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DECKER: 5 Questions with Steve Forbes

‘Big Government threatens our economy and democracy’

- The Washington Times - Friday, October 26, 2012

Steve Forbes is chairman and editor-in-chief of Forbes Media. The flagship Forbes magazine, long regarded as America's best business periodical, has a circulation of nearly 1 million. An early entrant and leader in new media, Forbes websites -- including Forbes.com, RealClearPolitics.com and RealClearMarkets.com, among others -- reach 20 million online readers a month. A candidate for the Republican presidential nomination in 1996 and 2000, Mr. Forbes served on the Board for International Broadcasting during the Ronald Reagan and George H.W. Bush administrations. Author of five books, his latest, with Elizabeth Ames, is, "Freedom Manifesto" (Crown Business, 2012). You can find out more about Mr. Forbes and his company at: Forbes.com.

Decker: The subtitle of your new book is, "Why Free Markets Are Moral and Big Government Isn't." What is the morality of the marketplace and how does it work? How is the free-enterprise system better and healthier for the masses than a government safety net?

Forbes: Free markets are moral because they're fundamentally about meeting the real-world needs and wants of others. In a free-market transaction, two parties -- individuals or companies -- come together voluntarily to make a reciprocal exchange that provides mutual benefit. The voluntary nature of open markets, most of the time, encourages moral, ethical behavior. You have to treat people well enough so that they'll choose to do business with you.

You may not always get exactly what you want out of an exchange -- you may think, for example, your rent may be too high. But critics of markets are wrong when they insist that markets are driven by "greed." There are greedy people in our society, but greed doesn't drive markets. Free enterprise and free markets are about trust and cooperation. People from all backgrounds and beliefs learn to work together and cooperate in the marketplace or the workplace. Free markets enable individuals to discover and develop their individual talents to the fullest. That's why innovation blossoms in a free-enterprise system.

Economic freedom is also moral because it is the world's most powerful engine of prosperity. Free enterprise has done more than any other system to serve the common good by lifting billions of people out of poverty. After Ronald Reagan lowered taxes across the board in 1981, real growth in the gross domestic product in this country soared from 0.9 to 4.8 percent. Countries that followed Reagan's lead -- freeing up markets by removing regulatory barriers to enterprise, lowering taxation and allowing people to make a profit -- have seen their economies boom. Within the last 30 years, economic liberalization dramatically raised living standards in India, China, Latin America as well as former communist nations in central and Eastern Europe.

Compare this to what we've seen under President Obama. His greatest ever government spending since World War II was supposed to lift the economy and create jobs. Instead, we ended up with an anemic growth rate of 1.3 percent and still high unemployment.

Economic freedom is moral because it does the best job of any system in channeling our self-interest into positive, productive activities that benefit all of society. It is the best answer to poverty.

Decker: As you explain, we really are in a battle for the soul of America. Chapter 6 of "Freedom Manifesto" is titled, "The Spirit of Reagan or Obama?" What is this fundamental choice all about?

Forbes: "Freedom Manifesto" explores the moral contrasts between a free economy and one dominated by overly large, bureaucratic Big Government. Chapter 6 explores the cultural dimension of this comparison. Free enterprise is based on what we call "moral optimism." Trade in a free market requires trust, the positive expectation that other people will deliver on their promises. Investment, similarly, is based on faith. People stake their capital, time and reputations on the belief that others' creativity will produce a positive return. Capitalism's moral optimism encourages a culture of enterprise and self-reliance, where people believe they can solve problems and get things done.

Big Government and its supporters, by comparison, are driven by more pessimistic assumptions. Government by its very nature is about protecting people from the bad behavior of others -- maintaining order and minimizing risk. The focus therefore is on what can go wrong -- the baser side of human nature. The problem, as we explain in our book, is that the entire worldview of Big Government advocates is colored by this negative perspective. Individuals and businesses are assumed to be "greedy." Law-abiding individuals are constantly under threat from the forces of "exploitation" and "injustice." People are seen as being incapable of solving problems without government assistance. Pessimism is also at the heart of the statist, "class warfare" view of rich and poor as mutually antagonistic groups with opposing interests.

The problem with Big Government pessimism is that it leads to overreaction -- policies and programs that end up distorting markets and making problems worse. Health care is a prime example. Few people realize that health care has long been one of the most highly regulated sectors of our economy. Government distortion of the health care markets created the "crisis" that supposedly required Obamacare.

Overly large government also promotes pessimism in the form of polarization and grievance politics. The larger government gets, the more interest groups, rich and poor, young and old, become factionalized and compete for favors. At its most extreme, you get the unrest that you have in Greece. The social fabric starts to unravel.

