Economists Ernie Goss and David Swenson

Mar 12, 2021  | 27 min  | Ep 4829 | Podcast | Transcript

Podcast

On this edition of Iowa Press, economists Ernie Goss of Creighton University and David Swenson of Iowa State University discuss the potential economic impact here in Iowa of the $1.9 trillion American Rescue Package and the current state of the Iowa economy.

Joining this week’s moderator Kay Henderson at the Iowa Press table are Erin Murphy, Des Moines bureau chief for Lee Enterprises, and Clay Masters, morning host and reporter for Iowa Public Radio.

Program support provided by: Associated General Contractors of Iowa, Iowa Bankers Association and FUELIowa.

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As a nation beings to turn the corner on vaccinations, President Biden signs a $1.9 trillion pandemic rescue package. We explore the potential economic impact 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. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com.

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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, March 12 edition of Iowa Press. Here is Kay Henderson.

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Henderson: What a year, a global pandemic. President Biden has just signed into law a $1.9 trillion American Rescue Plan. What will the economic impact be? Joining us to discuss today are Ernie Goss, Director of the Institute of Economic Inquiry and an Economics Professor at Creighton University and David Swenson, a Research Scientist in the Iowa State University Department of Economics. Gentlemen, welcome to Iowa Press.

Thanks, Kay.

Thank you.

Henderson: Across the table, Clay Masters of Iowa Public Radio and Erin Murphy of the Lee Enterprises Newspapers.

Murphy: Gentlemen, Kay mentioned the stimulus package that is going to be as soon as this weekend putting checks in people's bank accounts. Do we have any evidence, Ernie we'll start with you, of where that money is spent based on past stimulus? Does that money go into the economy? Do people catch up on back bills? Do they put it in their savings? Where does that money go?

Goss: In advance I'll say it's the wrong package at the wrong time. To answer your question though, 40% will be saved. In other words, of that going to individuals. And the last time 70% was saved. So there will be a lot of it going in and unfortunately it's going in some of the wrong spots in my view. $350 billion going to state and local governments, in other words bailing out those entities that have overspent and taken bad lockdown actions that were counterproductive. So there was $140 billion going to some of the, to the universities. I don't think that is a good expenditure. In fact, it would be hard for me to identify anything, much, there's some portions of the package, support for child care I think is very good, but others I just think there is a lot of waste. And it won't be like, remember President Obama's shovel ready and even President Obama the last time I heard him utter the words he even laughed at shovel ready. It wasn't shovel ready. It didn't get to the ground. This is more likely to get to where it's needed, I would say it will be spent. But again, on the individual level 70% will be saved or pay off debt.

Murphy: A couple of things you talked about we're going to come back to. But first, David, where will most of this money wind up going?

Swenson: Well, I want to preface with it's the right act at the right time, actually it's long overdue. There has been a lot of pain that has been endured over the past six months since the last, parts of the last stimulus bill ran out, then the dithering of Congress. There has been a lot of inaction and a lot of uncertainty. And so this bill right now was important and it is needed and it's going to cover a wide range of categories that haven't been addressed specifically well over the course of the first two pandemic reliefs, in my opinion.

Murphy: Such as what?

Swenson: First of all, it has a very highly detailed set of activities in terms of promoting the pandemic response with regard to vaccines and preparations, so along those categories. It has several categories also, again, for dealing with businesses that are stressed, restaurants, dining and drinking establishment especially, another big chunk of money, $25 billion I believe for severely stressed businesses. A lot of assistance also has been put up for rental assistance targeted specifically for back rent, people who are in arrears with regard to their rent. So what it is dealing with for a lot of people is a lot of the distress that they have been enduring. Ernie also said though, he says a lot of this money is going to be saved, but the allocation, especially with the addition of the child care, the child tax credit component of it, actually makes the flow of these funds into households highly progressive. It raises their income for the lowest income people, lowers their ultimate taxes, federal taxes for those groups as well.

Goss: I was speaking of the $1400, not the child care credit.

Murphy: Is the child care credit one area that you both seem to agree that that is a good thing?

Swenson: Yes.

Masters: So, let's move to a lot of states and local governments are going to be receiving money with this package. How does that money get spent well in your opinion? We'll start with you, Ernie.

Goss: The $350 billion you're referring to?

Masters: Correct.

