Debating Warren Buffett

posted at 9:41 am on November 30, 2012 by Ed Morrissey

Earlier this week, I featured a video of an inteview conducted by Matt Lauer of Warren Buffett, in which the multibillionaire recommended tax hikes on the wealthy as a morale-booster for the middle class.  “I think would have a great effect in terms of the morale of the middle class,” Buffett told Lauer, while scoffing at the argument that higher taxes on capital gains would have any impact on investment decisions.  “Only in Grover Norquist’s imagination,” he chuckled at Lauer’s question.  On top of this, Buffett also recommends continued federal spending at 21% of GDP (it’s closer to 25% at the moment) with revenues calculated at 18.5% of GDP, and says not to worry about the debt and deficits as long as they remain stable.

That, however, is not the only opinion on the matter of dynamic consequences of tax-rate increases, deficits and debt, and other budgetary policies.  Let’s see if we can identify some of the Wall Street legends who have offered differing opinions on the importance of tax policy and deficits on investment decisions.  I’ll have the answer key below:

  1. “My net worth is the market value of holdings less the tax payable upon sale.  The liability is just as real as the asset unless the value of the asset declines (ouch), the asset is given away (no comment), or I die with it….Investment decisions should be made on the basis of the most probable compounding of after-tax net worth with minimum risk.”
  2. In the case of WPPSS, the “business” contractually earns $22.7 million after tax (via the interest paid on the bonds),and those earnings are available to us currently in cash.  We are unable to buy operating businesses with economics close to these.  Only a relatively few businesses earn the 16.3% after tax on unleveraged capital that our WPPSS investment does and those businesses, when available for purchase, sell at large premiums to that capital.
  3. That’s because bonds are as sound as a dollar – and we view the long-term outlook for dollars as dismal.  We believe substantial inflation lies ahead, although we have no idea what the average rate will turn out to be.  Furthermore, we think there is a small, but not insignificant, chance of runaway inflation. Such a possibility may seem absurd, considering the rate to which inflation has dropped.  But we believe that present fiscal policy – featuring a huge deficit – is both extremely dangerous and difficult to reverse. (So far, most politicians in both parties have followed Charlie Brown’s advice: “No problem is so big that it can’t be run away from.”) Without a reversal, high rates of inflation may be delayed (perhaps for a long time), but will not be avoided.  If high rates materialize, they bring with them the potential for a runaway upward spiral.
  4. The faith that foreigners are placing in us may be misfounded.  When the claim checks outstanding grow sufficiently numerous and when the issuing party can unilaterally determine their purchasing power, the pressure on the issuer to dilute their value by inflating the currency becomes almost irresistible.  For the debtor government, the weapon of inflation is the economic equivalent of the “H” bomb, and that is why very few countries have been allowed to swamp the world with debt denominated in their own currency.  Our past, relatively good record for fiscal integrity has let us break this rule, but the generosity accorded us is likely to intensify, rather than relieve, the eventual pressure on us to inflate.  If we do succumb to that pressure, it won’t be just the foreign holders of our claim checks who will suffer.  It will be all of us as well.” 

So who are the geniuses who dare to contend with Buffett?

  1. Warren Buffett.
  2. Warren Buffett.
  3. Warren Buffett.
  4. Warren Buffett.

Daniel Schuchman pulled these quotes from Buffett’s extensive writings of the past for Forbes, in a column that should be read in its entirety.  Schuchman blasts Buffett for pretending that his entire history of investment strategy doesn’t exist in order to advance a political agenda — especially an ultimately incoherent agenda:

Mr. Buffett now proposes that the minimum individual tax rate for those making between $1 million and $10 million should be 30%, and for those making over $10 million it should be 35%.  No rationale is given for these rates.  Why not 25%?  Why not 50%?  The reader is given no insight as to whether these rates are based on some distributional principle, an attempt to maximize government revenue, or something else.  We are left only with The Oracle’s arbitrary decree which we are apparently not to question.  Mr. Buffett’s sanctimonious tone is inversely proportional to his willingness to propose any reform that would materially impact his own financial position.  Virtually all Mr. Buffett’s wealth is attributable to the ownership of stock, not current wage income.  He has commenced a plan to give away his shareholdings to various charitable foundations (a noble endeavor) which will also avoid triggering many billions of dollars in tax payments.  He is conspicuously silent about whether he would support a tax reform that eliminates charitable deductions.

