Capitalist Tool II: Defending Dynamism

An interview with Malcolm Forbes, Jr.

Virginia Postrel & Charles Oliver from the May 1991 issue

(Page 3 of 4)

Reason: What you say makes a lot of sense, but I tend to be fairly pessimistic. Look at Israel, where the United States has a fair amount of influence. We haven't used it.

Forbes: We haven't used the influence because it has never occurred to us that the way they run their economy is particularly bad, that the advice that they get from so- called experts is wrong. It just hasn't been on anyone's agenda. But it's time to put it on the agenda. The Israelis would probably be very relieved if, instead of beating up on them over the Palestine question, we said, "Gee, you should reduce tax rates and reduce your regulatory obstacles." If we try to go in there creating that dynamic, just as we created in Europe after World War II, it does set in motion forces that are more benign than malignant.

Reason: Returning to the domestic scene, it seems that there is a great deal of opposition to growth developing. The environmental movement and the no- growth movement reflect this.

Forbes: Sure, growth is like creativity, it doesn't go along very neat, precise plans. You get clogged highways before you figure out a way to open up capacity. You get pollution before you figure out a way to fight it. With automobiles you get accidents, you get carnage. With anything new you have benefits and costs. But that doesn't mean you should say, "Gee, it's bad." It's much better to have those problems than the problems of stagnation, where nothing happens.

Right now, the California economy is starting to falter. We had a story six months ago that said California is in for a rough period because they've taken their prosperity for granted. I guarantee you that in five years that attitude is going to change. When they find out that their homes go for 40 percent less than what they paid for them, and when unemployment goes up, suddenly growth won't seem so bad anymore.

You're always going to have this friction. In the 1960s, people at college assumed the economy was always going to grow and prosperity was a given. So they concentrated on saving the world by going off and building chicken coops in Chile or demonstrating against war. There were more exalted things to do than worry about earning a living. Well, after the 1970s recession, that attitude began to change, especially when these people got out of college and actually had to do something. So you're always going to get this up and down. Most people, even though they may get annoyed by change in a certain area, don't conclude that growth is all bad. They just say, "Let's clean up around here." The resounding defeat of Big Green says that people may like a nice environment, but they 're not going to write a blank check for it or allow environmentalism to be used as a cloak for dominating people's lives through bureaucratic decrees.

Reason: Are there any particular people whom you admire in public life?

Forbes: There are some who do certain things that are good. Jack Kemp, for example, is trying to find new ways of breaking the paralysis in the inner cities. The idea that you have an East European- style economy operating there is a good place to start.

I admire Ludwig Erhardt for what he did in economics. He was a lousy chancellor, but he got the economic part of it right and understood it. You can see that in Germany today. I like [Margaret] Thatcher in certain areas. She strayed a little bit in recent years. That's why she got herself in such trouble. I respect Reagan for doing what he did, despite all the compromises. They don't look quite as bad today. So it's all case by case. I'll even give kudos to someone I disagree with on most issues. If we see eye to eye on one, I'll give him credit for it.

Reason: You say Thatcher strayed. In what way?

Forbes: She strayed in her monetary policy. Her tax changes in '87 brought a flood of new money into Britain. They tried to keep the exchange rate at an unrealistic level and instead set off an inflation that raised interest rates from 8 percent to 14 percent. That, more than anything else, killed her politically, because all the mortgages there are floated, and you don't get the tax deduction, so homeowners feel the pain very quickly. And that's her constituency, homeowners. She left them hanging, so she didn't have the core that could have saved her when the cabinet knifed her. Fighting inflation is what she came into power on, and that's what ended up doing her in.

Reason: Are you optimistic or pessimistic about the U.S. economy over the next few years?

Forbes: There is strength in this economy that people have overlooked. Who knows when the war will end, but when it does, we'll start to see a revival in economic activity. In the last 15 years, various sectors have gone through wrenching changes, but never simultaneously. In the booming '80s, agriculture and energy went through a depression. That's Midwest agriculture. California agriculture is a different area. Banking is going through one today, as is real estate. But even if these areas continue to go through changes, that doesn't mean the other parts of the economy shouldn't start to pick up and show signs of life. The nice thing about an open economy is that you're not dependent on a handful of people doing something right.

And if we make a few changes on the tax code, we'll really see some activity. But we're still a long ways from doing something about the debt and the Federal Reserve. I can just hope that the damage that they do is minimal.

I guess if you want to reduce it to simple form, it's the raw energy quotient in this country that is still very strong, and increased immigration could make that energy grow even stronger. It can ameliorate the shortcomings of the political elites, business elites, and everyone else who "knows what they're doing."