A republic or democracy presupposes that the majority of representatives will get it right eventually. However, we've seen in the Roman Circus and we see now that there is a weak spot to this thinking. Eventually the elected body will split into a faction that represents business interests and a faction that trades entitlements for votes. The latter faction eventually gains control to an extent that they bankrupt the whole. We are nearing that stage now. Few Republicans will oppose entitlements and both Mr. Bush and Mr. Obama are guilty of ramp ups in deficit spending.
Buffett's proposal would patch this historically reoccurring weakness of representative forms of government. As hnsmurf points out, it would also create a slippery slope where no representative could be reelected if they vote for X, Y and Z policies that are not systemic threats.
As our government is not responding to an issue which can literally ruin us all, it seems to me that Buffett's proposal is the lesser of two evils. Stability demands a solvent government.
Maybe I am misreading your argument, but it seems like you are saying the cause of the US deficit problem is that the faction that trades entitlements for votes has gained control of the system. If that were true, and this faction were really just concerned with entitlements, there would be an obvious solution to the deficit: raise taxes. This may be every bit as horrible as you imagine, but it wouldn't involve a debt crisis.
The problem as I see it, is that the faction that trades entitlements for votes and the faction that trades tax breaks for votes are both simultaneously in control. The low taxes people win all the fights about taxes, and the high spending people win all the fights about spending.
The bug in democracy that led to our deficit problem is the lack of anything to prevent us from voting to have our cake and eat it too.
Tax breaks are just another form of entitlement. Tax breaks are almost worse than other government benefits. It's basically taking out interest only loans on the tax payer's behalf. Here's $500 ... Oh and by the way, that comes with $500 worth of debt with a 4% interest rate that you are going to pay forever.
There is, indeed, a most dangerous passage in the history of a democratic people. When the taste for physical gratifications among them has grown more rapidly than their education and their experience of free institutions, the time will come when men are carried away and lose all self-restraint at the sight of the new possessions they are about to obtain. In their intense and exclusive anxiety to make a fortune they lose sight of the close connection that exists between the private fortune of each and the prosperity of all.
Eventually the elected body will split into a faction that represents business interests and a faction that trades entitlements for votes.
What makes you think that a faction that represents business interests does not also trade entitlements for votes? The real problem is that ALL factions in a democracy demonstrate the universal human tendency to take benefits today and put off obligations for the future.
But that's the 'free market' right? Things will work out perfect in the end because of people's self-interest. The free market tells us that it's impossible for bad things to happen.
Don't underestimate their ability to redefine GDP or 'budget deficit'. Also, if push comes to shove, there is always the option of cranking up the printing presses (Congress can wrestle control of monetary policy if the Fed is too uncooperative).
We just learned this lesson in California where voters recently passed an "on-time budget" initiative. The way it worked was Legislators didn't get paid after the budget deadline. In theory this would get them to pass a budget on time instead of drawing it out to the point of state insolvency like they did every previous year.
Did it work?
Of course not. They passed an absolutely fictional budget. It not only depends on California getting three times its previously anticipated tax revenue but it also depends on tax hikes that haven't been passed (passing a budget requires a majority while passing a tax increase requires a 2/3rds vote where at least a few Republicans have to sign on)
But they didn't get paid. That's the point. The fictional budget was passed (but not signed by the governor), and the controller said it was ridiculous, and therefor he would not be authorizing payment in accordance with the on-time budget initiative.
One of the broadly-speaking Anglo-Saxon innovations was the idea of a government of laws, and not men. I think it's one of those "good lies"; it isn't ever true, in reality "we're all just folk" and it's always government of men, but it's very good for all members of a society globally to maintain the fiction. Unfortunately, it does require a significant fraction of the society to choose to maintain the fiction (with varying levels of awareness of the fact that it is actually fiction), and locally it advantageous for people of power to implement government of men, not laws.
And in our sophistication pretty much all the intellectuals we've got busily tearing apart all the foundation that "government of laws, not men" is built on. So back to government-of-men we go. Hooray.
I'd like to see legislators _pension_ provisions tied to future economic metrics.
Hopefully that would inspire them to take a longer term view, and they would be less able to redefine terms when they are being applied as they are no longer in power. Probably hopelessly naive thinking though ...
That is a brilliant summary. Not enough people make the connection to Rome in my opinion. I know it's hip to compare the US to Rome but it is actually borne out in the history. At least in my opinion.
Great idea by Mr. Buffet. Similar to Brazil's balanced budget laws, btw.
"Once a social or economic measure is turned into a target for policy, it will lose any information content that had qualified it to play such a role in the first place."
The key issue at hand is the culture. A cultural change must be effected such that everyone understands that the 'government cheese' (bread, circuses) brings the system down. Individual effort must be rewarded, and lack of effort must not be upheld. History records this over and over, providing a clear description of the effects of government cheese. Britain lost their dominance in part due to it.
It was not until the communism of China was mitigated that their economy began to take off.
I understand that the same thing happened with India and their socialist policies, but I am not as versed in India's history.