But perhaps the most disturbing aspect of Mr. Buffett’s revisionist history comes when he turns to his prescriptions for our nation’s deficit and debt.  The federal government’s goal should be to raise revenues of 18.5% of GDP and to spend 21% of GDP, he recommends.  Nowhere does he explain why these levels are optimal and whether they derive from a social, economic, moral, fiscal or national security perspective.  Mr. Buffett acknowledges that these ratios guarantee future annual deficits but he takes comfort that “assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.”  He seems awfully complacent about the prospect of our country incurring hundreds of billions of dollars of additional debt, every year, potentially forever.

Buffett wins this debate, of course … but not the latest iteration of Buffett.


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The other famous Buffett isn’t this incoherent after he’s had six beers in Margaritaville.

radjah shelduck on November 30, 2012 at 9:47 AM

This fraud and others in the media need to be called out in public. We need to publicly SHAME THEM. They get away with it unless they hear a loud rebuke.

bob77 on November 30, 2012 at 9:47 AM

Buffett wants the higher rates to help fund all those people wasting away in Moocherville.

Flange on November 30, 2012 at 9:48 AM

What some will do in order to beat the IRS.

Jabberwock on November 30, 2012 at 9:51 AM

Rent-seeking cannibal.

tom daschle concerned on November 30, 2012 at 9:51 AM

Rich democrat=saint
Rich Republican=wife murdering tax felon.

How far away from incarceration and elimination of the ‘other’ do you think democrats are?

tom daschle concerned on November 30, 2012 at 9:56 AM

Buffett is (somewhat) right even though I think he has the wrong approach to what he correctly sees is wrong. We simply have to get revenues up. Right now they’re around 15-16% of GDP. There is no way that we can cut spending to match that level of revenue.

No way politically and no way economically. Cutting spending that far that fast will indeed harm the economy just as much as increasing taxes that far that fast. And politically it’s not going to be supported by the public.

So, we need to get the economy growing again. In the 4%+ range. But nobody knows how to do that. I don’t think tax cuts will work and I’m sure that another stimulus won’t either.

We’re in the Japansese “lost decade” territory, I’m afraid.

SteveMG on November 30, 2012 at 9:58 AM

Uh- isn’t that debt compounded?

BKeyser on November 30, 2012 at 10:01 AM

The hit will come sooner or later.

So which generation volunteers to be the ones to eat this crap sandwich? Don’t all raise your hands at once.

Bishop on November 30, 2012 at 10:03 AM

So, we need to get the economy growing again. In the 4%+ range. But nobody knows how to do that. I don’t think tax cuts will work and I’m sure that another stimulus won’t either.

We’re in the Japansese “lost decade” territory, I’m afraid.

SteveMG on November 30, 2012 at 9:58 AM

I disagree. Make policy/regulation that allows for cheap energy, repeal obamacare, make current tax policy permanent, AND QUIT PRINTING MONEY.

DEBASING THE DOLLAR VIA INFLATIONARY POLICY IS IMMORAL.

Give business owners a sense that they can plan for the next year and the economy will come back.

We do not need a lost decade.

tom daschle concerned on November 30, 2012 at 10:03 AM

He is currently in court fighting federal taxes that he owes! Why is this never brought up?

pencotron on November 30, 2012 at 10:04 AM

I’m in NY and we could really use a morale boost…why doesn’t Buffett offer to pay for our rebuilding after Hurricane Sandy? It’s only $37 billion after all. He’d still have a few billion left. Who was it who said: “I do feel that at some point you’ve made enough money”?

monalisa on November 30, 2012 at 10:05 AM

Just take all his money and dump in out in the street.

darwin on November 30, 2012 at 10:06 AM

I disagree. Make policy/regulation that allows for cheap energy, repeal obamacare, make current tax policy permanent, AND QUIT PRINTING MONEY

We need to get demand up. Businesses can make more products, invest more in equipment, et cetera but if there aren’t any customers it won’t do any good.

People lost a lot of net wealth when the mortgage/housing crisis hit. So they’re reluctant to make purchases.

I think the best thing the government can do is nothing.

SteveMG on November 30, 2012 at 10:07 AM

Right now they’re around 15-16% of GDP. There is no way that we can cut spending to match that level of revenue.

SteveMG on November 30, 2012 at 9:58 AM

Historically, since WWII, tax revenue has never been more than 20% of GDP. Before FDR spending was never more than 10% of GDP.

We can’t continue to spend at 21 or 25% of GDP, it is not sustainable (and I don’t mean in the Agenda 21 way).

