Barack Obama must be the worst investment Warren Buffett has ever made.
The billionaire investor famously supported Barack Obama, who in turn used Buffett as his amulet of normalcy: What, me radical? Tell it to this rich white guy from Omaha. One of the lamest things I can remember having seen in politics transpired in 2008 when Obama was challenged on his radical associations and used Buffett to change the subject. His phrasing was memorably odd: “Let me tell you who I associate with. On economic policy, I associate with Warren Buffett and former Fed chairman Paul Volcker. If I’m interested in figuring out my foreign policy, [Editorial aside: “If”?] I associate myself with my running mate, Joe Biden, or with Dick Lugar, the Republican ranking member on the Senate Foreign Relations.”
So, here’s the wisdom of Associate Buffett on the debt ceiling: “We raised the debt ceiling seven times during the Bush administration. . . . We had debt at 120 percent of the GDP, far higher than this, after World War II, and no one went around threatening that we’re going to ruin the credit of the United States or something in order to get a better balance of debt to GDP.”
Saving the world from Hitler was expensive, to be sure. But in 2011, we haven’t just saved the world from Hitler — we’ve just saved a bunch of bureaucrats and layabouts from honest labor. Not exactly comparable.
But what about World War II, anyway? Coming in at 25.3 percent of GDP, federal spending is higher today than it has been in any year since 1945. What did we do at the end of World War II? We cut spending — radically. In 1944, federal spending was 43.6 percent of GDP. By 1948 it was down to 11.6 percent of GDP. It edged up after that, but from 1948–60, federal spending averaged less than 17 percent of GDP. (Those were not the worst years in the history of the republic.)
What that means is that if federal spending as a share of GDP were reduced to that postwar average from 2012–16, we could balance the budget, start paying down the national debt, and cut taxes by $1 trillion over those five years. Grover Norquist could get his tax cuts, I could get my balanced budget, and Barack Obama still would preside over a government considerably bigger than FDR’s New Deal regime. Not my ideal outcome, but a decent compromise.
Inescapable conclusion: Spending is what is out of whack.
The federal government does a lot more today than it did in 1960. Are those things worth what they’re costing us? The price difference between Eisenhower’s Washington and Obama’s Washington is about 8.4 percent of GDP in 2011, or about $1.25 trillion, roughly the annual economic output of Australia, the thirteenth-largest economy in the world, or just shy of two Switzerlands.
If Warren Buffett thinks that’s a good buy, he’s losing his edge.