The Hera Research Newsletter is pleased
to present an incredibly powerful interview with Steve Forbes, Chairman and
Editor-in-Chief of Forbes Media. The company’s flagship publication, FORBES, is the leading business
magazine. Combined with international and licensee editions, FORBES reaches more than 6 million
readers worldwide. The Forbes.com website is a leading destination for senior
business decision-makers and investors with more than 18 million unique
visitors per month.
Born July 18,
1947, in Morristown, New Jersey, Mr. Forbes graduated cum laude in 1966 from
Brooks School in North Andover, Massachusetts. He received a B.A. in history
from Princeton in 1970. A widely respected economic prognosticator, he is the
only writer to have won the highly prestigious Crystal Owl Award, which was
given to the financial journalist whose economic forecasts for the coming
year proved most accurate, four times.
In 1985
President Reagan named Mr. Forbes Chairman of the bi-partisan Board for
International Broadcasting (BIB). In this position he oversaw the operation
of Radio Free Europe and Radio Liberty. Broadcasting behind the Iron Curtain,
Radio Free Europe and Radio Liberty were praised by Poland’s Lech
Walesa as being critical to the struggle against communism. Mr. Forbes was
reappointed to his post by President George H. W. Bush and served until 1993.
In both 1996
and 2000 Mr. Forbes campaigned vigorously for the Republican nomination for
the presidency of the Unites States. Key to his platform were a flat tax, medical savings accounts, a new Social
Security system for working Americans, parental choice of schools for their
children, term limits and a strong national defense. Mr. Forbes continues to
energetically promote this agenda.
Mr. Forbes is
the author of Freedom Manifesto: Why
Free Markets Are Moral and Big Government Isn’t, co-authored by
Elizabeth Ames (Random House, 2012). Mr. Forbes previously wrote How Capitalism Will Save Us: Why Free People
and Free Markets Are the Best Answer in Today’s Economy,
co-authored by Elizabeth Ames (Crown Business, November 2009), and Power Ambition Glory: The Stunning
Parallels between Great Leaders of the Ancient World and Today and the
Lessons You Can Learn, co-authored by John Prevas (Crown Business, June
2009). He is also the author of Flat
Tax Revolution: Using a Postcard to Abolish the IRS
(Regnery, 2005) and of A New Birth of
Freedom (Regnery, 1999).
Mr. Forbes
currently serves on the boards of The Ronald Reagan Presidential Foundation,
the Heritage Foundation and The Foundation for the Defense of Democracies. He
is on the Board of Overseers of the Memorial Sloan-Kettering Cancer Center
and on the Board of Visitors for the School of Public Policy of Pepperdine
University. He previously served ten years on the Board of Trustees of
Princeton University.
Hera Research Newsletter (HRN): Thank you for joining us today. With
the U.S. economy struggling to recover from recession and financial crisis,
what policies would you recommend?
Steve Forbes: The only way to recover is to
stabilize our money, have a gold backed dollar,
simplified tax code and return to a free market.
HRN: You advocate the gold standard?
Steve Forbes: If there’s any better system to
ensure a stable value for money, it’s yet to be found. For nearly all
of America’s first 200 years, the dollar was linked to gold. Since we
went off the gold standard, we’ve had more and more financial, economic
and banking crises. For example, if the Federal Reserve hadn’t started
to print so much money ten years ago, we wouldn’t have experienced the
housing bust or the commodities boom or the sovereign debt crisis in Europe.
Eventually, events become a persuasive teacher.
HRN: Don’t we need a flexible money supply?
Steve Forbes: That’s like saying that changing
the number of minutes in an hour would be a great tool to increase
productivity in the economy. Manipulating weights and measures, whether
it’s the number of ounces in a pound or minutes in an hour, is a false
way to think that you can achieve prosperity. All gold does is serve as a
yardstick to measure the value of your currency.
HRN: Doesn’t increasing the money supply help to
stimulate the economy?
Steve Forbes: The only way to increase prosperity is
through innovation and productivity. Attempts to manipulate the value of
money invariably fail. We’ve had numerous devaluations, and not once
has it created lasting prosperity.
HRN: Under the gold standard, would there still be a lender of
last resort to backstop the banking system?
Steve Forbes: The gold standard doesn’t
prevent lending during a panic. The Bank of England pioneered acting as a
lender of last resort in the 1860s under the gold standard.
HRN: Wouldn’t the gold standard prevent financial
innovation?
Steve Forbes: No. Financial innovation has been with
us for hundreds of years in terms of new financial instruments to meet
expanding needs as the global economy becomes more complex. Many of the
innovations of recent years, however, have come about in response to the
instability of the dollar and other currencies, which has increased
volatility in currency and commodity markets. New instruments have been
designed either as insurance against volatility or to take advantage of it.
If you had stable money, there would be much less hedging and financial
speculation.
HRN: Can governments function under the gold standard?
