...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, ďWhat was he thinking?Ē

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 didnít spread, containing it. But his greatest failure was he was like a pilot who didnít fly with instruments; he flew by the seat of his pants. He had good instincts, but if youíre flying by the seat of the pants and you get some adverse weather, sometimes youíre 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 heís doing his job right or wrong? There is no fuel gauge. Imagine driving a car without a speedometer and without a fuel gauge. Youíre going to always be wondering. So he didnít provide the speedometer, he didnít provide the fuel gauge. Whatís the best speedometer, fuel gauge for monetary policy? Look at the price of gold. If itís zooming up, that means youíre printing too much money. If itís crashing down in price for a period of time, it means youíre printing too little money. Gold reflects the markets. Let markets tell the Federal Reserve whether itís doing its job right or wrong instead of always guessing what is the right interest rate and getting sidetracked and detoured on things they shouldnít 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. Youíve got to give these people something to do each day, but have that kind of gauge and then guess what? You donít 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 donít want inflation or deflation, we want íflation.

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, Iíll pick a number, 400 dollars an ounce. If it goes above 400 dollars an ounce, youíre 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, youíre 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 donít try to second guess whatís 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 donít change that each day, appreciate it or depreciate it. Itís a fixed measure. Same thing with an hour; sixty minutes in an hour, itís fixed. You donít 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. Itís 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 donít 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 thereís 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. Youíre 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 theyíve gotten into. And then Liberals will say, ďWell, you mean you want to take away Social Security?Ē No, we want a system where people own the assets so they truly have something of true value there. Theyíre not burdening other generations. Theyíve earned it, theyíve 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 itís in the hands of we, the people and not politicians who have no sense of restraint or discipline.

Q: Thatís 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. Weíre 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 havenít built the assets to pay for them, then you got a big problem. And I think thatís why properly putting out there proper Social Security reform where it doesnít look like youíre taking something away from grandma, who thought she was promised something, but actually helping younger people with their own personal retirement accounts, thatís a positive. You change the entitlement to something where people feel theyíve earned it. Part of the problem with Social Security is people who are on it felt, ďWell, we put money in the system, but the politicians mishandled it.Ē So people were cheated. They were deceived. Now weíre going to finally tell the truth to younger people. ďThe money that you put in is actually yours. Itís not been stolen by politicians.Ē 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 itís a source of power. If you sit on a tax-writing committee, youíre 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. Theyíre for special interest, special things to change in the code which is why the code now has nine million words. Politicians love it because itís 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. Weíre not getting into the numbers of them, but the idea of a flat tax that youíre talking about, is that something that would help us pay off this nine trillion dollars thatís sitting there so that we wouldnít 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. Itís 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, ďDo I get a deduction here, do I get a deduction there?Ē Instead, we do things for the right reasons instead of the wrong reasons.