:00:06. > :00:14.Steve Forbes, Welcome to HARDtalk. Thank you. How deep a hole do you
:00:14. > :00:19.believe the US economy is in? think it will be doing better in
:00:19. > :00:24.the second half of this year than it did in the first half. It is the
:00:24. > :00:31.equivalent of an automobile that was stalled two years ago. We are
:00:31. > :00:37.now doing 25mph. On an open highway, we should be doing 75mph. It is
:00:37. > :00:45.sub-standard performance but we will not stall again. I am
:00:45. > :00:49.surprised at your confident tone. I am looking at the economic
:00:49. > :00:55.analysis: Both Europe and the United States are dangerously close
:00:55. > :01:04.to recession. Why do you believe that is wrong? First of all, large
:01:04. > :01:14.companies in America have plenty of liquidity. Jobs are being added
:01:14. > :01:16.
:01:16. > :01:20.although not at the pace we would like. It is not stalling. The
:01:20. > :01:28.pessimism right now comes from the banking crisis in Europe and the
:01:29. > :01:35.flailing markets around the world. Confidence is low but activity is
:01:35. > :01:41.still taking place. The system has the capacity for some growth.
:01:41. > :01:45.interesting that you refer to the sovereign debt crisis in Europe.
:01:45. > :01:52.The collective wisdom has been that the US is the world's leading
:01:52. > :01:57.economy. Are you suggesting that the fundamental problems in the
:01:57. > :02:01.Eurozone are having a real impact on American economic well-being?
:02:01. > :02:07.The debt crisis obviously hits the banking system. Hardly a day goes
:02:07. > :02:14.by where there is not a remark of a European bank getting in trouble.
:02:14. > :02:16.Banks are still loaded up on sovereign debt. That is why the
:02:16. > :02:25.Federal Reserve was questioning banks in this country, foreign
:02:25. > :02:33.banks, about their sources of financing. There is a feeling that
:02:33. > :02:40.if Europe gets another banking crisis, it will ricochet here.
:02:40. > :02:43.seem to sit at the intersection of politics and economics in the US.
:02:43. > :02:52.Do you accept that there is a fundamental problem in economic
:02:52. > :02:58.policy-making in your country? It is said there is an increasingly
:02:58. > :03:02.polarised, dysfunctional American political debate about the economy.
:03:02. > :03:08.I do not accept that. I think the American political system, although
:03:08. > :03:15.it is messy, is in process of bringing about fundamental change.
:03:15. > :03:18.We saw in the elections last November. One part of the
:03:18. > :03:23.Government is in the hands of Republicans so it is obvious it
:03:23. > :03:29.will be hard to get agreement. But spending is now being taken
:03:29. > :03:39.seriously. Cuts have been minimal but they are going in the right
:03:39. > :03:40.
:03:40. > :03:44.direction. At the state level, New York is run by a liberal governor
:03:44. > :03:54.and a budget that would have been inconceivable a couple of years ago
:03:54. > :04:00.
:04:00. > :04:03.was turned in. The system is beginning to move forward on reform.
:04:03. > :04:06.When you have a Republican presidential candidate, Governor
:04:06. > :04:16.Rick Perry, saying it will be almost treasonous for Ben Bernanke
:04:16. > :04:26.
:04:26. > :04:34.to act, surely you're talking about polarisation? You cannot use such
:04:34. > :04:38.vivid language on the national level. The criticism that Rick
:04:38. > :04:45.Perry makes of the Federal Reserve will come more to the fore and it
:04:45. > :04:55.is absolutely legitimate. It has trashed the US dollar. It has made
:04:55. > :04:57.
:04:57. > :05:07.possible the disaster in housing. Criticism and discussion about the
:05:07. > :05:11.Federal Reserve even if the language is too colourtoo colourded.
:05:11. > :05:19.What was he thinking? He must have thought that using that language
:05:19. > :05:25.would appeal to a significant portion of Conservative voters.
