These days it can seem more popular to defend Morris dancing than free markets. In today’s recession-engulfed debate, failed ideas have come back from the dead. Capitalism is bad, intervention good. Financiers are evil, industrialists are good. Tax hikes are good, low-tax polices are bad. And so on.
But if there is one person (beside Fraser Nelson, of course) who is willing to stand up for free-market capitalism it is Steve Forbes. The U.S publisher, flat-taxer and perennial presidential candidate has just published a punchy piece in his eponymous magazine – entitled “How Capitalism Will Save US” — and at a breakfast meeting in London, he laid out his ideas.
Forbes believes that U.S regulators should change the “mark-to-market” accounting regulations, which require daily revaluing of assets. This piece of regulation more than any other, Forbes believes, aggravated the financial crisis because it require bankers to put mortgage assets on their balance sheets at current prices, even though they might plan to keep the securities for years. Bank mergers are also less likely, he argues, because the rules hurt asset valuations. Get rid of it and the worst of the financial crisis may be behind us, Forbes maintains.
Governments should stop believing that a fiscal stimulus, even the trillion-dollar one that the Obama team is said to be considering, can have any impact on the economy. In Japan, Forbes noted, stimulating the economy is an annual ritual with no real effect. He scoffed at the Labour government’s base-pleasing lifting of the highest rate of income tax to 45 percent from 40 percent, and argued that the government should instead bring down the main rate of corporation tax from its current 28 percent to something like 20 percent while raising the personal income tax allowance significantly. If it wanted to please its core vote, spending a bit more money on the NHS would have passed the “no-harm” test, Forbes said.
Forbes maintains that there is no alternative to a stomach-churningly large public debt. He argues that being indebted is much better than the kind of economic crash that would happen if governments did not act. The key, however, is to ensure that the debt does not come from fiscal stimulus, but tax-lowering, which can provide the basis for long-term growth in the economy. Much of what Forbes has to say is US-centric, such as the need to look at the uptick rule and how to recue Fannie May and Freddie Mac. But his focus on reducing the rate of corporate tax, the dangers of a stimulus and the need to accept debt makes his a useful intervention in the British debate which has descended into political cliché.
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