 This is the David Feldman Radio Network. Great. Steve Forbes is Chairman and Editor-in-Chief of Forbes Media. He is author of the new book, Reviving America, how repealing Obamacare, replacing the tax code, and reforming the Fed will restore hope and prosperity. Thank you for joining us, Steve Forbes. Good to be with you. Have a thank you. I would like to invite you to my Thanksgiving dinner next year. You know, every Thanksgiving, you need a crazy uncle. You're not old enough to be my uncle, but if it's a free lunch, I'm all for it. Do you have crazy uncles at your Thanksgiving? You know that I'm a lefty, and there's nothing you're going to say to convince me to vote for a Republican. There's absolutely nothing you can tell me that will change my mind. So at Thanksgiving, if you came and sat with my family, you would be the crazy uncle. And how could that be? How could... Wouldn't my family freak out at the thought of Steve Forbes being the crazy uncle? Is it possible to have a conversation with my family expressing the views of the other side and they're listening to you without demonizing you? Is that even possible anymore? Sure it is. And once they read the book, they'll say, David, you've got to show signs of growth. Here it is. So you'll become the new conservative and the world won't be the same. Who's a crazy uncle at your Thanksgiving? Would it be the liberal? Is there ever a liberal who speaks up at your Thanksgiving dinner? Well, I've got a couple of... I've got a son-in-law who is an Obama supporter and we have friends who are. But since we want to have a good time, we've discussed baseball and the Yankees and I guess we shouldn't bring up the Mariners or any other team that they support. So we have a good time. Is it harder now to discuss politics than it was, say, 25 years ago? Well, I think that things are tense now because there is a mood in the country that the economy is not working, that growth is very slow, that over half of the workforce are seeing the standard of living decline, that the world is falling apart and it's the same kind of uncertainty in malaise that we had in the late 70s, early 1980s and these things do turn around. I'm old enough, this is before you were born, to remember the 1960s when the country literally looked like it was falling apart in the late 1968. So we have rough periods but the remarkable thing about this country is we always bounce back. We learn, we make changes, we move forward. I mean, back in the 70s when Japan looked like it was taking over the world, we learn from them in terms of just-in-time inventory management and the like. We're a very versatile, flexible country and while Japan is still stagnating after 20 years, Europe can't get going. It's growth, you need a high-powered microscope to find. China's slowing down. We've demonstrated that when we get a setback, we figure out a way to move forward. It may take time but we always do it. Steve Forbes is the author of a new book called Reviving America, How Repealing Obamacare, Replacing the Tax Code and Reforming the Fed Will Restore Hope and Prosperity. You ran for president twice in 1996 and in the year 2000. I want to ask you about that later but let's talk about the book. We're getting over the worst economic downturn since the Great Depression and you're talking in your book about reforming the Fed which is, I think, 101 years old. What do you mean reforming the Fed? Auditing the Fed? Well, reforming the Fed means fundamentally changing the way it treats the dollar. The recession of 2008-2009, which for most Americans is still continuing, had as its foundation the weakening, deliberate weakening of the dollar by the Fed and the U.S. Treasury Department and this was under a Republican administration. So both sides did some sinning here and whenever you weaken the dollar, you get bad results. You got a false commodity boom, you had a housing boom and then bust and since 2008-2009, the Fed's quantitative easing and zero interest rate policies have been a disaster. Normally after a sharp downturn, the U.S. economy always makes a sharp upturn and then the question becomes, can you sustain it? This time we didn't ever get a sharp upturn. It's stagnant at 2% for six years now and that's a result of the Fed by suppressing interest rates. What it does is makes it, it gums up the credit markets. It's like a rent control, great if you have the apartment and don't mind a lack of maintenance but you're not going to get many more apartments billed if you have a gummed up market. The long and short of what's happened to our credit markets is government has no problem borrowing. It's very cheap rates but small and new businesses and households very different picture. I'll just give you one statistic. In the last five years, growth of credit to the government has grown 37%. Growth of credit to corporations, 32%. Growth of credit to small businesses and households, 6%. When you have that kind of measly growth of credit to small and new businesses which are the big job creators, that's why we have these long periods where we have more businesses closing than opening. That's why job creation has been bad. You look at the labor force participation rate, the worst since the late 70s. Let me go back there for a second. According to the Census Bureau, corporate births have outpaced corporate deaths since Obama took office. That seems to be a fallacy in the Republican