There are heavy negative effects that come into play when large-scale growth happens. The Industrial Revolution is the history of the West's large-scale growth. It's taking place in China now too.
Let us not delude ourselves that sunshine, rainbows, unicorns and world peace will suddenly come about. Futurama provides a humorous glimpse into that sort of future.
People are always self-interested and selfish, in the governmental scale. While we might not like that... we always prefer better things to happen to us and our little domains.
I actually agree with you somewhat although you are not saying a lot. We have to find a system where the fortune of a single person automatically contributes to the good of the whole. Capitalism is actually already surprisingly good in that regard, and that's why it has been so successful. But in the end, there will be people who are vastly more successful in any system, and we need a way to make all efforts automatically contribute to society. I don't mean taxes, because those can be controlled by a governing body and are regarded as external force. Nobody wants to pay taxes. No, we need motivators which are intrinsic to the human mind. People need to want to help. Let's not kid ourselves and think that we can just "pull ourselves together" and be nicer to each other in the future. Human nature can't be overridden by mere wishes.
Capitalism works because there is nothing stronger than the motivation to provide for yourself and your family.
How do we use that motivation to nurture society as a whole? I don't know. Taxes are not good enough, as we can see today, they can always be outsmarted. You can't outsmart human nature, which means billions of people struggling towards a single goal.
Successful economic models cannot be divorced from the cultural context in which they arise. American-style Capitalism was born during the Protestant Reformation. This religious movement provided a theological basis for individual property rights and free enterprise, as well as the understanding that actors in such a system must be restrained by conscience and charity toward their fellows.
We cannot expect to solve the problems of human nature via economics or public policy when the philosophical and religious landscape has shifted.
I argued that we can't fight human nature and therefore we should find policies that utilize it for the good of everyone. You argue that we as human beings have to change first before we can accept any such policy.
Of course it will be a little bit of both, but seeing as me or anyone hasn't even defined any such new policy, I find it hard to see how you can oppose it yet with religious or philosophical concerns. It may very well be possible today. In fact, it's highly likely because the strategy behind the policy is based on human nature.
Well that's what I meant. You have no particular wish to pay taxes. You wouldn't mind stop paying them. You would mind stop having sex though. I'm talking about motivations that can't be shut off and don't need to be taught to every new kid, because you are born with them. We need to somehow harvest them to make working together attractive.
I would argue that all successful policies somehow come down to the fact that people want them in place. In that regard, taxes are clearly a failed experiment. You cannot force people to do anything (not for long, not forever as we can see from history). The only really effective law, is the one that people love to obey.
The pre-requisite for that to happen is an electoral system that advantages larger parties, such as fptp. I've seen enough politics in different electoral systems that I honestly believe that most of the problems prevalent in America today would really be solved with a better way to elect congressmen.
Maybe increase the number? That would make bribing effort a little harder since it would require spreading the money to more people. Wasn't the house of representative supposed to be sized in proportion with the population of the US?
That's how it works now. The size of Congress is a function of the population, while the Senate is a fixed 2 per state. You're correct though that a larger legislature (in terms of number of representatives) would make bribes (including political favors often used to pass unpopular legislation) more difficult, because the marginal return on each bribe is diminished.
You are correct. I should have said "the proportion of Congressional representation is a function of local population densities." I knew that the representative to population ratio had been shrinking, but I didn't know they had since set a fixed limit.
I can't tell if you're joking or seriously advocating a pure democracy. A pure democracy is nice in theory, but it's effectively mob/majority rule. It is also a considerable burden to write, read, and vote on every piece of legislation. A representative democracy mitigates those issues by appointing a single person to represent the wishes of his or her constituents. This also slows down the progress of democracy by forcing voters to wait until they can elect a new representative. But is that a bad thing? The waiting is effectively what prevents the mob rule syndrome.
Then again, it would be difficult to bribe >50% of the population to pass a bill.
Wasn't really joking or advocating it. Just a thought experiment on the thread we were on. I suppose the answer would have to wait a few hundred years after we initiated the experiment to see where it goes off the rails.
Another variable, you mention, is term of office. If voters only "remember 6 months back" then would having elections every 6 months instead of 2 years help?
I wonder if future forms of government will even require congressmen to vote on legislation on our behalf, since the Internet would make it feasible for citizens to represent themselves.
What would anyone who doesn't care enough do? If they don't vote, they increase the power of other voters. If they vote randomly, their votes would cancel each other out on average, making it as if they hadn't voted. If they vote based on what somebody or an organisation says, that person/group is empowered based on the number of followers.
This is the main issue with FPTP voting. If you wish to disempower fringes, require majority approval.
It only empowers the fringes if the rest of the general public does nothing. One would assume that people would start caring when the fanatic fringes start influencing public policy. If they still don't care, then they forfeit any right to complain.
You can start caring all you want, but if you have to have an informed opinion on every vote, you are going to run out of time, even if you do not have to spend time to do such things as bringing in the money to live from.
