Fiscal belt tightening. Iowa farmers, retailers, manufacturers and state government all cutting costs. We're seeking insight from economists Ernie Goss and David Swenson on this edition of Iowa Press.

Funding for Iowa Press was provided by Friends, the Iowa Public Television Foundation. 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. Iowa Communications Network. The availability of high speed broadband service is essential to fulfilling the promise of a connected Iowa. ICN's Broadband Matters campaign showcases the importance of delivering broadband to all corners of Iowa. Information is available at broadbandmatters.com. Iowa Community Foundations, an initiative of the Iowa Council of Foundations, connecting donors to the causes and communities they care about for good, for Iowa, for ever. Details at iowacommunityfoundations.org. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. The Arlene McKeever Endowment Fund at the Iowa Public Television Foundation, a fund established to support local programming on Iowa Public Television.

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, April 15 edition of Iowa Press. Here is Dean Borg.

Borg: Assessing Iowa's economic health depends on who you ask. Construction contractors in and around Des Moines and other metro areas likely to smile and give a thumbs up. Farmers readying fields for corn and soybeans with big seed and land and fertilizer investments now likely to be less optimistic. Same for hundreds of laid off factory workers in Waterloo, Dubuque and the Quad Cities. Noting all of that, Iowa's revenue estimating conference projecting tax revenue, whittling back earlier state tax projections, and responding, state legislators carve appropriations for schools and other state spending. Well, today we're seeking a temperature economic reading from two economists, Iowa State's Dave Swenson and Creighton University's Ernie Goss. Welcome back to Iowa Press.

Thank you.

It's good to be here.

Borg: And I know that both of you I said your affiliation to Iowa State and Creighton, but you have, Ernie, you have interests in Denver, Colorado academically as well. And I want to note that, you have an institute there.

Goss: Right, and San Joaquin Valley also, which is an agricultural area. I do a monthly survey there for Fresno State University. So I get a pretty good -- that's a four county area so it's not a big area.

Borg: So you get an even larger perspective then. And Dave Swenson, you also teach at the University of Iowa.

Swenson: I do, thank you.

Borg: Good. And across the table today, James Lynch who writes for the Gazette published in Cedar Rapids and Radio Iowa's News Director Kay Henderson.

Henderson: Well, depends on who you ask, I'm asking you fellows. Mr. Goss, are these the best of times or worst of times economically?

Goss: Depends on the industry you're in. For example -- we economists always do that, on the other hand -- but if you're in manufacturing, we do a survey of manufacturer companies, Kay, and it's getting a little bit better for manufacturers. A second survey we do is based upon agriculture and energy and those two sectors not doing well. So those three areas and also businesses tied to exports. Iowa exports, for example, declined from '14 to '15, now '16 probably going to stabilize but that's not doing well. And you get outside of that though, business and professional services, very good. And as Dean said, construction, particularly in urban areas of the state doing well. And then if you look at health care, likewise doing well. So it depends on which area you're in. An urban versus rural, of course the industries I just spoke of, manufacturing, energy and agriculture more in rural areas not doing well. So it's also an urban, non-urban split.

Henderson: Mr. Swenson, what perspective can you put on this economy for the whole state?

Swenson: Well, Iowa's economy overall looks pretty good. It's not thriving. It's not charging forward. It has got some headwinds, as Ernie just talked about. The ag economy is one. It's important to understand with regard to the ag economy, everything that is involved with making a crop and raising animals, that is baked into the economy year in and year out, that is a part of the economy, that's always going to be in there. It's the profits that get made, that is the marginal difference that can swing Iowans' fortunes up and down. So, the ag economy is there, it's going to be doing fine. There's some bright spots. Ernie talked about it. We've recovered, our construction economy has recovered to higher levels of employment then before the recession, during the housing bubble we have way more people working in construction. That is a stark distinction from the rest of the United States, which has basically only recovered about half of the lost jobs. We've gained jobs in construction, we've gained jobs in health care. There's a distinction though that I always try to point out, Iowa's metropolitan areas are doing mostly well. Iowa's non-metropolitan areas, the next level of cities down, the Clinton, Fort Dodge, Mason City, Keokuk, all of those what we call micropolitans, cities of 10,000 up to 50,000, they collectively have not recovered to the levels of employment they had before the recession. So we have two recoveries. We have a healthy recovery and not a very good recovery going on in Iowa. So it's not just the industrial area you're looking at, it's the geography that you're looking at as well.

