(06/05/13) The Best of a Weak Bunch

While the US has plenty of its own problems, it still looks the strongest right now, says Steve Forbes, who handicaps several countries and regions.

Steve, today we have quite a debacle in Washington, just recently with what’s going on with Benghazi and now this IRS business. What can you share with us on those?

Well, the IRS scandal just shows again why we need a flat tax...get rid of this horrific code and greatly simplify things.

When you have an extremely low rate, status doesn’t matter much anymore. Everyone understands what the rules of the game are. On this one, when you have an immensely complicated code and it’s up to bureaucrats to decide who gets the tax exemption and who doesn’t, it just is ripe for abuse.

Now since the Nixon administration, all this stuff has been illegal, but it still keeps cropping up. The question is will we find out who gave the orders for this to happen? I think the revelation came not as a result of higher-ups saying "We'd better come clean on this." I think it was really mid-level people, sub-agency people saying, in effect, let’s get it out there, because this is a time bomb. So there are going to be interesting hearings on that one, and investigations.

On Benghazi, same thing. It’s outrageous that they tried to pretend this wasn’t a terrorist attack and then cover it up. So there’s going to be a lot of accountability...but this is what happens when you have big government. When you have small government, you may get wrongdoing, but it just does not have the repercussions that these things have.

So what do we have...now we have civil war in the former Soviet Union, the Eastern Bloc, and suddenly Obama is cozying up to the British. What do you make of that?

After the bootlicking that David Cameron did on Obama a year ago, I think the President owes him. He couldn’t have had a better campaign endorsement than that one.

I think the Obama administration realizes it better get something else on the agenda going, such as these free trade talks with the European Union and on the specific side, because he’s not going to get much else done.

And China...is China going to continue to slow down, or hover about where it is today?

I think China’s going to grow, but they’ve decided not to grow at a breakneck speed. They know that creates a lot of problems, and then you’ve got a lot of social tensions there, so China will chug along.

But the real question is with the new leadership, how much room are they going to give to the 44 million small businesses in that country? Many of them operating in the twilight zone become legitimate, full-fledged within the law businesses.

Is there movement on that that you’re encouraged by?

We’ll just have to see whether the hierarchy allows it to happen. The state-owned companies obviously wield a lot of power, which is where most of the bank lending goes.

What about the rest of the Asia region? You have a wonderful publication down there and a fantastic team based in Singapore.

Well, Asia’s doing infinitely better than Europe which is not saying much. It’s a pretty low bar. Japan is showing some signs of life, but I think the Japanese are going to discover that quantitative easing is no miracle drug. Other parts of Asia will depend on how well the US does.

The US, I think, is doing better. We’ve been stagnant for four years. People are just itching to get real things done. So we’ll have semi-decent growth this year, and that’s going to be the salvation of the world.

It will be the salvation of the world. Does that mean there’s hope for Europe then?

A little bit. The little teeny bit of hope I took was that the new Italian prime minister mentioned the idea of tax cuts, which is a miracle given that what they’ve been doing there...raising taxes, driving their economies into the ground.

You must have agents posted and investigative reporters with listening devices, because I’m not sure...

No, I’m quite sure I leave that to the IRS, but we’ll see if anything comes of it. Maybe the near depression we have in Southern Europe will finally force leaders to realize that right now, a lot of them think that the way you stimulate an economy is just spending money. Well, if you don’t have it, it ends up not being very stimulating.

It could be the beginning of a subclass revolution in Europe led by the Italians. That would be too much to hope for.

One can hope, or maybe he had a few too many wines, I don’t know. But one can always hope.

And the former Soviet Union? You’ve also had quite a few media activities and know a lot of people in that area.

Well, you look at the little states of Lithuania, Latvia, Estonia, the Baltic states. They’ve done very well. They tightened up very harshly in terms of cutting the budgets when things got bad. The government workers were given 20%, 30% salary cuts and they’re now doing OK.

And Poland’s doing OK, Sweden’s doing OK. But unfortunately Western Europe, especially Southern Europe, still has this strange notion that spending what you don’t have is the way to wealth.