Party. Do you buy into that? That's something you hear a lot of the Republicans saying, that more businesses are closing under Obama than opening. According to the Census Bureau, that isn't true. Do you stand by that? Yes. You've had a very small new business creation and you see that in the establishment survey. They have several surveys in terms of just talking about the labor market. You've got one where they do polling among families saying who's working, who isn't. They have another one where they do a census of existing businesses. That's where they often fall behind the curve. In terms of established businesses, job creation overall has been pretty good. New businesses, it's been very volatile and not what you'd normally get in a recovery. That's why you have low labor force participation rates. That's why you have millions of people applying for disability. They're in their 50s. They don't see prospects. They're looking for something to hang on to. It's so hard to talk to the other side because you're a publisher and a writer and there has to be a way for us to agree on what the truth is. Do you find that? In terms of the truth, you look at the surveys. Most Americans feel one, the country's in the wrong direction. Two, most have seen a decline in real wages since 2007, 2008, which is why most Americans feel we're still in a recession. That's why you have the sour anxious mood in the electorate today. People feel they're not moving ahead. Now you have people at the top doing very well. Thanks, you Federal Reserve. You have people who are well educated. They're doing okay most, but for tens of millions of Americans, they're wondering where do I go from here? Is this going to be even worse for my kids? The mood is palpable. You look at the rest of the world, Europe, Latin America, they're even worse. We're only looking good because the others are worse than we are. Let me talk about that because Europe had a double-dip recession after 2009. Many say that is because the European Central Bank raised interest rates twice in 2011 and also because of austerity. So do you think austerity, which I think you're a proponent of fiscal austerity, I would assume. I not assume, I know that for a fact. Do you think the double-dip recession in Europe was caused by austerity and the Central Bank's raising interest rates? Well, in terms of Europe, let's hit the austerity. The austerity is on the private sector and on the public sector, they cut back on public services but you look at the size of most of the public sectors in Europe. In the last six years, hardly any change at all. The austerity hit the most productive sectors of the economy. Moreover, the way they've practiced so-called austerity is the worst way possible. They should be doing structural changes cutting back in the public sector but making sure you have a vibrant private sector. Remember, the private sector produces products and resources and goods. Government doesn't. Government can tax and seize them, redistribute them, but they don't create new products and services. You look at Greece, their tax rates are horrendous. You look at France, their tax rates and regulations are horrendous. One country that's doing okay is Britain where they have made some sensible changes. Sweden has been cutting taxes. They're doing a little better than others. In this country, we have the Federal Reserve coming up the credit markets. Small businesses have a hard time getting expansion money. Just give me one anecdote. A woman in Philadelphia a little over a year ago graduates from Wharton starts a sandwich shop, unique. It's very successful, booming, so she goes to the bank with a partner and says she wants a loan to open another one. She's a Wharton school graduate so she knows balance sheets and cash flows. Positive, profitable from day one. She wants a $300,000 loan. The bank looks at it, looks at the regulators looking over their shoulder and say, we'll give you 60,000. And you see that happening all the time. You saw in the paper the other day that big banks especially, the cost to making a small business loan just ain't worth it anymore. And you have people moving in the market for small businesses, but they're charging 20, 30, 40%. I'm with Steve Forbes, he's chairman and editor of Forbes Media and author of the new book Reviving America, How Repealing Obamacare Replacing the Tax Code and Reforming the Fed Will Restore Hope and Prosperity. The Fed has been giving money to the banks to lend out at a huge margin. Banks should make a huge profit every time they lend money. How culpable are the banks for the tight credit market? The big banks? Not much. They have two things going on. One, what the Fed has ended up doing and this is where economists are still fighting the last war whether they're liberal or conservative is the Fed in effect has borrowed cash from the banks. They create the money, they sell the securities and they in effect have a lot of cash that should be back at the banks. So the banks have these excess reserves that are deposited at the Fed, earns 25 basis points, free money for the banks. But if they make a loan, if they make a loan to a small business, they have to paper that thing six ways to Sunday. In some banks the regulators examine every single loan to make sure it's papered over just exactly right. Are you saying that there's too much regulation? You bet. In terms of the banks, it's