Lynch: One of the measures of the economy that we talk about is unemployment and a report out Friday morning says that Iowa's unemployment rate has ticked up to 3.8%, which back in the days of when we said 4% was full employment, seems pretty good. But is this trend of upward unemployment, should we be concerned, Professor Swenson?

Swenson: No, not in the short run. Actually what's going on, you have two things. Last month you actually had more people became unemployed than people that became employed. That is one of those things and it pushed that up. But what is good about this is that our labor force is continuing to expand and employment is continuing to expand. Iowa is in a demographic somewhat of a pickle because we have something of an older work force, we tend to out-migrate many of our young people and there is an issue with regard to our capacity to just have natural labor force growth. Our labor force is currently continuing to grow. That's good news. A minor uptick just on a month-by-month basis in the unemployment rate, that's no big deal. If you look at it year-over-year our numbers are really good. Labor force is larger, number of people working is larger, number of jobs is larger and the number of folks unemployed is down.

Lynch: You look concerned.

Goss: James, no, I was just listening. I agree with everything Dave said there. But, I think one of the issues is who is unemployed. We still, we have those who are high school dropouts, for example, in this part of the country and nationwide, probably five times the rate, something like four to five times the rate of college graduates. And the presidential candidates, I don't mean to bring that up given that they just left the state, but they're bringing up some pretty important issues, which is this bifurcation, the separation of the haves and have-nots, and as I think both Dave and I said, in the state of Iowa and other states surrounding Iowa, Nebraska where I live, you're seeing this urban versus rural split and it's a lot to do with commodities and a lot to do with the value of the dollar. The dollar has grown. I did some work with an Iowa company not long ago, they're selling steel buildings in Canada, and their competitiveness has gone down, the value of the U.S. dollar against the Canadian currency, 30% since 2014, that makes the products less competitive and that’s true for steel buildings but it's true for agriculture. Ethanol, even though it is less competitively priced, is doing better in terms of exports.

Henderson: There is a debate among the presidential candidates about the minimum wage. Aside from that there's a situation developing in Iowa whereby you have one county, Johnson County, which has raised the minimum wage locally. And then you have Linn County, which is north of that, the Cedar Rapids area, which is discussing the idea of having a higher county minimum wage than the state minimum wage. I'm wondering if you gentlemen have any opinion about how that impacts business when you have differentials among counties in a state when it comes to minimum wage. Which one of you wants to take a shot -- okay, Dave.

Borg: Go ahead, Dave Swenson.

Swenson: Okay. There have been several studies, Pullman, Washington and across the border into Idaho, those types of things, side-by-side studies when somebody raises the minimum wage, somebody doesn't, do we have a flow of workers or a flow of people or do we have differential rates of business growth? And the answer generally is there is no evidence of any significant change, that the kind of jobs and the kinds of industries that pay at the minimum wage aren't the kinds of jobs that people migrate to or away from in significant numbers. The other part about the minimum wage with regard to competitiveness within a region, I'll just give you a great example. Let's say Iowa City raises the minimum wage, yes it may force some people out of the labor force, it may make it harder for some people to work, but it also may create opportunities for employers to keep people on longer term because turnover in turn is also expensive. It depends on the industry that you're in. But if everybody in that community, if all of the restaurants, if all of the organizations or the industries that pay the minimum wage have to raise their base, they're still as competitive with one another as they were before that time. So it's not so much of a localized effect that people think is going to happen.

Goss: That brings up the grand experiment that we have going on in Council Bluffs where if you go across the river to Omaha, Omaha and Council Bluffs, the differential in the minimum wage is $1.75. That's fairly significant.

Borg: Omaha being higher.

Goss: Yes, it's $9 to $7.25. And we'll see. Usually the impacts are significantly greater when you have a differential within a metropolitan area.

Borg: But what are you finding?

Goss: We did an analysis of it and there are some job losses for Omaha, job losses, but another issue is when the minimum wage is set below the market rate, in other words the rates we were already paying more than $7.25, there are labor shortages across the region and the state --

Borg: But Kay's question goes to it's not going to hurt rural Iowa then if Iowa City and Cedar Rapids, maybe even Des Moines, because they're interested in what is going on in Linn County, if they start paying higher wages.

