Politics & Policy

The Warren Buffett Paradox

Bite the supply-side hand that feeds you? Now that's indefensible.

 

Last Saturday, when Warren Buffett’s Berkshire Hathaway company revealed that its boffo first quarter was due partly to high returns from its investment in corporate jets, the cycle of irony was finally complete. Buffett, a well known critic of executive perks, has been particularly hard on CEOs who use private jets — that is, until he had his company buy one. At least he had the good humor to name it “The Indefensible.”

 

This is not an isolated example of the paradox that is Warren Buffett. He slams corporate “greed,” even though he acquired Berskshire by purchasing shares until he owned the majority stake — and hence sway over the company’s direction. When it became clear to Buffett that this business wouldn’t cut it in its present form — it was a pure textile company pre-acquisition — he started to shift resources into Wall Street investments. Eventually, he shut down the textile plant. This is the Schumpeteranian way of the corporate world, and it is a necessary process. What irks is that Buffett has long held to some fictional high-moral ground while he has acquired companies, invested full-bore in the markets, and amassed a free-market fortune. For us it’s greed; for him it is prudent investing with a big heart.

 

The biggest irony of all is that Buffett is a frequent critic of supply-side economic policies. Berkshire didn’t really take off until the implementation of Ronald Reagan’s tax cuts in the early 1980s, and it did very well after Newt Gingrich and Bill Clinton cut the capital-gains tax more than a decade later. It did struggle, underforming the market, during the recession of 2000-01. But don’t worry — things got better after President Bush got the first half of his tax package through Congress in 2001. When the president got the rest of his tax cuts through in May 2003, things got a lot better for Berkshire.

 

Simply, supply-side policies have helped Warren Buffet amass the world’s second-largest pile of wealth, which he routinely uses as a stage on which to stand and denounce the very supply-side measures that helped lift him to incredible prosperity.

 

Where will the money pile go when Buffett is gone? Not to the tax man. Buffett announced earlier this year that he would be placing the bulk of his wealth into the Gates Foundation. Warren Buffett, a strong opponent of eliminating the inheritance tax, did have a condition attached: The gift had to be tax free.

 

– Jerry Bowyer is the author of The Bush Boom and an economic advisor to Blue Vase Capital Management. He can be reached through www.BowyerMedia.com.

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