Goss: Well, one of the problems is, I'll use a good economic term, crazy. In other words, it is allocated according to the unemployment rate at the end of the year. Now, could that make sense to anyone other than a state that has been in lockdown making bad decisions such as California is getting about $40 billion, New York is getting $25 billion, Iowa will probably get about $2.5 billion. Why? Because the unemployment rate in Iowa and Nebraska have been low. It should have been, if you're going to allocate it on a failed statistic, a bad statistic, it should have been in change of unemployment rate, not the unemployment rate.

Masters: Dave, would you use that same economic term of crazy?

Swenson: No, I'm not going to go to crazy but I'm not sure, the unemployment rate it seems to me that they should have had a multifactor allocating formula. But to get to Ernie's point about the unemployment rate, we had states that did go into lockdown like Vermont that has the same unemployment rate as Iowa right now. The unemployment rate with regard to overall economic performance and the pandemic is not necessarily highly correlated.

Masters: At the same time too the unemployment rate, I remember during the Great Recession a lot of Midwest rural states, it might not have been the best way to measure unemployment. We're seeing less participation in the workforce. Is the unemployment rate a proper way to measure the economic strength of a state?

Swenson: Let me jump in. I've done this research here for Iowa. First of all, they have had some revisions in our unemployment rate. The state is reporting it at 3.1%. As of last week though the revisions have boosted it up to 3.7%. Iowa's unemployment rate is significantly lower than we would have anticipated because of really large exits from the workforce. Over this period of time about 68% of the improvement in the unemployment rate since April when it was the highest has been due to people leaving the labor force and the rest of it is because of people coming back into the labor force or improving unemployment. And so the unemployment rate, we've got problems with the workforce. The pandemic has damaged the workforce, Iowa is moving atypically with regard to its labor supply than the national experience. The national experience, when employment went up the labor force went up as well. In Iowa, when employment went up in May, June, July and August, our labor force kept going down and then stayed down. So we've got some issues that have to be dealt with. And so as a consequence I'm arguing we have somewhat of an artificially low unemployment rate and I'm back to that point, we should have used or it would be nicer if we had some sort of multifactor allocation.

Goss: But even if you're going to use the unemployment rate, which I admit, we both agree it's a bad statistic, but you should have used the change in the unemployment rate between February, the seasonally adjusted unemployment rate February and today. And why reward states that have made, in my judgment, I disagree, the lockdown states have made huge mistakes, it has been a huge mistake. You compare Florida's experience versus New York's experience, death rates and infection rates about the same, yet the economic performance of Florida is significantly above New York's.

Henderson: What about the exit from the workforce? Do you see that as a problem for states like Iowa?

Goss: Absolutely. But it's a problem for all states. But as Dave said, it has been more of an issue for this part of the country, the exit. Participation rates here are, in this part of the country are usually higher and you will get more exits and reducing the participation rate back to the U.S. level. So you will get those. So what we call discouraged workers and as Dave said, it should have been a multifactor methodology. But if you're going to use the unemployment rate, use the change in the unemployment rate. This is not complex. We had in the states of North Dakota, South Dakota, Nebraska, Iowa, Kansas, Missouri, 33 representatives that voted on this bill, only 4 voted for it. So you get an idea about how folks in this part of the country see the bill, in my judgment. And our surveys indicate that the economy here was, back to the point, the economy here was already rebounding. In other words, the President is going to be able to claim credit for something that was already in place. This economy is moving ahead right now, manufacturing and agriculture are looking much better. So, again, I don't agree.

Henderson: So what happens when you inject $2 trillion into the economy?

Goss: We call that inflation and inflation the numbers released just today, today on the produce price index was unbelievably strong. Now, it is going to, it's not going to be rampant inflation. But the inflation rate is going to be rising and we've already seen it. The CPI this month went up four-tenths of one percent, last month, four-tenths of one percent. Multiply that by 12, that's 4.8%, that's well above the target for the Federal Reserve.

Murphy: David, do you share that concern? This is at least the third big stimulus. Are we pumping too much money into the economy?

Swenson: Well, that is the classic or the orthodox argument, it remains to be seen. We've had that complaint or that worry over the last 15 years. We've had absolutely no out of control inflation, we have consistently underperformed the Fed's target with regard to inflation and if anything there was the lament that perhaps inflation needed to be higher over pre-pandemic because basically we were underperforming. Now, will this do that? A lot of economists disagree with Ernie, including me, that this is probably not going to be that inflationary. It very well in the short run create a higher demand for a wide range of goods and services, but in the longer run I don't think that we need to be worrying about inflation right now. We need to be worrying about getting the economy broadly back into a healthy place with a healthy workforce and then we can make policy decisions from then on.