Spending needs to be cut. There should be a cap that spending never exceeds 15% of GDP from the previous year.

LoganSix on November 30, 2012 at 10:10 AM

Politicians are GREEDY.

And the traitors in the media love their favorite floosie Warren Bufffffffffit.

PappyD61 on November 30, 2012 at 10:12 AM

We need to get demand up. Businesses can make more products, invest more in equipment, et cetera but if there aren’t any customers it won’t do any good.

People lost a lot of net wealth when the mortgage/housing crisis hit. So they’re reluctant to make purchases.

I think the best thing the government can do is nothing.

SteveMG on November 30, 2012 at 10:07 AM

The only way to “create” demand, is to ensure the rule of law, enforce contracts, remove penalties for being productive, and quit meddling in every aspect of individuals and corporations existence.

GOVT CANNOT CREATE DEMAND. GOVT CANNOT GROW ECONOMIES.

tom daschle concerned on November 30, 2012 at 10:12 AM

We can’t continue to spend at 21 or 25% of GDP, it is not sustainable (and I don’t mean in the Agenda 21 way).

If revenues can return to their historic levels of 18%, a 3% deficit is manageable. It’s not great but we can manage it. We can’t manage a 7% deficit.

Now, the unfunded obligations to entitlements? That we can’t manage.

SteveMG on November 30, 2012 at 10:13 AM

The only way to “create” demand, is to ensure the rule of law, enforce contracts, remove penalties for being productive, and quit meddling in every aspect of individuals and corporations existence

Demand is driven by consumers (for the most part). None of your recommendations, I think, will lead to Americans opening up their pocketbooks.

SteveMG on November 30, 2012 at 10:14 AM

SteveMG

-Revenues as a %GDP are more closely correlated with growth than rates. The sky-high Eisenhower rates yielded revenues (%GDP) no higher than those of the Reagan Era (16-19% in both cases.)

You get to 4%+ economic growth by disincenting parasitism (the welfare state) and incenting economic productivity (stable tax system of low, predictable taxes spread over a wide base) and the removal of obstacles to investment (regulatory, regime uncertainty, and fiscal.) Balance the budget, cut the welfare rolls, reform the tax code. Get the central government out of the economic planning business.

This prescription is in direct opposition to the Democratic agenda. More importantly, it means offering the electorate liberty, consequences, and opportunity (but also uncertainty.) The electorate doesn’t want any of this. They want security. That’s why we’re doomed.

SAMinVA on November 30, 2012 at 10:15 AM

Demand is driven by consumers (for the most part). None of your recommendations, I think, will lead to Americans opening up their pocketbooks.

SteveMG on November 30, 2012 at 10:14 AM

Then, by all means, DICTATE them to.

tom daschle concerned on November 30, 2012 at 10:16 AM

and says not to worry about the debt and deficits as long as they remain stable.

That’s just it, the debt is not stable. Just look at a graph of the federal debt over time, it’s following a classic exponential curve. That’s not “stable”, that’s an inevitable catastrophe.

ZenDraken on November 30, 2012 at 10:16 AM

So, we need to get the economy growing again. In the 4%+ range. But nobody knows how to do that. I don’t think tax cuts will work and I’m sure that another stimulus won’t either.

We’re in the Japansese “lost decade” territory, I’m afraid.

SteveMG on November 30, 2012 at 9:58 AM

Completely disagree. Right now, the cart is in a ditch. We have too many people in the cart and not enough people pulling the cart. The energy to pull the cart is $4 a gallon. And the cart is facing a brick wall of regulation.

We can be a California cart or a Texas cart. It’s really that simple.

monalisa on November 30, 2012 at 10:17 AM

Let’s make a trillion dollar SL bubble, a housing bubble, a 1.5 quadrillion dollar dericatives bubble, use ZIRP, and expect economies to grow.

Use the SteveMG plan!

tom daschle concerned on November 30, 2012 at 10:18 AM

Let’s lend money at a negative interest rate to purchase sovereign debt!

tom daschle concerned on November 30, 2012 at 10:19 AM

What a shallow little man he turns out to be.

A friend lived in a house on the canals in Flour Bluff (part of Corpus Christie). When he went to sell it a neighbor approached him and asked him not to list it. This guy was one of several Berkshire investors from Omaha that were buying up the neighborhood and he they had buyers lined up.