:05:25. > :05:32.he was speaking off the cuff. He said it in Texas and people did not
:05:32. > :05:35.take it too seriously. When you are on the national stage, you are
:05:35. > :05:41.appealing to a wide and diverse audience and you must think twice
:05:41. > :05:45.about the language you use. It is part of the process of getting used
:05:45. > :05:55.to a national stage. The other candidates will go through the same
:05:55. > :05:59.
:05:59. > :06:05.thing. They learn that it is a very different form to which they have
:06:05. > :06:08.been accustomed to on the state level. Let us think about actions
:06:08. > :06:11.and the ones that Republicans took during the heated discussion about
:06:11. > :06:15.raising the debt ceiling for the federal government to allow it to
:06:15. > :06:25.build up more national debt on top of the 14 trillion dollars it
:06:25. > :06:28.
:06:28. > :06:38.already has. Some Republicans seem to believe they would not
:06:38. > :06:39.
:06:39. > :06:45.countenance any further rise in the national debt. Is that wise? That
:06:46. > :06:53.is part of the dance you go through in these negotiations. No-one took
:06:53. > :06:58.seriously the idea of default. You negotiate and use fire and
:06:58. > :07:08.brimstone and then come to an agreement. There was frustration on
:07:08. > :07:08.
:07:08. > :07:11.the part of Republicans. The goalposts kept moving. What they
:07:11. > :07:21.came up with under the circumstances of a divided
:07:21. > :07:25.
:07:25. > :07:28.government was actually pretty good. The deal was based on President
:07:28. > :07:36.Obama agreeing that future fiscal moves would be all about spending
:07:36. > :07:39.cuts, not tax rises. You say that was pretty good but when all of
:07:39. > :07:47.those Republican candidates were lined up and asked, most of them
:07:47. > :07:51.said they are still opposed it. I have returned to the point that the
:07:51. > :08:01.Republican Party seems to be on the extreme of the economic argument.
:08:01. > :08:06.
:08:06. > :08:14.No, not at all. They want dramatic spending cuts. They are putting up
:08:14. > :08:16.the pressure to get a mandate in the 2012 elections. The mandate
:08:16. > :08:23.will be to fundamentally restructure the fiscal system in
:08:23. > :08:27.the United States. The deal was pretty good but in terms of what
:08:27. > :08:37.needs to be done it is a small step. A growing number of Democrats
:08:37. > :08:39.recognise that. It is about signals. You are on the board of Freedom
:08:39. > :08:47.Works, a political lobbying organisation closely allied to the
:08:47. > :08:54.Tea Party movement. This is what John McCain said about the Tea
:08:54. > :09:04.Party leaders objection: He said it was foolish and would see the re-
:09:04. > :09:06.
:09:06. > :09:10.election of ection of ma. I love
:09:10. > :09:19.senator and not President of the United States. He ran two years ago
:09:19. > :09:23.and ten years ago. It was a pretty good deal under the circumstances.
:09:23. > :09:33.The Tea Party movement in the United States is so strong because
:09:33. > :09:34.
:09:34. > :09:41.there is no leadership board. It is active citizens. No one
:09:41. > :09:44.People got iople got icause they were worried about the about thein
:09:44. > :09:51.government spending - it was something we had not seen since
:09:51. > :09:56.World War II. There was a feeling it was doing more harm than good.
:09:56. > :10:06.for the Tea Party would have caused a blow-out. The system is working
:10:06. > :10:06.
:10:06. > :10:10.out in a messy way. Thsy way. fall-out of all the arguing over
:10:10. > :10:18.the debt ceiling is perhaps best captured in a CBS poll from a
:10:18. > :10:26.couple of weeks ago. 72% of the American public disapproved of the
:10:26. > :10:36.Republicans haggling on the issue. --handling. The Republicans took
:10:36. > :10:43.
:10:43. > :10:46.the rap. Opinion was split on Barack Obama. In terms of
:10:46. > :10:51.disapproval on handling the economy, ev ev party is starting to
:10:51. > :11:01.turn on him. He has not done anything about the blow-out in
:11:01. > :11:04.spending. He has not put reforms on the table. He is making speeches on
:11:04. > :11:10.specific proposals but has not put anything specific on the table and
:11:10. > :11:18.people are waking up to it. Americans care about jobs right now,
:11:18. > :11:21.more than cutting the deficit. Do you think that your message, which
:11:21. > :11:24.is about a preoccupation with cutting the deficit and government
:11:24. > :11:34.spending, does that fit with the American demand for positive job
:11:34. > :11:40.
