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.
"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.”
I wonder if Warren Buffet would of liked to try to be an investor back in those days when the Federal Government to pay off this debt engaged in financial repression including:
1: Regulation Q setting a cap on the rate banks could offer on deposits.
Reply to this commentLinkReport Abuse2: Gov't used inflation so holders of gov't debt earned negative real returns.
3: Capital controls that forced investors to just stay home and earn those low often negative rates (Warren would not be allowed to invest in those fast growing economies in post-War Europe)
4: Gov't forcing banks to buy gov't debt through capital and reserve requirements
When a quote like that comes from a guy like Buffett, he's not being thick, he's being disingenuous and covering the rear of his political horse in the race.
Debt at that level was not a worry precisely because everyone KNEW WWII spending was done and over. It wasn't about absolute levels, it was about outlook. And all potential buyers of our debt see now is SS, Medicare and Medicaid ready to smother us, and even though Greece's debacle is playing out for all to see, and both political parties refuse to do anything about it. Not remotely comparable.
Reply to this commentLinkReport AbuseJFK's America, at the peak of the Cold War, in the middle of the post-WWII economy, gave him a $100B federal budget. Inflation-adjusted to 2011, we're up to $750B. Further adjusting for population brings JFK's budget to 1500B in today's dollars. How do we possibly reconcile that with our current $3800B?
Medicare in 1966 was 3B. With the same CPI and population adjustments: 45B today. Actual 2011 budget: 466B!
We could try to eliminate 100% of defense (at 550B) and 100% of Medicare (at 466B) and still only knock that $3800B down to about $2800B -- still 1.3 trillion in cuts to get down to JFK's adjusted 1500B.
How do we possibly explain that much federal bloat -- between JFK's adjusted 1500B and today's 3800B -- when eliminating 100% of defense and 100% of Medicare doesn't even get us half way there!
Reply to this commentLinkReport AbuseMr. Williamson fails to tell us what spending was cut in the aftermath of WWII, but I'm willing to bet the lion's share was military spending. Is is willing to make major cuts in military spending as well as entitlements? Also, Mr. Buffett, as an experienced investor, would presumably understand that some investments take time to bear fruit.
Reply to this commentLinkReport AbuseKevin:
Yes, I think military spending should be cut.
Reply to this commentLinkReport Abuselook out the "military spending is causing the debt" meme is alive again ...
like a zombie it rises from the grave ...
Reply to this commentLinkReport AbuseWhy yes, Captain Obvious. Military spending does tend to come down dramatically when demobilizing from a 5 year global war. Hence maybe Kevin didn't feel the need to spell that out for you.
But you fail to acknowledge that Social Security at that point had something like 30 workers for every beneficiary and was a shadow of its current form, and Medicare and Medicaid didn't yet exist.
Reply to this commentLinkReport AbuseAfter the war, the US had the only 1st world economy that hadn't been devastated by the war. The economic rebound caused by this fact enabled the US to handle such debt.
Does anyone out there see the US economy growing at a sustained 5 to 10% rate anytime soon?
Buffet is smart enough to know that comparing US debt circa 1945 to now is an apples and oranges comparison.
He's also smart enough to know that nobody is "went around threatening that we’re going to ruin the credit of the United States".
So why is he feeling the need to lie? Perhaps he's embarrased about how badly his investment in Obama is turning out.
Reply to this commentLinkReport AbuseWho's to say? I would love to see a detailed economic analysis of how the economy would grow if we dramatically cut federal spending, taxes and entitlements, as well as unneeded regulations. I would bet that sustained growth of 5 percent would be just the beginning.
Reply to this commentLinkReport AbuseThe Sage of Omaha has always been one of the biggest corporate rent seekers in modern history. His perscriptions for this economy have been disastrous as he has only cared about his well being. Nothing wrong with that per se, but quit dressing up your rent seeking as applicable to the rest of the nation.
Reply to this commentLinkReport Abuse"By 1948 it was down to 11.6 percent of GDP."
11.6%??? I want to go to there.
Reply to this commentLinkReport AbuseDave, federal spending averaged just over 8 percent of GDP from 1930-1940. It can be done.
Reply to this commentLinkReport AbuseYes, it can. But not with our current entitlement ridiculousness. That was back when people were actually expected to work if they wanted food, shelter, clothing and Nikes. Today, they get checks for simply breathing. Sigh.
Reply to this commentLinkReport AbuseWhat Buffet, Ben Stein and progressive apologists fail to mention when they note that the American economy was doing just fine after WWII when 'taxes were higher' (note that they do not mention spending as a percentage of GDP) is that for all practical purposes America had the only functional economy in the world (especially in regards to manufacturing) and wide-scale global competition was a generation away!!
PS...Unfortunately, our public education system and post-secondary colleges and universities have produced a citizenship that includes a large percentage of 'economic illiterates'. Of course, they've also done a fine job of producing 'old-fashioned' illiterates, 'mathematics' illiterates, etc., which makes for a citizenry that is quite amenable to the class warfare policies of the progressives.
Reply to this commentLinkReport AbuseStein is a strange bird. Pro-free-market in every conceivable way that I'm aware, yet has no problem with high taxes. Thinks a business owner or investor, in deciding whether to engage in an economic activity, will take into consideration projected sales, materials cost, advertising, overhead, everything else that decides total return, yet taxes are a total non-factor! Actually told Laura Ingraham there was "no data to support" lower taxes boosting economic performance.
His father Herb Stein was Nixon's economist. "We're all Keynesians now." I guess it never wore off for him.
Reply to this commentLinkReport AbuseShawn, the reason Ben Stein says that is because every study shows it. I am a serial enterprenuer. Taxes never enter our calculations of new projects, new lines of business, or new businesses. Our interest is in making a profit. If the government taxed revenue and not profits, you would be right. But it doesn't (at least in my industry). Taxes are not a cost of doing business. Taxes are a cost of doing business sucessfully. It's the success part that is hard -- and rare. Ninety-five percent of new businesses fail in the first three years -- and it is not because of taxes.
Reply to this commentLinkReport AbuseAgain, to quote Josey Wales's sidekick Native American buddy (speaking to a snake oil salesman):
"You like it so much, you drink it."
If Warren Buffet wants the spending to continue, let him pay for it personally. He can donate additional funds to the IRS.
I love how liberals claim in conversation with them that Buffet's and Soros's political views prove that the best capitalists are leftists or centrists.
Reply to this commentLinkReport AbuseAs an alternative if Buffet see no worries then how about shifting his whole fortune to 30-year Treasuries. He could fund Obamamania for a day or two.
Reply to this commentLinkReport AbuseObama is not only Warren Buffet's worst investment, but he's also America's worst investment!
How bad has Barack Obama been? America would have been much better off w/ Joe Biden! That's how bad Obama has been...and unfortunately, will continue to be...but hopefully not past January 2013...
Reply to this commentLinkReport Abuse"By 1948 it was down to 11.6 percent of GDP. It edged up after that ..."
Edged up? It was 19.4% 4 years later. Funny definition of "edged".
You're a smart guy. You don't have to indulge in cheap tricks to make your point, so don't.
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