Henderson: Let's talk about the health of the ag economy. Professor Goss, there is some concern that there is a cliff out there because the Trump administration advanced subsidies to farmers to compensate for trade losses. Is there going to be some sort of cliff effect if the Biden administration doesn't continue those subsidies?

Goss: Well, as everyone knows there is not an Iowa Caucus this year, so we're talking about the federal government's involvement in the agricultural economy in terms of support. The support payments are going to be much lower this year. But even with that we're seeing an agricultural economy, you're talking about corn is about $2 a bushel higher today than it was say a year ago. So the farm economy is moving ahead. We're talking about exports growing, soybean, corn, wheat doing much better. Now, on the livestock side not as much. But when the, back to Dave's point about when the restaurants return around, when we see some growth there, then we'll see beef increasing with restaurant sales. So I don't see a cliff. I see some movement in the positive direction. Agriculture, according to our surveys, surveys of bank CEOs in 10 states including Iowa, looks very good. Agricultural farm land prices are growing, farmers are buying more equipment now than they were before. So we're seeing the best ag economy since 2013 and 2014.

Henderson: So, Professor, should the subsidies end?

Swenson: Well, the subsidies have to end. The market facilitation payments were based on the trade actions. The trade actions one way or the other are going to roll back. As Ernie just said, prices have improved, farmers are doing well. If we look at the statistics, I've done some analysis, Ernie is right, they're in better shape than they have been since 2013. Actually they are above the decade's average in terms of annual aggregate income just as of the third quarter of 2020. So a lot of that improvement is because of subsidies. And by the way, this new pandemic relief bill had $10.4 billion in it for agriculture. So they are certainly not being weaned off cold turkey here. But there is subsidy available for them and they are in better shape.

Masters: At the outset of the pandemic there was a lot of concern about economic plain for Midwest states like Iowa for their state government budgets. It doesn't seem to be panning out quite that way. Is that the federal stimulus doing its job? Is it delaying the pain? Where do we stand with state government budgets right now?

Goss: State government budgets what we've seen thus far are pretty good and that is true across the nation. In other words, we looked at what we going on in the stimulus programs and what we were seeing and, Clay, that is why I don't think the $350 billion, perhaps it is needed by some of the local governments, but overall the state government budgets are reasonably sound right now and the governors, back to my point or back to a point, is we're rewarding bad behavior, in my judgment, governors that have locked down their states and I’ll pick on Governor Cuomo, no one else is picking on him so I'll pick on him and Governor Newsom, they locked it down and that really caused some real problems and it really hurt the national economy when you're talking about states like Illinois, Chicago more so. ,

Swenson: I disagree. The lockdowns were necessary at a time of extraordinary uncertainty.

Goss: Show me where that had any impact on the infection rates or the death rates. I just don't see it.

Swenson: There were different, well there were different dynamics -- what happened in New York and what happened in New Jersey was this incredible amount of uncertainty and they did not know what else to do and were following the European example and were trying to just work their way through an incredible crisis that nobody understood. So I don’t agree.

Murphy: So one of the -- because state governments are in a decent position, including in Iowa here, republicans were considering tax cuts. Now because of some potential strings with the federal relief money they might not be able to do that. Is that a bad thing? What is the implication of that, Ernie, if a state government can't go through with planned tax cuts because of federal relief money?

Goss: Again, I think that's probably, I think that is reasonable to take a cautious approach, back to Kay's point about the cliff. There are some real dangers out there. So I would be more cautious regarding that. But if you look at what is going on, we're talking about the federal government, we're now hearing the Biden administration talking about a tax increase. Now, when is the last time you heard an economist talking about stimulating the economy and slowing it down at the same time? Tax increases will slow the economy down. Now we're getting a stimulus. The two don't work together. And the stimulus that we're going to see, we're going to now see an infrastructure program plus a tax increase and back to the, I don't want to let this one go, the inflation number, look at the yield on the 10 year treasury. It's up over the last three months by eight-tenths of one percent. That is an inflation increase right there. So inflation is well above what we would like to see.

Murphy: David, is now the time to be cutting state taxes?

Swenson: Well, no. First of all, not in Iowa. Iowa has relatively low taxes, the costs of government in Iowa are comparatively low. Our overall tax system isn't an impediment to investment or overall performance. So, no I don't think so. I don't think -- I think what we are is a GOP run state and cutting taxes is one of the items on their agenda and that is what they are going to pursue so long as they have power to do that.

