Economics

'The Last Gasp of the Dinosaurs'

Publisher and flat-tax Republican Steve Forbes on 1930s-style economic policies, the news industry, and the future of the GOP

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In the April 1996 edition of reason, then-Editor Virginia Postrel wrote a column arguing that "Steve Forbes is a serious candidate" for president. "Not because he's a rousing speaker," Postrel observed, "but because he believes in the open-ended future, in the creativity of free people, and in the importance of clear, simple, limited rules within which individuals can shape their own decisions."

Of those "clear, simple, limited rules," the most famous  was a flat and reduced personal and corporate income tax, an idea that, while never coming close to adoption at the federal level, nonetheless propelled a long-shot magazine publisher with no political experience into a third-place finish in the Republican primaries, including wins in Arizona and Delaware. In 2000 a flat tax song and social conservative dance helped Forbes whisk into second-place at the Iowa caucus, but he quickly dropped out after finishing third in New Hampshire and Delaware. In 2008 Forbes was a strong backer of the doomed Rudolph Giuliani.

Malcolm Stevenson Forbes Jr., 62, is the third Forbes to publish the successful business title of the same name. Founded in 1917, Forbes has gleefully billed itself as the "Capitalist Tool," lionizing the entrepreneurs who make the world a richer place. In addition to producing its signature lists of the country's (and globe's) richest capitalists and companies, the 900,000-circulation magazine has been a staunch opponent of antitrust enforcement, an aggressive supporter of anti-totalitarian movements abroad, and a stubborn purveyor of a sunny, market-based optimism. Last November, at the height of political panic over the financial crisis, Forbes put Forbes himself on the cover, explaining "How Capitalism Will Save Us."

In July, Editor in Chief Matt Welch interviewed Steve Forbes at the annual FreedomFest conference in Las Vegas.

reason: People know you as Steve Forbes, flat taxer and presidential candidate, but you're also publisher of Forbes magazine in an era when magazines are struggling. How is Forbes responding to the economic crisis, the publishing crisis, and the transformation of the print industry?

Steve Forbes: When you have a severe recession and you have something transformational as we now see un-folding with the Web, you have to do two things. One, you have to address the immediate circumstances, which means belt tightening, which we did—and we did after 2001, when the economy also went temporarily off of the cliff. But at the same time, you have to invest for the future. And thankfully, 12 years ago, when we went online as did everyone else, we did not make the mistake that many print publishers made, and that was to think you take the printed page, throw it online, and have your electronic publishing. When Thomas Edison invented movies, some people thought you'd film a stage play and that was a feature film. No. It's an entirely different medium.

We've always focused on entrepreneurs, on investors—on capitalist people who want to get ahead, people who want to do things in business. So we saw the website as another platform to reach the same constituency. Our value added is information, insights, and analyses, plus our profound belief in the moral basis of capitalism, which is meeting the needs and wants of other people. If you have that, you don't get hung up on what the particular platform is.

reason: David Carr had a piece about you guys in The New York Times—a little snarky, but it was interesting. One thing he posited is that in 2009 this whole "Capitalist Tool" stuff is out of fashion; it's out of step with the times. What's your broad response to the notion that your stance or ethos is out of step and anachronistic?

Forbes: Well, capitalism—entrepreneurial capitalism, democratic capitalism—always goes through phases where it's, quote, "out of fashion." And it's usually because of catastrophic mistakes made by government. The victim is blamed for it. 

But you don't abandon your mission or your core values because a crisis has put capitalism under a cloud. We went through it in the '30s, we went through it in the '70s, the greedy decade of the '80s. These things do happen. But I think what's happening in Wash-ington is the last gasp of the dinosaurs of the 1930s. It's Jurassic Park statism. Oh! Franklin Roosevelt again! Wow! But it's not working. It didn't work in the '30s.

So here we are today, and what's the response? More spending, more taxes, and the economy is not responding the way it should. But while we're getting assaulted now, it's also a chance to regroup and hit these people back, because they are going against human nature, they are going against the impulses that come out of true entrepreneurial capitalism. While they seem to have the commanding heights at the moment, it's only temporary.

reason: Do you see, to borrow a phrase, some green shoots, not necessarily in the economy, but in the citizen response to Washington economics right now? 

Forbes: You see it with the tea parties, and you saw it in the state of Illinois, where the governor proposed tax increases, but the Democratic legislature ended up defeating them. The most amazing thing is now unfolding in California, where they're seriously considering a flat tax because they're beginning to realize—the Democrats!—that a highly progressive system doesn't produce the revenue they need for their progressive programs.

reason: Have you seen an uptick in interest in the flat tax idea? Have people been knocking on your door and saying, "Oh yeah, about that thing.…"

Forbes: It's not so much knocking on the door as people asking, when you face a severe crisis, what do you do? That's one contrast between the political world and the commercial world. In the commercial world, failure happens all the time. It's part and parcel of the system. You try something; it works or doesn't work. In politics, you often have to go to the cliff before something is done. California's at the edge of a cliff. They can't print money. IOUs are not quite the same as legal tender. And so that's why they're considering something like the flat tax. Both [Gov. Arnold] Schwarzenegger and now Democrats in the legislature are starting to brood about the idea in sort of sheer desperation. It's a version of what Ronald Reagan said: You don't change minds on Capitol Hill through sweet reason; you do it through the heat of public opinion.

reason: Do you see a reawakening of those values, a reawakening in the Republican Party specifically, after eight years of a presidency when government was expanded hysterically, regulation was expanded hysterically? Do you see Republicans rediscovering their limited-government roots?

