Catching Up With Steve Forbes

Dec 26, 2012

Photo: Ian Wagreich

I recently spoke with Steve Forbes, chairman and editor-in-chief of Forbes Media, onetime presidential candidate, and author of Freedom Manifesto: Why Free Markets Are Moral and Big Government Isn’t. Below is an edited portion of our conversation. You wrote on the day after the election that President Obama benefited from the illusion that the economy is turning around. You also predicted that the United States is headed for another recession. Can you elaborate on that? 

Forbes: The Federal Reserve is continuing to distort the credit markets, making it much more difficult for medium-size and small businesses to receive a reliable line of credit. Taxes are going up. It’s just a matter of how much. We have massive new regulations coming from Obamacare. The Democrats were very smart in putting off the real smackdown of Obamacare until after the elections, but [the law] is going to start to hit in 2013. And then you have Dodd-Frank imposing continuously heavier burdens on smaller banks. You put all that together, and I think we’re going to have a tough time. You’ve been a particularly harsh critic of the Federal Reserve’s policies. Why?

Forbes: The Federal Reserve has been extremely harmful to the economy. When you can’t get a real price of something, you get less of it. [Fed Chairman] Bernanke has totally distorted the price of credit, which enables the government to borrow money virtually for free. The Fed directs money to areas like the mortgage market, but not for jumbo mortgages, and the rest of the economy takes the hindmost. That’s very destructive. For the first time in decades, we are consuming wealth rather than creating it. And no one believes that a 10-year Treasury note in a normal market, given the government’s finances today, would yield 1.59%. It’s total market manipulation. Most people agree that getting the nation’s fiscal house in order will require raising additional revenue. What’s the best way to do that?

Forbes: Historically, the best way to raise revenue is to have more taxpayers and taxpayers with rising incomes. You get that with a vibrant economy. You don’t create more taxpayers by putting additional tax burdens on the economy. We should not follow the path of Europe, particularly southern Europe, which imposes new taxes when revenues don’t meet expectations. The economy contracts more, and the revenue stream dries up even more. We’re also seeing that play out in Japan. It has raised its top personal income tax rate to 55%. It’s doubling the national sales tax, raising capital gains taxes, and raising payroll taxes. And now Japan is in a full-fledged recession, which will mean even less revenue in the future.

FE: Even with all our problems here in the United States, relatively speaking, aren’t we doing better than the rest of the world? 

Forbes: Rather than looking at others, we should look to what we’ve done successfully before. We did it in the 1980s and 1990s. There were the Clinton tax increases that temporarily slowed the economy, but we had a stable, strong dollar. And Hillarycare was defeated. If they want to repeal Obamacare in return for higher tax rates, I might look at that. There were spending restraints. There was no regulatory binge as there is now. And Clinton reduced the capital gains tax. He signed a law banning new taxes on the Internet. So if you want to have Clinton-type tax rates, then let’s have the other part of the Clinton environment. But I don’t think they’re going to do that.

FE: Let’s switch gears to your most recent book. It essentially makes the case that free markets are moral but big government isn’t. Can you explain that concept in a nutshell?

Forbes: Free markets are moral because they meet the needs and wants of other people. Free markets are about voluntary transactions. So even if you’re the Hollywood caricature—lusting for money and wanting to get rich—you don’t get the money unless you provide something that somebody else wants. So without you even knowing it, free markets force people in the most benign way possible to pay attention to other people, to put together teams to make things come to pass, to look to the future instead of the present. You may not love your neighbor, but you sure want to sell to your neighbor. Free markets take human impulses, which can go in very destructive ways, and push them in very constructive ways.

By contrast, big government, despite its rhetoric, is all about meeting its own needs. You saw that with the Chicago school strike. It was all about paying benefits. You saw it with General Motors, where a normal reorganization was twisted for political purposes, costing taxpayers $30-plus billion. Look at the way Social Security is financed. Where are those trust funds? The money has already been spent. So big government is about its own needs.  Free markets are about meeting other people’s needs.

Steve Forbes will speak at America’s Small Business Summit, April 29—May 1, 2013, in Washington, D.C. Register at

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