Goss: Right. And right now the actual hiring rate is, the market rate as we call it, is probably well above the minimum wage for most industries. It's only in say leisure and hospitality is one industry. And we find the job losses, even in leisure and hospitality, haven't been that great for Nebraska at this point in time.

Borg: Dave Swenson, I'm interested in what both of you have said many times here, and that is the difference between rural and urban Iowa's economy and one even said, haves and have-nots. What are the social implications of that for rural and urban Iowa? And what are the implications -- does it have a snowball effect in that if you can't find workers, how are you going to develop economically in rural Iowa?

Swenson: It's a paradox and it's a struggle. People who try to promote rural development are really working uphill. It's a hard battle. All of the foundations that made rural Iowa, rural Midwest, strong, agriculture, manufacturing, those two core economies, those two core sets of industries, over time have shed labor consistently over time. So that labor has to go do something else or that labor migrates nonetheless to more urban areas period. It migrates to urban areas because there are other kinds of opportunities for employment, higher standards of living. People don't go to urban areas because they're stupid, they go there because they're smart, there are opportunities for jobs and job diversity and those types of things. So when people move to those urban area that is sort of inexorable pull. Over time we have sort of been able to ride through it. But in the last two decades and especially the last decade and this decade, the loss in young workers, 25 to 45 and especially the little bit older, 34 to 45 or so, that work force is absolutely phenomenal. That part of the work force has left and the social part of this is you don't just lose those workers who are the most skilled in these non-metropolitan areas, you lose their leadership, you lose their involvement in the community and you lose their children when they leave.

Borg: Storm clouds on the horizon?

Goss: I think there are. For example, I don't know if this story is, how far it has risen, the level it has risen to, but in Fremont, Nebraska their citizens just turned down resisting a plant, a chicken processing plant. So I think this discussion, again, back to the presidential elections, there is this discussion going on about quality jobs, what is a quality job. And some of the cities, some of the communities, even these rural communities are saying no to new plants because they're saying well that's not the quality job. Furthermore, the cost of government services is going to rise more than the benefits we receive from those additional workers. So nationwide that is, look for more of that.

Borg: Even if that is economically good for the community?

Goss: Absolutely. The community, the city council, the county has approved it, they're supportive of it and the citizens are saying no, no, no. We'll have to wait and see who wins that battle. And that is happening. We're going to see more and more of that saying no to prisons, for example, and it hasn't been that long when we saw communities competing for a prison. Now they're saying, no those aren't the jobs we want. Now, what jobs do you want? And as Dave is saying, how do you recruit those sorts of companies? How do you recruit those sorts of individuals?

Henderson: One of the most valuable assets in rural Iowa is farmland. Is the price of farmland stable, Mr. Goss?

Goss: No it's not, it's going down. Now, that's not such an unhealthy thing. According to our surveys, the air that was pushed in there, now the Federal Reserve put a heck of a lot of air in the farmland price bubble and now they're still continuing to put air in the bubble, it's just not farmland.

Borg: How did the Federal Reserve put air in the farmland prices?

Goss: By giving us all, by increasing, reducing the value of the dollar, increasing the number of dollars out there --

Borg: The supply of money.

Goss: Yes. And all of us are looking for, we're saying we've got to make more money over here, more money over there so you're taking excessive risk. And one of those risks is farmland. And so I saw in Orange City, northern Iowa bidding up to $20,000 an acre. Now this was about three years ago, it's not $20,000 anymore. It's coming out about 6% to 7% a year on an annualized basis, that's not such a bad thing.

Borg: So low interest rates you're saying weren't such a boon for the rural economy.

Goss: Well, they were in the sense is boosted up agricultural land prices and it boosted up agricultural equipment dealers, it boosted agricultural manufacturers, those who build the machines, the John Deere, the Clauss, the Caterpillars and so on.

Swenson: He's making an important point though, that was a very temporary, he called it a bubble, but it was a temporary, temporary rise in three categories that benefited Iowa in terms of asset value, in terms of total personal income on the farm and as well as the collateral consequences of buying both durable goods, like machinery and things, but it was temporary. It was in and of itself --

Goss: But you get addicted, you can get addicted to that injection there.