DanMan on November 30, 2012 at 10:20 AM

I’ve long believed that Buffet was little more than a clown. A rich one but a clown nonetheless. His latest brown nosing of Obama and his policies (which include his “surprise” PR campaign to boost hiking taxes on the wealthy) is his most recent offense.

What’s chaps my a$$ the most about this is that everytime he’s interviewed noone ever askes ANY probing questions – I mean how about asking how his current proposed policies would have affected his wealth building in years past? Would he be open to retroactively paying higher rates on his own earnings for say the past 30 years? Would he open to a one time 50% tax on all property (hard and soft) for those with a net worth north of $10MM? If not why not? Those are the questions that he needs to be asked but he never will because he’s the “Oracle”.

What’s pathetic about what he proposes is that under a high tax regime he’d be worth a fraction of what he is now – how about that for a probling question.

volnation on November 30, 2012 at 10:21 AM

Want to make the GDP grow 5% next year?

How much money should geitner and bernanke print?

tom daschle concerned on November 30, 2012 at 10:22 AM

So Buffet made billions paying a low tax rate and now that he has made his billions he wants people who make only $250k or more to pay a higher tax rate than he ever paid.

FU Buffet. Why don’t you go back through your career, calculate what you would have paid in taxes at the rates you advocate now, and write a check to Obama for that amount, you selfish hypocritical POS.

farsighted on November 30, 2012 at 10:23 AM

If revenues can return to their historic levels of 18%, a 3% deficit is manageable.

SteveMG on November 30, 2012 at 10:13 AM

Obviously, it is not.

LoganSix on November 30, 2012 at 10:23 AM

The propinquity involved in some his deals has always been very…interesting. Legal but in other respects very similar to the insider trading that our esteemed Congreess critters indulge in regularly.

I seem to remember he took a large stake in GM shortly before the government threw it a credit line and saw an almost instant doubling of his investment.

He’s a very shrewd man and he will have an exception case for himself and his business in seeing the deficit spiral out of control. He’s probably wanting to out do Soros’s coup when he shorted the GBP, forcing the UK to eject out of the Exchange Rate Mechanism, crashing sterling and the economy.

The was directly linked to Soros massively shorting GBP and made him countless billions.

CorporatePiggy on November 30, 2012 at 10:29 AM

Warren Butthead is a despicable, lying fraud. He made a big show of having “donated” over $30 billion to his buddy, Bill Gates’, foundation – no, the Butthead refused to donate his money to the feral government he expresses such love and concern for, instead he gave it away to a tax-exempt foundation that does jerky stuff – and yet Buffet continues to appear on the “Richest” lists with entire fortune seemingly intact. That’s a real puzzler. How can someone be worth $50 billion, publicly make a show of giving away $30 billion and then show up on the list the next years still worth about $50 billion? It’s as if Butthead didn’t give away jack but just made some silly promise to give it away … someday in the future. And yet, Butthead loved that limelight that shone on “Butthead the great, selfless philanthropist” (just not now, while he’s having too much fun with the wealth) while refusing to correct anyone on the fact that he hadn’t given away squat.

And now, Butthead is pulling the same junk with taxing the rich and burning high earners at the stake to make the masses a little happier with their lot. Typical. Butthead is a diseased, demented individual. He never pays himself a market salary … since that would be taxable. He doesn’t pay money out to his shareholders in dividends much … since that would be taxable. He doesn’t have much of a real “income” since that would be taxable. Butthead just shelters his wealth in unrealized capital gains – not taxable. Good for him. That’s the smart thing to do and he does it. But now he wants to become known as a champion socialist and executer of nasty, rich people … What a f**kface.

There is some solace in the fact taht Butthead has earned himself a place in future history books alongside such luminaries as the Indonesian Imbecile as Destroyer of America, Benedict Arnold, and Benedict Roberts (holder of the most insane and intellectually offensive opinion in the history of jurisprudence that gave aid and comfort to Barky’s death blow to America). Thousands of years in the future sane people will spit when these names are mentioned as they all serve as cautionary tales to decent people about what evil lurks in the world and how a few immensely evil idiots worked so hard to destroy the greatest nation that had ever existed – and for the modern traitors, they did the destruction out of nothing but pure spite and stupidity.

ThePrimordialOrderedPair on November 30, 2012 at 10:29 AM

Obviously, it is not.

Sure it is. A 3% deficit in a growing economy of more than $16 trillion is easily manageable. If you have a 4% growth rate that will cover the 3% deficits. The economy is growing at a faster rate than your deficit.

But we can’t manage the trillions in unfunded obligations of the entitlements programs.

