveys of bankers in the region has been very successful at at least assisting banks, I shouldn't say banks, assisting businesses, assisting agriculture interests as well. So I think the PPP program also should be part of it. But I would keep it under a trillion dollars though. It's crazy we're talking about a trillion here and a trillion there, pretty soon as Dirksen said, you're talking about some real money. And we are talking about -- the first stimulus package was 15% of GDP. That's a bit rich and somebody has got to pay for it sometime, somewhere, some place. So we'll wait and see on that but a skinny package. Henderson: Mr. Hart, would you include some of the things that he is discussing? Do you agree that it should be skinny rather than robust? Hart: I would lean towards skinnier, yes. I would agree with many of the targets that Ernie laid out there as well. I'll quibble a little bit, I do believe state and local governments do need some assistance here as well as they have sort of been that buttress that a lot of our support programs have fallen back on. But I do also agree that we have to worry about the long-term repercussions here as we're building up that level to a dangerously high level. Henderson: Let me follow up with a sort of breaking news last night, the President announced that there will be another round of assistance to the farm community. We learned a couple of weeks ago from the USDA that 36% of farm income this year is expected to be from government payments. What is your view of what President Trump has laid out during his Wisconsin stop? Hart: Well, this has been telegraphed for some time, about $13, $14 billion of support here, and you can think of this as still being derived from the CARES Act. So this is funding that was already within USDA in the CCC funding, they're bringing it forward here, calling it CFAP 2 for Coronavirus Food Assistance Program the 2nd version. And it is being directed towards where, if you will, the agricultural markets have sort of settled out as we move through the summertime here into early fall and trying to create the support to help producers that are still suffering from price losses from earlier. Henderson: We also learned that some of the payments that have been coming out from the USDA are more robust for southern farmers than they are for Midwest farmers. What accounts for that? Hart: Well, I think when you're looking at let's call it history as far as the idea of when you look back at previous farm bill packages, they tended to be more tilted towards southern crops as well. So when we pick back on previous programs they tend to line up the same way. Murphy: The Trump administration this past week finally made good on its pledge to honor the ethanol, I guess I should say reject ethanol waivers, which should help Iowa corn producers here to increase demand for their product. My question to you gentlemen, and Mr. Goss we'll start with you, how much does that help here in Iowa taking care of those waivers? And is it too late? This has been something that producers have been fighting for, for many, many months, even years here. Goss: I won't say it's too late, Erin, but it certainly should have been earlier. And what we're seeing in our surveys of bank CEOs in rural areas of 10 states including Iowa, as many as 40% of the ethanol plants were temporarily shut down. And that is a lot to do with waivers, but it's a lot ot do with oil prices. Oil prices hovering below $40, today they're above $40 a barrel and of course that has a lot to do with the pandemic and other factors, it's certainly not just that blending requirement and the exemptions for petroleum producers. So I just don’t see it having that much of an impact but it has in the past. I would say it's a little too little too late in my judgment. Murphy: Mr. Hart, better late than never? Hart: It's better late than never but it's also one of these deals of it's not the major reason we're seeing problems in the ethanol industry. Ernie hit upon it, when we're looking at where oil prices have moved over the past year and how we have watched gasoline consumption dive as we went through the shutdowns through the pandemic. That was the major reason we saw the ethanol industry really fall off a cliff earlier this year. We've seen a recovery in that industry as we've seen transportation needs ramp back up again. But the idea is the small refinery waivers now are sort of that yeah, that was damage, but it wasn't what drove the economic harm that we've seen here over the past year, year and a half. Goss: And then you've got corn prices back up not where we'd like to see them at least from the farmer's standpoint. But that is also a part of the, that's going to be not a good thing for the ethanol producer, but it's a good for the agricultural sector. Hart: That's why there was some debate whether this second package on the coronavirus assistance, whether there would be something for bioenergy or not because of the damage they've seen there. Murphy: So it wasn't a silver bullet either. But what does the ethanol industry need? What help does it need from our policy makers moving forward? Hart: I would say one of the biggest things they're looking at is how do they go to increased blending. The movement, originally it was E85 but a lot of the concentration now has been on E15 and getting that expanded nationwide. That is where I think they're looking for the bigger bang for the buck. Goss: Exports. Exports would be very important. We're seeing at least some movement from the Trump administration of reducing tariffs. About time I'd say. And when you have this