very simple in regulating the banks. You have capital requirements. If you mess up, you go down. If you don't, you do fine. But this idea that regulators can run the banks as a backseat driver just does not work. So again, look at the numbers. In terms of small and new business loans, household loans, it's not good. Ironically, if the Fed allowed credit markets to operate, you'd see much better economy. Stable dollars key. Don't need the yo-yo. We're coming up on the end of 2015. In 2009, Steve, did you think you would ever say that the problem with the banks is too much regulation? Do you think in 2008 anybody would have said the banks are being over-regulated? Right before the economy collapsed. Well, let's look at that. If you had had Dodd Frank in 2000 instead of 2009, 2010, you still would have had the disaster of 2008. The origins of it were undermining the integrity of the U.S. dollar. We went through this in the 70s in a different way. And when you do that, you gum up the economy. Look what happens. The Fed decides in the long at the Treasury Department, again, both sides are culpable on this one. They weaken the dollar to supposedly stimulate the economy. When you weaken the dollar, what happens? Existing in hard assets. Oil, between the mid-1980s and early 2000s, averaged a little over $21 a barrel. Suddenly it's at 100. Copper goes up, wheat goes up. All commodities go up. When all commodities go up, something is wrong. And so they undermine the dollar. Money goes into hard assets like housing. We thought the housing prices were going up forever and ever. We saw where that led. And then you get the inevitable crash. And so what you want, you don't want a clock that changes the number of minutes in an hour each day. You want a dollar that's stable in value. A dollar that's either weak or strong is like a watch that's either too slow or too fast and either one is going to do any good. What do you say to people who maintain the dollar is too strong right now? That's why manufacturing is sluggish. Well, again, that's the Fed mucking up. You don't want a too strong dollar or too weak dollar. You want a stable dollar. Just imagine what life would be like if the Fed had his hands on clocks and watches. You have 60 minutes an hour one day, 48 minutes the next, 96 minutes the day after. It would be chaotic. Imagine baking a cake. It says bake the batter 30 minutes. You have to figure out of those nominal minutes, inflation adjusted minutes. Are they in New York minute, California minute, Mexican minute? Well, it would be nuts. But that's what they do. What they don't realize is that money in and of itself has no value. Money is not wealth. Money measures wealth. And you're saying to go and you're saying we need to go back to the gold standard which I believe. A gold standard. Not the Richard Nixon took us off the gold standard. Yeah, he he took us off what they call the Bretton Woods of exchange standard. Yeah, okay. What is the difference between the gold standard and a gold standard and you have different variations of the one we had since World War two. Individuals couldn't go to the government exchange dollars for gold. Only governments could under what they call the classical gold standard. We explain this in the book. Individuals could do it. They have variation just as with democratic systems. Our system is very different from Canada's. Our system's very different from Britain. Britain's different from France. You have variations. The key thing in democracies is you have the consent of the governed, even though you may have a parliamentary system, a federal system, combinations of both. In terms of a gold standard, what you want is a stable value for the dollar. The particulars can vary and have throughout history. It's very complicated. It's very simple. Think of a clock. Think of 12 inches in a foot. You don't want that changing. So you don't want the dollar changing in value. The dollar is like a claim check. Coat check. You check your coat at the restaurant. Coat check has no value, but you have a claim on your coat. Money is a claim on products and services and it works when people trust it. But in and of itself it has no value. But it measures value. Like a scale measures weight. So are you opposed to any inflation whatsoever? Or is the inflation linked? Let's look at what inflation is. It's deliberately trying to raise prices. So Janet Yellen yaps about wanting 2% inflation. Take the typical American family making $50,000 a year. That means she wants that family's costs to go up $1,000 a year. That's a virtually a tax increase. Who gave her and the fed the authority to increase the cost of living on a family $1,000 a year? Remember, inflation is a tax. So why would you want to tax people? What you want is like saying, gee, if we change the number of ounces we could solve the obesity problem. Again, money is like a ruler. It's a measure. The idea that you can stimulate the economy by say a restaurant or say a restaurant can stimulate its business by creating more coat checks because that would stimulate the production of more coats. Therefore you'd have more customers. You say that's nuts. That's what they're doing with the economy. For my listeners, would you say the biggest difference between you and me? Well, obviously there are a lot. You're more concerned about keeping inflation rates down and I'm more... In terms of prices I just want