Steve Forbes: Certain countries feel free to spend
money whether they have it or not. Fiat money, which can just be printed up,
has disguised the real cost. We would never have experienced the kind of
government borrowing we’ve had in recent years if we’d had stable
money. The gold standard would keep the government honest.
HRN: Doesn’t government deficit spending smooth over
recessions?
Steve Forbes: The bottom line for the U.S. is that a weak dollar means a weak recovery. Stability is good for
the economy. The simplest thing to do is to re-link the U.S. dollar to gold.
HRN: Wouldn’t that tie the hands of the Federal Reserve?
Steve Forbes: Tie their hands to do what, further
harm to the economy? I don’t think that’s such a bad thing.
HRN: Isn’t the price of gold volatile like other
commodities?
Steve Forbes: The reason to return to the gold
standard is that gold maintains a stable, intrinsic value over time. Stable
money meets all conditions. Gold doesn’t change in value. Currencies
change in value. Gold is Polaris.
HRN: How would re-linking the U.S. dollar to gold work?
Steve Forbes: You simply peg the value of the dollar
to gold. Let’s say, for argument’s sake, you peg the dollar to
gold at $1,600 per ounce. If gold goes above $1,600, you tighten up on money
creation. If it goes below $1,600, you ease up. You keep it around $1,600 by
tightening or easing up on money creation. The gold standard doesn’t
preclude a booming economy having more money or a stagnant economy having
less money.
HRN: Isn’t the gold standard deflationary?
Steve Forbes: No. The gold standard is neither inflationary
nor deflationary. It’s like the mile: There are 5,280 feet in a mile;
it’s a fixed length. That doesn’t restrict the number of miles of
highway you can build. Between 1776 and 1900 the U.S. grew from a small,
agricultural nation of 2.5 million people to a nation of 76.2 million people,
and it became the greatest industrial power on earth. The money supply went
up about 160-fold while the dollar was pegged to gold.
HRN: Wouldn’t the gold standard severely limit leverage
in the financial system?
Steve Forbes: If you’re a worthy borrower, you
can borrow at the market interest rate; if you’re an unworthy borrower,
you have to pay a higher interest rate or you can’t get money. The gold
standard would have prevented the wild lending and money creation we’ve
experienced in the last few years, which has led to disaster. You can see it
in the housing bubble and in the European government debt bubble. None of
these things could have happened had we had stable money.
HRN: Is the Utah Legal Tender Act, which makes gold and silver
legal in Utah, helpful?
Steve Forbes: I’m in favor of the states
trying to get away from the Federal Reserve’s play-money approach. The
key is for the next President to institute a gold-linked dollar policy.
HRN: Do competing currencies make sense?
Steve Forbes: The idea of a
parallel currency is a perfectly good one. People would come to prefer a
dollar based on gold rather than a dollar based on politicians.
HRN: Do you also suggest using silver as money?
Steve Forbes: The Chinese and other cultures have
used silver as money, but silver doesn’t maintain its value the way
gold does. Over time it takes more silver to buy an ounce of gold. About 120
years ago it took 15 ounces of silver to buy 1 ounce of gold. Today it takes
more than 50 ounces. That’s why the U.S. moved away from a bi-metallic
standard to the gold standard. One metal becomes more valuable than the other
at different times. Silver is better than fiat money, but there’s only
one gold standard.
HRN: Would the gold standard help the U.S. economy to recover?
Steve Forbes: In the 1980s, when we had very high
unemployment and a stagnant economy, the way out was through a strong dollar,
lower income taxes, entrepreneurship and new wealth creation. Remember, the
values of assets go up when people see a future. They don’t today.
HRN: We didn’t have the gold standard in the 1980s.
Steve Forbes: Ronald Reagan killed the terrible
inflation of the 1970s and sharply reduced income tax rates. Reagan wanted a
return to the gold standard, but none of his advisors believed in it.
Inflation was effectively killed by high interest rates. Deregulation was
pushed forward, and America roared. In 1982, the Dow bottomed at 776; over
the next 18 years it went up 18-fold.
HRN: You advocate cutting taxes?
Steve Forbes: Yes, and we should put in a flat tax.
The advantage of the flat tax is that it enables people to focus on real
things. Abraham Lincoln’s Gettysburg Address, which defines the
character of the American nation, is all of 272 words. The Declaration of
Independence is a little more than 1,300 words. The Constitution of the
United States and all of its amendments are a little more than 7,000 words.
The Bible, which took centuries to put together, is a mere 773,000 words. The
U.S. federal income tax code—with all of its cross-references,
descriptions of amendments and effective dates—is probably now in
excess of 4,000,000 words. Nobody knows what’s
in it. Last year the IRS announced that Americans spent 6.1 billion hours
filling out tax forms and $300 billion on tax preparation. This is a huge
waste of resources and brain power. Not to mention that it’s a
corrupting influence. It’s a huge source of government power, and it
brings out the worst in us. The sooner we get simplicity—and a flat tax
would give us that—the more energy we can devote to productive pursuits.
