May 16, 2006

Warren Buffett as public policy analyst

Yesterday I quoted zillionaire Warren Buffett on how little he pays in taxes. Several readers objected. One responded:

Don't be fooled by Buffett's schtick. He's a genius investor, but his policy prescriptions are one more proof of Derbyshire's line that political stupidity is a special kind of stupidity, not well-correlated with other kinds.

First of all, the reason Buffett pays so little in taxes is that he never sells anything, and hence has no realized gains to tax. Do you - does he - favor taxing unrealized gains? I'm unaware of anyone who thinks that's a good idea. So what's the point of him making the comment?

Second, the thing about Buffett is his motivation for pretty much everything is the search for new investment opportunities. In an economy with relatively easy credit and efficient markets, it's hard to find such opportunities. Hence Buffett's continuing complaint - stretching back at least a decade - that credit is too easy and the state needs to intervene more in the economy. Buffett made piles of money in the late 1960s and 1970s when our economy was much more of a mess. His policy prescriptions frequently harken back to the nostrums of that era - not because they were good for the economy, but because they were good for Buffett's particular skills of finding undervalued businesses. I'm not saying he consciously wants the economy to tank. I'm saying he thinks a "good" market is one with lots of things for him to buy, whereas that is emphatically not a "good" economy for most people.

Third, while Buffett is certainly not wrong that the wealthy have benefited disproportionately from the economic growth of the last 5, 10, or 25 years, this is not something unique to America. It's happening in Europe, in Asia - pretty much everywhere. Why this is happening is a good and interesting question. It also happens to be something Buffett is not especially interested in. There is a mountain of evidence that tax policy is a very poor mechanism for reducing income inequality, evidence that Buffett never even bothers to dismiss much less refute.

My published articles are archived at -- Steve Sailer

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