chairman and editor in chief of Forbes Media
Why Gold, Cryptos, and Free Markets Matter
Business leader Steve Forbes is chairman and editor in chief of Forbes Media. Steve grew up immersed in the worlds of publishing and politics. He began his career in 1973 writing at Forbes magazine and still shares
his own views today in his editorial column, “Fact and Comment.”
Mr. Forbes ran for president in 1996 and again in 2000, primarily campaigning on the ideas of a flat income tax, the option to opt-out of social security, competitive free trade, and congressional term limits.
Forbes has also penned several books, including Freedom Manifesto: Why Free Markets are Moral and Big Government Isn’t, and How Capitalism Will Save Us.
Q: In the early 2000s, we were talking about this idea of how free markets had been ascendant for two decades, and there was a PBS special called The Commanding Heights that talked about this revolution in politics and popular culture.
And I asked you back then – I said, “Steve, do you think we’re losing” – and when I say “we,” I mean free-market capitalists, folks like us. “Do you think we’re losing the commanding heights, the moral high ground because of Enron and because of the corruption of the financial markets?”
Do you have any thoughts about that lately? Have we lost the American people with the idea that free markets are the best way to lead the country?
Steve Forbes: I think what has undermined faith in free-market capitalism, free enterprise, free people, is the stagnation we’ve experienced for a decade.
But the crisis that we had in 2008/2009 was basically caused by the government undermining the dollar. And whenever you have a weak dollar, you get false commodity booms, housing booms. The housing craze was fueled by government policies urging people who couldn’t afford to do these things to do them anyway. But free markets get the blame for it.
And then we had eight years of an administration that saw business as evil, that saw commerce as something you put up with but nothing more, and saw businesspeople as just criminals in waiting.
So the key thing, as happened in the 1980s when markets seemed to be discredited by the terrible inflation of the ‘70s, Ronald Reagan comes along as president and makes some major reforms, slashing taxes and the like, and the U.S. economy boomed. It became the cutting-edge innovator in the world, and suddenly the world became a better place.
I’m hoping the same thing will unfold now. After one year under President Trump, we’ve had some real moves on deregulation – whether it’s at the Food and Drug Administration, the EPA, education, and elsewhere like energy.
And we got a tax bill. Not perfect, but a very good step in the right direction when you weigh the pros and cons. And good judges being appointed. So we have to move on these reforms. And that, by the way, is why these upcoming elections in November are going to be so critical. Can we keep up this momentum and get this economy revved up to growing at 4% to 5% a year?
Q: Steve, the very first magazine that you launched was called Business Today, at Princeton. Are you still involved in publishing or speech at Princeton or at any other institution of higher learning currently?
Steve Forbes: No. I’d been on the Princeton board about 15 years ago for several years, and made the point when I left that real diversity means intellectual diversity, a battle that is going on even more today… But I still speak on campuses around the country. There are some intrepid souls there, fighting for what is right.
Q: I don’t recognize college campuses anymore. There was a 2016 Gallup survey that raises a lot of questions about what’s going on campuses… Asked if colleges should have policies against slurs and other intentionally offensive language, 69% of students said yes, 27% believe they should be able to restrict expression of potentially offensive political views, and 63% of students polled wanted schools to restrict costumes that stereotype racial or ethnic groups. What in the heck is going on with this generation of people who are so terribly afraid of being offended?
Steve Forbes: Well, the professors are very liberal, “progressive” they call themselves now. And most of the students would be on center-left. But most I don’t think share – even despite that poll – the idea that government should control speech, that government should control the Internet. When you get to specifics, they sort of back off. And when you have the idea of the bureaucrats restricting what you can say, it depends on how you phrase these things.
There’s never been a counter-battle on college campuses, but that’s changing. Brown University, of all places – the Wall Street Journal praised them the other day – made a very bold statement of policy on openness on the campus. The head of the University of Chicago is doing the same thing.
I was at a university in the state of Washington a couple weeks ago called Gonzaga. A very far-left administration, but you have intrepid students who are fighting back and bringing on speakers. And so I think you’re finally beginning to get a reaction. As administrators realize, whatever their political bent, what is happening now only leads to tyranny. Most of these people, sadly, just took the path of least resistance until recently. Just giving in to these extremists. Now I think there’s finally beginning – I underline the word beginning – some pushback.
Q: Steve, you’re one of the few mainstream political leaders and thought leaders in the country that seems to have a firm grasp of the role of gold in a free society and in the free markets. Have you paid much attention to the enormous gap between growth and productivity in our economy and the lack of growth in real wages? And how is that problem at all related to the paper-currency system that we have had for the past 40 years?
