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 30 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.