Also, who would propose the votes, check legislation for consistency and loopholes, etc? If you crowd-source that, chances are 100% that there will be some decisions with unwelcome consequences. If you appoint people for doing that, how is that different from letting those people make the decisions, too?
There would still be legislatures who's job is to propose and write laws, but the voting and passing of those laws could easily be shifted to the people instead of the same people that are writing the laws. This would further balance the power, and prevent the extreme amount of lobbying and special interest groups from controlling our laws.
I don't expect anybody to vote on all laws. It makes more sense for people to vote on the laws that are relevant/important to them. If I don't know anything about a certain issue, I shouldn't be voting on it anyway. This way, people would vote on issues relevant to them, and for people who don't care, then well, they don't care...
This is exactly what happened in the UK; fortunately The People came to our collective senses and booted out Gordon Brown before he could dig us any deeper into a hole. Even then it wasn't clear cut: too many voters wanted hang onto lavish, debt-fueled spending. Those same voters march through the streets now demanding raises, generous pensions, instead of doing what the sane are doing, knuckling down to repair the gaping hole in our national wealth for the good of all.
Stability also requires a stable government. Throwing all the scoundrels out sounds good, but would probably happen (I think they are all too selfish and would play chicken down to/past the wire). Resulting in chaos at the next election - an entire elected body of unknowns with no experience.
That's the kind of revolution we're supposed to have when the government becomes corrupt. Also, it wouldn't be all at once; term overlaps ensure that there would be continuity.
In a house election the incumbent almost always wins. Everything is skewed towards their favor, and lets not forget modern gerrymandering, which essentially predetermines most congressional seats.
That doesn't make sense. If the economy is humming, then revenues are higher and you can spend more money that way. Nobody in their right mind would borrow when you could get as much or more interest-free via tax revenue.
I think people are missing the point, his suggestion is not meant to be taken literally. What he's trying to say is that reducing the budget deficit is more a question of political will than economics.
Very much this. If you want to predict behavior, look at incentives.
For example, the California state budget. There's a constitutional requirement that it be on time, but every year we were setting a new record for how late it was. Then, we pass a law saying that if it's not on time the legislators don't get paid. Mirabile dictu, the budget is now on time. Granted, the requirements for passing the budget were also lowered, but aside from that the Democrats were generally displeased with the budget they passed and I nearly certain that they would have waited around and tried to swing another 4 Republican votes rather than pass what they did.
At the federal level, there's nothing pushing the politicians to balance the budget, except for people who vote on that issue. But it's a rather abstract issue and not a lot of people vote on it compared to, say, abortion. No voting pressure, no lobbying dollars, and no legal repercussions means the problem won't get addressed. Buffet is suggesting changing the last of those three, although any of them would be enough.
Definitely. He keeps going back to the point that the debt was at 120% and nothing terrible happened, but now we have these politicians threatening to figuratively play Russian Roulette with our debt rating just to get the results they want.
The point is they shouldn't be threatening us - we should be threatening them for not getting it done.
This does not address the question of whether a balanced budget is even desirable. Equating the budget of the currency issuer with the everyday experience of the budget of the currency user is a fallacy.
Looking at the respective balances of the three sectors of government, domestic private, and external, it is obvious that flows are conserved. Given net imports (i.e. more money flowing into the external sector than out of it), a balanced government budget can only occur if the private sector is in deficit, i.e. more money flowing out of the private sector than flowing into it.
Empirically, external balances change only very slowly, unless artificial trade barriers (tariffs etc.) are raised.
So in the end, the political choice is between deficits in the private sector, and deficits in the government sector (and of course a range of choices in-between).
Well, post-Keynesian economics (the only school that even asks this question) seems to be underrepresented on the Internet to nearly the extent that the Austrian school is overrepresented.
I agree that it is silly (from a fundamental standpoint) to make such a big fuss over the federal budget deficit while completely ignoring the trade deficit, but I understand why people do it. If the powers that be were monolithic, it would be easy to fix the budget deficit. The trade deficit is more of an emergent property that people don't understand that well. Since in reality, it's all smoke and mirrors either way, I can see why people go with the easier story to tell.
Also, private debt. The Great Depression and the recent global financial crisis were caused by an explosion of private debt. And nobody pays any attention at all to aggregate private debt.
This is a flows vs. stock thing that I could have made clearer.
The additional currency that is issued by the government does not disappear in a black hole (with the possible exception that, technically, dollar bills do get lost in the wash). Instead, it either ultimately flows back to government, or ends up in one of the other sectors.
I think the relevant constraints are clear to everybody here, which is why I was not more explicit.
This line I see on the Internet with the excuse that government cannot go bankrupt is complete rubbish. This is what you are implying with differentiating the issuer with the user.
The only reason the US is able to print money is because it is a de facto world currency.
How many years do you think it takes to replace a de facto currency for international trade?
Not many. Russia and China are already trading in their own currencies instead of the USD. I'm sure Brazil wants to follow.