SteveMG on November 30, 2012 at 10:38 AM

farsighted on November 30, 2012 at 10:23 AM

retroactive taxes on WB, my thoughts exactly

DanMan on November 30, 2012 at 10:39 AM

The federal government’s goal should be to raise revenues of 18.5% of GDP and to spend 21% of GDP, he recommends. Nowhere does he explain why these levels are optimal and whether they derive from a social, economic, moral, fiscal or national security perspective.

Buffett may be a smart investor, but clearly he has no clue about macroeconomics.

As I commented on another thread, I’d love to hear a leftist explain exactly how raising taxes on the “rich” (or on anybody, for that matter) is going to create a single job or lead to any semblance of economic growth.

UltimateBob on November 30, 2012 at 10:40 AM

As I commented on another thread, I’d love to hear a leftist explain exactly how raising taxes on the “rich” (or on anybody, for that matter) is going to create a single job or lead to any semblance of economic growth.

UltimateBob on November 30, 2012 at 10:40 AM

In Buffet’s case it is arguable he is not interested in lowering unemployment and growing the economy.

You can bet both ways.

CorporatePiggy on November 30, 2012 at 10:49 AM

Use the SteveMG plan

I don’t have a plan. I don’t know how to get growth up.

Because I disagree with you doesn’t mean I’m right and you’re wrong. Or I’m a bad guy. It’s just my opinion.

Try to argue with a sense of good faith and cheer.

We can disagree without being disagreeable.

At least I can.

SteveMG on November 30, 2012 at 10:56 AM

SteveMG, I’m kinda shocked at your argument. It’s well below your usual standards – that is, it doesn’t hold any water.

Sure, we can “sustain” just about anything. You should read some of the stories of what the people of Leningrad “sustained” during the 900-day siege of WWII. And of course in this new Dreamland where central banks underwrite any/all govt. spending by buying sovereign debt and much worse, until/unless it all flies apart we can do just about anything, no matter how obviously unwise.

But obviously that’s not the point. ANY deficit, run for non-productive purposes (i.e., debt incurred that does not contribute to future wealth-generation) is by definition wasteful and imposes an opportunity cost. Running a deficit to create some important new infrastructure or other basis for generating more wealth and employment would be one thing. All other uses are another thing (emergencies, such as wars, are a separate category, as they are a “public good” of central importance that rarely can be simply avoided or wished away – but still best financed with as little debt as possible).

Put another way, you have a few options. Keep govt. share at 15% of GDP or less, and be Hong Kong or Singapore. Or, keep it towards 20%, and be Spain or Italy. Tough choice?

Buffet. As others here have said in other ways, like many wealthy folks who spout off on public policy, he’s either being dishonest, or embodies that peculiar combo of private economic genius/public policy imbecility that we see all too often. And if his “policy” recommendations were followed (today’s – not those from his past), there would be no Warren Buffets, and we’d be closer to North Korea than to what was once America.

Oh – and the worst thing? This repugnant, idiotic, creepy, explicit reliance on the worst and ugliest in human nature – envy – as some sort of positive basis for public policy. Middle class America is so degraded, and empty, that its “morale” would be boosted by Leviathan damaging the society by stealing more money from the successful? Wow. Step back and savor that for a moment. That someone can even peddle such garbage in public is still stunning and discouraging – does he know the old Soviet joke about the two collective farm neighbors and their cows?

Of course there are brainless envy-driven idiots even commenting here occasionally – and those suggesting the GOP add some “populism” to its repertoire to attract the least desirable among us. Perfect, really, for a country so degraded that a public figure can urge supporters to “vote for revenge” or to “punish your enemies”. America is not just a far dumber place than it was not too long ago, it is much, much uglier.

IceCold on November 30, 2012 at 11:12 AM

Demand is driven by consumers (for the most part). None of your recommendations, I think, will lead to Americans opening up their pocketbooks.

SteveMG on November 30, 2012 at 10:14 AM

This is a ridiculous argument. It’s based on the idea that every business runs at 100% capacity all the time, so any slight increase in demand will also increase employment. Both the premise and the outcome are laughably silly.

“Demand” increases when wealth is created. Wealth is created by investing in new markets, which only happens when the risk/reward ratio is favorable. You make that happen by reducing burdensome regulations, removing market uncertainty, and promoting a pro-business environment.

Simply borrowing or redistributing money does not create demand (wealth), it simply shifts it within an economy or borrow it from the future.

