Warren Buffett is still traveling through Asia and still giving interviews. This one is particularly good. Mr. Buffett sat down with Guy Rolnik of The Marker for some in-depth questions ranging from the USA’s plutocracy, lessons from the crisis, and he even dabbles in some MMT a bit.
On lessons from the crisis:
What would you say are the key lessons you took from the financial crisis?
“They are not new lessons. Never owe any money you can’t pay tomorrow morning. Never let the markets dictate your actions. Always be in a position to play your own game. Never take on more risks than you can handle. But all of those were old lessons, unfortunately. Even though I didn’t see it coming, those lessons which are timeless allowed us to in effect profit from it rather than suffer from it. Good businesses, good management, plenty of liquidity, always having a loaded gun; if you play by those principles you will do fine no matter what happens. And you don’t ever know what’s going to happen.”
Do you see things differently today than you did 10 or 20 years ago – the shortcomings of capitalism?
“No, I think capitalism is terrific. Also 10 or 20 years ago. All systems have failings and can be subject to abuse, but if you look at what has been produced over the past couple hundred years or the last 50 years in Israel, and the last couple hundred years in the United States and the last 30 years in much of the emerging world – capitalism works.
On our growing plutocracy:
Jeffrey Sachs from Harvard was saying that the United States is turning into a plutocracy. And this is a feeling you get throughout the world, that the politicians are not powerful and the power is in the hands of a few strong players in the business sector. Do you feel that way?
“We are still a democracy, but we have moved in my lifetime towards a plutocracy. We do not have a plutocracy, I want to emphasize that, but the distribution of wealth and the influence of wealth have moved in that direction.
“If you look at the 1992 top-400 tax returns in the United States, the average income for those 400 people was $45 million per person. The last available figures show $340 million per person – that is eight for one in a period when the average worker went no place.
“The average tax rate for the top 400 went from 28% down to 16.6% during the same period, so we have had a system where as people have gotten richer and richer, they have been favored by taxation and have gotten richer to a greater degree. To my mind that is a bad trend, and it will probably get corrected in time. The rich have more influence in politics than they did 50 years ago.”
How will it change?
“I think it will change because we still have a democracy. Eventually the power of a correct idea is felt, but sometimes it is long and delayed.”
On the USA’s debt burden (you’ll notice his answer is a bit MMTish…):
Let’s talk about the macro-economy; a lot of people are concerned, with U.S. debt at about $15 trillion – you are still very optimistic about America. How do you reconcile this?
“America and a lot of other countries too are remarkably resilient. I mean, we make all kinds of mistakes in our country and we will continue to make them. But we are a country that has gone through a civil war, a country that has gone through 15 recessions, a great depression a flu epidemic, a cold war.
“There are always problems, but there are always opportunities, the thing that really counts is having 309 million people or so with a great number of them trying to make their lives better and the lives of people around them better.
But today foreigners have a bigger claim on this pie. Compared with the past 10-20 years, foreigners hold more equity, and more stock and more debt of America.
“Foreigners across the world have about a $3 trillion net balance against the United States. There was a time when we had a net balance against the rest of the world. It’s better not to have a $3 trillion balance, but we also have about a $60 trillion economy – we can handle it.
“I don’t like policies that lead to that number increasing and I have written about it, but let’s not get into that. Everything that we have is denominated in our own currency, and that’s a tremendous advantage.” (emphasis added)
On the best ways to beat inflation:
“Well, when I was born in 1930, the dollar bill of that moment is worth six cents, so it isn’t inflation that destroys the country.
“Every time I get worried about inflation I think about how 94% of that dollar bill from when I was born isn’t worth anything, yet I seem to have done pretty well, so it can’t destroy everything.
“Nevertheless, I worry about inflation always because it is such an easy solution to things in the short term. The ultimate defense against inflation is your own talent, your own earning power. I mean, the best doctor in town, the best lawyer in town, the best musician, the best anything, whatever it may be, they will always command their share of resources of their society whether the currency is dollars or shekels or shark-sheet.
Read the full interview here.
Source: The Marker
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.