There are some political thinkers who theorize that the Libyan and Iraqi wars are meant to prop up the dollar. The Libyan dictator wants a gold-backed currency for Africa and Iraq and Iran want(ed) to trade in Euros. I think the Libyan connection is pretty far fetched but I am not in the know so who really knows?
If any of those transitions had happened 10 years ago, the USD would be severely diminished today, reducing the power of the US. Less countries would need the currency and I believe you would see even more real inflation.
So yes, the government of the US can effectively go bankrupt if no one wants the currency anymore.
And that includes its own people. It happened in the Great Depression because some people realized it was the money system that was a large cause of the depression.
The wild card? That the US actually embarks on the "Everyone must use USD or end up like those other guys" rampage.
For what it's worth, I hold a shitload of USD-denominated assets because I believe in the American system more than any other. But man, that belief being tested hard these days...
What about the moral implications that deficit spending is inter-generational taxation? I think that is a clear case of taxation without representation.
Inter-temporal taxation does not exist in any meaningful way. Future citizens do not send taxes to the present government. More importantly, when have you last consumed a good that was produced in the future? In real terms - and that is what ultimately matters - there is no transfer between different times (well, there is some amount of transfer from the past to the present, but this is usually not what people complain about ;)).
Now what you probably meant to say is this: The existence of the debt implies that in the future, there will be interest payments. Most likely (unless the Modern Monetary Theory revolution in education takes place before then), people in the future will be lead to believe that these interest payments come from tax payers.
This has potential moral implications because there is a tendency that those citizens who overwhelmingly receive the interest payments in the future are not the same as the ones who pay the taxes (also in the future). Absolutely. But this is more about equity and distribution than it is about the fact that there is a debt. I have also commented on this before: http://news.ycombinator.com/item?id=2730278
Edit: I have to correct myself. One could perhaps talk about some form of inter-temporal taxation in the context of using non-renewable natural resources. However, I personally think that it's still better to talk about that in terms of sustainability rather than taxation.
Well, not in a literal sense perhaps, but practically, if you are liable for a debt that was incurred before you were even born, let alone of voting age, how is that any different?
The question is: Who are you liable to? You are never liable to some dead person, but to some other living person.
If, in the future, there are people who are carrying some kind of burden because of the government debt established today, then there will also be, in the future, people who are benefiting from the government debt established today.
This is why I consider it a red herring to think of the debt as an inter-temporal issue. It is, if anything, at most an distributional fairness issue among the people living at any one point in time.
You might worry that in the future, the people won't have the tools at their disposal to fix those distributional fairness issues. However, since a monetarily sovereign government has the ultimate control over the interest rate that it pays on its debts (and the flows of interest payments are what is most relevant), this is not a concern.
I realize that this last part is very counter-intuitive if you're used to thinking only in terms of options available to the currency user. Read about how interest rates and liquidity operations of the central bank actually work: http://pragcap.com/resources/understanding-modern-monetary-s...
The bottom line is: If the political will to do it is there, those distributional issues can always be fixed in the medium term by manipulating the interest rate. One might have to switch over to using fiscal policy for inflation control, and capital constraints to limit runaway bank lending, but some economists argue that this is preferable anyway.
Capital flows between groups is an interesting way to look at it, but it doesn't consider efficiency of what money is used for, invested in, spent on.
You could have identical capital inflows and outflows (i.e. money coming in to the US from the international community) but it could be wasted on things it shouldn't.
3% of GDP is very reasonable unless extreme circumstances were present. In that case, politicians might just have to resign after their term.
If the government has a balanced budget, _and_ there is a trade deficit, then the private sector must be losing money -- otherwise, where is the money that is being transferred to the external sector coming from?
One big problem I see with this: in time of war, it is often not only necessary but desireable to run a deficit. Imagine if we had been forced to run a balanced budget during WWII! I would imagine that in such dire need, members of congress would "take one for the team" and run a deficit in order to sustain the war effort, but then you have the classic "changing horses mid-stream" problem when you turn over literally the entire legislature in the middle of a war.
I think that a much more practical constitutional amendment would be to simply prohibit congress from appropriating funds in excess of revenues unless a war has been declared. There is a risk of congress declaring needless wars for the sole purpose of justifying deficits, but that would require the cooperation of both parties, and I would bet that the opposition party would see more potential gain in opposing the war and demagouging its supportors than in letting the majority party have their war of convenience.
I'm not sure of the exact dates we've been at war since WW2, but I just checked and saw that we've been engaged in armed conflict continuously since at least before I was born. I don't think that rule would really work.
Actually "a REAL war" is a meaningful distinction because the term "war" is defined in the Constitution, so it can't be fudged without an amendment. It's only a war if Congress formally declares war on another country, and that hasn't happened since WWII.
The issue here is that old-fashioned declared war is essentially illegal under the current regime of international law. Because you have to get a security council resolution or be clearly in self-defense these days to engage in armed conflict and not become an international outlaw, all of the "wars" we've engaged in since the 1940s have been "police actions" or "interventions" or somesuch.