PetecminMd on November 30, 2012 at 11:21 AM

Not all deficits are the same. There’s a huge difference between a 7% deficit which we now have in a sluggish economy and a 3% deficit in a growing economy. And there’s a difference, as you stated, between deficits that are financing debt versus those that are purchasing things.

An economy that is growing at 4-5% GDP can “cover” for a 3% deficit. That’s because the growth exceeds the deficit.

As I said above, Buffet’s solution to getting more revenues is wrong. Raising taxes in this economy doesn’t make sense. In order to increase revenues and lessen the deficit, we need to get growth up.

And I don’t know how to do that.

SteveMG on November 30, 2012 at 11:22 AM

Demand requires customers purchasing the products. We are a middle class, consumption based economy.

Example: banks are flush with cash. But nobody’s borrowing. Because businesses can’t expand and don’t need to borrow to expand. Because they have no customers.

The US is mostly a consumption economy (for the most part; we still manufacture lots of things). And the American consumer lost lots of net wealth when the housing crisis hit.

SteveMG on November 30, 2012 at 11:25 AM

Steve, you “can” impoverish yourself, forego good things like growth and wealth creation, etc etc – but why would you? Any deficit is much worse than no deficit – duh. And given the lack of economic literacy, sense of responsibility, and self-respect in today’s America, any deficit is likely to be the especially ruinous kind – large, unrelated to any true emergency.

So accepting a 3% deficit in a growing economy is possible, but incredibly stupid and wasteful – unless the deficit is to fight a war.

And your description of the current doldrum is off quite a bit. Bank lending is being shaped significantly by the perverse incentives introduced by the massive and incompetent Fed intervention (and now, legislative disaster in Dodd-Frank). And businesses face huge overall uncertainty, not just weak demand.

The US economy still “wants” to grow. Enhanced/expanded energy sector is just the latest example. As others above put it, if not hobbled by Leviathan in a zillion ways, the economy WOULD grow (current “growth” is largely an artificial phenomenon of the liquidity tsunami unleashed by the Fed, and of unsustainable short-term demand boosted by your precious deficit spending). None of this is real growth – that is, it doesn’t exist outside temporary interventions.

But hey, let’s focus on the really good news here. Major public figures are urging ruinous policies in order to appeal to the most base and destructive dark bigotries of the worst of the middle class. Wonderful!

IceCold on November 30, 2012 at 11:43 AM

Demand requires customers purchasing the products. We are a middle class, consumption based economy.

SteveMG on November 30, 2012 at 11:25 AM

You’re using ideas and terms interchangeably and confusing their meanings. What you’re describing as ‘demand’ is not what you think it is. You’re conflating demand (as in ‘supply and demand’) with wealth, and they’re two different things.

Demand doesn’t change with response to an increase in available funds. It changes in response to the price of goods and services. As a business, I don’t (or very rarely) respond to changes in demand by expanding my business, I respond to it by changing my prices. That’s the whole problem with the Krugman/Reich/Keynes argument–it assumes that shifting demand from one sector of the economy to another (or borrowing it from the future) somehow creates wealth in the present by increasing employment. It doesn’t now and never will, all it does is create inflation.

What you’re discussing is wealth. You increase wealth by opening new markets and producing new and innovative goods and services. And you encourage that by making it worthwhile for investors to risk their money in new ventures. If the risk of investing is too high, or the potential reward is too low, or investors are unable to reliably gauge the relationship between risk and reward, money sits and wealth isn’t created. That’s what we have now. That’s why the ‘demand’ argument is wrong.

PetecminMd on November 30, 2012 at 12:07 PM

Wow…Forbes is really gunning for Warren.
Why did I feel there was some convenient omissions in this rant?

A comment on the article at the Forbes site:

This author loses credibility from very early in the article with his first attempt to try to point out hypocrisy being a quote from Buffet in 1963 saying he is an advocate of paying a lot of taxes but at low rates. The author is either ignorant to the fact or intentionally trying to deceive in not pointing out that in 1963 the top marginal tax rate as 91% – that is correct, 91%. So even the less than 40% top rate that would result from letting the Bush Tax Cuts expire for the wealthiest Americans would be very low compared to that. Indeed, throughout the 60s and 70s, when this author points out Buffet was really building the base for his wealth, the top marginal rate was never below 70%, and evidently that didn’t preclude successful investment and wealth building. Now Republicans are screaming that the world will end if the rate goes up less than 5% from 35% back up to 39.6%, a rate which was historically still low and under which the economy did quite nicely, thank you. Buffets point that wealthy investors are not going to suddenly stop investing because marginal rates or capital gains rate increase to where their profits are slightly less than they might have been is a completely sound one. Investment didn’t stop when the top marginal rate went up in the late 80s and 90s under Bush and Clinton, and it didn’t stop when capital gains went up in the late 80s under Reagan. It won’t stop now if rates go up, Buffet’s point is completely sound.

