An Agitator in the Making

As for his own presidential ambitions, Forbes said he'll stay out of the race in 2008. Instead he plans on remaining an "agitator" for the free-market policies he espouses.

Who among the flock of GOP candidates will he support in 2008? At this point, he tells NewsMax that none of the potential 2008 candidates for the White House "stands out."

NewsMax: When you ran for president, you had a very straightforward message: tax cuts, fiscal responsibility. It seems with the Bush administration we have gotten more of a half and half deal.

Forbes: The big tax cuts of 2003 really enabled the economy to go from a 1 percent stagnant, semi-stagnant economy to the vigorous one we have today. It's not fully appreciated, because the main media more or less ignore it, but the growth in the American economy during the last four years exceeds the entire size of the Chinese economy.

Obviously China is growing rapidly from an extremely small base. And so the tax cuts of 2003 were vastly superior, much more powerful than the ones of 2001. The nation has done very well with those tax cuts. On the spending side, Congress has been almost derelict. Spending in Washington has been compared to drunken sailors, and of course that's an insult to drunken sailors — drunken sailors spend their own money.

There's been very little sense that this is real people's money and I don't know why the administration's been so reluctant to wield the veto pen. Ronald Reagan didn't hesitate to use it. And that's one reason why the Republicans didn't fare well, because is people felt they had lost their principles and were more interested in incumbent protection and corruption.

NewsMax: Both Congress and the White House are not really comfortable with the flat tax. And yet when we see it being embraced in Eastern Europe and in parts of Russia to some extent they have tremendous results. What's the problem here?

Forbes: It's just a matter of a lack of imagination. I think one reason we got a good tax cut in 2003 was that internally a fellow named Glenn Hubbard [White House chairman of the Council of Economic Advisers] was pushing for some radical changes, getting rid of the dividend tax. So I think on the domestic front there's a loss of nerve, mediocrity, and the focus has been on the war.

I think, though, if they had been bold on the domestic front, they would have been in a much better position. These recent elections have certainly put the country in a much better position going into 2008.

NewsMax: The legacy is important.

Forbes: One of the things I hope the White House and the president recognize is that the legacy is not just bills you sign but the principles you pass on to your successors. If they don't get a simplified tax code, if they've made the case, they can take credit for what intervention gets done.

NewsMax: We have 77 million boomers retiring now or very soon. How do we deal with them in terms of pensions, Social Security, and the health-care system economically? Big question.

Forbes: I think that many baby boomers may retire from their current jobs, but most of them, health permitting, are going to continue working. But the big one, even bigger than Social Security, is health care. I think there we have to expand the concept of "health savings accounts," which allow the patients to control a big part of the money.

They have a dysfunctional system today because it's all third party. And you don't get the normal market pressures for productivity and innovation that you get everywhere else in the economy. Just ask yourself why is the demand for health care considered a crisis. More demand for other products and services is considered an opportunity. The housing industry wishes right now there would be more demand for houses. Detroit, for more cars. And I think it is apparently severing the connection between the patient and the provider. Health savings accounts, I think, would change the whole paradigm of health care.

Imagine say in Medicare, if a couple got the equivalent of $14,000 or $15,000 a year, they could buy a policy with a very high deductible, which would be affordable, and still have money in the account to cover the deductible. Now Medicare, come January, is going to have some sample plans like that, a little less ambitious but along the same principles. I feel the Democrats are going to try to strangle these things in the crib. So the key is to put the patient in charge and we will get a very different dynamic.

One example is eyeglasses. A lot of people have laser surgery on their eyes. It improves eyesight and in many cases you don't have to wear corrective lenses. That procedure costs half of what it did 10 years ago. The reason is that it's not covered by insurance so providers have every incentive to find ways to make it more affordable. And consumers have every incentive, since it is their own money, to get value for that money.

Now the nice thing about health savings accounts is you don't take something away from people. You just put them in charge of the money. We've done a variation of that at our company for 15 years and it's been very successful.

NewsMax: Do you think more price reductions in oil are ahead, and how could that affect us geopolitically?

Forbes: I'm not sure we're going to get much more declines in oil prices mainly because the Federal Reserve sadly still has too much money out there. They've printed too much money and they haven't revoked enough of it yet. That doesn't mean that they have to raise interest rates. What it does mean is that they have to move some of the excess money they created.

It is just like when you make a spill in the kitchen, you take a mop and mop it up. You don't raise the temperature in the kitchen and hope that evaporates your spill.

It is much more effective to just mop the thing up. So until they do that, I think oil prices will remain above what they should be. And the best barometer for monetary disturbances is the price of gold.

If it is below $450, $425 an ounce, we're in good shape. As long as it's above, say $350, if it's in the $350 to $450 range, we're OK. But if it is above that range, we're going to have to tighten seatbelts. We're going to have some unnecessary turbulence. Right now it's about $620 to $628, a little too high. It means there is still too much money out there.

NewsMax: The Fed has increased the rate from 1 percent to over 5 percent but the dollar keeps weakening. Is that related to this excess money that's out there?

Forbes: Yes, it is. What we saw with copper prices and other commodities comes from printing too much money. So soak up some of that excess money and this illness will be over pretty quickly.

NewsMax: Would you favor some sort of a law or a change in law that would prevent the situation where we have this money that is slopping around on the kitchen floor as you describe it?

Forbes: The best way to codify the law is to revolve it around the price of gold. If you have a range, then that means you're not being overly rigid. I think markets would see that the dollar is not going to be too scarce or too plentiful. So trust the markets to tell you whether you are doing your job right or wrong.

Speculation on Housing

NewsMax: Do you think the housing bust could also, in a sense, be related? Or to put it another way, if you had a law that kept the money supply in some sort of a relationship to gold, could that help dampen something like this swing in housing values that we've seen?