:11:40. > :11:49.growth? Blowing out government spending is manifestly not working.
:11:49. > :11:52.It did not work in Japan, in the UK or here. The proposals we have been
:11:52. > :12:01.discussing to get the economy moving include reducing spending
:12:01. > :12:04.and that is part of that. We are looking at reform of Obamacare and
:12:04. > :12:13.the financial system instead of massive new regulations that are
:12:13. > :12:17.coming in. Small businesses are being crushed by all of the new
:12:17. > :12:27.rules coming from Washington. Those things are tied together. Remove
:12:27. > :12:28.
:12:28. > :12:31.the barriers and the economy will come back quickly. And to throw
:12:31. > :12:39.something back at you, the Tory coalition in the UK is making a
:12:39. > :12:49.huge mistake in not reducing their tax rates. Taxes are too high. They
:12:49. > :12:50.
:12:50. > :13:00.should be reducing them. We have to do dothing. I will not take
:13:00. > :13:03.
:13:03. > :13:10.it personally! I recall that you were Mr Flat Tax. You wanted to cut
:13:10. > :13:18.everybody paying the same rate. You lost two presidential runs on the
:13:18. > :13:22.campaign trail arguing that. I do not think the American public will
:13:22. > :13:26.listen to your message on tax right now when what they want to see is a
:13:26. > :13:29.reduction in deficit but also a stimulus to the economy which is in
:13:29. > :13:39.deep trouble. Is this really the time to argue for lower taxes for
:13:39. > :13:52.
:13:52. > :13:54.In terms of stimulus spending, it does not work. In the early 1980s,
:13:54. > :13:59.Ronald Reagan reduced domestic spending, slowed it down, putting
:13:59. > :14:05.interest rate cuts across the board. The United States economy came
:14:05. > :14:13.roaring back. Since my campaigns, 25 countries have put in a flat tax
:14:13. > :14:23.and it has worked everywhere. The President's own deficit reduction
:14:23. > :14:32.
:14:32. > :14:36.commission came out in favour of simplifying the system. The idea of
:14:36. > :14:40.simplicity and low tax rates is winning. You have got Democrats
:14:40. > :14:43.signing on as well as Republicans. Here is what Warren Buffett said.
:14:43. > :14:46.He said that the mega-rich have been helped by politicians for too
:14:46. > :14:54.long. He said that those earning over 10 million should pay an
:14:54. > :14:57.additional tax. He said the rich were by and large very decent and
:14:57. > :15:01.would not mind paying more tax seeing as so many of their fellow
:15:01. > :15:09.citizens were struggling. Can you quarrel with that?
:15:09. > :15:13.You can quarrel with several parts of that. If he feels he is not
:15:13. > :15:18.paying enough tax, he can send money as a gift to the US
:15:18. > :15:22.government if he feels he is not spending enough. I can give him the
:15:22. > :15:25.address. Why have I not seen him or any other billionaires doing that
:15:25. > :15:35.yet. In terms of getting the economy moving, creating jobs, that
:15:35. > :15:42.
:15:43. > :15:46.does not work. It hurts the creation of capital. He also
:15:46. > :15:50.confuses capital gains tax with personal tax.
:15:50. > :15:53.The personal tax rate in this country is over 35 % and in state
:15:53. > :15:57.and local taxes, it is higher. People earning salaries of more
:15:57. > :16:00.than $250,000 a year do not feel rich. They are getting hit by tax
:16:00. > :16:04.on all sides. I think Warren Buffett is aware of
:16:04. > :16:08.the realities but his point is, for the mega rich, let's face it,
:16:08. > :16:12.you're one of them, I tried to find out how much you are worth, it is
:16:12. > :16:21.more than $400 million, people like you, a lot of the money you pay is
:16:21. > :16:25.in capital gains tax or whatever you choose to call it. He said that
:16:25. > :16:34.in actual terms, he pays about 17 % on his income - that is less than
:16:34. > :16:41.his secretary. That cannot be right. Capital gains is not a given. There
:16:41. > :16:44.have been tens of billions of dollars of losses in this market.
