Forbes publisher assesses state decline

Feb. 16, 2010

By KATY GRIMES

In a poignant and often funny talk, Forbes Magazine Publisher Rich Karlgaard believes this economic recession could have and should have been avoided, and the worsening U.S. economy is a man-made crisis thanks to the media, political events, as well as some serious leadership missteps.

Karlgaard gave an optimistic and economically stimulating talk about the state of the U.S. economy Monday night for the Sacramento Speaker Series, as well as honing in on California’s economic decline.

Discussing where we are in the economy, why this is not the Great Depression and how the crisis happened, Karlgaard shared an anecdote about U.S. Treasury Secretary Hank Paulsen’s ironic statement in 2007, that the U.S. and global economies were in the best shape he had seen in his life. Getting a moan from the audience, Karlgaard explained that Paulsen wasn’t entirely incorrect – the global economies were doing well in 2007 even with the U.S. declining.

It wasn’t until September 2008, in what Karlgaard described as a man-made economic downturn caused by many “political events and missteps,” that the U.S. economy really showed signs of financial sickness. The failure of Lehman Brothers and Bear Sterns signaled to the global economy that the U.S. was in trouble. In no uncertain terms, Karlgaard placed blame on the media as they helped engender mass economic fear, particularly when Time Magazine put a photo from the Great Depression on the October 2, 2008 cover for a story called “The End of Prosperity?”

Karlgaard first outlined the mood during the Depression in 1938-1942 when many Americans thought the American experiment was over. He then contrasted the 1970’s with today, politically and economically, drawing comparisons between former President Jimmy Carter and President Barack Obama who both ran as reformers. The stock market in the 1970s dramatically dropped, political scandals abounded, not the least of which involved President Nixon and Vice President Spiro Agnew, the oil embargo was headline news, and in 1974 Jerry Brown was elected the “Boy Governor” of California at the age of 36, events which Karlgaard says feel familiar today. Even more dramatic is the national tax revolt that is currently taking place with the Tea Parties, took place in California in 1978 with taxpayer revolt Proposition 13, said Karlgaard.

Yet according to Karlgaard, even with one of the worst financial decades, there were business start-ups that have endured; Federal Express, Microsoft, Apple Computer, Genentech and Oracle all started in the 1970’s. And, explained Karlgaard, this is happening again but on a global level and mostly in the technological markets.

Asked why California is the worst state in which to do business, Karlgaard acknowledged that California is in a tough spot and “must grow, and not tax the way out.”

Karlgaard was asked to rationalize the bonuses that bankers are receiving to which he quickly replied that government control is not the answer. Karlgaard explained that government no doubt will drive banking out of the U.S. through over regulation if they try to interfere, since banking markets are already international.

Eventually, the talk turned to the California governor’s race. Karlgaard, a California resident, was asked what he thought of Meg Whitman and her CEO style. “She’s as competent as can be,” Karlgaard emphatically replied. He added that Jerry Brown may have Whitman in charisma, but this is not a normal year in which Brown might win on his charm.

Karlgaard predicted that the Republicans may capture the 2010 elections, but he is not sure how this would play out in the 2012 elections unless President Obama becomes more of a centrist the way Bill Clinton did after the 1994 elections, when Newt Gingrich and the Republicans took over Congress.

Inevitably, he was asked about the political future of Steve Forbes, Karlgaard’s boss and friend. Karlgaard said that he thinks Forbes should be appointed treasury secretary or Fed chairman someday, but for the time being, Forbes prefers being a political agitator since his areas of expertise are economic history, military history and politics, all of which would serve him well in such a position.

Rounding out the talk was education. Karlgaard discussed teachers and low SAT scores, a topic he said is normally considered politically incorrect. He was not talking about the SAT scores of students, but of today’s teachers whose SAT scores have been in decline over the years.

Karlgaard addressed that in decades past and before women were prevalent in law firms and corporate America, schools benefited from really smart woman as teachers. Once business opportunities opened up for women, many gravitated to businesses for work instead of teaching, thereby lowering the quality of teachers. Karlgaard opined that good elementary and high school teachers should make six figures. However, he did not address public employee unions or the teachers union in the state, which would have greatly added to the discussion.

In his column on Forbes’ blog, “Digital Rules,” Karlgaard writes about technology, entrepreneurship, regional economic development, and the future of business and work.