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Goss: Farmers need fair trade, strong dollar

By Staff | Dec 18, 2017



When economics professor Ernie Goss teaches a class, he sometimes gives his students the option of getting an A without doing any work – but they never take it.

“I say, everybody in this classroom, everybody, 25 people, I’m going to leave the room, and I’m going to grade everything on a curve,” Goss said. “So if all of you agree to do nothing-don’t do a thing-if I give you an exam, don’t answer a single question. If I give you a homework assignment, don’t do it.

“If everybody does that, everybody gets an A. But if one person breaks rank, you’re in trouble.

“It never happens,” he said. “What happens is, you get more work than you’ve ever gotten before. They’re all afraid. They don’t want to be the one who does what I’ve asked them collectively to do.”

That’s why farmers in Iowa and all the Midwest need fair and free trade between the U.S. and other countries, Goss said. They simply grow too much corn to sell it all here, and trying to grow less corn won’t work any more than the class experiment.

“Think about trying to sell all the corn to the domestic market,” Goss said. “You can’t do it. You have been too productive. Now we could all collectively decide to be less productive, and raise the price, but that doesn’t happen.”

Goss is a professor at Creighton University in Omaha, Nebraska, and director of the Goss Institute.

At the Farm News Ag Show Wednesday afternoon, at Iowa Central Community College’s East Campus, Goss detailed the complex interplay between trade, inflation, the value of the dollar and the Federal Reserve’s decisions about interest rates.

Goss spoke to a packed room, and reminded his audience that ag producers will be “front and center” in any trade skirmishes between the U.S. and other countries. It’s “downright scary” to hear the president talk about getting rid of NAFTA, he said.

“I hope that’s a negotiating strategy, because we don’t need NAFTA tossed out,” Goss said. “Nebraska and Iowa, we trade a lot with Mexico.

“He says we have to eliminate the trade deficit,” Goss added. “There’s an easy way to eliminate the trade deficit … go into a recession.

“The idea that we need to eliminate the trade deficit is just bad policy. It should not be done. Other things equally, it should be done, but we’re not going to eliminate it by getting rid of NAFTA.”

Goss said he agrees with the president on some points, and disagrees on others.

On the proposed tax bill now making its way through Congress, Goss said lowering the corporate tax rate makes good sense. He also cautioned that efforts to repatriate corporate earnings that have been held overseas will affect markets for farmers.

If a corporation has its money in Europe, “Right now it’s Euros,” he said. “They have to convert it to dollars. The value of the dollar goes up. Pure and simple.

“When’s the last time it happened? It was 2004, 2005, when ag commodity prices did take a hit. I’m not saying it will be a large hit, but that will be a hit to agriculture.”

The value of the dollar affects agriculture directly, he said.

“When the value of the dollar goes up, exports go down,” Goss said. “How do you keep an eye on the value of the dollar? Keep an eye on the bond market.”

If you’re not around an economist, the best way to predict how things are going is to look at the “yield curve,” Goss said, telling his audience to watch the difference in yield between 10 year and 2 year bonds.

He showed a graph, showing how that difference went negative, with short-term bonds yielding more than long-term bonds, in the last few recessions.

“In other words, if the Fed should raise short-term rates, and long term rates remain where they are, the yield gets smaller,” he said. “What’s the theory behind this, saying this yield predicts economic activity? What happens is the Fed thinks inflation is really high, so they raise short-term rates. We investors say no, you’re wrong, we bring long-term rates down.

“Inverted yield would be a real indicator that things are not going to be as good, but right now it’s positive.”

As far as the rural Main Street economy, Goss said things are still rough but they’re getting better.

“The negatives are getting less negative,” he said.

Goss said the ag sector doesn’t have as much impact on voting as some sectors – say auto manufacturing. That’s why Iowans and Nebraskans need to speak up.

“We need to send the message that we want open, fair and free trade,” he said. “And we want a competitive dollar.”

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