HRN: How could the U.S. transition to a flat-tax system?
Steve Forbes: Since people get hung up on their
deductions, we would institute a flat tax and give people the option of filing
either under the new, simple system or the old, horrific system. If
you’re a masochist and want to punish yourself, you can file under the
old income tax system. If you want the simplified one, you can go with that.
I think 99% of Americans, out of sheer convenience, would quickly switch to
the new system.
HRN: You mentioned deregulation. How would that help the U.S.
economy?
Steve Forbes: Take health care, for example. We
don’t have a free market in health care. There’s a disconnect between
patients and health care providers. If you go to a hospital and ask how much
something costs they’ll look at you strangely because they think
you’re either uninsured or a lunatic. How many hospitals put the prices
of procedures on their websites? It’s like going into a restaurant and
having no idea how much anything on the menu costs. It’s a crazy system.
HRN: How would you go about deregulating health care?
Steve Forbes: First, we should repeal the Patient
Protection and Affordable Care Act—Obamacare—which is an
abomination. Patients should have more choice. The insurance companies
don’t compete freely for business. We should allow people to shop
nationwide for health insurance. I live in New Jersey, which has a lot of
senseless regulations. Why can’t I buy a health insurance policy in
Pennsylvania that costs less? We should equalize the tax treatment of health
care expenses. If you’re a business or are self-employed, you should be
able to deduct the expense. And individuals should be free to go into the
market and pay with after-tax dollars. We should make it easier for small
businesses to form a collective to buy health insurance. There are a lot of
simple things that could be done.
HRN: Do free markets really work?
Steve Forbes: Free markets, with sensible rules of
the road, can do all the things that big government advocates say the
government does but that it really can’t do. Free markets enable people
to move out of poverty and break down barriers between ethnic groups and
between nations. Free markets increase cooperation and foster a sense of
humanity. Everything that big government says it will do, you get more from
free markets than from government bureaucracies. Which one has a better
future, FedEx or the U.S. Post Office? Do you want food stamps or paychecks?
Big government makes a lot of promises, but it’s short sighted.
Government is about meeting its own needs at the expense of the nation, and
it’s immoral. Free markets have gotten a bad
rap, which happens to be the subject of my new book.
HRN: The Federal Reserve recently announced that it will
extend its “Operation Twist” program by $267 billion through the
end of 2012. Will that help the U.S. economy?
Steve Forbes: No. The more Federal Reserve Chairman
Ben Bernanke messes up, the more he’s hailed as a savior. The Federal
Reserve’s programs—quantitative easing 1 and 2 and Operation
Twist—are just fancy words for printing up more money. It’s a
bunch of smoke and mirrors. They’ve done a lot of damage already, and
they’re continuing to. What they’re doing is dangerous. Not only
has the Federal Reserve created a lot of money and vastly expanded its
balance sheet but, along with the U.S. Department of Treasury, it has
dramatically shortened the maturity of U.S. government debt.
HRN: What do you mean when you say that the Federal Reserve
has done a lot of damage?
Steve Forbes: By keeping interest rates artificially
low, Chairman Ben Bernanke is cheapening the dollar, which punishes savers
and harms future investment. It distorts financial markets and misdirects
investments into things like creating the housing bubble. It subsidizes
government borrowing at the expense of the rest of us. It’s the
equivalent of a cut in pay for workers. Let’s say you’re earning
$20 per hour and the government cheapens the dollar; then, in effect,
you’re making $15 per hour. It violates contracts and undermines social
trust.
HRN: What should Chairman Bernanke do instead?
Steve Forbes: Other than resign, Chairman Bernanke
should realize that the gold standard works and that when you deviate from
it, you create more and more uncertainty. He should re-link the dollar to
gold. Doctors used to treat patients by bleeding them. Bernanke just keeps
bleeding the economy.
HRN: Thank you for being so generous with your time.
Steve Forbes: Thank you.
After Words
Steve Forbes
has a message for a nation dominated by increasingly short-term decisions
made on Wall Street and in Washington D.C., and by ever greater economic,
financial and currency instability. As long as America continues moving away
from sound money; away from sound financial and economic policies; and,
ultimately, away from freedom, its future grows more dim. The dot-com and
housing bubbles followed by the 2008 financial crisis and the most severe
economic decline since the Great Depression serve as powerful lessons. A
future of bigger government, higher taxes, more burdensome regulations, less
consumer choice and more unrealistic government promises requires more and
more Federal Reserve play money. Steve Forbes has a quintessentially American
policy prescription rooted in American history. The answer to America’s
economic problems is—and has always been—new wealth creation. New
wealth creation doesn’t come from the government or from the Federal
Reserve’s printing press. New wealth creation is what happens naturally
with stable money based on the gold standard, lower taxes on individuals, a
simplified tax code, reduced bureaucracy and free markets.
|