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| Economic Health: Iowa State University Economist Dr. Neil Harl IOWA PRESS #3213>> Borg: ECONOMIC HEALTH... WE'LL DISCUSS THE ISSUES AFFECTING THE STATE AND NATIONAL PURSE WITH IOWA STATE UNIVERSITY ECONOMIST DR. NEIL HARL ON THIS EDITION OF "IOWA PRESS." FUNDING FOR THIS PROGRAM WAS PROVIDED BY "FRIENDS," THE IOWA PUBLIC TELEVISION FOUNDATION; AND BY THE IOWA BANKERS ASSOCIATION... FOR PERSONAL, BUSINESS, AND COMMERCIAL NEEDS, IOWA BANKS HELP IOWANS REACH THEIR FINANCIAL GOALS. ON STATEWIDE IOWA PUBLIC TELEVISION, THIS IS THE FRIDAY, NOVEMBER 26 EDITION OF "IOWA PRESS." HERE IS DEAN BORG. Borg: DEPENDING ON ONE'S PERSPECTIVE, THE ECONOMY IS EITHER STRONG AND GETTING STRONGER OR EXACTLY THE OPPOSITE. SOME SAY THE UNITED STATES IS ON THE EDGE OF ANOTHER ECONOMIC BOOM, AND OTHERS SAY THE NATION'S DECLINING INDUSTRIAL BASE AND EVER-INCREASING DEPENDENCE ON FOREIGN IMPORTS ARE ECONOMIC STORM CLOUDS. AND EVEN AS AMERICANS PREPARED FOR THANKSGIVING THIS WEEK, A FEDERAL REPORT SHOWED THE USUAL SURPLUS IN AGRICULTURAL EXPORTS IS NOW GONE AS THE U.S. NOW BUYS MORE FARM GOODS ON THE INTERNATIONAL MARKET THAN ARE PRODUCED BY AMERICAN FARMERS. TO GET SOME PERSPECTIVE, WE'VE INVITED DR. NEIL HARL FOR ANOTHER VISIT TODAY. DR. HARL IS THE LONG-STANDING ECONOMIC EXPERT AT IOWA STATE UNIVERSITY AND A FREQUENT GUEST ON THIS PROGRAM. WELCOME BACK, DR. HARL. Harl: I'M PLEASED TO BE BACK. Borg: AND ACROSS THE "IOWA PRESS," TABLE, "DES MOINES REGISTER" COLUMNIST DAVID YEPSEN AND "ASSOCIATED PRESS" SENIOR POLITICAL WRITER MIKE GLOVER. Glover: DR. HARL, AS DEAN HAS MENTIONED IN HIS INTRODUCTION, THERE ARE TWO CONFLICTING VIEWS OF THE ECONOMY, SORT OF THE RIGHT TRACK, WRONG TRACK. WHERE ARE YOU ON THAT? ARE YOU AN OPTIMIST OR ARE YOU A PESSIMIST? Harl: WELL, YOU CAN FIND SUPPORT FOR BOTH THOSE POINTS OF VIEW IN THE DATA. I WOULD SAY IN THE LAST THREE OR FOUR MONTHS, WE HAD DISAPPOINTING SIGNALS AS TO WHERE WE'RE GOING IN TERMS OF THE GROWTH COMING OUT OF THE RECESSION. THE RECESSION WAS NOT A VERY DEEP ONE, BUT THE RECOVERY HAS BEEN QUITE SLOW AND MEASURED AND QUITE DISAPPOINTING. I THINK IT'S IMPORTANT TO WATCH WHAT HAPPENS IN THE NEXT TWO OR THREE MONTHS TO SEE WHETHER THAT GROWTH PATH RESUMES -- OUR GROWTH RESUMES OR WHETHER WE'RE GOING TO SEE CONTINUED PLATEAUING. Glover: WHAT SHOULD WE LOOK FOR? Harl: I THINK -- I THINK THERE ARE SEVERAL THINGS. I THINK WATCH ALL THE STANDARD ECONOMIC SIGNALS, WATCH EMPLOYMENT, WATCH JOB GROWTH, WATCH TO SEE THE CONFIDENCE LEVEL OF BUSINESS. THAT'S A CRITICAL ISSUE. BUT I THINK WE NEED TO ALSO REMEMBER THAT IT'S IMPORTANT TO TAKE A LONG-TERM VIEW ALSO, AND THE LONG-TERM VIEW IS THAT WE'RE GOING THROUGH A KIND OF REVOLUTION HERE IN TERMS OF TRADE. MENTION WAS MADE OF THE AGRICULTURAL PATTERN. WE HAD ABOUT 60 BILLION OF AGRICULTURAL EXPORTS IN 1983 AND THEN FELL TO ABOUT 49. AT THAT POINT, AGRICULTURAL IMPORTS WERE QUITE LOW AND WE HAD A COMFORTABLE TRADE SURPLUS ALL THE WAY THROUGH THAT PERIOD. NOW WE'VE CLIMBED BACK ON AGRICULTURAL EXPORTS 62 BILLION, BUT OUR IMPORTS NEXT YEAR APPEAR TO BE LIKELY TO ECLIPSE IN AMOUNT. NOW, THIS MEANS THAT GOING FORWARD, THE BIG ISSUE I THINK FOR IOWA, THE BIG ISSUE FOR THE COUNTRY IS COMPETITIVENESS IN THEIR NATIONAL TRADE. I THINK THE LAST EIGHTY YEARS, WE HAVE BEEN SHAPED IN THIS STATE HEAVILY BY TWO FORCES, THE FORCES OF TECHNOLOGY