:16:44. > :16:54.If you punish capital gains and risk-taking, you get less job
:16:54. > :17:02.
:17:02. > :17:05.creation. In the 1970s, it was set at 45-50 % in a struggling economy.
:17:05. > :17:11.It started with Jimmy Carter, the reduction of rates.We created more
:17:11. > :17:14.jobs than Western Europe and Japan that together after we cut it.
:17:14. > :17:19.You can argue about history, recent history, in different ways. Let's
:17:19. > :17:22.take a look at George W Bush. They reckon he cut about one trillion
:17:23. > :17:32.dollars from the US budget, the fact that he delivered tax cuts,
:17:33. > :17:35.
:17:35. > :17:38.tax cuts which predominantly favoured the rich. -- he cost over
:17:38. > :17:48.$1 trillion. You're suggesting to me that the way he handled the
:17:48. > :17:50.
:17:50. > :17:53.economy was a success? In terms of his tax cuts, they were
:17:53. > :18:02.across the board. Almost half of income tax payers in this country
:18:02. > :18:06.do not pay federal income tax. The top 3% income earners in this
:18:06. > :18:09.country pay 97 % of the federal income tax. In terms of who is
:18:09. > :18:13.paying, it is high income people who are paying more than ever
:18:13. > :18:22.before. Where George Bush went wrong was his weak dollar policy.
:18:22. > :18:26.That was a disaster. In the 1970s, we learned that if a major country
:18:26. > :18:30.undermines its own economy, it not only holds its own economy but it
:18:30. > :18:35.has a devastating effect around the world. It sent up oil prices, gold
:18:35. > :18:45.prices, housing prices, we are feeling the hurt of that today.
:18:45. > :18:54.
:18:54. > :18:57.Barack Obama has continued that policy. Bill Clinton and Ronald
:18:57. > :19:00.Reagan's strong dollar policy worked, as did John F Kennedy's
:19:00. > :19:03.policy. You should not undermine your currency, if you do, you are
:19:03. > :19:07.going to get big, big problems. Where people may be sceptical is
:19:07. > :19:17.that they can remember George Bush back in 1998, 1999, 2000, he said
:19:17. > :19:19.
:19:19. > :19:27.he was a small government man and would pay back government spending.
:19:27. > :19:30.-- pare back. The truth is, he did not. Why should we believe that
:19:30. > :19:34.this new generation, maybe even more right wing Republicans that we
:19:34. > :19:38.see today, that they will be serious when they get into office.
:19:38. > :19:42.-- office? George W Bush did not deliver.
:19:42. > :19:49.You saw what happened to George W Bush. His party lost power totally
:19:49. > :19:52.in 2008. This is when The Tea Party rose up and said that they had
:19:52. > :20:02.betrayed principles, made the rise of Barack Obama possible, we are
:20:02. > :20:16.
:20:16. > :20:18.going to punish you for doing that. That is why a lot of the big-
:20:18. > :20:22.spending Republicans got beaten in and were replaced by Conservatives.
:20:22. > :20:28.There was massive repudiation. I think that trend will continue in
:20:28. > :20:30.the elections next year. When you look at the nine or so
:20:30. > :20:34.candidates fighting for the Republican nomination, some of them
:20:34. > :20:38.have close links to the Tea Party, which you have close links to, I
:20:38. > :20:48.wonder who you believe will be the one to deliver the Government you
:20:48. > :20:48.
:20:48. > :20:52.want to see. Who are you backing? I am not backing anyone yet. There
:20:52. > :20:56.are a few possible candidates who might enter the race, I am looking
:20:56. > :21:03.over the field and will make a decision in the next few weeks. I
:21:03. > :21:07.want to see who the players are first.