retaliation and that is certainly not the major part of ethanol but it is important and we, from an economist standpoint you just hate to see these restrictions of trade, restrictions of immigration. A lot of it now the pandemic has really pushed almost everything aside and we've got medical folks becoming economists and economists becoming medical folks. That is not a good move when I dispense medical advice. And the CDC is now giving us economic advice. For example, on the rental moratoriums. That was perfect nonsense, makes no sense to me from an economic standpoint. Yepsen: Let's look at Iowa. Professor Hart, what is the condition of Iowa's economy now? Hart: I would say we're recovering but we're not back to where we were pre-COVID. When I'm looking, for example, at the agricultural economy what we have seen is a rebound of sorts but it is very uneven. For example, when you're looking at the soybean market right now, we've seen prices rebound to actually exceed where we were at the beginning of this year. Corn we've recovered about 50%, 60%. The livestock industries, pork, beef, we've recovered somewhere between 60% to 75% of that price decline. So you have seen some recovery but no, there's still some pain being felt out there, and especially as we have the natural disasters roll in. Goss: David, if you look at it we're still probably in Iowa 5% to 6% below pre-COVID level unemployment numbers and likewise on GDP much the same. But I can put -- it's real easy to say negatives are getting less negative, we're improving, we're just not back there. But if you look at this part of the country versus other parts of the country, again, it's amazing that the pandemic has now become a political item. We've got states in the Northeast that are closed down effectively, and other states, and they are much farther behind where Iowa is, where South Dakota is, where Nebraska is and you'll see better conditions here than you'll see elsewhere. But we're moving in the right direction, as Chad said, and I think in my judgment we're going to be back before I thought we were earlier on. I think some time in the first half of 2021 if we keep moving ahead. Now, that's not to say we don't have something, a hiccup there. Henderson: Mr. Goss, you mentioned unemployment. We know what the unemployment rate is now -- Goss: Well, I'm not so sure. Henderson Okay, why not? Goss: Well, look at the divergence between the first-time claims for unemployment insurance, that rate versus the unemployment rate. One comes from the Department of Labor and one comes, that's the first-time claims that comes from a population. In other words, it's not an estimate, that is the number. And then you've got the unemployment rate number, the unemployed, Kay, that comes from the BLS, that is a sample, which means it has wide confidence intervals or a big error. Henderson: So is it underreported or over reported? Goss: The unemployment rate number from the BLS -- Bureau of Labor Statistics, sorry, David -- that one is I would say it's undervalued. In other words, there are more unemployed than that one would suggest. And the problem we have also, another reason, it is administered in the second and third week of every month. Well, the first-time claims comes in every Thursday and that is a population number, it comes from a population, it's not a sample, and the other one comes from a sample. Yepsen: This gets a little confusing. So what do you think? How bad is unemployment? Goss: It's bad. We academics have been protected to a large degree and so for me to say it's not tough, it's tough, particularly in leisure and hospitality, unemployment rates are sky high there and we're seeing in other areas not so much and that's where we're seeing it. And the rates are probably in the neighborhood of 8% to 9%. Henderson: Mr. Hart, how is the pandemic going to reorient the ag economy? Hart: Well, you have already seen it sort of reorient and where we're looking for that, if you will, part of that recovery is coming from, and Ernie hit upon it when he was looking at the biofuel side, it has been the export picture. When we think about what is the demand factor that is helping push some of these prices higher now it is international demand for our products. So we've seen much more of a concentration from our ag markets to look at how are the economies, not just China, but looking at how Europe, Japan, South Korea, Vietnam, how are they responding as they look to emerge from the COVID-19 outbreak. Henderson: So is this short-term, mid-term or long-term impact? Hart: A little bit of both, or all three if you will because when you're thinking about it the short-term right now is China, definitely the moves that China has made within the agricultural markets have been very stimulative to ag prices. But as we're looking longer run we've got to develop that full global market. Yepsen: I'm curious how each of you see this question. How will the pandemic change us long-term? We haven't been through one of these. We're going to come out of this different in some way. Professor Goss, how do you see it? Goss: Well yeah, it's been 100 years since the last pandemic and it is going to change us. But in a lot of ways it's going to be very good and I think particularly in education, my industry, where we're doing now hybrid sessions, we're doing in-person and online, it's really making us much better, it's going to make us much better. Likewise the same for government, likewise in a lot of ways what we're seeing massively and this is good for Iowa, individuals living in San Francisco and you're doing business in San Francisco, you can now