a stable dollar. Now some prices may go up if everyone decides they want apples in the morning. Prices will go down with high technology. You take a widescreen TV 10 years ago it cost you $15,000. Today it's several hundred dollars. To me that's productivity not deflation. So prices go up and down according to supply, demand and productivity. I just want a stable measure of money. Let me finish my question. Would you say the biggest difference between East Coast Republicans and East Coast Democrats is the East Coast Republicans are more concerned about inflation and the East Coast Democrats are more concerned about unemployment. In other words, I get up every morning and I ask, is America working? And you get up every morning and say how stable is the dollar? Is that a fair statement? No, that trap is called the Phillips Curve. It's by an after an Australian economist who posited even though it's been disproven that if you want lower unemployment you have to have inflation and if you want lower inflation you have to have higher unemployment. That hypothesis is absolutely false even though the Fed adheres to it in the face of all evidence. I know from experience that if you have a stable dollar and a sensible tax code people prosper. If you have an unstable dollar and a crazy tax code which we have today people suffer. We should have learned that from history but some economists and the policymakers don't understand Richard Nixon. Okay. Carly Fiorina is talking about I believe a three-page tax code echoes of your flat tax? Yeah, she hasn't released the particulars of what's on those three pages. I want to see those. Ted Cruz has a variation of a flat tax out there. So does Rand Paul, so does Santorum. Dr. Carson talks about it. I haven't seen the particulars yet. But what I find encouraging is that all the Republican candidates want to radically simplify the tax code and lower tax rates. Remember, taxes are a price. It attacks you if you work. You pay a tax to work. It's called the income tax. If you make a profit you pay a tax. That's called a tax in success. An experience shows when you have low rates and have a simplified code you get more prosperity. Let me just give you a couple of numbers to show how crazy and destructive this tax code is. The IRS estimates we spent six billion hours a year filling out tax forms. Experts estimate we spent $300 billion a year complying with this crazy code. Just go over a generation. Tens of billions of hours, trillions of dollars, immense brain power wasted complying with hideously complex tax code. Imagine if those resources the time and the brain power have been applied to creating new products and services, new medical devices, new cures for diseases, how much better our life would be. So it's not just GDP with this tax code. It takes brain power and misdirects it to a dead-end activity instead of making our lives better. That's what I hate about it. It's immoral. Steve Forbes is the author of the new book Reviving America How Repealing Obamacare Replacing the Tax Code and Reforming the Fed Will Restore Hope and Prosperity Repealing Obamacare You talk about private savings accounts. Health savings account. Where Americans will save their own money and invest it wisely. So when they get sick... Well, an HSA Health Savings Accounts People in the workforce have them now. They're growing. What it does is the employer puts money in an IRA-like account. Employee can, too. And it grows tax-free. You're going to earn interest on it. And it's to cover routine expenses. Then you have a catastrophic policy that covers the big hits, like an accident or heart disease and the like. And that way the patient gets to control. One of the big problems with healthcare is it's all third-party pay. Whether it's government, insurance companies, employers, and patients aren't in control. And the proof of it is, if you go to a hospital or clinic and you ask in advance of the treatment what it costs, you get a very strange look. It means one of two things. Either you're uninsured or you're crazy. Why would you want to know the price? Because with anything else you want to know the price. So one of the reforms we propose in this book is that healthcare require that providers, particularly hospitals and clinics, post their prices online like hotels and airlines do. So you can see if hospital A charts 2,000 for an MRI and hospital B 750, you can see and you'll be shocked at how grossly inflated a lot of prices are. And when you start to get consumerism in the healthcare market and sensible safety nets you learn what looks like a hopeless liability into the most dynamic growth industry ever. Healthcare is personal. You obviously were a presidential candidate because you said three things that I want to not object to but call you on and I can see the difficulty that somebody like George Stephanopoulos has in talking to presidential candidates because you do steamroll. So let me get back to private savings accounts if you don't mind. This is the problem with the dialogue at Thanksgiving and the problem that we have on Sunday chat shows is your side and my side really are good at just plowing ahead and making it impossible for me to say past the gravy oh and by the way stop for a second let me ask you some questions here. Private savings account private savings account. Do you believe Americans are knowledgeable enough to invest their own money and