Guest: Loeb, Marshall
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THE OPEN MIND
Host: Richard D. Heffner
Guest: Marshall Loeb
Title: “Money In America”
AIR: 1/23/82 Part I
I’m Richard Heffner, your host on THE OPEN MIND. I perform somewhat the same chores on another weekly television series called From the Editor’s Desk. And it fascinates me that as we search the headlines each week, searching them for clues to newsmakers whose verbal exchanges with our distinguished editorial board will illumine the major issues of our times, again and again I find that we’re dealing with money. And it’s not just that death and taxes alone are certain in this veil of tears, but that so many of us now are confronted by the sheer, subjective necessity of thinking about money and of making sense along with our dollars. Now, I happen to be one of those awful economic illiterates whose eyes literally glaze over even when some benevolent soul tries to advantage me with insights into money markets and tax shelters and so on. I don’t understand, I’ll admit, the whole business of money, and I suppose I just wish it would all go away. Bu tit won’t. And since i trust that I won’t either, I know, as you must know, that all of us have to focus on dollars and sense if we want to survive these financial treacherous times.
So that I’ve invited my colleague from The Editor’s Desk, Marshall Loeb, the editor of Money magazine, to help open our minds today on what are the more important, but perhaps the somewhat less esoteric aspects of money, money, money.
Marshall, thanks for joining me today. It’s not going to be any secret to you or to those who are watching us that we’ll do two shows now. Perhaps the one today more cosmic, and we’ll pick up in time about those issues about. What am I going to do tonight or tomorrow morning when the stock market opens, when the banks open? And I must say that I was totally fascinated by a point of view that you’ve expressed and you express often about change. And if I may read you to you, you’ve written, “My belief is that not only are we going through a series of revolutions that will profoundly affect our lives and our livelihoods, but also that in the immediate future the rate of change will accelerate and the degree of change will sharpen and in some cases become more shattering”. Then you say, “If there is one certainty in our mercurial world it is simply this: Those of us who anticipate the changes and who sensibly exploit them not only will survive but also will prosper. And those of us who attempt to ignore the changes and conduct our activities as before will stagnate and wither and die”. And I suppose you’re talking about those who will stagnate and wither and die about those who ignore the facts of money and the opportunities that it provides us these days.
Loeb: Just look at all those corporations in the Fortune 500 lists of 20, of even ten years ago, and how many once-great companies have fallen off those lists and merged into oblivion or have failed otherwise, or just have grown very small and unsuccessful. And if you try to get a common thread, what links those companies, you will find that they are the companies headed by people who try to do business absolutely as before. Then observe the converts, those companies that have surged to the very top of those lists, and again try to find the thread. And they are the companies that are headed by people who saw change and who sensibly exploited change. Well, we see this all around us. We have demographic change, we have societal change. There are new industries opening all around us. Individuals can take advantage of that change in many ways, as investors, as people seeking careers, as entrepreneurs.
Heffner: You know, one of the major changes that you refer to here sort of – I’m not going to say it frightened me – but it did place a focus in a way on something over which perhaps we have no control. And you’re talking about control. You’re talking about the controls that corporations may have and that individuals could…
Loeb: Or that individuals may have over their own destinies.
Heffner: Well, you say though, “Socially we are also becoming two countries. Inflation exacts its cruelest price on people who are least prepared to cope. The educated, the skilled people can take care of themselves. They ride the crest. They get jobs in the new technologies, they move to the booming regions, they invest in those high-yielding money market funds, or even those exotic tax shelters, and their lives grow better. But the uneducated, the unskilled fall further and further behind. The good life, the American dream becomes more elusive for these people”. That’s a grim, grim, grim notion.
Loeb: That troubles me very, very much. It seems to me that we have the anomaly that on the one hand we have more opportunity than ever before in our history, despite our difficult economic times and in part because of them, we have more opportunity than ever before, with the exception of a few years after World war II, for the majority of people, those people who have skills or education, who can perceive and take advantage of the opportunities. But for those people who have fallen behind in our increasingly complex and technological world, I worry very, very much about their particular fate. And this is what troubles me most of all, Dick, in this exciting, marvelous job of being Managing Editor of Money magazine, that is that frankly our readers of our publication and a number of other publications who can educate themselves and act upon the information that they get, will indeed ride this crest and have this advantage. But unfortunately there are large numbers of people within our heterogeneous American society who just aren’t prepared to cope with the change, with the increasing complexity of life.