move to Des Moines or Dubuque and you can do your job from there and people are exiting from New York, San Francisco, these other high tech states, so that is a good thing because we're going to see state and local governments being very responsive to citizens and that's a good thing. We all should be more responsive. Yepsen: Professor Hart, how do you see it change? Hart: Well, I think you're seeing a change in how we do business. It used to be that you wanted to meet with that person face-to-face, you needed to make that deal, you needed to make that handshake. Now we're figuring out how to be more efficient in connecting with folks remotely. As we say, you don't have to be sitting across the table now, you just have to be sitting across computer terminals from each other so that you can conduct that business. Yepsen: I've heard it said we may get more serious about broadband, more fiber. Hart: Yes, we'll definitely have to. Goss: Absolutely, and that is critical for this part of the country where not all these rural areas have fast Internet access. Murphy: So as if the pandemic wasn't enough, we also had the derecho storm that tore through here a few weeks back. What was the economic impact of that on the state? Do we have a sense of that? We'll start with you, Mr. Hart. Hart: We're still assessing that because when you're looking at it, it wasn't just the derecho that went through, it was the drought that was happening around that as well. And so when you put the two together I would argue we're still accumulating damage from what happened a month ago. But when you're looking at, for example, the package that the President announced last night, you can see that as a partial answer to this as well because farmers are going to be assisted not based on what they produce this year, but what they planted earlier this year. So those that did suffer from the drought and derecho are being at least partially compensated by the new assistance package. Goss: And if you look at the overall damage assessments initially $4 billion for Iowa and say roughly 75% to 85% to 90% were insurance backed. So you've got the net impact of maybe a billion dollars, but of course the problem is it's focused on certain individuals, certain families, certain industries, certain areas of the state. Cedar Rapids, for goodness sakes, it hasn't been that long since we had the 100 year flood in Cedar Rapids. Murphy: I wanted to ask that because obviously the ag sector got impacted by that storm but communities did as well. As you know, Cedar Rapids has horrible devastation. Do we have a sense yet of what that will mean for the state's economy in some of those communities that were so upended? Goss: There will be some impacts. I think that is where you're going to see the most impacts, state and local governments that don't get the insurance. Back to Kay's question early on, here I said strip out that support for state and local governments. Some of them do need assistance in cases like this. But I don't want to incentivize overspending, and that's not so much of an issue in this part of the country believe it or not, overspending in certain state and local governments across the nation and particularly since 2017 tax law was passed when you don't have deductibility of state and local taxes. Henderson: Mr. Hart, just quickly, if a farmer files a claim on crop insurance is that 100%? Is it 70%? Is it 50%? Just explain that to people who aren't farmers and don't buy crop insurance. Hart: So the idea is they have to take a certain deductible like we do on our car insurance. It is measured usually by percentage. So the idea is most farmers would buy 80% revenue or yield insurance. Now, that doesn't mean it's 80% of their expected revenue because you have to base it on historical yields. So for most farmers they'd tell you I buy 80% insurance and it probably covers 70% of what I expect to get this year. So they've got that 30% deductible that you can think of these other packages helping fill in that gap. Henderson: Mr. Goss, real quickly, you mentioned huge unemployment, perhaps larger than the government rate indicates. Why is the stock market going gangbusters? Goss: Well, that's an easy one. Where else are you going to put your money? When you talk about the 10 year treasury, that seven-tenths of one percent and the inflation rate is 1.75% or 2%, you're losing money when you take inflation into account. So where are you going to put your money? Farmland? Not so much. Where are the investment opportunities? You're into gold? Gold prices approaching $2000 an ounce right now, may hit it today in fact, I doubt it today, but where else are you going to put your money? And the stock market is being driven by few stocks, in other words it's not the entire market, it's the Amazon, the Facebook and so on. So that is one of the problems with that. Sorry it was so long. You said a short answer. Economists, we don't have short answers. Hart: For anything. Murphy: So coming out of all these things eventually state, local school boards and governments are going to have to start drawing budgets for the next year. What advice would you have for them at this moment as they try to look ahead? And do government entities need to be more cognoscente about something like this happening in the future? Hart: I would argue yeah, they definitely need to be more cognoscente of thinking about this in the future. And it's also we're going to have to be much more efficient because as Ernie was pointing out earlier we have burned through a lot of capital, especially within this past year, we won't have that to fall back on again