AND THE FORCES OF GENETICS THAT HAVE REVOLUTIONIZED THE YIELDS. GOING FORWARD, I DON'T THINK THOSE ARE GOING TO BE THE BIG FACTORS. I THINK THE BIG FACTORS ARE GOING TO BE TRADE AND COMPETITIVENESS. Yepsen: WELL, DR. HARL, LOOK A LITTLE DEEPER INTO YOUR CRYSTAL BALL THERE ON JUST THE IOWA PIECE ON THIS. MIKE ASKED YOU ABOUT THE DIRECTION OF THE NATIONAL ECONOMY. I'M ASKING YOU ABOUT THE DIRECTION OF THE IOWA ECONOMY. Harl: WELL, THERE ARE SOME, AGAIN, POSITIVE SIGNS. IOWA DOESN'T SINK AS LOW WHEN WE HAVE A RECESSION NOR DOES IT COME BACK AS ROBUSTLY AND REACH HIGHS AS HIGH AS THE NATIONAL ECONOMY DOES. I THINK THAT WE'RE SEEING IOWA PERFORM ABOUT AS ONE WOULD EXPECT. IN SOME WAYS, IT'S A LITTLE BIT MORE PROMISING THAN THE NATIONAL ECONOMY AT COMING OUT OF THE RECESSION. BUT AGAIN, THE BIG QUESTION GOING FORWARD IS WHERE IS IOWA GOING TO BE IN TERMS OF COMPETING FOR THE NEW JOBS AND ARE THEY GOING TO BE IN THE UNITED STATES. THAT'S, I THINK, THE BIG OVERARCHING QUESTION THAT WE HAVE TO FACE. Borg: DEPENDING ON DEFINITION OF WAR -- SOME THINK WE'RE INVOLVED IN A MAJOR WAR; OTHERS SAY WE CAN DO THIS AND HAVE A NORMAL ECONOMY -- WHERE ARE YOU IN THAT? AND REALLY, THE QUESTION IS ARE WE TRYING TO HAVE GUNS AND BUTTER AT THE SAME TIME AND CAN WE DO IT. Harl: THAT'S EXACTLY WHAT I WAS GOING TO MENTION. YOU REMEMBER PRESIDENT JOHNSON IN THE 1960S SAID WE CAN HAVE BOTH GUNS AND BUTTER. HE COINED THAT PHRASE, I THINK. AND WHAT THAT DID WAS PROVE THAT, YES, WE CAN BUT THE CONSEQUENCES MAY NOT BE ACCEPTABLE. AND THE CONSEQUENCES COMING OUT OF THE '60S WAS THE RAGING RATE OF INFLATION. IT TOOK ABOUT A DECADE PLUS FOR THE FED TO BRING UNDER CONTROL AFTER THEY FINALLY GOT ON IT IN 1979. SO I THINK THE QUESTION HERE IS NOT WHETHER WE CAN DO IT. WE CAN. THE QUESTION OF THE CONSEQUENCES OF DOING IT, I THINK IT IS TOTALLY IRRESPONSIBLE OF CONGRESS AND THE ADMINISTRATION TO BE RUNNING DEFICITS AT THE MAGNITUDE THAT THEY'RE RUNNING. AND THEY'RE NOT ALL ATTRIBUTABLE TO THE WAR AND THE BUILDUP IN DEFENSE GENERALLY. A BIG PART, ABOUT 40 PERCENT, ARE ATTRIBUTABLE TO TAX CUTS. AND I THINK IT IS TOTALLY INAPPROPRIATE ONCE WE ARE COMING OUT OF RECESSION TO BE CUTTING TAXES. I THINK WE NEED TO ASK PEOPLE AT HOME TO MAKE A SACRIFICE BECAUSE WE SIMPLY CANNOT AFFORD THE KIND OF DEFENSE OUTLAY THAT WE'RE SEEING AND CONTINUE TO SPEND AS IF MONEY WERE GOING OUT OF STYLE. AND THE LAST BILL THAT JUST PASSED THE CONGRESS CONTINUES THAT. UNFORTUNATELY, THEY JUST HAVEN'T QUITE COME TO GRIPS WITH THE FACT THAT WE CANNOT DO EVERYTHING. IF WE'RE GOING TO FIGHT A WAR IN IRAQ, GOING TO BE IN AFGHANISTAN, WE HAVE TO CUT SOME THINGS BACK AND WE ALSO HAVE TO GENERATE MORE REVENUE THAN WE'RE GENERATING. Glover: DR. HARL, LET'S LOOK -- WE'RE HEADING INTO A NEW SESSION OF CONGRESS. WE JUST HAD AN ELECTION. WE'RE HEADING INTO A NEW SESSION OF THE LEGISLATURE, A VERY EVENLY DIVIDED LEGISLATURE AFTER THIS ELECTION. WHAT'S YOUR PRESCRIPTION FOR WHAT OUGHT TO BE DONE BOTH AT THE STATE LEGISLATIVE LEVEL AND AT THE CONGRESSIONAL LEVEL? WHAT SHOULD THEY BE DOING? Harl: LET'S TAKE THE NATIONAL LEVEL FIRST BECAUSE I THINK THAT NEEDS TO SET THE STAGE FOR WHAT IS DONE IN IOWA. THE FIRST THING I THINK -- THE FIRST ORDER OF BUSINESS IN THE NEW CONGRESS, THE 109TH CONGRESS, OUGHT TO BE TO GET A GRIP ON THE FISCAL STATE OF THE COUNTRY. AND THAT MEANS WE'VE GOT TO CUT -- WATCH OUR SPENDING, A FULL-COURT