Steve Forbes: It’s amazing the seeming coincidences of what has happened to growth when we went off the gold standard – the Bretton Woods monetary systems, they called it then. Some would say it’s just a coincidence. I think it’s a prime cause.
The way you move ahead in this world in terms of progress and a higher standard of living is by investment. And if you have an unstable money, money that fluctuates in value, you don’t get as much productive investment as you do when you have stable money. That’s why today in the currency markets, the volume is over $5 trillion a day. All that brain power just going to trading on currencies.
So, yes. I think the thing to remember about a gold standard is that gold is like a ruler… like 60 minutes in an hour, 12 inches in a foot. And when the price of gold changes, it’s not the value of gold changing so much as the value of the dollar that’s changing, what people think it is now and what they think’s going to happen in the future. Gold keeps its value, not perfectly, but better than anything else on this earth. So when you have stable money, you get a more productive investment, more growth. History shows it time and time again.
But one other thing I think that has held down cash wages is our crazy health care systems, where, more and more, we pay more and more each year for insurance. And when employees buy insurance, that means less cash wages for their workers. And the explosive growth of premiums in the last 30 years I think goes hand-in-hand with the fact that health insurance is counted as part of your compensation, but it sure doesn’t translate into cash into your pocket.
Q: That’s a very good point. Let’s talk about the crazy interest-rate regime we’ve had for the past decade. Steve, I know you’re familiar with the Austrian economic theory that artificially low interest rates leads to malinvestment, and they lead to capital being poorly allocated. When I look around the last 10 years and I see things like a trillion-dollar growth in college lending; you see credit-card debts over a trillion dollars in America, you see auto loan debts over a trillion dollars in America – the growth in these kinds of consumer loans have been enormous. You also see of course the explosive growth of government debts. So we’ve gone from $4 trillion, $6 trillion in government debts held by the public to almost $15 trillion in the last 10 years.
In your mind, where is the biggest malinvestment? Where is the biggest problem that we haven’t yet had to deal with because of this extended period of artificially low interest rates?
Steve Forbes: Well, the artificially low interest rates is the equivalent of price controls. Most people realize that rent controls are bad. They distort the market, lead to distortions and to shortages and the like. And yet economists and businesspeople sort of accept as a given that the Fed’s going to engage in what is in effect rent control: what price you pay to rent the money. And it has distorted the markets, especially in the last 10 years when the Fed has tried to suppress long-term interest rates.
And that’s one reason why small-business formation has been very low-level, because of the distortion in the credit markets. Credit markets have become very hostile or reluctant to lend to new businesses, small businesses, households. And that’s one reason why we haven’t seen the kind of boom you normally get with small-business creation in this country. So the quicker the Fed can be pushed to get out of the interest rate game the better. And the idea that the Federal Reserve can guide this economy by manipulating interest rates is so preposterous. Central planning does not work, whether in the Soviet Union and Mao’s China or the central banks today. And the only question with a central bank today, since they don’t keep currencies stable much anymore, is: How much harm will they do?
Now, in the ‘80s and ‘90s after Reagan got in office, we had a period of semi-decent monetary policy – give it grade of C instead of F, which is what we had in the ‘70s and early ‘80s. But when you had a semi-decent monetary policy, gold didn’t fluctuate too much – certainly not by today’s standards – and you had a great booming economy. So the evidence is very clear. Don’t try to engage in price controls, and the Fed should only step in when there’s a financial panic for whatever reason, war or whatever. And otherwise they should just go for a permanent vacation to North Korea.
Q: One more question about money and monetary policy. Is it a surprise to you that during this period of financial repression, soaring debt loads, and perhaps setting us up for a crisis of our own currency, that you would see something like bitcoin come to the fore?
Steve Forbes: What they call cryptocurrencies – I like “alternative currencies” better – is a high-tech cry for help. And what they have not mastered yet, even though people are turning to them, is getting stability for these currencies.
You would never take on a lease with bitcoin. You’d never do a debt instrument with a bitcoin. So four and a half years ago, if you’d taken out a mortgage on your house, say $350,000, but did it in bitcoin instead of the dollar, you’d owe the bank today about $25 million to $30 million. You’d have steak one week, dog food the next, filet the week after.
They have to master the stability part. When one of these things does master stability, whether it’s to the dollar, or, better yet, to gold, you’re going to have something that people are going to turn to. And that’s one reason why governments are becoming extremely hostile to cryptocurrencies: They don’t control them.
And we must not forget, government did not invent money. It was invented by people in the marketplace looking for a way to make it easier to buy and sell with each other.
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