Goss: But I do think it's a time for caution in regard to tax cuts at the state and local level. It's a little too, there's too much uncertainty out there. Nebraska is doing some of the same things and I'd like to see how this plays out, especially with a impending tax increase. We've got a Senator from Oregon talking about taxing unrealized gain on stocks. Now, where did that come from? Well, it's not sane, that's insane.

Henderson: Professor Swenson, one, thig that was removed from the American Rescue Plan was a proposed increased in the federal minimum wage. What should the federal minimum wage be in Iowa and nationally?

Swenson: Well, for one, it needs to be much above $7.25.

Henderson: So is $15 the right?

Swenson: Well, we have to put the $15 into perspective. First of all, $15 was a goal over several years, three, four, five years to reach that $15 point from the enactment period. The minimum wage just adjusted for inflation for Iowa, if it's $7.25, if we had just adjusted it for inflation would be somewhere north of $9 or maybe a little bit more. So the minimum wage needs to be improved both at the federal level and at the state level and the minimum wage needs to be indexed to inflation so that we stop having it be a political football where we create a lot of either misery or underperformance with regard to the labor force as a consequence of an artificially low minimum wage. Yes, we have businesses out there, the market wage is higher but we still have a substantial fraction of people that have to work at that minimum wage.

Henderson: Ernie Goss?

Goss: I agree with much of what Dave said, except the teenagers you need a sub-minimum wage for teenagers. At least I remember when I was not worth $7.25 an hour, perhaps that's still the case.

Murphy: Just a quick follow up on that topic, I'd like to hear from you both, we always hear from business interests especially that when you raise the minimum wage it's going to actually destroy jobs. Is there data on that? You guys study this.

Swenson: First off, it goes both ways. It depends on who is doing the research and where the research is being done and the questions that are being asked. Generally speaking, and we have recent information on this, is that it tends to increase permanent employment but it also decreases employment. It increases spending for one group of households, but again because it makes employment harder for some people it pushes some people out of the labor force. Also increasing the minimum wage has a multiplier effect in that it pushes up the wages of those just above it as well. So it has a relatively positive effect. Does it destroy jobs? The short answer is it probably does. Are the gains greater than the losses? They may be.

Goss: One thing we need to think about though is what is the market wage? In other words, setting it above the market wage is what we're really concerned about. When you set it above the market wage, as Dave said, there is evidence of job losses. But right now the number one issue for businesses, manufacturers, small businesses that we survey, the big issue is finding and hiring qualified workers. So they're bidding up the wage right now well above the minimum wage for manufacturers. Now, in some of the food services there we're talking about an industry that has been hammered and their ability to -- I'm concerned about raising the minimum wage there for an industry that would be, that is in trouble right now.

Masters: Big picture to wrap things up, long-term how has the pandemic forever changed the economy? Dave?

Swenson: Oh wow. First off, it has destroyed a lot of businesses. It has changed a lot of business sectors in terms of where their relative position is and it's going to take a long time for them to recover. It has also affected the workforce. I have been working in my living room for nine months. I think there are a lot of people now that their relationship to the economy, where they work and how they work and what they do is going to change a lot. And the other thing that it does, it has demonstrated how vulnerable our economy and our society is to an absence of preparation to some kind of disaster of this magnitude.

Henderson: Professor Goss?

Goss: I think our industry, that's education, has been dramatically affected and particularly in K-12 the ability to teach online versus in-person and we have found out that online there are really a lot of limitations there but in going forward we have this hybrid approach which is going to be very strong and very good for everybody when we can serve different populations, different groups and provide them with good sound education. Now, on the negative side I think local government has not responded very well. I don't think they have embraced technology. A lot of us we have tried, you go down to your county seat and try to get some things done, they're not there. They're sealed up, you have to call to get an appointment. The government has not responded very well. I would say those of us in education, those of us that have responded well are going to do well, those that haven't are going to be out of business.

Murphy: Another big picture question, we have just more than a minute left. What was the biggest economic mistake that you saw? Ernie, you talked about the lockdowns. Anything other than that as you watched officials handle the pandemic response?

Goss: Oh, there were a heck of a lot of mistakes. One back in the Trump administration, CDC was making economic policy, CDC said -- I don't give medical advice, they shouldn't give economic advice -- they were saying an eviction moratorium, a moratorium on evictions for renters. Well, how does that make sense? Nobody would agree -- a renter that doesn't have it in September is not going to have it in January. Who is going to pay that landlord? And the answer is no one. So that is one bad step.

Swenson: And mine it's the absence of timely follow-up after the first pandemic relief activity that they waited, that it became political rather than functional with regard to the pain that was being realized, especially during the worst of the pandemic.

