The World According to Steve
This article originally appeared in Outsource Magazine Issue #24 Summer 2011
He’s a two-time presidential candidate, the editor-in-chief of one of the most influential publications on the planet, and one of America’s most respected political commentators – and now he’s talking exclusively to Outsource. We speak with Steve Forbes about deadlock in Washington, chaos on the currency markets, and what it’ll take to bring the US back into the economic sunshine…
outsource: Steve, you gave the keynote address at the Sourcing Interests Group Summit in Florida in March; did you feel as a result of the conversations you had, and listening to the thoughts and innovative ideas of those gathered there, that there’s some hope despite the great financial stress that the US is under at the moment?
Steve Forbes: The answer is yes, even though the US government is trying to figure out how to match Greece… The economy itself is growing – not vigorously, but it is moving forward – and the desire of companies to figure out how to do things better, focused on – as Peter Drucker put it – your key attributes and assets instead of doing a lot of other things that are extraneous to your main purpose; those pressures are still working. I think you have to really delineate, and make a separation between, Washington and the rest of the economy; it’s a very jagged picture with the rest of the economy but definitely there are areas that are moving forward.
o: On the subject of Washington: we’ve just had what looked to be a major shutdown of government services averted, at least temporarily; what are your thoughts on that as it relates to the broader economic picture? And do you feel that the government – both sides of Congress – is doing what it should to resolve the crisis?
SF: I think the Republicans have taken the lead in terms of putting something substantive on the table, particularly Congressman Paul Ryan of Wisconsin. The tone of the president’s response last week was terrible: instead of taking a calm tone and saying “here are some ideas; let’s move forward” it was campaign mode – which a lot of people have noted. If you’re expecting to sit down with the other side to try to negotiate something, and before you sit down you just trash them and demagogue them – whatever you think of the proposed reforms in ten years of our MediCare system to say that they take pleasure in making elderly people suffer, which [former Speaker of the House Nancy] Pelosi and others are doing, is not a way to get the right atmospherics! So that set things back. And his own proposals are a fraction of what Ryan’s put on the table. So that all leads to the feeling that not much is going to get done. I think the White House thinks it can bull through the debt ceiling increase and keep spending levels where they were last year, through continuing resolutions and little changes here and there, and go into full campaign mode – and that’s not going to work. The new Republicans in Congress are very, very angry that not more has been done, and Ryan’s proposal is substantive: he’s done the numbers work, and Obama has not responded in kind. And that’s not a good formula for getting something done.
o: You know the Republican Party very well and have played a very active role within Republican politics: do you feel that Americans are now receptive to the Republicans’ economic message? Because recent figures make it look like people are disillusioned with both sides.
SF: Well, they’re angry, and frustrated that things aren’t going better, and that the political system doesn’t seem to be functioning. We’re having these constant fights. One likes a nice meal but one doesn’t want to go to see the slaughterhouse itself… Or the sweat you have to put in to grow the lettuce… But if you step back, I think the system is beginning to work, and that things are now being done which would have been politically inconceivable a year or so ago. Voters know we cannot continue on the course we’ve been on, and I think the S&P downgrade – or warning – yesterday underscores the fact that we’re one nation that hasn’t made a serious effort to get its house in order yet.
o: At SIG you mentioned a couple of steps which could be taken to improve the macroeconomic picture a little quicker, and I’d like to address one of those in particular: could you give our readers a little insight into your thoughts on how the currency market affects America’s economic situation and the global economy generally?
SF: One of the great myths since the 1930s – and for a while we got over it – has been this idea that if you manipulate the value of your currency you can give a boost to your economy. This has been proven false again and again. For us a weak dollar always means a weak recovery. We should have learnt that in the 1970s. The administration’s policy is that a weak dollar – and it was the same policy under the Bush administration; the Obama administration has put it on steroids, but it started with Bush – will give a boost to the economy, that printing money is a way to wealth. As I told the SIG group, if that were the case Zimbabwe would own the world today, and we should legalise counterfeiting… Money is simply a facilitator of exchanges and transactions. Instead of clumsy barter you choose what you want in return. It allows you to do a huge number of transactions each day instead of figuring out how you can change your camel for a new Chevrolet. Money is – or should be – of stable value, of fixed measure. You don’t change the number of inches in a foot each day. You don’t change the number of minutes in an hour each day. Those are fixed measurements. The same is true of money, and when you move away from that it is always disruptive: the economy as a whole suffers; certain areas get a windfall; other areas have a windfall loss; and it is very unsettling. That’s what we see today: massive currency and commodity speculation – a huge run-up in commodities. Sure, some of it’s supply and demand, and the weather, and that kind of thing, but most of it is inflation. And again, we saw this movie in the 1970s – and it does not have a happy ending.
o: One of the biggest currency-related issues of the moment is the disparity between what the Chinese government values its currency at, and what it should be valued at. Do you feel that this currency imbalance will be rectified any time soon? And what are your thoughts on how the US and China will be trading together, and how that partnership will look, over the next decade or so?
SF: On the Chinese currency: if you believe in the fixed measure of value, then the fact that China tied its currency to the dollar 15 years ago should be a non-event. It should be good. Hong Kong did it years before that. They’re not manipulating the currency; they tied it to the dollar and, in effect, outsourced their monetary policy to the Federal Reserve. I’m not sure you’d want the Fed running your monetary policy these days, but… They did it… So the idea that if they change the value of their currency that’ll rectify things is preposterous. We played this game with Japan, particularly in the 1980s and 1990s. We devalued the dollar up to 75 per cent against the yen and all it did was be very disruptive; it did not change the trade balance. At the end of the day if you sell a bottle of wine for four loaves of bread trying to change money values is not going to get away from the fact that ultimately you want to sell that wine for the equivalent of four loaves of bread, not two, not one, not three and a half. So with China, instead of the currency, which is disruptive, we should focus on the real issues which are trade barriers – China has been throwing up internal trade barriers; China has been known for companies that go into partnerships and then in effect take the technology and say “adios” or whatever the equivalent is, and theft of intellectual property is rampant; there are various other issues. And those are the things we should be focusing on. Those are substantive things; get some positive change there and that’s good for everybody. It’s good for China too to have a system where you respect property rights, because at some point they’re going to get into software-writing in a major way like India does, they’re going to get into pharmaceuticals in a major way, and they’re going to have a stake in this game.
o: One of the things that really shone out when you spoke at SIG was how much of a history buff you are; [SIG CEO] Dawn Evans said that every story you told had another one coming right up behind it… You’ve mentioned a few salutary lessons from history in this interview: what others do you think we should keep at the forefront of our minds when we’re looking at, for example, financial services reform; the currency issues you’ve been discussing; interaction between emerging technology markets?
SF: Everyone looks at the 1930s but I think you can learn as much from looking at the 1970s when we last let money go unhinged – which led to a pretty dreadful decade. On the money side I do think we’re going to see a new Bretton-Woods-type system where the dollar will be linked to gold – shocking though that may sound today. I think in this country we will get major tax changes just as we did in the early 1980s. In terms of moving forward, I think we’re on the cusp of new technologies coming along – you see it in banking, where more and more is being done with handhelds; that’s going to have enormous implications for finance. I think we’ve got a good era in front of us if we can just get some basic stuff straightened out. It seems like every 20 or 30 years we get amnesia and then have to relearn some basic lessons. But we do relearn them and things do get better.
o: The only thing we learn from history is that we learn nothing from history?
SF: Too often!