verbaluce on November 30, 2012 at 12:18 PM

Another rather interesting article on Mr. Buffett.

http://amuchbetterquestion.com/how-hypocritical-can-warren-buffett-be/

Windsweeping on November 30, 2012 at 12:29 PM

I’m talking about consumer demand. More than 70% of our economy is consumption.

I’ll repeat: if businesses create wealth, ie., new or more products – it won’t do any good if nobody purchases those products.

The Acme widget company can make lots of new widgets – new wealth – but it no one purchases those widgets it won’t help growth.

The widgets will be sitting in a warehouse. See: Aggregate demand vs. aggregate supply.

This is why Buffett is wrong in supporting tax increases. Tax increases reduce aggregate demand.

As I said before, banks have lots of wealth, i.e., cash. But that wealth isn’t doing us any good because it’s not being injected into the economy. Businesses aren’t borrowing because they have no customers.

It doesn’t do a business any good to create a new factory to make new products if there are no customers.

SteveMG on November 30, 2012 at 12:30 PM

If Buffett wants to pay taxes so badly, why has he spent millions contesting an IRS ruling that his investment company owes
$1 BILLION in back taxes?

GarandFan on November 30, 2012 at 12:33 PM

SteveMG, I’m sorry but you’re just wrong. If what you’re saying was correct, all the government would have to do is print or borrow money and it would set the economy booming. We tried that, and how did it work? Not well, right?

I’ll say it again-you’re taking the idea of ‘supply and demand’ and trying to twist it into some sort of economic growth model. It doesn’t work, because you’re using the same term for two completely different things and ending up with an erroneous conclusion.

All that other stuff about widgets and consumption banks is nonsense. Businesses aren’t borrowing because the return on borrowing doesn’t cover the risk involved. It has nothing to do with customers.

PetecminMd on November 30, 2012 at 12:50 PM

Senility, thy name is Buffett!! And by that I don’t mean Jimmy :)..

jimver on November 30, 2012 at 12:53 PM

So Mr Buffett is a firm believer in a policy of – “Floggings will continue until morale improves.”

yenober on November 30, 2012 at 12:56 PM

I’m sorry but you’re just wrong. If what you’re saying was correct, all the government would have to do is print or borrow money and it would set the economy booming.

Sorry, we just fundamentally disagree about the state of the economy. You believe that all we have to do is create wealth and that it will somehow be injected into the economy.

Businesses aren’t expanding because they have few customers. Interest rates are near zero. Why aren’t they borrowing and expanding their operations? Why is the risk on the return of the borrowing so high?

Because. They. Have. No. Customers.

Many Americans lost more than 1/3 of the wealth in the housing crisis. They had debt that they are still paying down.

Consumption is down.

Until consumption goes up again, the economy won’t recover.

SteveMG on November 30, 2012 at 1:33 PM

Back to Buffett. Here’s a great piece by Gregory Mankiw on “A Master of Tax Avoidance.”
Key points: Buffett’s income is largely on investments. And he gives a great deal of money to charity. His company doesn’t give out dividends.

Increasing tax rates on the wealthy won’t hurt him much.

SteveMG on November 30, 2012 at 1:35 PM

Sorry, we just fundamentally disagree about the state of the economy. You believe that all we have to do is create wealth and that it will somehow be injected into the economy.

SteveMG on November 30, 2012 at 1:33 PM

Created wealth doesn’t have to be “injected” into the economy. Created wealth is part of the economy. It is the act of creation that is the engine. I think you are confusing created wealth (true created wealth) with the nominal value of dollar assets. Banks aren’t holding any “created wealth”. They are storing printed dollars which were made to fill up some holes in their balance sheets that cannot be papered over without bringing everything around them to a standstill (as the zombie banks of Japan should have informed people).

You can’t just give money to people to spend and expect the economy to just pop back to life. Not all spending is equal, you know. Natural growth of consumption is the only sort that leads to a revived economy – not jars of money that people dig up and just spend on incoherent purchases for the sake of consuming.