Heffner: Are you willing – and I know it’s a stinking question – are you willing as Managing Editor of Money to provide information to me and to others who read it, knowing that what you’re doing is increasing that growing polarization in our society?
Loeb: What then is the alternative? I mean, surely one can’t keep people in ignorance. I think it is incumbent upon all citizens who possibly can to share information that they gather, that they know, with others.
Heffner: Yet you are talking about polarization and further polarizing our society.
Loeb: I think that one of the great challenges that we face right now and in the years immediately ahead is to deal with this other society in America, perhaps what some have called the underclass. And I think we have to direct so much of our efforts and energies and resources toward lifting this underclass, toward attempting in every way we can to equip people who are members of it with skills that they too need to get ahead. This is not just a US phenomenon. This is happening throughout the world. You see this on the part of nations. There are certain nations that are advancing much more rapidly than before relative to the rest of society. And then you have not only the third world but the fourth world nations that are increasingly falling behind because they can’t deal with the new technologies, with the new sciences, with the demands for refining resources and so forth.
Heffner: Marshall, the rich get richer then and the poor get poorer?
Loeb: One would hope not. The poor in our country at least today, with the exception of the recent start of the recession which is a temporary episode, the poor materially are better off than they have ever been before. It’s just a question of relative to the rest of the society which is advancing in terms of education and material goods they are falling relatively further and further behind. I sense that as a dangerous phenomenon. And we can’t ignore it. We ignore it to our peril. And certainly we cannot put blinders on and say that society should refuse to educate those people who already have a certain amount of skills and can grasp and act upon that education.
Heffner: Now, a moment ago you said, “Of course we have the obligation to devote resources, energy, time to those who comparatively speaking have not, as contrasted with those of us who have”. Yet, as I read you, I have the feeling that you are saying if we spend too much time, too much energy, too much of our resources being concerned by those people, we will not be able to push ahead, we will not be able to take advantage and exploit the opportunities that change offers us now.
Loeb: If you read that into what I’ve written or what is ay, Dick, then I haven’t expressed myself very well.
Heffner: Or I’m not a good reader.
Loeb: What I’ve attempted to say is that we do have a limit to our resources, our human and our material sources. We have to e able to understand those limits and use our resources to the best of our ability. We have large numbers of people within our society who have not had the opportunity to participate in the opportunities for advance that others within our society have had. Those people who have fallen behind, it seems to me, our institutions within the society must make every effort to help. But we also have to recognize that there’s only so much that we can do. That gets us onto the key question, I think, economically, of budget deficits. The underclass, the people who have not kept up, will do best in a growing economy. There is no way that we can provide the jobs and the growth of real wealth for these people and the rest of society unless we have a strong, a vibrant, growing economy. So long as we have very large federal budget deficits, those deficits will have to be financed in some fashion. Meanwhile, if we have a federal reserve board which is severely limiting the growth of the money supply in order to battle the inflation, which is the scourge of most of us, and most especially the poor because inflation oppresses the poor worst of all, as long as we have the Federal Reserve Board holding down the growth of the money supply while the federal government is borrowing more and more money, we will have interest rates going up and up and up, therefore holding back the growth of the economy and causing a great hidden task to be inflicted upon one and all, I think that it is up to all institutions within the society to work to heal the split, the gulf between the two Americas. And that very importantly, very significantly includes private institutions. I think that one step that we are going to have to take, radical though it sounds, is to involve private institutions more in taking the necessary steps to provide better conditions for the Americans who have been left behind.
Heffner: Let me, before we get further on the question of private institutions, let me ask you about the nature of the limitations upon us. Are we talking about real limitations in terms of resources? Or are you talking about psychological limitations?
Loeb: No, I’m talking in terms of monetary limitations. There is only so much wealth that we create within this society which is then expressed as money. As the government takes more and more and more away from us in the form of taxation and the government simultaneously is spending more and more and more, it just draws more out of areas of the society. We have to recognize that there are limits to that. The analogy with the family budget has been much over-exercised. And yet there is a certain validity in it. We have only a certain amount of money as a nation, and we cannot continue to spend more and more and more than we take in in the form of tax revenues from the citizens without having a runaway inflation whose victims of course, most of all, would be the poor.
Heffner: You think then that we literally do not in this nation have the resources to care better than we do for the unfortunate people in our society?