PRESS ON SPENDING, BUT WE ALSO HAVE TO LOOK REALISTICALLY AT THE REVENUE SIDE. AND WE'RE GOING TO HAVE TO RAISE MORE REVENUE UNLESS WE'RE WILLING TO CUT SPENDING A LOT MORE THAN I THINK THE CONGRESS IS WILLING TO DO. SO I THINK THAT'S THE FIRST THING. WE'VE GOT TO GET SERIOUS ABOUT FISCAL RESPONSIBILITY AT THE NATIONAL LEVEL. NOW, THAT'S GOING TO HAVE SOME REPERCUSSIONS FOR IOWA BECAUSE IT'S GOING TO RESULT IN SOME CUTS. IT'S GOING TO RESULT IN SOME CUTS IN AGRICULTURAL SPENDING, ALMOST CERTAINLY. AND THERE ARE ALTERNATIVE WAYS THAT CAN BE DONE. WE CAN CUT ACROSS THE BOARD. WE CAN TIGHTEN UP PAYMENT LIMITATIONS. WE CAN CHANGE THE BASIC ARCHITECTURE OF THE FARM BILL. WE'RE HEADING INTO THE SEASON FOR DEBATE AGAIN ON THE FARM BILL THAT RUNS THROUGH 2006. AND SO WE'RE GOING TO BEGIN TO SEE IN THIS NEXT YEAR THE EARLY STAGES OF DEBATE ON WHETHER WE SHOULD MAKE MAJOR CHANGES IN THE KIND OF FARM BILL WE HAVE. THIS HAS BEEN A COSTLY FARM BILL, AND IT PROBABLY WOULD NOT HAVE GOTTEN PASSED EXCEPT THAT THEY GOT APPROVAL ON THE BUDGET -- FROM THE BUDGET SIDE OF CONGRESS TO MOVE AHEAD WITH SPENDING AT LIMITS THAT WOULD NOT HAVE BEEN POSSIBLE EVEN A YEAR LATER. SO WE HAVE TO LOOK, I THINK, AT ALL THE POSSIBILITIES INCLUDING TRYING TO GET BY ON A SHORTER RATIONS THAN AGRICULTURE HAD IN 2002. Yepsen: DR. HARL, HOW DO YOU -- I JUST WANT TO PURSUE THIS TAX QUESTION. SO I GATHER YOU DON'T THINK THAT THE TAX CUT -- THE BUSH TAX CUT SHOULD BE MADE PERMANENT. Harl: NO, I DO NOT BELIEVE IT SHOULD BE MADE PERMANENT. I THINK WE SHOULD LOOK SELECTIVELY. Yepsen: SHOULD THEY BE ALLOWED TO JUST GO BACK TO THEIR PRE -- TO THEIR OLD LEVELS? Harl: I THINK WE SHOULD EXAMINE WHAT WILL ENCOURAGE ECONOMIC GROWTH AND WHAT WILL NOT ENCOURAGE ECONOMIC GROWTH. WE'VE BEEN CUTTING AS THOUGH THAT QUESTION DIDN'T REALLY MATTER, AND I THINK IT DOES MATTER. Yepsen: THERE'S A FEAR THAT SOME SAY IF WE ARE HEADED INTO AN ECONOMIC -- A PERIOD OF ECONOMIC DIFFICULTY THAT THE WRONG MEDICINE WOULD BE TO RAISE TAXES. WHAT DO YOU SAY TO THAT? Harl: I THINK THE WORST THING THAT CAN HAPPEN IS LACK OF CONFIDENCE IN THE ABILITY OF THE UNITED STATES TO FUNCTION AS THE LEADING ECONOMIC POWER IN THE WORLD. WE'RE SEEING THE DOLLAR DECLINE, AND HOPEFULLY THAT DECLINE IS JUST AN ADJUSTMENT IN TRADE. BUT IF THAT DECLINE GETS OUT OF CONTROL, THEN WE HAVE SOME MORE SERIOUS PROBLEMS. AND SO I THINK WHAT'S REALLY CRITICAL HERE IS THE UNITED STATES REMAIN STRONG ENOUGH TO BE ESSENTIALLY THE WORLD'S BANKER. REMEMBER WE'VE HAD DUST-UPS: WE HAD THE MEXICAN PROBLEM IN 1995; THE PACIFIC RIM PROBLEMS IN 1997; WE HAD TURKEY; WE HAD ARGENTINA; BRAZIL HAS HAD PROBLEMS FROM TIME TO TIME. WE ARE THE ONES WHO ARE STRONG ENOUGH TO BAIL THEM OUT WITH OUR HUGE DEFICIT, OVER $400-BILLION DEFICIT, AND CONTINUING TO TALK ABOUT CUTTING TAXES. WE WILL NOT BE AS STRONG TO PLAY THAT KIND OF ROLE, AND WE HAVE TO BE PREPARED FOR THAT. Yepsen: AND IS THAT DECLINING DOLLAR A GOOD DEAL OR A BAD DEAL FOR IOWA? WE SELL MORE WHEN IT GOES DOWN. Harl: THAT'S RIGHT. IF YOU ARE AN EXPORTER, IT CLEARLY IS A GOOD THING. IT'S OFTEN SAID THAT FOR COMMODITIES, FOR EXAMPLE, OUR EXPORT COMMODITIES, THEY TEND TO BENEFIT FROM A CHEAPER DOLLAR. ON THE OTHER HAND, WHAT WE'RE IMPORTING IS JUST THE OPPOSITE. SO IT DEPENDS UPON WHOSE HORSE YOU'RE LOOKING AT HERE WHETHER IT'S A PLUS OR A MINUS. Glover: YOU'RE ADVISING CONGRESS TO MOVE TO GET ITS FISCAL