TCS Daily

What if Steve Forbes Had Won the Election?

By Jerry Bowyer - October 22, 2008 12:00 AM

To the annals of contra factual history which range from Churchill's "What if Lee had won at Gettysburg", to SNL's what if Napoleon had a B-52 bomber, I have my own addition: What if Steve Forbes had won the primary and general elections in 2000? How would the world differ from the world we live in now?

Steve Forbes would not have negotiated away the supply side tax cuts in 2001. He would not have let the Democrats insist that only tax cuts for the poor and middle class be implanted immediately. He would not have agreed to defer the tax cuts of the entrepreneurial and investor class into the indefinite future. He would have (and did) recognize that we had already entered a recession before he entered the White House and would have used that fact to push the tax cuts through. The Forbes Boom would have started in 2001, not 2003. Two years of stagnation and jobs loss could have been avoided.

There would not have been a flood of excess money supply in 2003 either. The tax cuts would have made that kind of hyper stimulation through the printing press unthinkable. Even if Greenspan would have been tempted to flood the globe with dollars, Forbes would have put rhetorical (which is perfectly legitimate; the Fed is independent, but not quarantined) pressure on them to do the right thing. No cash flood means no housing bubble.

It also means no collapsing dollar, and no oil price bubble, which means no recession now.

Steve Forbes would not have signed Sarbanes Oxley. He would have rightly pointed out that Enron was a beneficiary of overregulation of financial and energy markets; that Enron gamed the regulator system to their advantage. Forbes would have vetoed Sarbox. His SEC would have jailed the Arthur Andersen partners directly responsible for the fraud, but not destroyed the global 85,000 person firm. With no Sarbox and no Enron overreaction, we would not have foisted any 'mark to market' nonsense onto financial statement preparers. The short sellers would be allowed to operate, but they would not have been allowed to write the rule book. Lehman would not have failed. The modest downturn in housing related securities (with no Fed money gusher to fill a big bubble) would have been ridden out by the vast majority of banks as had happened in the 1980s.

Steve Forbes would not have concluded that Wall Street had "gotten drunk." He would have concluded that the regulators and central bankers had slipped them a Mickey. And if they had gotten drunk, he would have prescribed AA, not prohibition. Forbes would not have waited until his sixth year to veto corrupt spending. He would not have waited until his 7th year to issue an executive order forbidding earmarks. He would have saved the Republican congress from itself.

The boom would be continuing. His chosen successor would be leading in the polls. The Dow would be rising. Unemployment would be dropping. The US would be spreading prosperity to the world right now, not financial chaos.



Now let reality sink in
Shoulda, woulda, coulda; didn't happen. I think that, in hind sight, Bush would have handled some of those issues a bit differently as well.

And I'm not so sure Forbes, had he bene president in the moment and facing the 9/11 issue (among others) would have made all those different decisions either.

And every man would have three playboy bunnies to do with as he pleased, too.
...because most voters do not vote for brains or expertise. They are not qualified to even do so, so they don't bother.

The number one rationale for a public school system is to create worthy citizens prepared to participate in the body politic -- economically, socially, politically and militarily.

It has clearly failed. Atrociously.

mark-to-market accountingis bad?
Wow,that's news to me

Because it does not reflect the long-term value of the instrument.

A mortgage might not look good as a 'spot price' at any given moment, but it still will haul in the cash (should it not default) over time.

The ARMS that were never supposed to come to term (everyone expected them to be re-financed) are one of those exceptions, of course.

Gold Standard...
Steve Forbes is something of a Libertarian, believes in a return to the Gold Standard and is a proponent of Laissez-Faire Capitalism...perhaps toned back to include some regulation...but with Darwinian survival of the fittest, let the market sort it out rigor nevertheless.

The current global financial crisis is directly the result of weak regulation of the financial services industry here in America. Without discussing the limitations of the Gold Standard or the futility of Libertarian ideology in modern sovereign governments...let me just say that things would probably be worse...although Jerry does make a pretty compelling argument.

The cause of the crisis.