Personally, I think it's a good thing that the bar is high for "old-fashioned declared war," especially if it is a constitutional prerequisite to deficit spending.
IANAL, but my career requires me to be very familiar with certain aspects of international law because I sometimes deal with them in a very direct and pragmatic manner. I probably know more about international law than your average domestic lawyer (but certainly much less than a lawyer who actually specializes in international law!).
Almost all international law falls into one of two categories: treaties and precedent.
Precedent is huge: if you can enforce an otherwise illegal claim for long enough, it becomes established international law. That's why the U.S. military engages in freedom of navigation operations, to prevent excessive claims to territorial waters and airspace from becoming established precedent. Likewise, if you fail to enforce your sovereign rights as a nation, you eventually establish a precedent that those rights are no longer yours, much like copyright enforcement. In short, if other nations let you get away with something for long enough, it literally becomes legitimate.
The UN is based on treaties, as are most of the laws of war. The thing about treaties is that breaking them only matters if someone else has the will and the means to stop you. A lot of people considered the U.S. invasion of Iraq to be illegal, but the U.S. did not become an "international outlaw" because, to be perfectly honest, nobody has the means to overtly punish the U.S. for anything. The U.N. security council can't take action against the U.S. because the U.S. would just veto any anti-U.S. resolution. Outside the purview of the U.N., the only options for punishing an "international outlaw" are censure, sanctions, and military action. Censure is pretty much meaningless, as PRK, Iraq, Iran, and plenty of others have demonstrated. Any sanctions against the U.S. would hurt the rest of the world economy at least as badly as they would hurt the U.S., so nobody wants that. Military action against the U.S. would most likely result in more harm to the "punishers" than to the U.S, not to mention the damage to the world economy. Basically, the U.S. can get away with anything short of launching overt wars of aggression against peer nations, because nothing else would be worth the trouble of stopping the U.S. The main deterrent against violating the laws of war is the possibility that you might lose, in which case your leadership would be subject to Nuremburg-style trials. If you're in no danger of losing, that deterrent is nonexistent. The only other external reason to follow the laws of war is a quid-pro-quo that you and your enemy will treat each other's POWs well (which, with some notable exceptions, existed on Germany's western front in WWII but not on the eastern front). Of course, there's always internal reasons to observe the law of war, such as societal morals and values, which brings me to my next point:
International law is, when you boil it all down, "might makes right" restrained by a combination of self-restraint on the part of super-powers, and the rational desire of most nations to avoid costly and destructive wars and protectionism (with regular lapses in this rationality).
> Likewise, if you fail to enforce your sovereign rights as a nation, you eventually establish a precedent that those rights are no longer yours, much like copyright enforcement.
I believe trademarks work that way, not copyright.
I think the parent is talking just about economics. There are very few post-industrial-revolution examples of nations benefiting economically from war. America in WWII is the most notable exception in my mind.
In spite of my flippant tone, I had a serious point too: fighting a war may always come with an economic cost, but losing one can come a much higher cost. Hence, fighting a war can be a positive choice even if you lose money doing it.
That's really interesting. To put it another way, economic opportunity costs apply to armed conflict.
You can even extend this beyond purely defensive wars.
The most obvious extension is pre-emptive wars. A great example would be the Six Days war (aka the 1967 Arab-Israeli war). Israel knew that they were about to be attacked (the massed units on their borders were not subtle), and instead attacked preemptively. Arguably, this reduced the cost of the war for them in a number of ways. First, by seizing the initiative and the element of surprise, they likely reduced their combat losses relative to what they would have experienced if they had waited for their neighbors to attack. Even more importantly, the entire war was fought outside of their then-borders, so their infrastructure was not damaged by the fighting.
Clausewitz even makes a case for starting a war that you know you are going to lose. That sounds crazy at first, but in some scenarios it makes sense, because it's not just about the balance of power, it's about the direction in which that balance is shifting. If you are highly certain that another country is going to attack you, and that you will lose, you have to consider whether your defeat would be more or less severe in six months or a year. If the balance of power is shifting in your favor, you want to postpone hostilities as long as possible. If, on the other hand, the balance of power is shifting in favor of your enemy, you want to precipitate a war as soon as possible in the hopes of securing a better position to sue for peace. Either way you know you're going to lose, it's a question of how badly you are going to lose.
Finally, even a war of naked aggression could have a nearly immediate net positive impact on your economy if your forces are so superior that you will suffer minimal losses, and if you capture valuable resources as a result, or if you secure tactically valuable terrain that reduces your losses in an impending conflict. The German annexation of the Sudetenland is a prime example of this.
>As much as you might like to think differently war is alway negatively productive.
I never suggested that war has a positive influence on an economy, so I'm not sure where you got that impression. I was suggesting that one political party or the other might want to use war as an excuse for deficit spending to further their political agendas.