Decker: Left-wingers are trying to make the 2012 presidential race a referendum on capitalism, particularly in their populist attacks on Mitt Romney's career at Bain Capital. What do today's occupiers not understand about the greatness and rightness of the capitalist system?

Forbes: Many people take our society's standard of living for granted. They don't realize that freedom is what created America's prosperity. It is why we became the strongest nation in the world. Occupy Wall Street and others demonize finance and risk-taking. But "Wall Street," with its vibrant capital markets, has financed our greatest entrepreneurial innovators -- companies like Microsoft, Apple and Staples -- that drive our prosperity and create many thousands of jobs. Without investment from firms like Bain and others, these companies would have never been able to achieve greatness.

We explain in "Freedom Manifesto" that, with the exception of the United Kingdom, European nations do not have American-style capital markets and our tradition of private equity investment. Promising entrepreneurial companies are often forced to merge with big conglomerates or get funding from risk-averse banks. This discourages entrepreneurial risk-taking, innovation and job creation. It is one reason why Europe in the last three decades before the financial crisis grew at far slower rates than the United States and why it has never become a major force in high technology.

Decker: As the son of an executive at one of America's 10 largest companies, I grew up believing that the business of America is business. It now increasingly seems that government is the senior partner in the public-private-sector relationship. How is today's out-of-control bureaucracy a drag on U.S. competitiveness and the entrepreneurial spirit that made this country great?

Forbes: Out-of-control Big Government hurts our competitiveness in various ways. Excessive regulation, for example, suffocates a market. Entrepreneurs are less able to get credit or loans as a result of overreaching laws like Dodd-Frank that are inhibiting lending and killing community banks. It becomes harder for the Apples and Microsofts of tomorrow to start up. Too much government also results in capital-destroying taxation. You get cost-inflating laws like Obamacare, which harshly penalizes companies and individuals for not having health insurance. Companies have less money to grow and hire people. It becomes more difficult to get traction and succeed in the marketplace.

In a free market, people invest in technologies that actually work and have been shown to meet real world needs, like the auto or the personal computer. But when Big Government dominates an economy, resources are allocated based on the interests of politicians. Taxpayer money is poured into politically popular causes -- like "green jobs." The result is fake innovations like the Chevy Volt, a car that was too expensive and impractical to appeal to consumers and ended up failing in the marketplace. Big Government also encourages cronyism. Politically powerful corporations and individuals get preferential treatment. You end up with companies like Solyndra, which received government support because individuals associated with it raised money for the president's campaign. All of this hurts our competitiveness. Capital and manpower are wasted and diverted from better technologies that are never developed.

Decker: What do you think is the most imminent threat facing the United States today, and what should be done to address the problem?

Forbes: Our most imminent threat is today's over-expanded Big Government, both at the federal and state level. It's not financially sustainable and threatens our economy and democracy. The social unrest in Greece is what you get when too much government kills an economy and corrupts a society.

America today is like an over-expanded corporation in need of restructuring. Contrary to what the statists want you to believe, it can be done with some common-sense reforms, without throwing granny or anyone else over a cliff.

A first step would be to repeal Obamacare. That alone would eliminate more than 150 unnecessary bureaucracies. The way to real health care "fairness" is not government rules and rationing, but a consumer-driven market where you, the patient, make buying decisions, not your insurer or employer. Then we have to reform entitlements. We can restructure both Medicare and Social Security. Amazingly, we have enough wealth to provide the benefits for those on these programs, as well as those about to go on them. But positive change is necessary for younger people. The bulk of their payroll taxes would go into personal accounts with proper safeguards. That way, we turn two liabilities into capital-creating assets. Those payroll taxes would be invested in the real economy rather than spent immediately by Washington politicians. Individuals would be able to decide on their own health care plans and investments.

Other pro-growth reforms would increase government tax revenues needed for these programs by stimulating the economy. One would be to adopt, yes, a flat tax. It would go a long way in achieving the prosperity that Mr. Obama never achieved with his monstrous spending. A flat tax would reduce taxes for many people. It would remove the enormous hidden tax of the compliance costs, freeing up enormous human and financial resources that can be invested in new jobs and businesses.

Returning to a gold standard is another much-overlooked reform. Most people today, including most politicians, fail to appreciate how our current system of fluctuating currency values is a drag on the economy. People can't decide to invest or trade because they can't be sure of currency values and what things are worth.

Supporters of Big Government keep insisting that the only solutions to today's problems are higher taxes and more government. But if more government were the answer, we wouldn't be seeing unrest in Europe today. And the Soviet Union and not the United States would have won the Cold War.

Brett M. Decker is editorial page editor of The Washington Times. He is coauthor of the new book "Bowing to Beijing" (Regnery, 2011).

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