Forbes '70 argues for stable dollar

Forbes, who founded the magazine Business Today as an undergraduate at the University, campaigned for the Republican nomination for the presidency in 1996 and 2000 on a platform of flat income tax and served on the University Board of Trustees from 1992 to 2002. Forbes previously visited campus for Forbes residential college’s 25th anniversary in 2010.

Forbes spoke about the United States’ role in maintaining the stability and prosperity of the world. “We are the guarantor of free trade, peace and safety in this world,” Forbes said. “Without the U.S., this world would be much more violent, more unstable, less prosperous and have less prospects for the future.”

He contrasted the 1980s and the present day, arguing that the ’80s were a period of positive change in which democracy came back into fashion, Silicon Valley was starting to boom, the Berlin Wall fell and Soviet communism collapsed. “From the early 1980s to 2007, when this financial crisis started … we went through one of the most amazing periods in human history,” Forbes said. “Never before have so many people, in so many parts of the world, advanced so quickly.”

Since the 2008 economic crisis, however, the pace of historical progress has slowed and the U.S. economy has gone stagnant, Forbes argued. This decline has been difficult for the United States to shake off and is perceived by the outside world as a “fundamental flaw of free market capitalism,” he said.

According to Forbes, however, the American decline stems from fundamental policy errors in two areas: money and taxes.

“The reason we are not doing well today is because money is not being invested the way it should — taking a chance in the future,” he said.

He also warned about the distortions and blockages in the economy that could result from mistakes made by the Federal Reserve, which could then be replicated by other central banks.

“Monetary policy can never productively stimulate an economy,” he said, explaining that using monetary policy to affect the currency’s value misdirects the economy and explains why United States has yet to emerge from the 2008 recession.

Instead, Forbes said, the dollar ought to become linked to the value of gold within five to seven years, because gold is “the one thing in the world that keeps its intrinsic value better than anything else.” Ensuring the stability of the dollar in this way would make transactions “infinitely easier [and] more productive,” Forbes noted.

In addition to discussing monetary policy and the necessity of a stable dollar, Forbes argued that taxes are not just a means of raising revenue for the government but are also a burden on taxpayers.

“All this talk about raising taxes — absolutely counterproductive,” Forbes said, citing numerous countries around the world in addition to the United States that have faltering economies and are raising taxes today, such as Greece, Italy, Portugal, Britain, France and Japan.

While the United States is able to use its states as laboratories for testing the effect of tax policy, Forbes said, research has shown that states without high income taxes do far better over time than those that do.

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Referring to New Jersey’s high income tax, Forbes, who is a resident of New Jersey, said that after the state implemented its income tax, “our [state] economy is a shadow, proportionally, of what it was 20, 30 years ago.”

Forbes further argued that the federal income tax code, as well as the rules and regulations that go with the code, are excessively wordy and confusing.

“Nobody knows what’s in it,” noted Forbes. “You don’t have to go the Amazon; there are exotic creatures right there in the code.”

Forbes said he believed American tax policy should be based on the simple flat tax and involve no federal income tax for the first $46,000 of income, no tax on savings and no “death tax” on inherited estates.

“No taxation without respiration,” Forbes said, eliciting laughter from the audience.

Forbes also said that the economy has far-reaching effects and could profoundly affect politics, security and people’s views of the world.

Forbes’ talk, titled “Why the Tax and Monetary Sins of the West Now Threaten Civilization,” was delivered in McCosh 50. It was sponsored by the James Madison Program in American Ideals and Institutions as part of its “An America’s Founding and Future” lecture series.