not lose it all in protecting their health? Well health savings accounts most of them unless you specifically want something else and an employer will let you do it most health savings accounts go into a bank account once upon a time you could earn an interest on that now you earn one or two basis points but that's risk free. Setting money aside you can let it accumulate or you can but isn't it you're not investing this is not like it's IRA like in the sense that employer employees can put money in it but in terms of stock market no they're not IRA they're not an IRA in terms of stock market isn't there a problem in terms of investing aren't most Americans incapable of figuring out all these investment vehicles if one out of five money managers can't outperform the S&P 500 why would I expect somebody a single mom working 15 hours a day to figure out how to properly invest the most important money she has you got two things here on HSA's the money is in the savings account those are health savings accounts health savings accounts so that that's not a problem in terms of IRAs in terms of retirement accounts is a very simple thing you should do if you don't have time to do you know babysit your own money and that is put it in a low cost index fund from Vanguard Fidelity and the like and just let it grow you don't have to worry about it and that's what you do and you'll do fine over your working life Steve Forbes anything that is the greatest thing that your side has ever said Mr. Bogle the creator of the Vanguard fund the only place you should put your money is in a Vanguard index fund thank you for saying that that is it infuriates me that there are more mutual funds out there than there are stocks well in my previous book called money we have a section on what you should do with your money and the motions are your biggest enemy in investing everyone says they're a long term investor and they are until the market goes down then they want to get out and the problem is people get giddy when things are going well they get depressed when things in the market go poorly so they get whipsawed so we recommend that on retirement money you and again unless you have a particular situation or you've got the time to really write is a go with an index fund or a couple of index funds for bonds and the like but isn't the danger of an HSA that Wall Street will salivate over all that cash that's sitting in those HSAs and try to lure people into investment vehicles that are dangerous isn't there a real danger to that no for for that kind of thing for medical money no unless you're using it in an IRA and some handful of people might but most people want it like a checking account okay let's get back to by the way thank you so much for saying that about index funds because mutual funds are one of the biggest scams going in America I think most mutual funds are disgraceful and they're fraudulent but that's my opinion not yours let me get back to Obamacare my side the Democrats the Liberals the people who are correct will say this to you Steve Forbes the only religion in Great Britain is socialized medicine the Canadians cannot believe our health care how fraudulent it is it is axiomatic on my side that we need universal health insurance that the insurance industry is the problem and that you cannot be a consumer when it comes to your health because when you're sick not just going to you know in your book you talk about yes the emergency room nobody shops around when they're going to an emergency room but you say in the book that people should be able to shop for doctors like they shop for cell phones but the fact is medicine is so Byzantine and so complicated how are we supposed to figure out who the best doctor is that there are some things where you just can't be a consumer and you need the government to help let assume the government knows more about medicine than everyone else and that's just preposterously false in terms of docs that's why we propose hospitals post hospitals post and how many people died of infections contacted at the hospital because a lot of them don't practice basic measures in terms of making sure you don't get those diseases you go in for knee replacement and end up dying of sepsis and in terms of buying your own insurance you should be able to buy what you think you need to say that consumers are too stupid to do things on health like saying they're too dumb to buy electronic devices and the like one of the things Steve Forbes is the author of Reviving America let me stop you for one second I'm not saying consumers are too stupid I'm saying that the people selling some of these things are too forgiven and too manipulative you know when you're sick or if you have a sick relative the insurance companies are much better at wearing you down and waiting till you die that doesn't mean you're stupid it means you're weak and you need to be protected it's like you need a police officer to protect you from criminals don't you think the insurance industry is almost criminal in their behavior these days no I think they're responding to a crazy system and that goes to Obamacare where they took the previous system which was we pointed out in the book had a lot of problems and long term was unsustainable and the double down an employer provided third party system if the patient is not in charge of health care dollars the patient is going to get in the back of the