That being said, war can be positively productive if you are outside of it, selling to one or more of the belligerents. That's mainly how WWII was so positive for the U.S. economy: we were selling to the allies for several years before we got directly involved. The Russians made plenty of money selling to both sides of the Iran/Iraq war, and I'm sure that those are just two of many, many examples throughout history.
He lives in a modest home in Omaha and will probably give more money to charity than anyone in history when all is said and done. Do you really think his political views are driven by his own personal gain?
I think Buffet likes to be comfortable. I don't think he has a need to show off.
But that doesn't detract from the fact that he sees it as a game to be played and a competition. It could be for really expensive beans for all he cares.
> He lives in a modest home in Omaha and will probably give more money to charity than anyone in history when all is said and done. Do you really think his political views are driven by his own personal gain?
Yes, because he's human and every human's political views are driven by their personal gain.
Your mistake is in thinking that money is the only personal gain. It's not. It isn't even one of the most effective motivators.
And, in Buffet's case, there's the difference between "money made" and "money spent". At some point, the latter becomes uninteresting but that tells us nothing about the former.
And, interestingly enough, Buffet's "advice for the country" always seems to be aligned with his financial stake. (He never advocates increasing the taxes that he pays and he often advocates increasing taxes in ways that benefit him - the estate tax being a prime example.)
On the contrary he has called for increasing the capital gains tax precisely because he himself (and obviously others like him) pay such low effective marginal tax rates. He even took the time to calculate that he paid an effective 17% while his receptionist paid 30%, to criticize the effects of Bush-era capital gains tax cuts.
I don't know how much more clear it can be that this is not financial self-interest.
> On the contrary he has called for increasing the capital gains tax precisely because he himself (and obviously others like him) pay such low effective marginal tax rates.
You're assuming that he's going to pay significant capital gains. He's not because he lives so cheap that he doesn't sell all that much. In other words, the capital gains rate is largely irrelevant to him.
While he lives cheap, he does like to win and increase the value of Berkshire. The capital gains tax rate does have an effect on the folks selling companies to Berkshire....
Buffet also advocates increasing the estate tax, which is a two-fer. Berkshire makes a lot of money selling insurance to help people with the estate tax. Berkshire also picks up companies because the inheritors can't pay said tax.
Meanwhile, he's arranged things so the bulk of his estate will never be taxed.
WB benefits from almost every movement in the economy, with or without government involvement. From everything that I have read, he has made plain his disinterest in the big investment banks and their fates. Here's a great example:
I liked the preface to the comments section below the video:
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
I had the same reaction. While somewhat pessimistic and possibly offensive toward some visitors, it distills the times found around the web in an eloquent, satirical manner.
While I prefer offensive and rotten humor, many would argue this type of remark defies all sorts of social media "how-to"s and guidelines for positive engagement yada yada.
I assume it'd need to be a constitutional change rather than a legislative one, otherwise they could just rescind the law anyway.
Which reminds me of one of my biggest objections to the US constitution: constitutional amendments are done simply by getting a bunch of legislatures to agree to 'em, rather than by holding a referendum as in Australia.
In Australia's history, of 44 constitutional referendums held, only 8 have passed (3 of them in the same ballot). It's very difficult (some would say, too difficult) to amend the Australian constitution, and definitely not something that tends to happen with a "swell of public sentiment".
Compare that to 11 amendments to the US Constitution over the same period (1901 onwards) - two of which I'd point out dealt with the introduction and repeal of Prohibition (which I'd say qualified as a "swell of public sentiment").
My state, like a few others in the US, has voter initiatives that become constitutional amendments. The last one that made the news was the one that made it illegal for me to get married.
Another initiative from a few decades ago is a major part of why California can't raise enough money to fund itself now.
So yeah, I'm not a huge fan of ballot initiatives.
Would Warren Buffett fire the entire management of any company he owned that borrowed more than 10% of earnings in one year, regardless of circumstances? Because that is what his suggestion amounts to.
Firstly - I wouldn't put it past him to do something like that if he thought that would maximize his investment. The market doesn't view a debt of +10% of earnings to be that big of a deal however, has priced that risk accordingly, and Buffet has never been put in that situation.
Secondly - there is always a problem with equating governments to corporations, since governments are formed for public good and corporations are formed to maximize shareholder value. Their roles and motivations are quite different.
Yes. In principle, the shareholders are the people to whom the profits flow.
If you follow the money, you discover it goes to government employee's unions, old people and various other special interests. They are the shareholders in government. Not ordinary citizens.
'Old people'? You mean citizens who paid taxes to finance social security and medicare for previous generations of retirees? Scandalous - how dare they.
Further, ask yourself who makes a profit on public service - the child who is poorly educated by a failing school, or the teacher who is overpaid to provide that service?
Old people are ordinary citizens and all ordinary citizens with either die early or become old people. Unions are also collective groups of ordinary citizens. Thus following the money leads to ordinary citizens.
I sympathise with your first sentence and mostly agree with it. The second is wrong, even if you don't understand it as it was meant, as government employee unions.