ThePrimordialOrderedPair on November 30, 2012 at 1:45 PM

what else is Obama’s rich guy buddy gonna say? he wants to be loved and considered just a regular guy. he knows damn good and well that soaking the rich doesn’t help our economy, it only benefits the socialists politicians in getting elected

burserker on November 30, 2012 at 1:50 PM

GOVT CANNOT CREATE DEMAND. GOVT CANNOT GROW ECONOMIES.

tom daschle concerned on November 30, 2012 at 10:12 AM

Oh, I disagree. Government can create demand for toilet paper and bread and grow the economy for grave diggers and morticians.

Oh… not like that… oh okay.

Sorry.

kim roy on November 30, 2012 at 1:55 PM

Sure it is. A 3% deficit in a growing economy of more than $16 trillion is easily manageable. If you have a 4% growth rate that will cover the 3% deficits. The economy is growing at a faster rate than your deficit.
SteveMG on November 30, 2012 at 10:38 AM

You appear to be having trouble with math and logic.
If the deficit is 3% every year, that means you are borrowing 3% for your spending EVERY year. It doesn’t matter if the economy grows by 4% if you maintain a 3% deficit by increasing your spending by the amount of growth. That just means as the economy grows by that 4%, and supposedly tax revenues do as well, you are growing your spending by that 4%. Which means the total debt is constantly growing.

What we need is to halt the growth of spending, or better yet reduce it, and THEN growth in the economy will take care of the debt. Basically, we have to balance the budget – ideally with surplusses for awhile to eliminate the existing debt.

dentarthurdent on November 30, 2012 at 3:14 PM

verbaluce on November 30, 2012 at 12:18 PM

You killed your own credibility as well as Buffet’s with that post.
The top marginal income tax rate may have been 91% back then, but not the tax rate on capital gains or dividends. Why do think Buffet has always paid himself a measly $100K / year in salary? Why do you think business people went to big stock options and such in lieu of actual salary? By doing so, they, including Buffet, completely avoided the 91% rate. What Buffet now wants raised is the income tax rate – which has no impact on himself. THAT IS a hypocrit.

dentarthurdent on November 30, 2012 at 3:25 PM

dentarthurdent on November 30, 2012 at 3:25 PM

In fact, the highest the capital gains tax rate has EVER been is 35% and that was in the 1990s.
So when the top marginal income tax rate was 91%, by paying himself only a token salary and making his real money on capital gains, Buffet kept his top tax rate at or below 35%.

dentarthurdent on November 30, 2012 at 3:40 PM

while scoffing at the argument that higher taxes on capital gains would have any impact on investment decisions. “Only in Grover Norquist’s imagination,”

Just sold all my stocks & re-bought them to reset the basis… placed them in safe locations so I don’t have to sell, or pay taxes for the next 20 years on my taxable funds I’m saving for retirement (or maybe buying a house someday).

You think I did this for reasons OTHER than taxes? What reasons could those possibly be? I’ve been moving my money around without a lot of limitations at 15% LTCG rates; don’t expect to see a penny if you drive that up to 35% until I’m retired and don’t have other income (and can pay lower rates on 40-50K/year as I slowly cash out).

What I invested in, when I buy, and when I sell ALL are seriously affected by the tax rate… I promise you, I’m not a figment of someone’s imagination.

gekkobear on November 30, 2012 at 4:20 PM

Only a relatively few businesses earn the 16.3% after tax on unleveraged capital that our WPPSS investment does and those businesses, when available for purchase, sell at large premiums to that capital.

Schuchman blasts Buffett for pretending that his entire history of investment strategy doesn’t exist in order to advance a political agenda

Holy cow, how could this guy dig up so much dirt on Buffett and then totally miss what is really going on? Buffett got his big payoff yesterday when barry pushed for a 45% inheritance tax. That is how warren got rich in the first place, raiding small companies in trouble because of inheritance taxes. Berkshire Hathaway also owns a company that sells inheritance tax insurance. On either end if barry gets the 45% he wants the next few years will be a boom time for warren. This is fascism in action, folks, naked and unembarrassed.

peacenprosperity on November 30, 2012 at 6:22 PM

…if that old hypocrite has a stroke while they are interviewing him on TV…ask me if I would cry!

KOOLAID2 on November 30, 2012 at 9:28 PM

Buffett never would have made it over the middle-class hump if Obama were the president when he started out.

Capitalism isn’t dead … socialism is sucking it dry.

kregg on December 1, 2012 at 7:38 AM