Loeb: Perhaps we could do a better job with the resources that we are committing. The resources that we are spending for this kind of necessary function are growing in nominal terms of not in real terms. What is happening now on the part of the government is that it is slowing down the rate of growth of the resources committed to social spending. It’s because in the past we have felt – and I think this was almost a universal view – that yes indeed, in this blessed, affluent society there really was very little in the way of limits on what we could and should do for people who had been left behind and left out. And then we discovered that we were doing so much simultaneously. We were trying to enact and expand social programs, a vast multitude of them, we were trying to have on top of that transfer payments from groups of employed, working Americans to nonworking Americans, many different kinds of them, and by no means were they all economically disadvantaged people. Simultaneously were, were trying to have the government do a whole host of other functions. We have lately perceived that we have limits on these activities. There is only so much that we can do. And as a journalist when you speak on an off-the-record basis with political leaders of both parties you will find that there is a rare unanimity of opinion that we do have limits, that we have to find ways to better use our resources, we have to have some kind of a strategic plan. For example, social security. I have as yet been unable, after a great search, to find any substantially raise more social security taxes or we have to slow the rate of growth of the benefits. Not necessarily that we have to chop benefits, but the rate of growth of the benefits is far in excess of the real wages earned by working people in this country.
Heffner: But it seems to me you’ve said something more, that you yourself have said or written something – or again I may be misreading – that if you increase my taxes, not only will I be somewhat disadvantaged and politically I will be angry with you, but that literally you will prevent the economy from growing in a way that we can produce more and more. Is that a fair statement?
Loeb: First of all, on the matter of social security taxes, I doubt there are many people in our viewing audience today who would say that yes, they are not only wiling but also eager to pay more in social security taxes than they are at the present time.
Heffner: Marshall, is anybody going to say they’re eager to pay any tax at all?
Loeb: Yes indeed, if they see…
Loeb: I think people are more than willing to pay taxes if they see a real, demonstrable return of the money that they put in. but let’s get back to your question. To the extent that you tax people and you take that money out of private activities, the investment stream, and turn it over to the government, you reduce a certain amount of the energy within the economy, monies that can be used for investment in new enterprises to create real wealth and jobs. Nobody disputes that. I mean, speak with the leaders of the Democratic Party, let alone the leaders of the Republican Party. Speak with people such as Fritz Mondale and Dan Roskienkowski and a number of the governors and so forth, and they will, many of them come up with programs to revitalize industry that call for even more substantial tax reductions than those that have been passed by a Republican senate.
Heffner: Accepting then larger and larger deficits?
Loeb: No. I think that what they are calling for, plans that would have more, that would, through reduced taxation, would stimulate investment, which in turn would lead to increases in income, which in turn would lead to increases in tax revenues because as corporations earn more, then of course we pay more in taxes, although our real after-tax incomes increase. Now, the problem with our current policy, it seems to me, is that we are trying to do too much at once. I’ve heard it referred to with that old line, “It’s a guns-and-butter type of policy”. We are simultaneously trying to reduce taxes for corporations and for individuals and taxes on capital, and have a really substantial increase in the spending for our defense establishment, and continue much of the non-defense spending. And indeed many of those areas are growing. Now, something there has to give.
Heffner: What would you like to give?
Loeb: I think that we have got, while a strong argument can be made that we have to have increases in defense spending, I would say that those increases don’t have to be of that magnitude. There’s a strong feeling on Capitol Hill that if the president is to get what he wants in the way of further budget cuts that he’s going to have to give some more on the defense spending. As well, I’d estimate that we’re probably increasing our spending for strategic weapons too much. And to the extent that we do have rises in Pentagon budget, more of it should go for manpower and conventional warfare. Second, I think that we probably have given too much in the way of tax reductions to you and me. Here’s one person who’s saying that , yes, maybe my tax reduction is a little too generous. I believe in reduction son capital and reductions on companies. Now, that may sound like very much of a conservative opinion. I don’t think that it really is. Because I believe if we set reductions in taxes on employers so employers can invest more to create productive, real wealth and can hire more people and perhaps even raise your wages, that, I think, would be a very favorable development. So I’m in favor of somewhat less in the way of reductions in taxes for individuals, and at least as much as we have for reductions in taxes on investment capital returns and on employers.
Heffner: To the extent that you can observe the consequences at this point as Managing Editor of Money, do you think the taxes, the tax cuts in the area in which you would like to see more tax cuts have resulted in the kind of souped-up activity that you think would come along?