You could make that case with some examples, but even then, the metaphor overwrites the reason why governments are formed - for the public good (and the protection of personal property, if you are a fan of John Locke). Thus, governments in your metaphor lose their actual purpose.
This ultimately typecasts actions that a government does, into business actions. Even though some of them would make absolutely no business sense. For example, why would a country raise tariffs or raise trade barriers? This would demonstrate weakpoints in the metaphor that other countries are clients.
A more extreme example would be where a country starts to kill people, by going to war with another country, or killing it's own people due to political upheaval. The metaphor really breaks down in that case. Businesses by and large, don't go and kill people intentionally. Obviously there are some historical and modern examples (Chiquita comes to mind) but I don't think that "Killing People" is in anyone's charter.
the metaphor overwrites the reason why governments are formed - for the public good
Money isn't the only way to represent wealth. The ideal government would ensure proper infrastructure(justice, defense, interstate transport) to the country without concern of profiting from it & for the benefit of all citizens. Money goes in, "shareholders"(citizens) earn dividends based off the infrastructure/programs they get back.
For example, why would a country raise tariffs or raise trade barriers?
Why would Verizon put an early termination fee on a contract? Is it because the customer benefited from a subsidized phone, kind of like how business benefits from subsidized infrastructure?
I ask this here because this is a hacker forum. Why is it that in this day and age that we still implicitly entrust another person to make decisions on our behalf? What do you think would be the kind of systems we need to build to make democracy more participative? What do you think would be the pitfalls we should avoid with such a system?
At some point you're going to have to trust someone(e.g. whoever made the libraries you're using in your program did it properly or that the person making your sandwich washed their hands first), but I'd agree it'd be nice if we could make the system less of a popularity contest that's full of hyperbole & 5-second or less sound bites.
I think we need more political parties & vast limitations on campaign financing. I'd also love if we could test reading comprehension & basic logic skills before allowing people to run for office.
What about laws that state only Congress can declare war or the rules of the War Powers Resolution? These don't stop the executive branch from engaging in war. Similarly, Buffet's simplistic solution wouldn't stop future deficits, because the ruling party could so easily redefine what a deficit is or what the GDP numbers are.
You can fix failing schools in 10 minutes: establish that teachers can be fired if the test scores aren't OK. This has the disadvantage that it's a hell of a lot easier to go back and tweak the tests handed in (see Atlanta; see some DC schools) than it is to educate the kids.
It would take more than a law to block reelection for sitting legislators - it would take a Constitutional amendment. I'd like to see Buffet get that done in 5 minutes.
Why does this populist nonsense get so many votes? Typical generalized politicians bashing. If you feel that you rep. is so evil, than just don't elect them. Better still, stand yourself and do a better job. Or at least help the guy you think will be doing a better job. It's all about the participation of the Demos, that's why they call it democracy.
That wouldn't end the deficit, that would just ensure the deficit was 0 the day before elections. Also there's a slippery slope. This same logic, if we allow it to be applied to the deficit, could be applied to other things. No congressmen could be reelected if gay marriage is legal, etc.
> That wouldn't end the deficit, that would just ensure the deficit was 0 the day before elections.
I think that's the point. Short-term borrowing is sometimes a smart idea, as long as there's a real plan to pay it off. The idea would be to only discourage irresponsible borrowing.
> This same logic, if we allow it to be applied to the deficit, could be applied to other things.
I think it's fairly uncontroversial that having unpaid debt is bad and should be avoided.. so it's not too similar to issues that are actually controversial.
"This same logic, if we allow it to be applied to the deficit, could be applied to other things."
There are legitimate reasons to discern between the deficit and those other things. Most law systems are based on a small set of core values which are deliberately made hard to change, i.e. made part of the supreme law.
I believe that the (preventing of) deficit has the characteristics shared by those core values: there is a consensus that it is bad (especially in the long term) and yet there's strong temptation to create it for the short term benefits (buying votes.)
I don't disagree with you, but a lot of people feel the same about marriage. A lot of people (not me, btw) feel that this is a Christian country and it's antithetical to our founders' beliefs for gays to marry and yadda yadda.
The point I'm making is that everyone has a different idea of what those core values are.
Just because people differ on moral values doesn't mean that a properly discovered moral code can't or won't be objective. For example, people differ in their understanding of physics (and often seem hopelessly wrong), but mechanics is what it is. Just because some people don't get it yet doesn't nullify or change physical laws.
The right way for anyone to figure out what their core values should be is to apply reason. Dedicated, hard-core Christians feel a certain way about a lot of things, but they ultimately base their conclusions on faith, which is the antithesis of reason.
That's a specious argument. Something like gay marriage is the result of writing a law; the deficit is an accumulation of many public spending programmes enacted under the law more often than by its creation.
This is basically a method of legislating a budget cap. Your 'slippery slope' argument in its correct analogy is no more than passing a law that outlaws gay marriage in the first place.
What if instead of a stick – no reeslection for you! – we used a carrot? What if the sitting lawmakers who voted for a balanced budget eventually get a giant financial bonus? (To minimize monkeybusiness, we could require it to have been balanced in retrospect, say via assessment 2-10 years later.)
