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.
Disclosure:
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours.
See also
Apple: Our Fair And Balanced Analysis Of Apple's
Performance
on seekingalpha.com