Henderson: Gentlemen, we are out of time on this edition of Iowa Press. Thanks for joining us today.

Goss: Thanks, Kay. Thanks Erin, Clay.

Henderson: And thanks to you at home for watching. For everyone here at Iowa PBS, have a good weekend.

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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. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com.(music)

As a nation beings to turn the corner on vaccinations, President Biden signs a $1.9 trillion pandemic rescue package. We explore the potential economic impact 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. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com.

(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, March 12 edition of Iowa Press. Here is Kay Henderson.

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Henderson: What a year, a global pandemic. President Biden has just signed into law a $1.9 trillion American Rescue Plan. What will the economic impact be? Joining us to discuss today are Ernie Goss, Director of the Institute of Economic Inquiry and an Economics Professor at Creighton University and David Swenson, a Research Scientist in the Iowa State University Department of Economics. Gentlemen, welcome to Iowa Press.

Thanks, Kay.

Thank you.

Henderson: Across the table, Clay Masters of Iowa Public Radio and Erin Murphy of the Lee Enterprises Newspapers.

Murphy: Gentlemen, Kay mentioned the stimulus package that is going to be as soon as this weekend putting checks in people's bank accounts. Do we have any evidence, Ernie we'll start with you, of where that money is spent based on past stimulus? Does that money go into the economy? Do people catch up on back bills? Do they put it in their savings? Where does that money go?

Goss: In advance I'll say it's the wrong package at the wrong time. To answer your question though, 40% will be saved. In other words, of that going to individuals. And the last time 70% was saved. So there will be a lot of it going in and unfortunately it's going in some of the wrong spots in my view. $350 billion going to state and local governments, in other words bailing out those entities that have overspent and taken bad lockdown actions that were counterproductive. So there was $140 billion going to some of the, to the universities. I don't think that is a good expenditure. In fact, it would be hard for me to identify anything, much, there's some portions of the package, support for child care I think is very good, but others I just think there is a lot of waste. And it won't be like, remember President Obama's shovel ready and even President Obama the last time I heard him utter the words he even laughed at shovel ready. It wasn't shovel ready. It didn't get to the ground. This is more likely to get to where it's needed, I would say it will be spent. But again, on the individual level 70% will be saved or pay off debt.

Murphy: A couple of things you talked about we're going to come back to. But first, David, where will most of this money wind up going?

Swenson: Well, I want to preface with it's the right act at the right time, actually it's long overdue. There has been a lot of pain that has been endured over the past six months since the last, parts of the last stimulus bill ran out, then the dithering of Congress. There has been a lot of inaction and a lot of uncertainty. And so this bill right now was important and it is needed and it's going to cover a wide range of categories that haven't been addressed specifically well over the course of the first two pandemic reliefs, in my opinion.

Murphy: Such as what?

Swenson: First of all, it has a very highly detailed set of activities in terms of promoting the pandemic response with regard to vaccines and preparations, so along those categories. It has several categories also, again, for dealing with businesses that are stressed, restaurants, dining and drinking establishment especially, another big chunk of money, $25 billion I believe for severely stressed businesses. A lot of assistance also has been put up for rental assistance targeted specifically for back rent, people who are in arrears with regard to their rent. So what it is dealing with for a lot of people is a lot of the distress that they have been enduring. Ernie also said though, he says a lot of this money is going to be saved, but the allocation, especially with the addition of the child care, the child tax credit component of it, actually makes the flow of these funds into households highly progressive. It raises their income for the lowest income people, lowers their ultimate taxes, federal taxes for those groups as well.

Goss: I was speaking of the $1400, not the child care credit.

Murphy: Is the child care credit one area that you both seem to agree that that is a good thing?

Swenson: Yes.

Masters: So, let's move to a lot of states and local governments are going to be receiving money with this package. How does that money get spent well in your opinion? We'll start with you, Ernie.

Goss: The $350 billion you're referring to?

Masters: Correct.

Goss: Well, one of the problems is, I'll use a good economic term, crazy. In other words, it is allocated according to the unemployment rate at the end of the year. Now, could that make sense to anyone other than a state that has been in lockdown making bad decisions such as California is getting about $40 billion, New York is getting $25 billion, Iowa will probably get about $2.5 billion. Why? Because the unemployment rate in Iowa and Nebraska have been low. It should have been, if you're going to allocate it on a failed statistic, a bad statistic, it should have been in change of unemployment rate, not the unemployment rate.

Masters: Dave, would you use that same economic term of crazy?

