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State Legislator's Comments

State Legislators Comments

Written by Paul Anderson - State House Representative 13A

Monday, 05 December 2011 09:11

Monday, Dec. 5 2011

Two well-known economists addressed the annual meeting Nov. 16^th of the Minnesota Agri-Growth Council. The first, Dr. Michel Swanson, is chief agricultural economist for Wells Fargo, while the second, Dr. Jason Henderson, serves as director of the Omaha branch of the Kansas City Federal Reserve Bank. Although both were very positive about agriculture’s role in leading our nation’s economy out of the recession, they also raised caution flags about what could happen in the next few years.

Swanson predicted that volatility, which has plagued financial markets in recent times, will only get worse. That will increase the need for working capital, he said, and make the management of risk more important than ever. Two of the reasons grain prices reached their recent highs, according to Swanson, are this country’s monetary policy and our mandates as they relate to bio-fuels. America’s farm exports have exploded in recent years; in fact, they are the only area of our national economy that shows a positive balance of payment when compared to imports that enter this country. If our monetary policy changes and interest rates increase, which they eventually will, according to Swanson, that will make our products more expensive on the world market. And our policies relating to bio-fuels are political, and public sentiment toward ethanol seems to be changing. If food prices keep increasing dramatically, according to Swanson, there may be enough political pressure applied in Washington to change those bio-fuel policies.

Commenting on the current situation in Europe, Swanson predicted that, in an effort to boost its economy, Europe will eventually have to “put itself on sale” and lower the value of their products enough to increase their exports dramatically. As that happens, the inverse relationship between the euro and the dollar will cause the dollar value to increase, making our exports more expensive.

Dr. Henderson discussed the difficult job the Federal Reserve faces in trying to stimulate the economy and increase the numbers of jobs available, while at the same time keeping inflation in check. He said inflation occurs when too much money is chasing too few goods. That velocity of money is not happening right now, and inflation remains low.

He said that big business is sitting on large amounts of capital but is not creating large numbers of new jobs. Part of the reason, according to Henderson, is that with interest rates so low, business would purchase equipment or technology than hire workers. Those capital costs are fixed, while the cost to hire additional workers keeps going up because of wage and benefit increases that have averaged about 8 percent per year over the last decade.

Henderson commented on the huge increase in land values in the past year. From the second quarter of 2010 to this year, those values have increased in Minnesota by 23 percent. In North Dakota, the jump was even more dramatic at 30 percent. He added that, while food prices have gone up, the farm share has actually decreased. In the 60’s, the farm value of the food dollar was 33 percent while today that share has dropped to 16 percent. The cost of labor to process that food has increased during that same time from 29 to 40 percent.

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