:21:07. > :21:11.Paul Ryan, maybe even Sarah Palin who you have described as a smart
:21:11. > :21:14.woman in the past. Do you want to see her in the race and would you
:21:14. > :21:24.back her? It does not matter what I want, I
:21:24. > :21:30.think she will get in the race. Paul Ryan is under pressure to do
:21:30. > :21:35.so. The Governor of my state, Chris Christie, he is in contention to
:21:35. > :21:38.get in the race. The point is because, if you look
:21:38. > :21:42.at the polls, if you look at the favourability of the Tea Party,
:21:42. > :21:49.that has gone down the toilet in the last couple of weeks. Very low
:21:49. > :21:51.approval ratings. Do you think being involved with the Tea Party
:21:51. > :22:01.will help or hinder the next Republican Party candidate. --
:22:01. > :22:03.
:22:03. > :22:07.candidate? You will not win the Republican
:22:07. > :22:16.nomination unless you are in favour of awful lot of The Tea Party's
:22:16. > :22:19.policies. Reducing spending, simplifying the tax code. They have
:22:19. > :22:22.been trashed in the media but they are concerned citizens who got
:22:22. > :22:32.involved and have made life uncomfortable for the political
:22:32. > :22:35.
:22:36. > :22:39.establishment. They may reflect an ideological
:22:40. > :22:42.purity that you agree with when it comes to fiscal policy but, what if
:22:42. > :22:50.is right now is, given the economy, plain unpopular?
:22:50. > :22:54.It is not. In Wisconsin, they tried to recall people who went along
:22:54. > :23:04.with Governor Walker's reforms. The Republicans have maintained control.
:23:04. > :23:18.
:23:18. > :23:21.They took control of the state courts, too. When people go to the
:23:21. > :23:24.polls, they know that can't continue this binge spending and
:23:24. > :23:27.this is why you are seeing the results that you are. People are
:23:27. > :23:31.getting involved in the political process. They are making a change.
:23:31. > :23:35.They don't always get what they want but you do come up with some
:23:35. > :23:37.reforms. They might not be pure but the country is moving in the right
:23:37. > :23:41.direction. Steve Forbes, we have to head
:23:41. > :23:51.towards the exit. We are running out of time. Thank you for being on
:23:51. > :23:53.
:23:53. > :23:57.out of time. Thank you for being on The week started off fairly cloudy
:23:57. > :24:07.and cool across many parts of the British Isles and I suspect that
:24:07. > :24:12.today is going to be similar. A lot of dry weather around. A weather
:24:12. > :24:16.front is close to the north of Scotland. Some rain there, perhaps.
:24:16. > :24:23.But further to the south and east, there is the chance of some
:24:23. > :24:27.sunshine to begin the day. Treasure it as it will not last. A
:24:27. > :24:32.scattering of showers in Northern Wales and Northern Ireland.
:24:32. > :24:36.Elsewhere, essentially dry. As we come into the body of Scotland,
:24:36. > :24:40.there is the greater chance of some rain here as a result of his old
:24:40. > :24:50.weather Front Nat King here. There may also be some rain close by two
:24:50. > :24:52.
:24:53. > :24:56.Leven Brown and the north of England as well. -- to Edinburgh.
:24:56. > :25:06.Similar prospects as was the case on Monday along the southern shores
:25:06. > :25:07.
:25:07. > :25:11.of England. As the day gets going, the cloud
:25:11. > :25:17.will spread out a little bit more from the far south-west. All the
:25:17. > :25:22.while, the risk of some showers coming into the north and west of
:25:22. > :25:29.Wales. Not too bad in the central belt of Scotland. Temperatures as
:25:29. > :25:32.high as 18 or 19 degrees at best. Tonight, as some of that cloud be
:25:32. > :25:37.used to dissipate, those temperatures may fall back into
:25:37. > :25:42.single figures in some locations. Across the far south-east, you may
:25:42. > :25:47.hold on to 11 or 12 degrees. Elsewhere, a cool night for this
:25:47. > :25:51.time of year. This area of high pressure that has been driving the
:25:51. > :25:56.weather remains over the cause of Tuesday and on into the middle part
:25:56. > :26:00.of the week as well. The chance of a few showers coming down the