Swenson: No, I'm not going to go to crazy but I'm not sure, the unemployment rate it seems to me that they should have had a multifactor allocating formula. But to get to Ernie's point about the unemployment rate, we had states that did go into lockdown like Vermont that has the same unemployment rate as Iowa right now. The unemployment rate with regard to overall economic performance and the pandemic is not necessarily highly correlated.

Masters: At the same time too the unemployment rate, I remember during the Great Recession a lot of Midwest rural states, it might not have been the best way to measure unemployment. We're seeing less participation in the workforce. Is the unemployment rate a proper way to measure the economic strength of a state?

Swenson: Let me jump in. I've done this research here for Iowa. First of all, they have had some revisions in our unemployment rate. The state is reporting it at 3.1%. As of last week though the revisions have boosted it up to 3.7%. Iowa's unemployment rate is significantly lower than we would have anticipated because of really large exits from the workforce. Over this period of time about 68% of the improvement in the unemployment rate since April when it was the highest has been due to people leaving the labor force and the rest of it is because of people coming back into the labor force or improving unemployment. And so the unemployment rate, we've got problems with the workforce. The pandemic has damaged the workforce, Iowa is moving atypically with regard to its labor supply than the national experience. The national experience, when employment went up the labor force went up as well. In Iowa, when employment went up in May, June, July and August, our labor force kept going down and then stayed down. So we've got some issues that have to be dealt with. And so as a consequence I'm arguing we have somewhat of an artificially low unemployment rate and I'm back to that point, we should have used or it would be nicer if we had some sort of multifactor allocation.

Goss: But even if you're going to use the unemployment rate, which I admit, we both agree it's a bad statistic, but you should have used the change in the unemployment rate between February, the seasonally adjusted unemployment rate February and today. And why reward states that have made, in my judgment, I disagree, the lockdown states have made huge mistakes, it has been a huge mistake. You compare Florida's experience versus New York's experience, death rates and infection rates about the same, yet the economic performance of Florida is significantly above New York's.

Henderson: What about the exit from the workforce? Do you see that as a problem for states like Iowa?

Goss: Absolutely. But it's a problem for all states. But as Dave said, it has been more of an issue for this part of the country, the exit. Participation rates here are, in this part of the country are usually higher and you will get more exits and reducing the participation rate back to the U.S. level. So you will get those. So what we call discouraged workers and as Dave said, it should have been a multifactor methodology. But if you're going to use the unemployment rate, use the change in the unemployment rate. This is not complex. We had in the states of North Dakota, South Dakota, Nebraska, Iowa, Kansas, Missouri, 33 representatives that voted on this bill, only 4 voted for it. So you get an idea about how folks in this part of the country see the bill, in my judgment. And our surveys indicate that the economy here was, back to the point, the economy here was already rebounding. In other words, the President is going to be able to claim credit for something that was already in place. This economy is moving ahead right now, manufacturing and agriculture are looking much better. So, again, I don't agree.

Henderson: So what happens when you inject $2 trillion into the economy?

Goss: We call that inflation and inflation the numbers released just today, today on the produce price index was unbelievably strong. Now, it is going to, it's not going to be rampant inflation. But the inflation rate is going to be rising and we've already seen it. The CPI this month went up four-tenths of one percent, last month, four-tenths of one percent. Multiply that by 12, that's 4.8%, that's well above the target for the Federal Reserve.

Murphy: David, do you share that concern? This is at least the third big stimulus. Are we pumping too much money into the economy?

Swenson: Well, that is the classic or the orthodox argument, it remains to be seen. We've had that complaint or that worry over the last 15 years. We've had absolutely no out of control inflation, we have consistently underperformed the Fed's target with regard to inflation and if anything there was the lament that perhaps inflation needed to be higher over pre-pandemic because basically we were underperforming. Now, will this do that? A lot of economists disagree with Ernie, including me, that this is probably not going to be that inflationary. It very well in the short run create a higher demand for a wide range of goods and services, but in the longer run I don't think that we need to be worrying about inflation right now. We need to be worrying about getting the economy broadly back into a healthy place with a healthy workforce and then we can make policy decisions from then on.

Henderson: Let's talk about the health of the ag economy. Professor Goss, there is some concern that there is a cliff out there because the Trump administration advanced subsidies to farmers to compensate for trade losses. Is there going to be some sort of cliff effect if the Biden administration doesn't continue those subsidies?

