With U.S. unemployment still around 10%, job growth anemic and federal deficits soaring, two-time presidential candidate Steve Forbes joined me at our Washington, D.C., offices for a teleconference to let subscribers of HUMAN EVENTS hear about what he considers a crisis in America and what U.S. leaders should do about it. Click here to listen to the teleconference.
The crisis stems from the government’s spending, taxing and power-grabbing “binge,” Forbes told me. Recent moves by the federal government have extended its reach significantly into healthcare, the financial markets and other industries.
The government is attaching its “tentacles” to more parts of the economy, without formally nationalizing any industries, Forbes said. Such government involvement distorts markets, uses tax dollars inefficiently and hinders economic growth, he explained.
All is not lost, though, Forbes said.
“Bad actions get good reactions, and I think we’re seeing it now with the Tea Party movement and other reactions of candidates coming forth who understand the basics of economic progress and of liberty,” Forbes said.
To reform the U.S. tax system, voters should support political candidates who understand the importance of simplicity and low tax rates, Forbes advised.
“Taxes are a burden and a price,” he said.
To that end, Forbes explained that income taxes are a price that a person pays for working. The tax on profits is the price paid by businesses for taking risks and becoming successful. And, the tax paid by individual investors on capital gains is the price for taking risks that work out, he added.
The best policy change to restore the incentives for intelligent risk-taking would be to cut taxes to encourage activities that stimulate the economy through the private sector, Forbes said.
Death and Taxes
Government stimulus spending “does not work,” Forbes continued. The government takes resources and diverts them from their most productive purposes, he explained.
It is similar to the early days of medical care when bleeding an ailing patient became a common treatment that actually had the unintended consequence of contributing to a person’s death, Forbes said.
Another policy that the U.S. government needs to adopt is to prioritize strengthening the U.S. dollar.
“A weak dollar means a weak recovery,” Forbes said.
A model to follow would be the emphasis on a strong dollar by President Reagan, Forbes said. The result was an economic turnaround during his two terms as President.
“Taxes are crushing this economy,” Forbes said.
U.S. government leaders should adopt a flat tax or at least stop raising taxes, repeal the recently passed healthcare bill and address that latter situation by spurring competition through the creation of group-purchasing cooperatives that let individuals and small businesses pool together to buy insurance the way big organizations do, he explained.
Growth-choking economic policies and the taxpayer outrage about expanded government spending spurred the creation of the Tea Party movement, along with the likelihood of change in the next national election, he explained.
But it would not be the kind of change that President Obama probably wants to see.
“In 2012, I do believe we’re going to get a new administration, along with a new Congress that will bring in some ‘Reagan-esque’ policies,” Forbes said. “So, we’re going to have a much better environment for investors.”
Despite the market’s volatility, investors who can afford to take risk should not head to the sidelines.
“When the others are panicked, this is a time to get in if you can take, truly, that long-term perspective,” Forbes said.
Even those who are retired or nearing retirement should avoid yanking their money out of stocks.
“Don’t pull out of equities now,” Forbes said. “You’re just going to get whipsawed. Remember, emotions are your enemy.”
Even though people feel awful about market downturns, such situations are precisely the time to snap up “bargains,” Forbes said.
“And look overseas,” Forbes said. “There are a lot of good companies emerging overseas.”
As for riding the current wave of rising gold prices, Forbes expressed the view that investing 5%-10% of your portfolio in the precious metal could serve as a hedge against market weakness.
“If the people in Washington go berserk as they are now, at least you’ve got some insurance [in gold],” Forbes said.
Forbes urged caution to those inclined to invest in the government debt market.
“You have to be careful,” Forbes said. “I would not buy government debt right now.”
Also sharing his expertise with me was Dr. Mark Skousen, an economist who edits the Forecasts & Strategies investment newsletter.
“We are getting hit with a bad series of economic policies,” Skousen said.
President Obama’s policies of raising taxes, adding burdensome new regulations and amassing record deficits are anathema to economic growth, Skousen said.
“Benjamin Franklin once said that a virtuous and industrious people may be cheaply governed,” Skousen said.
Ironically, Skousen said the United States should look toward Canada to see the value of cutting government spending and adopting pro-business policies to spur the economy.
Skousen also is an advocate of buying dividend-paying equities that give investors income and reduced risk, compared to growth stocks.
“Most people think growth stocks are the way to go,” but the market typically overvalues such stocks and undervalues income stocks, Skousen explained.