Forbes: I think it's beginning to happen. Certainly among the newer, younger members. Or ones such as Paul Ryan from Wisconsin, who gets it on monetary policy, gets it on what's happening with entitlements. Because, clearly, trying to be a Democrat Lite is not the way to perpetual power. Power does corrupt, and the GOP began to believe that pork will buy you happiness. It didn't. And in fact, it demoralized the base of the party.

So now we have pork squared with the Obama administration, and it's an opportunity for the Republicans to quickly regroup and find their voice again. The Obama administration is making a classic mistake of leadership: They feel they have to do it now, but they're trying to do too much too quickly. It's going to blow back on them.

reason: Looking at the 2012 Republican presidential hopefuls, especially after Mark Sanford started flying to Argentina a bit too much, do you see any individuals out there who look promising? Are you still considering yourself a candidate? Will you run again?

Forbes: I'm an agitator now, so I'll leave the running to others. I'll watch them exercise. But I think in 2010 we'll get a very clear picture of the field. Right now there's just too much going on. Too much ferment. If you look at a poll, probably Mitt Romney would be at the top, just because of name recognition. But whoever would have thought three years ago that Barack Obama would beat the Clintons at their own game and win the presidency? So it's idle speculation. 

But there are some names out there—[Louisiana Gov. Bobby] Jindal, Romney, who knows what [Mike] Huckabee might do, maybe [Minnesota Gov. Tim] Pawlenty will get a little more conservative and make a move for it. So who knows, maybe Paul Ryan might emerge, maybe somebody else from the House might emerge. 

The key thing is don't depend on one person. Have many Reagans out there, doing it on the state level, on the local level, and we'll be OK.

reason: Talking of the "Democrat Lite" characters out there, [New York Mayor Michael] Bloomberg is a favorite of mine. He just announced an eight-point proposal to create or save media jobs on the island of Manhattan. You see a lot of proposals to have the government become involved with bailing out or somehow giving new assistance to legacy print media companies on the theory that they are fundamental to our democracy. What do you think about these initiatives and the ideas behind them?

Forbes: To really survive, newspapers, each one in each city, have to figure out what is their true value added. And it's not going to be one blueprint for all. They're each going to have to do it differently. You mentioned David Carr, who wrote a piece a couple months ago about this crazy paper in Boston that is doing very well focusing totally on local events in an iconoclastic way. People read it, whereas traditional newspapers are withering. So you're going to see not one-size-fits-all but each one trying to pick out the particularities that can enable it to survive. 

But nostalgia is a very strong human emotion. And so, you know, canals are preserved, and they're wonderful tourist things now, even though they're not real arteries for commerce the way that the railroads became and then highways became or air travel became. So it's a natural reaction, but at the end of the day, it ain't gonna get very far, because the world's not going to stand still. Museums are very nice, but they're not the way to a vibrant economy.

reason: Someone made the argument that the moment any industry becomes politically engaged, and starts lobbying a lot and starts getting targeted legislation, is not the moment that it becomes powerful but the signal that it's stopped being powerful.

Forbes: Well it's a peculiarity of the United States that it's a sign that you've become successful that the government and the politicos go after you. And it does far more harm than any possible good. 

You see it time and time again—G.M. in the '50s and '60s deliberately kept their market share below 50 percent for fear they'd get an antitrust suit and have to spin off Chevrolet. IBM got an antitrust suit in '68 and 20 years later was on the verge of bankruptcy. Microsoft is not the feared Darth Vader that it was 10 years ago when the government went after them. One of the things that this administration doesn't get is that the best antitrust policy is a vibrant marketplace. When profit gives you a message that something is lucrative, others will enter into it. They're not just going to let you—"Oh, Matt's doing very well, making a billion dollars on this thing. Good old Matt." They're going to say, "How do I get that?" And they'll plunge in. 

reason: What's your assessment of Obama's health care package?

Forbes: Well, let's take the president's word that health care should be universal and affordable. How is it best achieved? We know government achieves it by rationing. And the markets achieve it by creating more of it, and finding cheaper and better ways to deliver it. What people don't fully grasp is we don't have free enterprise in health care today in the United States. It is a hybrid system, because it's third party. So you have a disconnect between providers and consumers. And what kind of market is it where the consumer doesn't know what the thing costs? Anything else, you do. What is my hamburger going to cost? What is my car going to cost? But if you go to a hospital and ask what a procedure's going to cost, they assume either you're a lunatic or you must not have insurance. Why else would you want to know what the price is? How weird. How unusual. Why? Somebody else is paying.

