I.O.U.S.A. (61 page)

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For example, the income tax was enacted during the Civil War, but was repealed a few years later. World War I racked up a lot of debt, but in the 1920s we reduced it by a third and lowered tax rates. It ’ s hard to believe, but in the early ‘ 20s the highest wartime tax rate was 77 percent. Then it was cut down to 25 percent. As you can see, we were still in the tradition of gearing back.

Then came the Great Depression. At the time, nobody knew why it happened. It was seen as a failure of free enterprise. The government thought the best way to recover from this disaster was the way they had historically done it after wartime. And so with Herbert Hoover ’ s administration and later with the New Deal, the government assumed new powers to try to correct the fl aws of private enterprise. This is when we had the rise of the alphabet agencies. Then, in the late 1930s, the New Deal sputtered to a halt. It clearly wasn ’ t pulling us out of the Depression. But just as soon as it looked like this period was going to end, the Second World War broke out, accompanied by another ratcheting up of government powers. As soon as it looked like the turmoil that was caused by the Second World War was going to end, we had the Cold War. During this period, everything was done for national security. Even the interstate highway bill of the mid - 1950s, which established and eventually built 40,000 miles of freeways around the country, was done in the name of national security.

Education reforms were also established for national security (the government believed we needed more scientists).

So, as a result of this constant warfare we ’ ve had to fi ght — hot wars, Cold War, and the war against Islamic extremism —

government powers have always gone up. And I think what the real challenge for the United States now is to show that we can fi ght these forces that threaten our basic freedoms, while simultaneously preserving our freedoms from excessive government involvement. No other states, no other nation, no other republic, no other empire ’ s been able to do it. I think that ’ s the challenge that we face. I think we ’ ve got to show ourselves and the world that a free people can defend their freedoms. We cannot give up more sovereignty to government bureaucracies.

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Q:
Given your experiences with the political system, what type
of leadership would it take to put the hard choices in front of
the American people? As you said, after a war we should know
that we must cut spending a little bit and reduce government
involvement. Yet that doesn ’ t seem to ever happen. There
always seems to be a reason why the government needs to
spend more. We ’ ve heard about cutting taxes, but we ’ ve never
heard about cutting spending. Why is that?

Steve Forbes:
I think, to be blunt, the reason why it ’ s been so diffi cult to cut back on government spending and their overinvolvement in the economy is because we ’ ve done it the wrong way. When you go after a specifi c government program, obviously, the benefi ciaries are going to fi ght you tooth and nail.

And benefi ciaries of other programs are also going to fi ght you because they fi gure, “ Boy, if they knock off that one, they ’ re going to come after us next. ” We saw this happen in the mid - 1990s when the Republicans took over Congress for the fi rst time in decades. Their hard - fought efforts to ratchet back government spending lasted a little over a year. Why? I think it ’ s because they were too limited in their ambitions and they made it sound like they were going to take something away from people or turn the tables on the big spenders.

Take, for example, one of the biggest sources of power, the tax code. If you ’ re simplifying the tax code, people won ’ t think you ’ re taking something away from them. Instead, they think you ’ re helping them. Another example is Social Security. The money is there for the current elderly, yet the real problem is for people in their twenties, thirties, and forties. So why not say, “ We need to help them. We ’ re not going to cut their benefi ts; instead we ’ re going to allow them to control the money by putting it into their own personal account. There will be safeguards for it, but it belongs to them, not the politicians. ” People aren ’ t going to see that as taking something away. They are going to think that the money is being taken away from the politicians, not them.

Same with health care. It ’ s all third - party; you don ’ t get to use it until you use it. Although health care in the workplace is counted c18.indd 248

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as a fringe benefi t, it ’ s not the same thing as getting money in your pay envelope or into direct deposit. Conversely, properly structured health savings accounts would put the money directly into your account. You control it. With this system you say to a worker that he may spend $ 5,000, $ 10,000, $ 15,000 on his health care, but you won ’ t see any of that money unless you go to the doctor. If you had a system where you had a high deductible policy, but you got several thousand bucks a year to go into your account and what you didn ’ t use went into a growing tax - free account, most workers are going to think, “ I ’ m coming out ahead. ”

Same with education. Why shouldn ’ t parents be able to control where their kids go to school? Now, there ’ s a suit just fi led in my home state of New Jersey, a parent saying, “ The school ’ s failed my kid. I want to be able to take the money you spent on my kid and go to another school. ” Think of it this way: If an automobile company sells you a lemon car, they give you a refund and you go buy a car elsewhere. You don ’ t give the auto company more money. The same should be done with education. The government should say, “ If the school fails you, take the money and go to a school that isn ’ t a lemon school. ” Again, people aren ’ t going to think that ’ s a cutback.

This is what leaders have to do. Use a little imagination — fl anking movements instead of charting the machine gun. Bring in some artillery, bring in some air attack, and then we can beat them.

I believe that leaders need to go after the big things — health care, education, Social Security, taxes. If you win there, then you have given a real blow to the leviathan. Then you can start going after other things because you ’ ve established that there ’ s a right way to do things. People think they ’ re coming out ahead and that they are getting something. So don ’ t fi ght by the rules of the other side.

You can only win if you rewrite their rules.

Q:
We grew up in a culture where we heard phrases like “ A penny
saved is a penny earned ” or “ Put it away for a rainy day. ” Where
did this culture change in the United States? When did the
shame of owing money, indebtedness, or bankruptcy evaporate
and the idea of accepting massive personal or governmental
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debt become accepted? Also, do you believe this culture change
is positive or negative?