as we're going forward here. So we need to be careful as we go forward. Goss: And reserve funds are down and talking about the unemployment, Kay, we're talking about raising the fees, the taxes that employers pay because having this experience of heavy unemployment this year they're going to have to pay higher taxes next year. So my concern going forward is some of the bankruptcies, the bankruptcies are going to rise in the first half of 2021 no doubt about it and municipal governments are going to be part of it. But to the positive part of it, I'm not in government, I'm even in private education, but nonetheless we've got to be more responsive to the taxpayer. No one has held education or even government to the standards that business has been accountable to. Yepsen: Mr. Hart, real quickly, to Erin's question asking for public officials what should they be doing. Is this time for governments to be borrowing more money to build infrastructure? Preparedness is the new issue in American politics. Ernie asks about how are we going to pay this back, we're going to pay this back with inflated money, public levels of debt are low, infrastructure pays dividends, is this a good time for government to be borrowing some money to build things? Hart: I would argue that is the one case where you would want to see them using some more money here. When you're looking at infrastructure spending, that is investment into future revenue development for not only the country but for the government. So that is the one place if you're going to borrow more money let's make sure it's in a capital investment that has some return to it coming back. Goss: But remember, President Obama's shovel ready. He laughed, he even laughed when he said it the last time, he laughed when he said shovel ready. In other words, some of these projects you can't throw money at it. I'm not saying it will be done but it has to be judicious. And I think there's lots of ways of doing it and even for the gasoline tax, Governor Branstad was against that, but of course he's coming back soon I believe. Henderson: Well, he approved the last increase, the 10 cent increase -- Goss: And he even said that crazy economist from Nebraska says, I recommended it. He said, the crazy economist from Nebraska, I believe that's what he said. Henderson: Well, vehicles have better gas mileage, you have electronic vehicles becoming a greater part of the motoring public here. What do you do? Do you start charging a fee based on how many miles each vehicle drives? How do you refigure this because the gas tax, the tax on the fuel is not working. Yepsen: We've only got a couple of minutes. Goss: Absolutely, we have to do that. In other words, we're incentivizing electric cars but what about the cost of the electric cars, we're not getting that. So there needs to be a fee, some sort of licensing fee, or you said per mileage fee, that has to be done. Murphy: Real quick each of you if you could give us your economic forecast for the coming year. What do you see in your crystal ball when you look over the next few months, Mr. Hart? Hart: Well, again, I tend to concentrate on the agricultural economy and what I'm seeing there is recovery. The idea is when we're looking here right now what we're seeing is we've gotten through the derecho supplies, while damaged we're talking about large crops, and what we've got is good growing demand out there globally which bodes well for agriculture to sort of dig itself out of the hole it has been over the past few years. Goss: We will be digging ourselves out. It will be -- here's the real key -- going forward into the second half of 2021 we may be faced with excessive inflation, inflation is going to be up but the Federal Reserve has indicated that's okay with us. Well, it's not okay if you don't, if you get too much of that. In other words, keep an eye on gold prices, keep an eye on interest rates, long-term interest rates, short-term are going to remain low. Back to your point about borrowing, now is a good time to borrow but borrow the long-term borrow long because long is going to go up with inflation later on in 2021. Yepsen: We've got 30 seconds left. Henderson: Mr. Hart, people are seeing on their TV screens a commercial about the so-called death tax. What would be the impact if that is repealed? Hart: If that is repealed, well it depends on where we're repealing it too. As you're looking right now the way the estate tax is structured it hits well less than 1% of farmers across this country, so it has a very small impact. But if we were to repeal all the way back to the settings say in the late '90s it could have a much larger impact on not only farmers but estates from across the country. Yepsen: Gentlemen, we're out of time. Thank you both for being with us. Appreciate you making the trip. And we'll be back next week with a special Iowa Press Debate on Thursday, September 24th, 2nd Congressional District candidates Rita Hart and Mariannette Miller-Meeks will join us for a live one-hour debate here at Iowa PBS and online at iowapbs.org. That's Iowa Press 2nd District Debate next Thursday, September 24th live at 7:00 p.m. For all of us here at Iowa PBS, I'm David Yepsen. Thanks for joining us today. (music) Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. Iowa PBS is supported in part by Wells Fargo. Fuel Iowa is a voice and a resource for Iowa's fuel industry. Our members offer a diverse range of products including fuel, grocery and convenience items. They help keep Iowans on the move in rural and urban communities. Together we Fuel Iowa. 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.