No matter how often a lie is repeated, it doesn't become the truth. The current crisis is due to wrongful regulation and excessive regulation. There are multiple layers to the regulatory problem, so allow me to use a basic example to explain. Who is more knowledgeable about a particular industry? The government regulators or the people working in the industry? Who is better compensated? And finally, for whom do the best and the brightest work for? This applies to many, even all, industries. The financial industry even more so, because of the compensation available to the most talented. And the financial industry is far from simple. The threads of the system pass through every industry, multiple government agencies on every level, Federal, State, Local, and International. So, when the government regulator creates a new rule, to control some aspect, they do imperfectly. The regulation either doesn't prevent the unwanted activity, or paints a too wide a stroke and prevents wanted activity. The law of unintended consequences reigns supreme. The financial industry then must and does create another avenue for their desired activity. Which may carry additional risks and certainly increases costs. Look at the Federal Tax code. I submit that there is NO ONE that understands it all. It's complex, unwieldy, and even contradictory. It is also constantly changing, from new legislation, new regulation, and new case law. Ask yourself, why do Trust Preferred Securities (TruPS) even exist? The answer: tax regulations. The costs are just as easy to see: increased complexity and reduced return.

This is but one simple example. There are countless others. Increased regulation has another more insidious effect. The reduction of competition. The greater the regulatory hurdles, the wealthier and larger the companies need to be to negotiate them. And the larger the profit they will demand.

Re: And 9/11??
How could an article be written about "what if soandso had been president in 2000" and not mention 9/11? Financial decisions have not been made in a vacuum. All calculations about budget cuts, tax cuts, expenditures, etc. have had to be made with 9/11 hovering at all times.

... doesn't it depend HOW he won the election?
It's nice to imagine Steve Forbes using his 2000 election mandate to face down Congress and get taxes cut the right way. But what if Forbes had won the 2000 election by only one electoral college vote, with only one state making the difference, and he won that state by only 537 votes out of 6 million, and his opponent contested the election for five weeks, and the nation was polarized into two hostile camps as a result? Then Mr. Forbes would have virtually no mandate with which to get Congress to do what he wanted, and might have had to settle for a tax cut like the one Bush managed to get.

But as an alternative contra-factual history, why not ask what if one percent of those Florida Republicans who didn't bestir themselves to go to the polls in 2000 had gone and voted for Bush? Then the Florida race would not have been contested, Bush would have entered the White House amid no particularly rancorous circumstances, and he might have got a better tax cut as a result. Or what if one percent of the Republicans in all states who didn't vote in 2000 had gone to the polls -- then Bush would also have won other states (Wisconsin, certainly), and would have had still a better mandate, and a correspondingly better deal.

Best of all, my favorite what-if, suppose that one out of every 10 African-Americans who supports tuition vouchers had voted that issue in 2000? Then not only would Bush have had a tremendous mandate to use (for example) on his tax cut, but also the NCLB program would have included strong support for vouchers and the congressional Dems would not have dared to shoot that down.

Another Bush problem
Bush pushed his foul prescription drug plan, something Forbes would never have done. No wider election margin for Bush would have prevented that. Furthermore, a wider margin for Bush in 2000 would have accelerated the Republican corruption that caused them to lose both houses of congress.
Bush has many deficiencies that stem from him not having a rational philosophy, thus making it impossible to make a convincing case for anything. I don't know where Forbes' weaknesses are, but his strengths cover some of the places that Bush is particularly lacking.

You said :The current crisis is due to wrongful regulation and excessive regulation.

You might argue that we have excessive regulation and that more such regulation will only make things worse...but the point is not that we have regulation of our financial services industry...only that it doesn't do the job.

It is not the volume of rules or the complexity of rules that should concern us...although less is probably more when it comes to regulations that leave much of what they are saying to be intrepreted by administrators and judges...and are ultimately not enforcible.

That is critical is that we should have such regulations...rather than none at all as the orthodox laissez-faire Libertarians urge...and that they should be effective. Give us the economic behavioral outcome we are after.

You are certainly correct that industry professinals such as Henry Paulson are far superior to politician/laywer types when it comes to running these agencies.

So we'll see who the new President puts in charge.

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