Henderson: During the presidential race there was a lot of discussion about the ethanol industry. What can you tell us about the ethanol industry, Mr. Swenson? Is it mature? Is it stable? Is it on the verge of bankruptcy given what is happening to commodity prices? What is going on?

Swenson: It's not on the verge of bankruptcy, it is a mature industry, it's stable. We are, we have as much ethanol capacity as the current economy, national economy can basically absorb, which is 10% mix into, that is what is called the blend wall. We have the capacity to produce right up to that blend wall. The industry wants to produce more, wants you and I, wants us all to burn more of it in our automobiles. But the prevailing sentiment is that we're comfortable with it at 10%. The industry has variable levels of profitability. In recent quarters it has been a little bit low. A year ago it was relatively robust. So it's an industry that goes through ups and downs but it's a mature, stable, well-functioning component of the state's economy right now.

Goss: Exports of ethanol have risen, even despite the higher value of the dollar, so that is promising I think for Iowa and for this part of the nation. Trade policy, listen to the candidates, if there's one thing they seem to agree on it's something we economists disagree with them emphatically, like trade is bad. I hear this, well see, look what NAFTA did to us. No, look what NAFTA did for us. It really boosted the U.S. economy. It's perfect nonsense to listen to them.

Henderson: So if you were debating Donald Trump what would be the arrow that you would put in your quiver?

Goss: Well, I would run. I would not debate -- there's no way --

Henderson: You seem to be referring to him.

Goss: Well, he's one of them. He's not the only one. They seem to agree on trade is bad. And we have the Transpacific Partnership, that is a great, it should be passed, not just for Iowa, not just for Nebraska, not just for Kansas and South Dakota, for the nation. It's a heck of a good thing and we're hearing them, everybody is bashing it and that seems to get you votes. It should get you unelected.

Borg: Dave Swenson, you may or may not agree with him but labor generally does not like that, it says it takes out jobs.

Swenson: Well, there's that struggle with when jobs, if they go to Mexico, if they go to some other place, it does have an impact on labor. Now, we can flip it around and we can talk about this a different way though. And we've heard this in recent years and actually recent months. How many jobs, good jobs have we been able to maintain in the United States because some of the jobs that were repetitive, didn't pay that well or weren't going to pay that well in a competitive market we did move some of that labor out of the United States, but some of the higher value assembly labor, some of the higher valued more technical labor we were able to retain. I'm talking specifically about the auto industry in Michigan. Therefore you get tradeoffs, you just simply get tradeoffs in job and job value.

Goss: It's easy to identify the losers, it's hard to identify those who gain because that is more broadly dispersed.

Borg: Jim?

Lynch: Until we experience that Transpacific Partnership boon we have to deal with the farm economy that we're seeing low commodity prices, as you have mentioned, farmland prices are down, bird flu has had an impact. Farm income overall is down. Is this just part of the cycle or should Iowa State, leaders be concerned about the impact on the economy?

Goss: Well, I think, I don't mean to but in here, but I think you couldn't be in a better industry. The forward linkages and the backward linkages in agriculture, I remember moving to Nebraska in 1992 and there was a Governor then, Governor Branstad, I don't know exactly where he is now -- I think he's now the longest serving Governor in American history beating out Clinton, that was another Clinton. But anyway, no, he was calling for diversification and it sounded like moving away from agriculture. Now he would not say that's the way, he would not say that's what he said. But if you look at agriculture, back to Iowa State, look at the backward linkages, the forward linkages, the Monsanto, the Syngenta, the companies that are just poised for great, great growth and I'm very positive about the long-term. Now, the window we're in right now, that is 2015 and '16, I think it is tougher.

Borg: But you're talking about the industry serving agriculture and not the guy who is out in the field or raising livestock.

Goss: Even there, if we don't start building barriers, walls, as Frost said, before you build a wall, you better find out what you're walling in and walling out. And I don't think we know. It's just we'll build a wall. Well, I'm not necessarily referring to just Mr. Trump, I'm referring to all of them. Building walls seems to be what we're encouraging and I don't think -- Iowa has benefited 8% a year average growth in exports between 12 and --

Borg: This gets to a question, I'm going to interrupt here -- one of my questions was going to be, and this is a good place for it as long as you're talking about walls -- Dave Swenson, does Iowa need inward immigration to augment our labor force?