HOUSE IN ORDER. WE HAVE A LEGISLATURE THAT'S GOING TO BE CONVENING IN JANUARY, AND THERE SEEM TO BE TWO COMPETING SCHOOLS OF THOUGHT TO THE ECONOMY, ONE EMBODIED BY THE GOVERNOR, WHO WANTS TO INVEST IN PROGRAMS TO BUILD THINGS, AND A LEGISLATURE THAT'S VERY EVENLY DIVIDED THAT SEEMS TO WANT TO MOVE DOWN THE TAX CUT WAY. WHERE SHOULD THEY GO? Harl: I THINK IT'S IMPORTANT TO LOOK AT HOW FAR WE HAVE COME IN TERMS OF ACCOMPLISHING WHAT A STATE OUGHT TO ACCOMPLISH. THE FIRST RESPONSIBILITY OF GOVERNMENT IS TO GOVERN AND TO BE SURE THAT THE FUNCTIONS OF GOVERNMENT ARE GOING WELL. SECONDLY, DO WHAT GOVERNMENT DOES BEST BETTER THAN THE PRIVATE SECTOR, AND THAT MEANS EDUCATION. IT MEANS THE KINDS OF THINGS -- INFRASTRUCTURE. IT MEANS THOSE THINGS THAT REALLY IN THE LONG RUN DO ATTRACT PEOPLE TO COME -- AND COMPANIES TO COME TO THIS STATE. BUT THERE'S A VERY IMPORTANT ISSUE HERE, AND THAT IS IF YOU LOOK AT IOWA IN THE CONTEXT OF A GLOBAL PROBLEM OF TRADE, THERE'S A VERY USEFUL ECONOMIC THEORUM THAT SAYS IF YOU ACHIEVE TOTAL MOBILITY IN GOODS, THEY CAN MOVE ANYWHERE IN THE WORLD WITHOUT LIMITATION. WE'RE NOT THERE BUT WE'RE GETTING THERE. WE'RE MOVING IN THAT DIRECTION. IF CAPITAL IS FREELY TRANSFERABLE -- AND OUR CAPITAL MARKETS ARE PRETTY MUCH THAT WAY TODAY. WE'RE MOVING TRILLIONS. IT'S AN AWESOME AMOUNT THAT MOVES. AND THIRD, IF TECHNOLOGY IS AVAILABLE EVERYWHERE EQUALLY, THEN THE LONG-TERM TREND IS FOR THE RETURNS TO LABOR AND THE RETURNS TO LAND TO BE THE SAME EVERYWHERE. NOW, THINK ABOUT THAT. IF WE HAVE THE SAME QUALITY LABOR AS EVERYONE ELSE IN THE WORLD DOING THE SAME THING, WE'RE GOING TO HAVE TROUBLE MAINTAINING A PREMIUM STANDARD OF LIVING. SO THAT MEANS WE REALLY HAVE TO FOCUS ON ELEVATING OUR LABOR. SO IT ISN'T THE SAME QUALITY OF LABOR AS ALL THE OTHER LABOR IN THE WORLD, AND THAT'S WHY EDUCATION IS SO TERRIBLY CRITICAL IN MY VIEW, AND THAT'S K-12 PLUS COLLEGE AND EVEN GRADUATE BECAUSE WE HAVE TO GENERATE MORE TECHNOLOGY THAN ANY OTHER COUNTRY AND MILK IT FOR ALL IT'S WORTH BEFORE IT GETS OUT OF OUR HANDS, WHICH IS VERY DIFFICULT BECAUSE MOST OF THE COMMERCIALIZING COMPANIES ARE QUITE HAPPY TO COMMERCIALIZE IT EVERYWHERE AT THE SAME TIME. SO IF WE'RE GOING TO MAINTAIN A PREMIUM STANDARD OF LIVING, WE'VE GOT TO LOOK CLOSELY AT WHAT WE'RE DOING WITH OUR SCARCE RESOURCES. AND I THINK THE BEST THING WE CAN DO IN TERMS OF THOSE SCARCE RESOURCES IS PLOW A GREAT DEAL OF IT INTO EDUCATION, AS WELL AS THOSE THINGS THAT WILL ATTRACT COMPANIES TO COME TO THIS STATE. Glover: WE HAD A COUPLE OF FOLKS ON THIS PROGRAM LAST WEEK WHO WERE JUST ORDINARY BUSINESS-TYPE FOLKS, AND THEY SEEM TO SUGGEST THAT THIS WHOLE DEBATE BETWEEN INVESTING IN PROGRAMS LIKE VISION IOWA AND CUTTING TAXES WAS A FALSE DEBATE, THAT THAT REALLY IS LIKE THE INSIDE OF A CAMPAIGN BROCHURE TYPE OF A DEBATE AND THAT WHAT IOWA OUGHT TO BE DOING WOULD BE MORE FOCUSING ON MORE BASIC THINGS. Harl: I WOULD BE INCLINED TO LEAN TOWARD THE LATTER. I HAVE SOME DIFFICULTY WITH MAJOR EXPENDITURES BY THE PUBLIC SECTOR TO TRY TO SHAPE GROWTH IN PARTICULAR DIRECTIONS. I THINK THE PRIVATE SECTOR IS THE BEST DETERMINER OF WHERE RETURNS ARE GOING TO BE THE GREATEST, WHERE THE IMPACT ON GROWTH IS GOING TO BE THE GREATEST. SO I TEND TO TILT THE OTHER DIRECTION, REALIZING THERE'S A ROLE HERE FOR PUBLIC MONEYS CAN SERVE AS A CATALYST AND ESPECIALLY WHERE IT'S CLEAR WHICH WAY WE SHOULD BE GOING. BUT