line and we point out there are women and small things no the crummiest motel in the world wouldn't dare put you in a room with another person with a curtain separating it like hospitals do no crummy motel would give you a robe the routine would do it hospitals would look like they're cast off from the Salvation Army and it goes beyond that you go to a hospital today you're shunted from one specialist to another and because you're not the customer when you're the customer as we've seen with lasik surgery cosmetic surgery by golly you get a very you get more productivity more for your money they know you're writing the checks so they respond to you so you got to put the patient in charge and we've got proposals in there including nationwide shopping for insurance so you get hundreds competing for your business instead of a handful of oligarchs in each state and free markets when allowed to work always turns scarcity into abundance and in health care one final thing on health care more basic than health care is food and while governments involve in agriculture it doesn't run agriculture if it did we have no more obesity it would all be starving that's what they did in Russia and China in the old days but you have effective safety nets of people can't get food you have everything from food banks to food stamps to deal with it why in the world can't we get the same thing in health care real entrepreneurship patient control and rational safety nets then we get the best of all worlds well the agriculture bill that comes up every five years to me shows that the government does control our food in this country they give subsidies to those who have the power which is wrong but farmers are allowed to do what they want in terms of what they grow and the productivity is legendary the problem today some say is that we eat too much not too little well but I you know this is why thanks but the government doesn't try to run a farm that doesn't have a socialized system well the ag bill makes it I'm not defending the ag bill I would get rid of it but I mean but that's a big bill that kind of dictates didn't go over well in Iowa and I ran on that were you for against and all? I was against it I can tell you you pay a price for it yeah I mean but the government does control what we eat the dairy subsidies that's why we have so much cheese in our diet and that's why Americans are getting so then you're making the argument government mucks up agriculture then why do you want government more involved in health care? well if the government enforced laws and allowed the small farmer to come back we would have more locally grown food but instead it's all these agri-combines and that's because the justice department is asleep at the switch they should be breaking up these big combines government's politics government sticks to what is there and entrepreneurship is about creating the unseen and what people can't imagine and you mentioned the Medicare earlier the problem with Medicare isn't providing a safety net for elderly people it's the fact that you don't get innovation the way you should let me ask you about the VA which okay this is what my side says and I want to hear your response the VA used to be a shining example of government run health care and then there were the bush cuts and it turned into a disaster about five years ago but before the cuts that your side is responsible the VA was a shining example of government run health care Medicare if you pull most Americans they'll say get your hands off my Medicare Medicare the highest salary at Medicare something like $200,000 the guy who runs United Health Care makes $35 million it's been pointed out that these health insurance companies spend something like 25 to 30% of their budget on bureaucracy whereas Medicare spends something like below 2% on bureaucracy you know your side states it's axiomatic that big business is more efficient than government isn't it true that Medicare is run more efficiently than any health insurance company no what Medicare shows I'll tell you why and by the way the health insurance system we have now with this third party pay system without the patient in control Medicare looks efficient because it does not try to ferret out fraud or claims and up to 90 billion a year of Medicare payments are fraudulent or not done right and because they don't police it and the reason they don't is because of politics they don't want calls from members of congress saying why didn't you do this why did you do that so they say yes to everything then after the fact they try to ferret out the fraud one of the changes we propose in the book is that those who receive Medicare payments must be each year listed how much they got from Medicare so some doctors collecting $20 million a year for a back surgery and he only opens his office once a month you know you've got a problem and you'll have local newspapers asking questions why so much money going here what are you doing to deserve those payments and so that's that's what I think is with Medicare Steve Forbes is chairman and editor-in-chief of Forbes Media he is author of the new book Reviving America how repealing Obamacare replacing the tax code and reforming the Fed will restore hope and prosperity thank you for joining us Steve Forbes I'd love to continue this either soon or next month would be great thank you thank you so much this is the David Feldman Radio Network