Steve Forbes:
Well, the key is that people must learn how to handle fi nances in a responsible way. Too often, the kind of consumer culture we have only focuses on the here and now, not on the future. What we should learn to build on in terms of recasting our culture is home ownership. There you ’ re taking on debt, but you have an asset behind it, you ’ re paying it off, it ’ s your property.

In terms of indebtedness, people have to look at the balance sheet and make sure they have assets there. This is where having your own personal accounts for Social Security would be such a benefi t because from a young age, your money ’ s going into that account.

You want to know, “ How am I going to grow that account? How am I going to protect that account? How do I make sure the politicians don ’ t wreck it for me? ” Suddenly, people are going to develop a Ben Franklin – like mentality because they are talking about their own money. And don ’ t you think that ’ s going to start to spill over into other areas? People are going to want to talk about assets and actions that will help or jeopardize their earnings. At an early age, people will develop, build a mentality that they can accumulate and grow their assets. They will become excited to see that they worked and have something to show for it, other than just a paycheck or a trip to the movies. After a person earns their money at McDonald ’ s, they will have something that lasts longer. Now, the words “ A penny saved is a penny earned is a penny saved ” will have meaning. Kids especially will be able to build this mentality at an early age.

Q:
Recently, the United States has been compared to a giant ship.

It has been said that sometimes it feels like the amount of
debt taken on is a Titanic - like iceberg and the ship is heading
toward it. Is that a reasonable analogy? Is the enormous debt
that the government has created a threat to our future?

Steve Forbes:
Whether it ’ s a ship headed for an iceberg or a car headed for a cliff, when you get near the cliff, you ’ re going to have c18.indd 250

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to stop. The United States with its liabilities on Social Security and health care is unsustainable. You see huge liabilities in Europe and Japan. The question is, what do you do about it? And that is where you need a new crew or a new captain. If the people who are manning the ship can ’ t do a good job in avoiding icebergs, you must get a new crew that doesn ’ t keep sinking the ships. This is where we have to say, “ Enough ’ s enough. You ’ re not doing the job.

We are going to replace you and here ’ s how we ’ re going to change things. ” As free people, we have to do that. There ’ s no point in complaining. Instead of saying, “ The ship isn ’ t doing a good job ” or

“ The captain is about to run us into the iceberg again and sink the whole thing, ” we must effectively change the captain. That ’ s what elections are about. If the captain doesn ’ t change, it ’ s our fault as a free people.

Q:
One of the things that we ’ re taught is in times of war was that
people have to make sacrifi ces. For example, during World
War II kids collected newspapers and tin for the war effort, or
a war tax was imposed. It doesn ’ t seem that during this “ War
on Terror ” that the American people have been called upon
to make sacrifi ces. At the same time, the government doesn ’ t
seem to be making any sacrifi ces as the spending in nondefense
areas has grown. Are we in jeopardy of essentially bankrupting
America if the policies that are in place now continue?

Steve Forbes:
Well, this is where I think we need to answer the question, how do we fi nance this war against Islamic fanaticism, but stop crazy spending? Comparing the spending to drunken sailors is an insult to sailors. They are defending the country and they spend their own money; they ’ re not spending other people ’ s money. Although this is a very different type of war, one of the reasons the American people are so upset with both political parties is that they see there ’ s no fi rm hand on the tiller in Washington. They read about bridges to nowhere. Here we ’ re asking young people to go to Iraq and Afghanistan, sometimes without the equipment they need. Yet we ’ re spending money on frivolous stuff because a politician thinks it ’ s going to help him win reelection.

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People are willing to do what is necessary to defend the country, but we as a free people now have to take the next step. It ’ s not enough to be upset or angry at these characters. Instead, we have to say, “ Who are they? Let ’ s challenge them in a primary, ” just as they did with Pennsylvania state legislators who abused the public trust. Even though the challengers had very little money and weren ’ t well known, they won. We have to take on these folks and say, “ Here ’ s what you did. You have no good explanation for it. ”

We as a free people have to say, “ It ’ s time for you to fi nd new opportunities. ”

Q:
How can people better understand all the statistics that are
thrown at them?

Steve Forbes:
The key to understanding statistics is not to get lost in them. It ’ s like getting lost in a jungle. To understand statistics is to cut to the chase. For instance, don ’ t get into a debate about whether the Social Security system is going to go broke in 2050

or 2030 or 2018. Just say, “ Who should own your Social Security money, you or the politicians? ” Talk about it on your own terms.

Don ’ t get caught up in numbers. Discuss the basic concepts.

Whose country is this? What do we have to do?

Q:
Does the amount of debt service that ’ s in the budget every year
concern you?

Steve Forbes:
The debt service concerns me in relation to how much of our budget goes to debt service. It ’ s like a consumer.

Let ’ s say you earn $ 40,000 a year. If your debt service on your house is $ 10,000, historically that ’ s okay. If you ’ re paying $ 35,000

on debt service and you ’ re only making $ 40,000, you ’ ve got a big problem. And so it ’ s not the number per se. It ’ s that you are spending all your money on credit cards and mortgage. You don ’ t need to know what your income is to know you ’ ve got a problem. That is the way, again, you ’ ve got to fi ght it. Don ’ t focus on numbers per se because you might get confused. Get to the essence the way Ronald Reagan did, the way Ben Franklin did.

People remember those things.

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Q:
From your point of view, what did Alan Greenspan do in the
last 25 years that was great? What will people look back on and
say, “ What was he thinking? ”