IT ISN'T ALL THAT CLEAR AS TO WHERE WE SHOULD BE PUTTING OUR MONEY WHEN IT COMES TO TRYING TO INDUCE GROWTH, INDUCE EMPLOYMENT, INDUCE THE KIND OF ECONOMIC ACTIVITY THAT WE'D ALL LIKE TO SEE. THE QUESTION IS WHO'S THE BEST DECISION MAKER WITH RESPECT THOSE IMPORTANT QUESTIONS. Yepsen: DR. HARL, I WANT TO PURSUE THAT EDUCATION POINT WITH YOU FOR A MOMENT. SIXTY PERCENT OF THE STATE'S BUDGET GOES INTO EDUCATION -- Harl: YES. Yepsen: -- AND YET ONE OF OUR MOST -- OUR BEST VALUE-ADDED CROPS IN THIS STATE IS OUR CHILDREN. Harl: NO QUESTION. Yepsen: ALL RIGHT. SO AT WHAT POINT DO WE HAVE TO SAY IN IOWA THAT WE HAVE TO DO SOMETHING DIFFERENT, THAT WE KEEP INVESTING MORE AND MORE TO EDUCATE FEWER AND FEWER CHILDREN WHO THEN ULTIMATELY LEAVE? Harl: THIS IS A NATIONAL QUESTION. I THINK WE NEED TO PUT MORE NATIONAL RESOURCES INTO SUPPORTING EDUCATION, OTHERWISE YOU GET INTO THAT VERY ARGUMENT, BECAUSE WE HAVE SOME STATES THAT ARE NET GAINERS AND THEY'RE SITTING THERE ENJOYING THE BENEFITS OF WHAT'S PUT INTO YOUNG PEOPLE IN IOWA AND OTHER STATES THAT ARE LOSING THE POPULATION. SO IT HAS TO BE FUNDED TO A SUBSTANTIAL DEGREE AT THE FEDERAL LEVEL TO EVEN OUT THIS BURDEN, BUT IT'S IN THE NATIONAL INTEREST TO SEE THAT THAT HAPPENS IF WE DON'T. THEN WE'RE GOING TO FACE, I THINK, A LOSING BATTLE. I WAS ON OTA, THE OFFICES OF TECHNOLOGY ASSESSMENT, FOR SEVEN YEARS, AND I CHAIRED IT IN '93 AND '94. WE SPENT QUITE A BIT OF TIME ON THIS VERY ISSUE. WE FINALLY CONCLUDED THAT THE ONLY WAY THAT WE COULD MAINTAIN A PREMIUM STANDARD OF LIVING IS TO BEING MORE CLEVER, MORE IN EDUCATION, TO ELEVATE OUR LABOR QUALITY TO THE POINT WHERE IT'S NOT THE SAME QUALITY LABOR THAT YOU FIND IN BANGLADESH AND OTHER PLACES LIKE THAT, BECAUSE YOU KNOW THE RETURNS ARE GOING TO BE -- ANYTHING MOBILE IS GOING TO GET OUTSOURCED. NOW, AGRICULTURE IS LUCKY IN THAT RESPECT BECAUSE CLIMATE AND SOILS ARE NOT VERY MOBILE. LIVESTOCK ARE BUT LIVESTOCK ARE HEAVILY TETHERED TO THE SOURCE OF CHEAP FEED GRAINS. SO WE DON'T THINK THERE'S A GREAT RISK THAT WE'RE GOING TO LOSE LIVESTOCK OFFSHORE. Glover: DR. HARL, I'D LIKE YOU TO PUT YOUR PROFESSOR HAT ON AND GIVE SOME GRADES HERE. WE'VE LIVED WITH NAFTA AND THE FREE TRADE AGREEMENTS, THE FREE-TRADE PHILOSOPHY FOR A LITTLE BIT MORE THAN A DECADE. THAT SEEMS TO STIR SOME VERY POWERFUL EMOTION IN PEOPLE. WHAT HAVE WE GOTTEN FOR THAT? HAS IT BEEN A GOOD DEAL? A BAD DEAL? Harl: WELL, WE HAVE GAINERS AND WE HAVE LOSERS IN THAT RESPECT. AND MY ARGUMENT IS FREE TRADE IS GOOD. I THINK ABOUT ALL OF US AGREE. HOWEVER, PAUL SIMONSON, WHO IS A VERY WELL KNOWN ECONOMIST, PUBLISHED AN ARTICLE IN THE LAST FOUR OR FIVE MONTHS IN THE "JOURNAL OF ECONOMIC PERSPECTIVES," RAISING SOME QUESTIONS ABOUT SOME OF OUR ASSUMPTIONS ABOUT FREE TRADE. BUT I THINK IN GENERAL, THE HUMAN FAMILY IS BETTER WHEN WE TRADE, BECAUSE IT MEANS WE CAN LIVE BETTER. BUT THOSE WHO LOSE JOBS ARE HURTING. WE HAVE TO PUT MORE OF THE GAINS INTO HELPING THOSE PEOPLE TRANSITION IN TERMS OF EMPLOYMENT TO DOING SOMETHING ELSE: GOING BACK TO SCHOOL; GETTING TOOLED UP FOR SOMETHING ELSE; RAISING THEIR QUALITY OF LABOR, IF YOU WILL, SO THAT THEY HAVE A BRIGHT FUTURE. THAT'S THE -- THAT'S THE REAL QUESTION. I DON'T THINK IT'S A QUESTION OF WHETHER WE SHOULD HAVE FREE TRADE OR NOT. I THINK IN GENERAL WE'RE LAUNCHED WELL DOWN THAT PATH. IT'S A QUESTION OF HOW MUCH OF THE GAINS WE SHOULD PLAN ON GIVING