Goss: Well, as everyone knows there is not an Iowa Caucus this year, so we're talking about the federal government's involvement in the agricultural economy in terms of support. The support payments are going to be much lower this year. But even with that we're seeing an agricultural economy, you're talking about corn is about $2 a bushel higher today than it was say a year ago. So the farm economy is moving ahead. We're talking about exports growing, soybean, corn, wheat doing much better. Now, on the livestock side not as much. But when the, back to Dave's point about when the restaurants return around, when we see some growth there, then we'll see beef increasing with restaurant sales. So I don't see a cliff. I see some movement in the positive direction. Agriculture, according to our surveys, surveys of bank CEOs in 10 states including Iowa, looks very good. Agricultural farm land prices are growing, farmers are buying more equipment now than they were before. So we're seeing the best ag economy since 2013 and 2014.

Henderson: So, Professor, should the subsidies end?

Swenson: Well, the subsidies have to end. The market facilitation payments were based on the trade actions. The trade actions one way or the other are going to roll back. As Ernie just said, prices have improved, farmers are doing well. If we look at the statistics, I've done some analysis, Ernie is right, they're in better shape than they have been since 2013. Actually they are above the decade's average in terms of annual aggregate income just as of the third quarter of 2020. So a lot of that improvement is because of subsidies. And by the way, this new pandemic relief bill had $10.4 billion in it for agriculture. So they are certainly not being weaned off cold turkey here. But there is subsidy available for them and they are in better shape.

Masters: At the outset of the pandemic there was a lot of concern about economic plain for Midwest states like Iowa for their state government budgets. It doesn't seem to be panning out quite that way. Is that the federal stimulus doing its job? Is it delaying the pain? Where do we stand with state government budgets right now?

Goss: State government budgets what we've seen thus far are pretty good and that is true across the nation. In other words, we looked at what we going on in the stimulus programs and what we were seeing and, Clay, that is why I don't think the $350 billion, perhaps it is needed by some of the local governments, but overall the state government budgets are reasonably sound right now and the governors, back to my point or back to a point, is we're rewarding bad behavior, in my judgment, governors that have locked down their states and I’ll pick on Governor Cuomo, no one else is picking on him so I'll pick on him and Governor Newsom, they locked it down and that really caused some real problems and it really hurt the national economy when you're talking about states like Illinois, Chicago more so. ,

Swenson: I disagree. The lockdowns were necessary at a time of extraordinary uncertainty.

Goss: Show me where that had any impact on the infection rates or the death rates. I just don't see it.

Swenson: There were different, well there were different dynamics -- what happened in New York and what happened in New Jersey was this incredible amount of uncertainty and they did not know what else to do and were following the European example and were trying to just work their way through an incredible crisis that nobody understood. So I don’t agree.

Murphy: So one of the -- because state governments are in a decent position, including in Iowa here, republicans were considering tax cuts. Now because of some potential strings with the federal relief money they might not be able to do that. Is that a bad thing? What is the implication of that, Ernie, if a state government can't go through with planned tax cuts because of federal relief money?

Goss: Again, I think that's probably, I think that is reasonable to take a cautious approach, back to Kay's point about the cliff. There are some real dangers out there. So I would be more cautious regarding that. But if you look at what is going on, we're talking about the federal government, we're now hearing the Biden administration talking about a tax increase. Now, when is the last time you heard an economist talking about stimulating the economy and slowing it down at the same time? Tax increases will slow the economy down. Now we're getting a stimulus. The two don't work together. And the stimulus that we're going to see, we're going to now see an infrastructure program plus a tax increase and back to the, I don't want to let this one go, the inflation number, look at the yield on the 10 year treasury. It's up over the last three months by eight-tenths of one percent. That is an inflation increase right there. So inflation is well above what we would like to see.

Murphy: David, is now the time to be cutting state taxes?

Swenson: Well, no. First of all, not in Iowa. Iowa has relatively low taxes, the costs of government in Iowa are comparatively low. Our overall tax system isn't an impediment to investment or overall performance. So, no I don't think so. I don't think -- I think what we are is a GOP run state and cutting taxes is one of the items on their agenda and that is what they are going to pursue so long as they have power to do that.

Goss: But I do think it's a time for caution in regard to tax cuts at the state and local level. It's a little too, there's too much uncertainty out there. Nebraska is doing some of the same things and I'd like to see how this plays out, especially with a impending tax increase. We've got a Senator from Oregon talking about taxing unrealized gain on stocks. Now, where did that come from? Well, it's not sane, that's insane.