Forbes: I think the answer is yes. There was some speculation on housing and you get that with inflation. The increase of housing prices a couple of years ago was based on supply and demand and a change in the tax code. In 1998, Washington exempted for the primary resident the first thousand dollars of capital gains. For most people, capital gains on a house have disappeared.

If you look at the increase in housing prices before 1998 and after 1998, you can see a sharp difference. Which goes to show when you tax something less its value goes up. But since 2004, a large part of the increase in housing was generated by speculation, inflation, and I think that will work its way through.

Unfortunately, at least in the last couple of weeks, mortgage applications are moving up again because interest rates are still relatively low. And as long as that remains the case, then I think this thing will be painful but short-lived.

NewsMax: Then I gather you would not advocate at this point additional increases in the Fed rate?

Forbes: No, I think they should just float the rate, let the market set it, soak up the money, let the market tell you if you are doing it right or wrong. Let the interest rates float instead of trying to guess what is the right interest rate. Sometimes you get it right and sometimes you don't.

NewsMax: Well, Mr. Forbes, with the presidential race heating up pretty quickly here, we have to ask you if you are going to be a candidate in 2008.

Forbes: The answer is, my role now is "agitator." I'm not a candidate. I'm going to be trying to agitate and educate candidates.

NewsMax: Who do you like in 2008? What do you think of Giuliani?

Forbes: I haven't really focused on it yet; I will after the turn of the year. No one stands out yet. So I'm looking very carefully. I want to see who can get it right on the economic issues and is willing to be bold on that. And if such an individual emerges, I'd be in that person's corner.

NewsMax: So you will be driven primarily by the rationality of the candidates' economic policies?

Forbes: With the elections out of the way and the presidential race really getting underway after the holidays, I hope some candidates will rise to the occasion.

NewsMax: Hillary, of course, is considered the front-runner on the Democratic side. Would you agree that she could pose a real danger to the U.S. economy based on the policy she espouses?

Forbes: Yes, she is very much of an interventionist. So I am very fearful. I hope we don't have to find out what she would do to the economy. I prefer her to stay in the Senate and continue her public service there.

NewsMax: Some have suggested that if she does announce it really might be the single best thing that could happen to the party in terms of uniting it and re-energizing the base.

Forbes: I think one must never underestimate the Clintons! And I think the Republicans have to realize that they must have a strong principled Reaganesque candidate to beat Hillary.

Negativity alone won't do it, because she is going to portray herself in whatever light possible to win this election. And given the lack of credibility Republicans have today, one can't rule out the possibility she might pull it off. So I think if the Republicans get their act together, we're going to be OK. If they continue to do what they did in this past election cycle, then I'm going to be very worried.

NewsMax: There have been some reports in The New York Sun that Bloomberg is going to run as an independent. We were curious if you have a take on that.

Forbes: I have certainly heard the rumors that others have heard and I am not sure at the end of the day he will do it. It's just so difficult to do a third party effort.

He certainly has the resources to do it. But to win in the system we have with the Electoral College, it takes a lot. You not only have to have a strong popular vote, you have to win a majority of the Electoral College. Even Teddy Roosevelt couldn't do that. He ran as a third party back in 1912. And Ross Perot got 19 percent of the popular vote and zero electoral votes. So it is not the thing to do. I think he will stir the pot but I'm not sure he will pull the trigger.

NewsMax: Then the number one thing that the GOP needs to do to get their act together is . . .

Forbes: On the domestic front, get it right on taxes, on Social Security, and health care — the way Reagan would do. And overseas, make it clear they are open to better ways of prosecuting the war against these fanatics.

For example, let's just take Iraq. One of the most divisive issues in Iraq — which is worsening relations between the Kurds, Shiites, and Sunnis, who don't much like one another anyway — is oil. Who is going to control the oil?

The Kurdish areas have oil fields, the Shiites have oil fields, but there's not much oil in the Sunni areas. Why not push for what you might call the Alaska solution? In Alaska, they have a permanent fund. About one-fourth to half of the royalties each year from oil and gas go into this permanent fund.

It is professionally managed and half of the income in that fund each year is distributed to every human being in Alaska. This year every resident of Alaska from a baby to a senior citizen got a check for $1,100.

Now in Iraq the monthly wage is around $150 to $200. How would you establish such a system in Iraq? First everyone would want an address, which is good for security. And second, it would suddenly turn the population into having a direct stake in increasing more resistance against the insurgents. Because if the oil is hurt, that's hitting their paychecks!

That also allows you to diffuse political power, decentralize it. When you have three different communities in an area like that you have to have power at the local level. You can have weak central government and therefore increase the possibilities of these three communities living with each other. They don't have to like each other but they don't have to fight each other.

NewsMax: With the deficits and the rise of China and India and all the other competitors we have on the global stage, how worrisome is the imbalance in trade?

Forbes: I think we have to see trade numbers as simply one of many numbers about a country's economy. At the same time, we have the trade deficit and we are taking in a lot of overseas capital.

We have more direct investment from overseas than China does now. If you take the iPod, for example, most of those parts are imported but the value added is here. So I think the best way to approach our competitive challenge is by making some real positive changes here at home.

Tax code is an obvious one we touched on. Social Security, health care, and our legal system. Our legal system is a shambles, with rampant litigation. Not to mention education. We have a shortage of scientists, mathematicians, engineers. Japan, with half of our population, graduates twice as many engineers a year. So we've got to get our act together in K through 12.

And I think that means genuine school choice. Trying to do it from above through edicts and tests isn't going to do it. Parents have to have a choice. That's accountability. Competition works. That's how you get real change, positive change. So if we can get our own act together, I think we will be very competitive.

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