UP TO THOSE WHO ARE LOSING. Glover: IN GETTING BACK TO MY QUESTION, THAT WHOLE DEBATE STIRS VERY POWERFUL EMOTIONS -- Harl: OH, IT DOES. Glover: -- WITH PEOPLE WHO ARE LOSERS UNDER THAT. HOW HAVE WE DONE IN GETTING OVER THOSE KIND OF HURDLES, AND WHAT CAN WE DO TO MAKE THAT TRANSITION EASIER? Harl: WE HAVE MADE SOME PROGRESS. IN FACT, I REMEMBER VERY WELL WHEN THAT LEGISLATION WAS PASSED, AND AT THE TIME I DOUBTED THAT WE WOULD REALLY FOLLOW THROUGH AND DO A VERY GOOD JOB IN TERMS OF RETRAINING AND HELPING THE PEOPLE DISADVANTAGED GET BACK INTO GAINFUL EMPLOYMENT. I THINK WE'VE DONE BETTER THAN I THOUGHT WE WOULD DO, BUT WE HAVE TO DO EVEN BETTER BECAUSE WE'RE GOING TO SEE MORE AND MORE OF THAT TYPE OF THING HAPPENING. IT'S GOING TO SERVICES. WE'RE NO LONGER JUST TRADING IN GOODS; WE'RE TRADING IN SERVICES. YOU CAN GET YOUR HIP REPLACED IN INDIA AT A CLINIC AT MAYBE 20 PERCENT OF THE COST OF HAVING IT DONE IN THE UNITED STATES. WE CAN MOVE PEOPLE TO WHERE THERE ARE QUALITY SERVICES. SO IT'S MORE THAN JUST GOODS. THIS IS BECOMING WIDESPREAD AND A MATTER OF, I THINK, NATIONAL CONCERN AS TO WHAT THIS IS GOING TO MEAN TO US AND OUR ECONOMY OVER THE NEXT CENTURY. Yepsen: DR. HARL, WHO ARE OUR COMPETITORS IN THE FUTURE? THE EUROPEAN UNION IS GETTING BIGGER. THEY'RE A LARGER ECONOMY THAN OURS. THE CHINESE ARE TREMENDOUS COMPETITORS NOW, BUYING UP OIL AND CONCRETE AND ALL THAT. CAN AMERICA COMPETE WITH THIS IN THE 21ST CENTURY? WILL THE 21ST CENTURY BE AS GOOD AS THE 20TH AND THE 19TH WERE? Harl: WELL, I GUESS I'M ALMOST AN OPTIMIST ON THAT SCORE. THERE ARE TIMES WHEN I GET MYSELF IN A BLUE FUNK WORRYING ABOUT THIS, BUT I THINK IN GENERAL THE CHANGE THAT'S GOING TO OCCUR IS A CHANGE IN FAVOR OF THE KINDS OF THINGS THAT HIGHLY EDUCATED PEOPLE ARE GOING TO BE DOING. AND THAT'S OUR -- THAT'S OUR STOCK IN TRADE. BUT OUR COMPETITORS, IT VARIES DEPENDING ON WHAT SECTOR OF THE ECONOMY YOU'RE TALKING ABOUT. IN AGRICULTURE IN SOUTH AMERICA AND SOUTH AFRICA AND CHINA AND OTHER PLACES AROUND THE WORLD. BUT IN THE INDUSTRIAL AREAS, I WOULD SAY IT'S EUROPE IN SOME AREAS, IT'S CHINA IN MANY, IT'S THE PACIFIC RIM. THERE'S A DEVELOPMENT QUEUE THAT'S GOING ON IN THE PACIFIC RIM THAT WE'VE SEEN FOR FIFTY YEARS. THEY GET THEMSELVES POSITIONED TO MOVE AHEAD AND START PRODUCING HIGH LABOR-INTENSIVE PRODUCTS THE REST OF THE WORLD WANTS AND ARE WILLING TO PAY FOR. AND THAT GETS THEM ON THE ROAD TO DEVELOPMENT. THE PROBLEM IS, THOUGH, WE HAVE SOME COUNTRIES IN THE WORLD THAT CAN'T EVEN GET IN THE DEVELOPMENT QUEUE. THAT'S CENTRAL AFRICA. THEY LACK THE BASICS AND THE GOVERNANCE. SO THERE'S A CHALLENGE THERE TO TRY TO SEE THAT THOSE COUNTRIES THAT AREN'T EVEN ABLE TO GET INTO A DEVELOPMENT QUEUE ARE ABLE TO DO SO. Glover: LET ME DIRECT THIS QUESTION TO THE PESSIMISTIC OPTIMIST ACROSS THE TABLE FROM ME. IMMIGRATION IS ONE OF THOSE ISSUES THAT'S INVOLVED IN THIS WHOLE GLOBALIZATION, OUTSOURCING THING, AND IT'S ANOTHER ONE OF THOSE ISSUES THAT SEEMS TO STIR VERY POWERFUL EMOTIONS. HOW DO WE GET PAST THOSE EMOTIONS WHEN IT WAS SUGGESTED IN THIS STATE THAT WE OUGHT TO BRING IN MORE IMMIGRATION, BE AN IMMIGRATION CENTER? IT JUST STIRRED TERRIBLE POLITICAL DYNAMICS. HOW DO WE GET PAST THAT AND WHAT CAN WE DO? Harl: LET ME COMMENT ON THAT IN THE FOLLOWING MANNER. FIRST OF ALL, WHEN WE LOOK AT THE CONSEQUENCES OF IMMIGRATION FOR LOW -- RELATIVELY LOW INCOME WORKERS, THE ONES