...in these troubled times, here's some views from a pretty good mind. During a recent Q&A, Steve Forbes made some salient points.
Q: What was from your point of view in the last 25 years what Alan Greenspan did that was great and what he did will not be looked at as one day in history people will look back and say, “What was he thinking?”
Steve Forbes: Well, Alan Greenspan was a good crisis manager when things went wrong in Asia, when things went wrong in Russia. When we had a stock market crash in 1987, he was right in there making sure that panic didn’t spread, containing it. But his greatest failure was he was like a pilot who didn’t fly with instruments; he flew by the seat of his pants. He had good instincts, but if you’re flying by the seat of the pants and you get some adverse weather, sometimes you’re going to hit a tree or a mountainside. And so as a result, he left no legacy to a successor on how you properly conduct monetary policy, i.e. how does he know on a day-to-day basis whether he’s doing his job right or wrong? There is no fuel gauge. Imagine driving a car without a speedometer and without a fuel gauge. You’re going to always be wondering. So he didn’t provide the speedometer, he didn’t provide the fuel gauge. What’s the best speedometer, fuel gauge for monetary policy? Look at the price of gold. If it’s zooming up, that means you’re printing too much money. If it’s crashing down in price for a period of time, it means you’re printing too little money. Gold reflects the markets. Let markets tell the Federal Reserve whether it’s doing its job right or wrong instead of always guessing what is the right interest rate and getting sidetracked and detoured on things they shouldn’t be concerned about. Keep the dollar stable in value. Tie it to the price of gold or to a range, a little bit of flexibility. You’ve got to give these people something to do each day, but have that kind of gauge and then guess what? You don’t make huge mistakes like we have today with oil zooming up and other crises out there. That kind of instability hurts. We want stability, not instability. We don’t want inflation or deflation, we want ’flation.
Q: Should we be back on the gold standard?
Steve Forbes: Should we be back on the gold standard in terms of having a pile of gold? No. All you need to do is look at the price of gold and base your monetary policy based on the price of gold. In short, I’ll pick a number, 400 dollars an ounce. If it goes above 400 dollars an ounce, you’re printing too much money, mop it up like you spill something in the kitchen, you mop it up. If it goes well below 400 for a period of time, you know, you’re not creating enough credit for the needs of the economy, so you print a little more. You let the markets, the economy tell you what to do. You don’t try to second guess what’s needed like setting interest rates and hoping you targeted it right. Markets will tell you.
Q: As a holder of some dollars, is the value of the dollar starting to depreciate at a rate that is of concern to you?
Steve Forbes: The dollar should never depreciate or appreciate. It should be stable in value. It should be fixed in value. Say a foot has twelve inches; you don’t change that each day, appreciate it or depreciate it. It’s a fixed measure. Same thing with an hour; sixty minutes in an hour, it’s fixed. You don’t change the number of minutes in an hour each day. The dollar should have a fixed, basic value. Gold, for all its imperfections, is like a Polaris. It’s the best thing we have out there. Experience shows that. Keep the dollar stable in value and then you can focus your energies on more productive things like innovating, starting a business, building a house or buying a house, being responsible, moving ahead in life.
If you don’t have a currency that is fixed and has a fixed measure of value, then the temptation always is to, as they said in times of old, clip the coins, reduce the content. Politicians love to spend and they hate the idea that there’s any discipline out there. So without discipline, guess what happens? You get inflation, you get chaos, you undermine it. Lenin said the best way to undermine a society is to debauch the currency because not one in a million people understand what is happening. Inflation is great for those who want terrorism, for those who want totalitarianism, for those who want chaos. That kind of chaos is the enemy of freedom. Stability is the friend of freedom; chaos is the enemy.
Q: Given that, how dangerous is our profligate spending to creating the inflation that could create chaos?
Steve Forbes: Well, the spending is not just a monetary issue, spending is a moral issue. You’re taking money from people and wasting it. People are forced to give money to the government, presumably in return for services. As we said in our Declaration of Independence, to secure certain rights, period, not all the other stuff they’ve gotten into. And then Liberals will say, “Well, you mean you want to take away Social Security?” No, we want a system where people own the assets so they truly have something of true value there. They’re not burdening other generations. They’ve earned it, they’ve built it, the assets are there. They can have a far better, richer retirement than they can when the politicians control it. This is the way you fight these things, by emphasizing we come out ahead. We do better when it’s in the hands of we, the people and not politicians who have no sense of restraint or discipline.
Q: That’s great. Thank you. What do you think is the greatest threat to the stability of the United States at this point?
Steve Forbes: The real threat is bad ideas. A lot of bad ideas came out of the Great Depression, that government could be a stabilizer of the economy, that government could do better than free markets. We’re recovering from the devastation of the Great Depression, but bad ideas are always out there, that high taxes are good, that low taxes mean deficits. No, low taxes mean a more vibrant economy. The problem with deficits comes from spending, not from a lack of revenue. So fighting these bad ideas, fighting bad conventional wisdom, those are the things that ultimately can undermine a society.
Q: How big a mess are we facing with the major entitlement programs, Social Security and Medicaid; as they say, the rat moving to the snake as it gets closer to retirement each year?
Steve Forbes: Well, the problem with entitlements is that someday you have to pay for them. And if you haven’t built the assets to pay for them, then you got a big problem. And I think that’s why properly putting out there proper Social Security reform where it doesn’t look like you’re taking something away from grandma, who thought she was promised something, but actually helping younger people with their own personal retirement accounts, that’s a positive. You change the entitlement to something where people feel they’ve earned it. Part of the problem with Social Security is people who are on it felt, “Well, we put money in the system, but the politicians mishandled it.” So people were cheated. They were deceived. Now we’re going to finally tell the truth to younger people. “The money that you put in is actually yours. It’s not been stolen by politicians.” So truth is the way you fight these things.
Q: Mr. Forbes, in Flat Tax Revolution , you spoke about how taxes breed corruption. Can you elaborate on that? What do you mean when you say taxes breed corruption?
Steve Forbes: Well, the Federal Income Tax Code is the biggest source of corruption in Washington because of its complexity; politicians know it’s a source of power. If you sit on a tax-writing committee, you’re always going to be guaranteed political contributions for your election cycle, and as a result, half the lobbying revolves around it, trying to put changes in, amendments in. Each Bill has literally hundreds of amendments; nobody knows what they really mean. They’re for special interest, special things to change in the code which is why the code now has nine million words. Politicians love it because it’s a source of power. You have to go to them to fix the thing or to get help or to get relief or to hit your competitors. So they love it, but the American people pay a price for it.
Q: Thank you. We’re not getting into the numbers of them, but the idea of a flat tax that you’re talking about, is that something that would help us pay off this nine trillion dollars that’s sitting there so that we wouldn’t be spending all that money on debt service and we could actually rebuild the infrastructure? Is the flat tax a good tool towards that?
Steve Forbes: The flat tax wins on all fronts. It’s a great blow against political corruption, great blow against the current system of a tax code that brings out the worst in us, always thinking, “Do I get a deduction here, do I get a deduction there?” Instead, we do things for the right reasons instead of the wrong reasons.