So the system doesn't work. And you don't get the kind of productivity you get everywhere else. We use phones and emails for everything now. Do you do consultation with your physician or nurse by phone or email? Rarely. Or hospitals giving warranties, like you have everywhere else, where if they don't scope your knee right, you go back and don't have to pay for it again. Why wouldn't that be their dime? Because it's not real competition. They know you're not writing the checks, so therefore they don't have to please you; they just have to make sure they get a bureaucratic insurance company to approve it.

But we see from Lasik what happens when you get a real market. It costs a third less than it did 10 years ago. Cosmetic surgery hasn't had inflation, like you have in the rest of health care, even though demand has increased sixfold in the last 15 years and even though there have been enormous technological innovations. Why? Because you pay for it.

reason: So what do you do? This is such a labyrinthine complexity that creates the sort of mixed market which you describe. Are there simple things that can be done to break the logjam?

Forbes: Yes. Equalize tax treatment. You're going to give employers a tax deduction, why not individuals? And how about allowing you to shop across state lines for health insurance? Illegal now. If you live in California, want to buy a policy in Seattle, illegal. Interstate Commerce Clause, hello! You don't need a government insurance company. Just get cross-state competition.

Allowing businesses to pull together. Why not remove barriers to that? 

In terms of health savings accounts, if you want a higher deductible than X, you can't get it. I forget what the number is now for a family plan; you can only go up so high. Remove those limits or substantially raise the caps on those. 

If you want to set up a clinic or hospital, in a lot of states you have to get a certificate of need. Well, do you need a certificate of need to open up a grocery store if you want to go against Wal-Mart or Whole Foods? No. You just go and do it. See what happens. But because it's all third-party paying, well, this is inefficient; it's sort of a cartel system. Get rid of those kinds of things. 

reason: Are you surprised by President Obama since he's come into office? Anything about his comportment, his policy, the reaction to it?

Forbes: I was hoping he would defy my expectations and turn out to be what a lot of people thought—he's smart, he's moderate, he'll do the right thing—instead of being what he has been so far, which is very much an ideologue. On the left, it's all 1930s. You spend, you tax, you have government running things because we can do it more efficiently.

reason: I find it interesting that he still gives lip service—and gets away with giving lip service—to limited-government principles, saying things like, "Of course we don't want the government running automobile companies." And then in the same paragraph, he'll say "but they need to consolidate their brands" and get very hyper-specific. He still says, "We don't want to be in the banking sector; I'd rather be doing X, Y, and Z." It's as if he senses these things are unpopular out there.

Forbes: That's why they have to do this by stealth, or semi-stealth. They know the American people are not in a mood for France North America or Germany North America. So they want to use the crisis to ram this stuff through before anybody realizes. Then you're dependent and therefore, "Oh, they want to take this away from you"; it's a fait accompli, it's a coup. But thankfully the Founders devised a system where this stuff just bloody takes time. They didn't confuse efficiency in the commercial sector with efficiency in government. We don't want an efficient government in terms of making laws.

They feared passion. They saw what the wars of religion did to Europe and the bloodshed that engendered. They wanted a system where things could cool off before you did something.

reason: You have a new book out about historical figures and lessons that can be learned from them. What are some historical figures or moments of note that can apply to present-day circumstances? 

Forbes: Take Alexander the Great. When Aristotle taught him as a young man, one of the things Aristotle tried to hammer home was you must learn to conquer yourself, i.e., control your passions. Alexander did not. He seemed to think that he was actually a living god, and he destroyed himself. He was immensely talented, but it all collapsed when he died. And that's what I think may be happening with President Obama today. Putting aside what you think of his policies, he may end up getting very little.

For example, he didn't realize with the stimulus package that Nancy Pelosi may have run up the limit on one of his credit cards. That $800 billion would have been very helpful from their point of view on trying to finance health care. But no, they spent that. It was overreach. No sense of what the real world is like. 

reason: There's been a lot of talk about the scattered state of the modern GOP, and a lot of discussion specifically about the big tent of Ronald Reagan with evangelical Christians and limited-government people. Is that a marriage that has run its course?

Forbes: No. There are two kinds of big tents. One is when you have mush, and so people come in because there's nothing there. Another one is recognizing that one of the peculiarities of American politics is, because we are a heterogeneous nation, you have to put together coalitions of people who may not like each other much, and they have their own particular agendas and priorities, but you have to keep this thing together and maybe you can get some things done. 

And so you're always going to have tensions; it's never going to be smooth. One tendency for parties is to just soften everything to oblivion. Another is where you have priorities, as Reagan did, and use a coalition where there are some basic shared values, but there are always going to be fights and tensions. That's normal.

What helps keep the country together is that you're not going to succeed by just being a narrow-based candidate, either geographically or ideologically. You're always going to have to persuade. Like with a family. Families never agree on anything. Well, we're like a family. And we have those kinds of disagreements. So be it.