WORKING IN PACKING PLANTS AND THE FAIRLY LOW SKILL LEVEL JOBS, THEY TEND TO BE ASSOCIATED WITH ADDITIONAL COSTS, EDUCATION, AND SOMETIMES THE SOCIAL PROGRAMS. WE CAN'T EXPECT LOCAL COMMUNITIES TO BEAR THAT COST. WE HAVE TO SPREAD THAT COST OVER A GREATER AREA. I THINK THE STATE OF IOWA HAS TO BEAR MORE OF THAT COST AND NOT EXPECT A COMMUNITY TO BEAR ALL THOSE ADDITIONAL COSTS BECAUSE WE'VE SEEN DIFFICULTY IN THE LAST DECADE IN TRYING TO LOCATE PACKING PLANTS IN SOME COMMUNITIES. THEY SAY, "THANKS BUT NO THANKS. WE'D JUST AS SOON PASS ON THAT" BECAUSE THEY PERCEIVE THAT LOCALLY THE COSTS MAY EXCEED THEIR BENEFITS. BUT FOR THE STATE, THE BENEFITS CLEARLY EXCEED THE COSTS. SO THE IMPORTANCE OF THAT LEVEL OF ACTIVITY IS SUCH THAT WE HAVE SO TO SHARE SOME OF THOSE COSTS AT THE STATE LEVEL OR EVEN A REGIONAL LEVEL, DEPENDING UPON THE KIND OF SITUATION WE'RE FACING. I THINK THIS IS THE ISSUE THAT IS BASICALLY AN ECONOMIC ONE, BUT IT'S GOING TO BE SOLVED POLITICALLY. AND I'M NOT SURE IT'S GOING TO BE SOLVED IN A TERRIBLY RATIONAL MANNER BECAUSE THERE'S A BELIEF THAT WE ALSO HAVE THE TERRORIST PROBLEM AND SO THERE'S A CLAMOR TO TIGHTEN UP ONE OF THE BORDERS. AND I SHARE THAT. I THINK -- I JUST SENT AN E-MAIL ABOUT MIDNIGHT LAST NIGHT ABOUT THIS TO A CONCERNED PERSON WHO SAID -- I THINK HAD JUST BEEN TO SOUTH TEXAS AND SAID "I THINK THAT IT'S TOO POROUS A BORDER," AND I HAVE TO AGREE. I'VE TALKED TO SOME PEOPLE IN THE COAST GUARD WHO FEEL THE SAME WAY. WELL, I THINK THAT WE HAVE TO REALIZE WE'RE IN A UNIQUE PERIOD, WHERE THERE'S A LOT OF WORRYING ABOUT THE INTEGRITY IN THE COUNTRY IN TERMS OF ITS TERRITORIALITY AND WE HAVE TO HAVE FAIRLY TIGHT CONTROL OF OUR BORDERS. Glover: AND WHAT SHOULD GOVERNMENT BE DOING TO SET THE STANDARD FOR THAT IMMIGRATION POLICY? Harl: I THINK THAT, FIRST OF ALL, IT HAS TO BE RELATED TO OUR NEEDS, THE NEEDS OF THIS COUNTRY IN TERMS OF EMPLOYEES, BUT REMEMBER IF YOU DON'T IMPORT WORKERS, THEN THAT MEANS THERE'S PROBABLY MORE JOBS AT A HIGHER LEVEL FOR THE DOMESTIC PEOPLE. AND I THINK WE HAVE FOLLOWED THAT PATH. PACKERS COULD BE PAYING MORE PER HOUR FOR PEOPLE WORKING ON THE LINE IN A PACKING PLANT. BUT IF YOU CAN HIRE SOMEONE FROM LATIN AMERICA OR FROM LAOS OR ELSEWHERE IN THE WORLD AT A LOWER COST, THAT MEANS MORE PROFITS FOR THEM. SO WE NEED TO LOOK AT THIS IN TERMS OF IS THE PROFIT TO THE PACKER THE BIG ITEM AND CAN THIS BE PASSED ONTO THE CONSUMER OF THE PRODUCT. BUT ALSO WE HAVE TO BE HUMANITARIAN ABOUT THIS AS WELL. I THINK WE HAVE TO REALIZE THAT WE -- WE'RE SORT OF A BEACON ON THE HILL, IF YOU WILL. AND A LOT OF PEOPLE WANT TO GET TO THIS COUNTRY BECAUSE THAT'S A BETTER LIFE, A FAR BETTER LIFE THAN THEY HAVE WHERE THEY ARE. AND SO WE HAVE TO BE BALANCING THIS WITH OUR NEEDS TO BE SURE THAT POLITICALLY, IT'S SUPPORTABLE. THAT'S A TERRIBLY IMPORTANT ISSUE. Yepsen: WE'VE ONLY GOT A COUPLE MINUTES LEFT. I WANT TO ASK THE LOUIS RUKEYSER QUESTION HERE. WHAT SHOULD AN INVESTOR BE DOING NOW? ALL THIS PESSIMISM, THE STOCK MARKET LOOKS ROUGH. THE BOND MARKET, YOU DON'T WANT TO BE THERE. YOU BUY GOLD AND A GUN? I MEAN WHAT SHOULD AN INDIVIDUAL INVESTOR BE DOING RIGHT NOW? Harl: THE INDIVIDUAL INVESTOR NEEDS TO LOOK AT A RANGE OF POSSIBILITIES, DEPENDING UPON THEIR AGE AND POSITION. I'M NOT THAT PESSIMISTIC. I THINK THIS IS A TIME TO BE IN EQUITIES. I'M NOT SEEING A COLLAPSE. ALTHOUGH I MUST TELL YOU THAT I DO SOMETIMES WAKE