People – even Congresspeople! – respond to incentives.
Let's assume that the goal – the fiscal stability of a balanced budget – would be a noticeable boost to our $14-trillion-plus economy. Then the incentive could be quite huge – perhaps a million dollars per congressperson per year in balance – and still pay for itself, many times over.
Other interests are making millions per year from the legislative 'generosity' that results in a perpetually out-of-balance budget. Why not pay directly for the alternative result we prefer?
> I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.
Incentives matter, but this incentive would attract candidates who don't want re-election, perhaps old and sick people who expect to die or retire.
Also, how do you measure GDP? Whenever someone drinks a pint of whiskey at the bar, then drives home and kills other motorists, the whiskey sold, car fix-up costs, ambulance and hospital fees, insurance and re-insurance premiums, prison costs, and court settlements all contribute to "GDP", even though real quality of life has gone way down.
And of course any law passed can be repealed by the same margin.
I thought the more interesting part of the interview was when he said that social security payments should have higher priority than bond interest payments. That sounds it would result in a worse credit rating and much larger pain in the long term...
What's sad about this is we shouldn't need to pass a law, voters could easily enforce this. There is a massive problem right now with a lack of accountability, not just for the debt but for all the horrible decisions congress makes.
There is something intensely annoying about Buffett: his hypocrisy.
He claims that rich Americans are not paying their fair share of taxes, but doesn't take the obvious step of voluntarily paying more taxes by sending a big check to the IRS.
He supports the estate tax, supposedly because it is bad for America to have children receive inherited wealth. Of course, he has set up a foundation which his children will administer after his death. Naturally, they'll take a salary for this arduous assignment. And it just so happens that having an estate tax benefits the insurance companies in which he is heavily invested: 10% of insurance company revenue comes from the policies wealthy folks buy in order to avoid estate taxes.
He's all for rigorous corporate government and the avoidance of self-dealing. Except when these standards are violated by his subordinate and Berkshire-Hathaway heir-apparent David Sokol, who -- with the full knowledge of Buffett -- personally invested in a company that Sokol was pitching to Berkshire-Hathaway.
Buffett is clearly a shrewd investor. However, an economic holy man he is not.
No, he couldn't. His remark is a flip one that is totally impractical. Had Ross Perot (another rich guy who likes to pop off) made this suggestion we'd all be laughing at him.
Right, they'll do that right after they give up their gold-plated healthcare and instead take the government offering for the uninsured.
Gabrielle Giffords would be permanently disabled and disfigured, unable to ever speak or move because of lack of therapy if she was an average citizen standing in that crowd, with the average american insurance or lack thereof.
I love how the topic is constantly steered off healthcare. Remember the mosque in NYC? Remember how all that noise suddenly disappeared?
>“I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”
I understand his line of thinking, but the question is could he pass that law? He has a substantial amount of money that could be spent on lobbying, media, etc. But how do you get people who have spent a career chasing power to sign a law that will strip them of that power?
One possibility is that the job of congressman becomes a 2 year job and you have to dole out enough goodies in two years to get a secure post-congress position.
Wouldn't the unintended consequence be that the parties become even more powerful than they are now? All the long-standing politicians would move out of official govt capacity and into essentially the same position in their parties, while unknown pawns get elected to the official positions.
Budget deficits shouldn’t be any more of an automatic trigger for re-election than the unemployment rate, the inflation rate, the number of body bags coming back from a foreign war, or any other undesirable thing.
Spending more than you earn? Idiots in charge. Cut back on essentials, keep the things that make you happy, still get re-elected. Hmm, anyone else see a minor flaw?
No, actually, we have some fairly functional people in Congress.
They are heinously self-interested and often vote pork and lobbyist groups, of course, but we do the same thing with our own little domains (hacking, free music, code, entrepreneurship). Very people have the ability to have the grand vision, and fewer have the ability to put that view in effect.
But we could have much worse. Much, much worse. A brief survey of world history in the 1910s, 1920s, and 1930s should serve to illustrate the meaning of "worse".
Actually, it could get a lot worse. There may be a lot wrong with the US government, but as governments go there are not many in the world that are considerably better, and a large amount of governments that are much, much worse.
my god cnbc is obnoxious. 9 logos on the same screen. breaking headlines of the interview currently in progress. 5 different bars all blocking the view with equally unimportant text. and the swoush sound effects... seriously you guys. seriously.
Better idea... Vice Presidents who still hold shares in companies that still hold gov contracts despite censure..Impeachment as the whole 3.4ths of current deficit was by start of wrong wars Iraq especially..
Buffett's proposal would patch this historically reoccurring weakness of representative forms of government. As hnsmurf points out, it would also create a slippery slope where no representative could be reelected if they vote for X, Y and Z policies that are not systemic threats.
As our government is not responding to an issue which can literally ruin us all, it seems to me that Buffett's proposal is the lesser of two evils. Stability demands a solvent government.