Henderson: Professor Swenson, one, thig that was removed from the American Rescue Plan was a proposed increased in the federal minimum wage. What should the federal minimum wage be in Iowa and nationally?

Swenson: Well, for one, it needs to be much above $7.25.

Henderson: So is $15 the right?

Swenson: Well, we have to put the $15 into perspective. First of all, $15 was a goal over several years, three, four, five years to reach that $15 point from the enactment period. The minimum wage just adjusted for inflation for Iowa, if it's $7.25, if we had just adjusted it for inflation would be somewhere north of $9 or maybe a little bit more. So the minimum wage needs to be improved both at the federal level and at the state level and the minimum wage needs to be indexed to inflation so that we stop having it be a political football where we create a lot of either misery or underperformance with regard to the labor force as a consequence of an artificially low minimum wage. Yes, we have businesses out there, the market wage is higher but we still have a substantial fraction of people that have to work at that minimum wage.

Henderson: Ernie Goss?

Goss: I agree with much of what Dave said, except the teenagers you need a sub-minimum wage for teenagers. At least I remember when I was not worth $7.25 an hour, perhaps that's still the case.

Murphy: Just a quick follow up on that topic, I'd like to hear from you both, we always hear from business interests especially that when you raise the minimum wage it's going to actually destroy jobs. Is there data on that? You guys study this.

Swenson: First off, it goes both ways. It depends on who is doing the research and where the research is being done and the questions that are being asked. Generally speaking, and we have recent information on this, is that it tends to increase permanent employment but it also decreases employment. It increases spending for one group of households, but again because it makes employment harder for some people it pushes some people out of the labor force. Also increasing the minimum wage has a multiplier effect in that it pushes up the wages of those just above it as well. So it has a relatively positive effect. Does it destroy jobs? The short answer is it probably does. Are the gains greater than the losses? They may be.

Goss: One thing we need to think about though is what is the market wage? In other words, setting it above the market wage is what we're really concerned about. When you set it above the market wage, as Dave said, there is evidence of job losses. But right now the number one issue for businesses, manufacturers, small businesses that we survey, the big issue is finding and hiring qualified workers. So they're bidding up the wage right now well above the minimum wage for manufacturers. Now, in some of the food services there we're talking about an industry that has been hammered and their ability to -- I'm concerned about raising the minimum wage there for an industry that would be, that is in trouble right now.

Masters: Big picture to wrap things up, long-term how has the pandemic forever changed the economy? Dave?

Swenson: Oh wow. First off, it has destroyed a lot of businesses. It has changed a lot of business sectors in terms of where their relative position is and it's going to take a long time for them to recover. It has also affected the workforce. I have been working in my living room for nine months. I think there are a lot of people now that their relationship to the economy, where they work and how they work and what they do is going to change a lot. And the other thing that it does, it has demonstrated how vulnerable our economy and our society is to an absence of preparation to some kind of disaster of this magnitude.

Henderson: Professor Goss?

Goss: I think our industry, that's education, has been dramatically affected and particularly in K-12 the ability to teach online versus in-person and we have found out that online there are really a lot of limitations there but in going forward we have this hybrid approach which is going to be very strong and very good for everybody when we can serve different populations, different groups and provide them with good sound education. Now, on the negative side I think local government has not responded very well. I don't think they have embraced technology. A lot of us we have tried, you go down to your county seat and try to get some things done, they're not there. They're sealed up, you have to call to get an appointment. The government has not responded very well. I would say those of us in education, those of us that have responded well are going to do well, those that haven't are going to be out of business.

Murphy: Another big picture question, we have just more than a minute left. What was the biggest economic mistake that you saw? Ernie, you talked about the lockdowns. Anything other than that as you watched officials handle the pandemic response?

Goss: Oh, there were a heck of a lot of mistakes. One back in the Trump administration, CDC was making economic policy, CDC said -- I don't give medical advice, they shouldn't give economic advice -- they were saying an eviction moratorium, a moratorium on evictions for renters. Well, how does that make sense? Nobody would agree -- a renter that doesn't have it in September is not going to have it in January. Who is going to pay that landlord? And the answer is no one. So that is one bad step.

Swenson: And mine it's the absence of timely follow-up after the first pandemic relief activity that they waited, that it became political rather than functional with regard to the pain that was being realized, especially during the worst of the pandemic.

Henderson: Gentlemen, we are out of time on this edition of Iowa Press. Thanks for joining us today.

Goss: Thanks, Kay. Thanks Erin, Clay.

Henderson: And thanks to you at home for watching. For everyone here at Iowa PBS, have a good weekend.

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