UP IN THE MIDDLE OF THE NIGHT IN A COLD SWEAT, WONDERING WHICH COUNTRY IS GOING TO FACE THE KIND OF FISCAL PROBLEMS THAT WE'VE SEEN IN THE LAST DECADE. AND I THINK THAT COULD HAPPEN IN CHINA, AND IT COULD CONCEIVABLY EVEN HIT THE UNITED STATES IF WE DON'T GET OUR HOUSE IN ORDER. IF WE SEE A PLUNGING DOLLAR AND CONFIDENCE IS LOST ON THE INTERNATIONAL SCENE, THE BIG THING IS INVESTOR CONFIDENCE. AND IF INVESTOR CONFIDENCE IS LOST, THEN THEY BEGIN TO PULL AWAY FROM A COUNTRY. AND THAT COULD HAPPEN ANYPLACE WHERE THERE IS AN UNSUSTAINABLE PATTERN OF ECONOMIC ACTIVITY OR THEY'VE LOST CONFIDENCE AND THE ABILITY OF THE DECISION MAKERS IN THE COUNTRY TO MAKE DECISIONS. Glover: I WANT YOU TO PUT YOUR ACADEMIC HAT BACK ON FOR A SECOND AND PUT YOURSELF IN THE PLACE OF A CAMPUS ADVISOR. SENIOR AT IOWA STATE UNIVERSITY WALKS IN AND SAYS, "DR. HARL, I WANT TO GET INTO FARMING. I'D LIKE TO BE A FARMER." WHAT DO YOU TELL THEM? Harl: I WOULD TELL THEM YOU FACE SOME POTENTIAL OBSTACLES. IT'S GOING TO TAKE A FAIR AMOUNT OF CAPITAL. DO YOU HAVE A PLAN IN PLACE, AND WHAT IS YOUR PLAN FOR OBTAINING THE CAPITAL IT'S GOING TO TAKE, BECAUSE AGRICULTURE IS VERY CAPITAL INTENSIVE? I WOULD NOT DISCOURAGE THEM BECAUSE I THINK IF THEY REALLY HAVE A STRONG WILL AND CAN GET THEIR TOE IN THE DOOR AND GET STARTED AND WORK VERY HARD, I THINK THEY CAN MAKE IT. BUT I WOULD WARN THEM THAT IT'S A TOUGH, NARROW MARGINS BUSINESS, AND THE MARGINS ARE MUCH NARROWER THAN THEY WERE THIRTY, FORTY, FIFTY YEARS AGO. Borg: YOU SAID EARLIER, THOUGH, THE FARM BILL ABOUT TO BE RENEGOTIATED HERE MAY BE LESS THAN IT IS NOW. Harl: IT MAY VERY WILL BE. Borg: SO IS THE LAND PRICE BUBBLE ABOUT TO BREAK? Harl: THAT'S A VERY GOOD QUESTION. I WAS AT A PROGRAM UP IN MINNEAPOLIS, AMERICAN BANKERS, A WEEK AGO, AND IT WAS TITLED "SOARING LAND MARKET," AND MY SUBHEAD WAS RATIONAL OR IRRATIONAL EXUBERANCE. I THINK THAT WE HAVE A STRONGER GROUP OF OWNERS OF LAND ECONOMICALLY THAN WE HAD IN THE LATE '70S WHEN WE STARTED THE DECLINE IN THE EARLY '80S. BUT WE SEE SOME PROBLEMS ON THE HORIZON, ONE OF WHICH IS REDUCED GOVERNMENT SPENDING. Borg: WE HAVE THIRTY SECONDS. Harl: AND ABOUT 25 PERCENT OF THE LAND VALUES BY A NUMBER OF STUDIES IS ATTRIBUTABLE TO THE DISCOUNTED VALUE OF THE GOVERNMENT PAYMENTS. SO THAT COULD HELP THE YOUNGER INDIVIDUAL BECAUSE THE LAND COST COULD COME DOWN, BUT NO ONE SHOULD BE STARTING FARMING BUYING LAND. THEY SHOULD START RENTING LAND, AND IT MAY AFFECT THE RENTAL COST AS WELL. SO THOSE ARE ALL HIGHLY IMPORTANT ISSUES. I THINK WE COULD SEE A LITTLE BIT MORE STRENGTH IN THE LAND MARKET AND THEN A PLATEAUING. I REALLY DON'T SEE A DEBACLE COMING AS WE HAD FROM '81 TO '86 WHEN WE LOST 63 PERCENT OF OUR LAND VALUE IN THE STATE. Borg: THANK YOU, DR. HARL, FOR YOUR INSIGHTS. Harl: MY PLEASURE. Borg: THAT'S IT FOR THIS WEEKEND'S EDITION OF "IOWA PRESS." WE'LL BE BACK SAME TIME: 7:30 FRIDAY; SUNDAY AT NOON NEXT WEEK. I HOPE YOUR THANKSGIVING WAS PLEASANT. AND IF YOU STILL HAVE SOME HOLIDAY TRAVELLING, DO IT SAFELY. I'M DEAN BORG. THANKS FOR JOINING US TODAY. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA FUNDING FOR THIS PROGRAM WAS PROVIDED BY "FRIENDS," THE IOWA PUBLIC TELEVISION FOUNDATION; AND BY THE IOWA BANKERS ASSOCIATION... FOR PERSONAL, BUSINESS, AND COMMERCIAL NEEDS, IOWA BANKS HELP IOWANS REACH THEIR FINANCIAL GOALS. |
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