Loeb: Oh, my goodness. So many of these cuts have been in place for only a couple of days. In terms of the reductions in the depreciation allowances for real estate investment. Most of the reductions in the capital gains tax have been in place only for several days, although high-bracket investors have been enjoying it since the middle of last year what we had in fact in terms of a consumer tax reduction last year, since it was a five-percent reduction that went into effect only in October, was a reeducation of all of one-and-one-quarter percent. Give it a chance to operate. I’m not sure that it will immediately lead to the kind of burst of investment that we hope for, but I think fairly soon it will, which is to say it perhaps may not happen in the first six months of this year, but as people learn to operate within this environment, I think it will happen. For example, the IRAs, the new expanded individual retirement account, called the “little guy’s tax shelter”, I think is a very, very beneficial move that will draw all kinds of money out of the consumption stream and into savings. One of our problems as a nation, and a large reason why we have fallen behind the Japanese, the Germans, and some others in certain areas of industrial productivity, is that we save so little relative to our allies and many of our allies and competitors. We have to do so much, I think, to stimulate savings and investments. There is no secret as to why our savings are so small. Savers have been suckers in our society. A sure way to go broke was to put your money away for five-and-a-quarter percent while inflation was raging at 13 percent and taxes took a large part of that skimpy five-and-a-quarter percent that a year or so ago you were getting on your savings account. Now, as we reduce the taxes, as we reduce the inflation, as indeed with broad bipartisan support this government moves toward having some incentives for investment and for saving, then you will draw funds into the savings stream. Let me just give you one example: a person of 35 who puts away $2000 a year into his tax-deferred IRA, $2000 each year for 30 years, and gets a 15 percent return on that investment, which is not unusual today, would at the end of 30 years retire at the age of 65 with $869,000. And if he did it in company with his spouse or she did it with her spouse, the two of them together would have a $1,700,000. I know what you’re going to say. At that time a hamburger is going to cost $100,000. Well, I don’t think it will cost that much. And furthermore, in the years ahead, those IRA limits are bound to be loosened.
Heffner: That isn’t what i was going to say, Marshall. I was going to say something very different. I was going to say, let’s go back for a moment to the people who can’t afford to put away $2,000 or $4,000 a year. We’ve just got a few minutes left to this program. The cosmic Marshall Loeb program. We’ve spoken together about the bottom rung of the ladder, those who can’t take advantage of the boom in American economy.
Heffner: Franklin Roosevelt talked about a third of the nation ill-fed, ill-housed or clothed. You talk about one-sixth, I believe.
Loeb: It’s my guess…
Heffner: Okay. It’s a huge nation. Almost a quarter of a billion people.
Loeb: Yeah, right.
Heffner: What are we going to be able to do except contain those who are dissatisfied, that one-sixth of the nation that gets along as it would have been happy to get along ten years ago, 20 years ago, 40 y ears ago, but now sees the contrast between its lot and ours, those of us who can take advantage of IRAs and KEOGHs, etcetera.
Loeb: Yeah, yeah.
Heffner: What do you predict in terms of what will happen to this country with that large, large, large small minority?
Loeb: I wouldn’t chance a prediction. But I would say that we ought to make that priority number one in our nation.
Heffner: But how do you make it? What do you do with the priority?
Loeb: You can do a vast variety of things. You can have an educational program that goes far beyond anything that we have attempted to do in the past. You can involve the best thinkers whom we can find from labor, from management, from academe to try to devise ideas for reaching these people with a certain education in living. The public schools have failed in most communities of our country to do that. Many people, as you know, are graduating from the public schools as semi-literates. Perhaps the time has come for us to adopt even a Mexican-type, each-one-teach-one type of program. Perhaps the time has come to involve our private companies more effectively in this effort. Some of the best educational efforts in the country are being conducted by private companies.
Heffner: You mean educate people to feel better about their lot?
Loeb: No, not at all. I mean, this obviously is not supposed to be one enormous pacifier. Who have to hire large numbers of people for their operations and find that the local schools are not doing a satisfactory job of teaching them the basics of reading and writing and arithmetic, and they have these programs within the companies and teach these people very effectively.
Heffner: And I’ve been taught to read, and I’ve just read the sign that says, “Cut”.
Heffner: But you’re going to stay there, and we’re going to do another program, Marshall Loeb…
Loeb: Thank you, Dick.
Heffner: …Managing Editor of Money magazine. And thank you too in the audience. I hope you’ll join us again here on THE OPEN MIND. Meanwhile, as another old friend used to say, “Good night and good luck.”