Q&A with media mogul Steve Forbes
Steve Forbes may be best known as chairman and editor-in-chief of the magazine and media empire bearing his name, but his influence spans far beyond publishing. Famously a proponent of supply-side economics, Forbes twice campaigned for the Republican nomination for president with the proposal for a flat tax rate for all income levels as his platform and the belief that free enterprise is the cure for what ails America.
Photo by Sherry Ferrante
Though he now calls himself an agitator rather than presidential-hopeful, Forbes continues to promote free market ideals through his speeches and writing, notably calling for a return to the gold standard to stabilize the dollar, an injection of more capitalism into health care (and less of the other ‘ism; think “social”), and finally throwing out the tax code once and for all.
Bankrate sat down with Forbes in Palm Beach, Fla., to ask a few questions about today’s pressing economic matters. Forbes was on a stop in a seven-city speaking tour hosted by insurance and financial services firm Northwestern Mutual.
What would you say is the biggest barrier to the economic recovery at the moment?
The most immediate barrier is the weak dollar. We’ve never had a sustained recovery when the dollar has been weak, so they need to make it strong and stable.
I think in the next five years, the dollar will be, for the first time since the early 1970s, retied to gold.
Another couple of big things: Simplify the tax code — like (implementing) the flat tax so people can spend their time doing positive things with a low rate instead of the horrible mess we have with the code today: 10 million words of gibberish.
Another major thing is to get real free enterprise in health care. Health care is now like a pretzel on steroids. I think we need to get more free enterprise in health care.
Nationwide shopping for health insurance, equal tax treatment between individuals and companies, tort reform and the like and we’ll get a positive return on health care.
And finally, very immediately what they can do is stop binge spending.
Families have done it, businesses have gotten their balance sheets in order. It’s time Uncle Sam did the same thing, instead of talking about obesity. How about government obesity?
Did you enjoy the Fed’s press conference? Did you agree with Ben Bernanke’s assertion that Fed policy would strengthen or support the dollar in the mid- to long-term?
Bernanke’s press conference was interesting, but he didn’t say anything he hasn’t said before, and that is that he wants a weak dollar.
The language of a strong dollar they have been using for 10 years while systematically printing more and more money. So instead of verbiage, how about some reality? If he was on a reality show, he would have been off the island five years ago.
What signposts would you expect to see before the Fed tightens credit?
Well, it’s not so much tighten or loosen: It’s stability. Instead of inflation or deflation, how about a policy of “flation”? That means affixing it to a narrow range on gold and then people could trust the dollar again. You would get more realistic interest rates and more investment instead of speculation in currencies and commodities.
So I think the key thing is for the Fed to make it clear that they are abandoning a weak dollar policy. They have various ways they can signal that — like saying it and then following through by stopping the printing presses, pull the plug.
Many students are graduating college with huge debts and salaries that won’t match. Is there a bubble or oversupply in the college education market?
It’s not so much an oversupply in the number of people who have a college education. There is always a need for people who have a real education.
The real bubble is in tuitions, which have been going up at twice the rate of health care and four times the rate of the general price level for years.
Parents are asking, “What are we getting in return for all this money we lay out, all this debt we take on?” And the answer is less and less. So I think you’re going to see a real revolution — it’s an overused word — but I think it’s going to apply in higher education in the next 10 or 15 years.
Where, instead of taking four years to get your undergraduate degree, you’re going to do it in three. Take maybe five or six weeks off in the summer and go through. That would cut costs enormously. If you want an advanced degree, you do it in four years instead of five or six.
It’s imminently doable. And perversely the government’s policies help create higher tuitions by providing aid to students and the like. What happens when the students get the extra money, the university just jacks up the tuition fee. You’re on a treadmill and the treadmill is winning.
I think you will see more and more a real focus on, “OK, college or university, what are you supplying and is it worth the investment and sacrifice we make to provide those resources to you?”
On a more personal note, what kind of alternate investments — those besides stocks, bonds and real estate — do you own, if any?
No surprise, I have life insurance policies. And I think basic things like that.
The key thing on investing, you don’t have to have massive, convoluted new financial instruments and all sorts of pretzel-like commodities. All you need to do is set aside a certain amount each month. Even if you start with very few dollars, compound interest does work.
If you have that discipline of just buying a certain amount, and initially just go with index funds with low fees if you don’t have time to do picking for yourself. And you’ll do very nicely.
The key thing is consistency. The big mistake people make is they let emotions take them over on the upside. ‘Golly, I talked to someone at the bar last night who said he tripled his money. That guy doesn’t have many brains — I could do better than that.’
You go doing silly things.
And at the downturn people say, “I can’t take the risk, I can’t sleep at night, I have to pull out,” and they miss the upturn. Many of them, millions of investors, did not get the full benefit of the stock market turn in March of 2009 because the outlook was so bleak. But the market has doubled since then and a lot of people missed most of that.