Swenson: Oh, yes it does. It needs -- our net outmigration is not the right kind. We tend to out-migrate a lot of very, very skilled people, highly educated people, physicians, business professionals, scientists, engineers, and then net in we tend to bring in people who do middle to lower middle skill kind of work.

Borg: Where does that immigration need to be?

Swenson: Well, the immigration that we need in Iowa is across the board. We need immigration that is willing to work out in some of the rural areas, because just like he said in Fremont, there are some places in Iowa that either have skill shortages or the kinds of industrial activity that people, basically Iowans, don't want to engage in or they have moved away --

Borg: What comes first, Ernie Goss, the industry? The jobs? Or the people?

Goss: I think it's the industry first for most of the areas we're talking about.

Borg: But they're not going to locate there if the labor force isn't there first.

Goss: But if we have a system in place where they can recruit those, what we're seeing now is a new, for example, those who qualify for H1 visas, now about 300,000, that's the for the U.S., that's not enough. In other words, those are what we consider high tech jobs, those would be college educated. But when those women and men graduate from your university and my university they should not be sent home, we should be giving them a green card or at least to work in our area. So it would help.

Borg: Jim?

Lynch: I want to shift gears here slightly. We talked about the farming as the foundation of the Iowa economy but yesterday MidAmerican announced a $3.6 billion investment in wind energy. And we've seen the ethanol industry grow and mature. I'm wondering, is there a new Iowa energy economy that is the link to the future?

Swenson: I had an opportunity last year to do an economic impact study of what happens under several scenarios of new deployment of wind energy. It's the process of constructing that capacity that generates jobs and it can be substantial depending on how much. Now this was a heck of a surprise. This was a lot of new capacity over a relatively short period of time that is very significantly going to change. So you’re going to get, mostly in rural areas, some construction job economic impacts. But once those things are up and running, it doesn't take many people to keep a whole farm in operation. One person maybe can tend twelve machines. So it's not a great big long-term job creator, it's the deployment of the capacity and that's the same thing with the solar industry, it's the deployment of the capacity as we shift from one kind of energy to another that provides at least over the course of that deployment some decent job creation.

Goss: But it is built upon, James, on subsidies. That is one of the fears I would have is when do the subsidies, will they continue? According to my calculation, back of the envelope, one of the best things about this is cheaper energy. You're talking about electricity rates as much as 12% lower because of these incentives, because of what we're seeing there.

Lynch: What does that do for attracting manufacturing and other industry to Iowa?

Goss: Huge, huge. You're talking about electricity rates, which are very important to manufacturing. So back to your question, Dean, in terms of which comes first, when you have low electricity rates, when you have the potential for labor, then you have the potential for getting industry and that could happen all over Iowa looking at some of the areas of Iowa.

Henderson: This is tax season. Many Iowans, procrastinators, are spending this weekend filling out their tax forms. There is a presidential candidate who is promising to make you a form that would fit on a postcard. What sort of impact, and we have about 30 seconds, would that have a positive or a negative impact on the economy if you change, if you change the taxes and change the economy in such a way?

Swenson: If what you're talking about is a flat tax, you end up having a regressive system, it really matters is who pays, how much they pay and what the yield is for the state of Iowa in terms of calculating --

Goss: Reduce the rates and cut out a lot of the deductions. In other words, we need reform desperately, whether it's corporate reform or at the individual level as well, need tax reform in America.

Borg: Thanks so much for your views today.



Borg: And we'll be back next week with another edition of Iowa Press. That will be 7:30 next Friday night and noon on Sunday. I'm Dean Borg. Thanks for joining us today.


Funding for Iowa Press was provided by Friends, the Iowa Public Television Foundation. I'm a veteran. I am a builder. I'm a volunteer. I am a teacher. 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. Iowa Communications Network. ICN's Broadband Matters campaign advocates for access to high speed broadband in all corners of Iowa for education, public safety, health care, government and economic development. Information is available at broadbandmatters.com. Iowa Community Foundations, an initiative of the Iowa Council of Foundations, connecting donors to the causes and communities they care about for good, for Iowa, for ever. Details at iowacommunityfoundations.org. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. The Arlene McKeever Endowment Fund at the Iowa Public Television Foundation, a fund established to support local programming on Iowa Public Television.  

More from this show

Iowa Bankers Association
Associated General Contractors of Iowa