Berkshire Hathaway 2013 Annual Meeting Audience Question # 47

The ten greatest words of economic thought in history

Warren Buffett:

Carol.

Carol Loomis:

This question is from Logan Reed of Pawling, New York, and has both a question and a postscript, and I’m going to do the postscript first. It’s friendly.

“I’m an 86-year-old World War II vet, which puts me about halfway between you and Mr. Munger. I would respectfully and urgently request that you quit eating so many hamburgers.”

“Those things plug up your arteries, and I want to keep you around for a while, in spite of the fact”… the unfriendliness comes in here… “that you voted for President Obama.”

Now, here is the question.

Warren Buffett:

This guy is trying to kill me, and he’s doing it…

Carol Loomis:

“Over the years, you’ve frequently alluded to your legendary reputation for thriftiness, and you’ve extolled the virtues of the managers of Berkshire companies who have invariably been extremely cost conscious.”

“If these are hallmarks of the philosophy which has enabled you to achieve your astounding success, how can you possibly support an administration which has plunged our country into $16 trillion worth of debt, and has not indicated the slightest concern… over the efficiency… inefficiency… over the inefficiency of big government?”

Warren Buffett:

Yeah. Well, the 16 trillion, we’ll have to give Bush a certain amount of credit for that, too.

They certainly didn’t… certainly wasn’t… the Obama administration that, at least, allowed policy that created the greatest financial crisis and required an appropriate stimulus on the part of the government.

But, in the end, I find it totally unproductive… and that fellow at 86 probably is… should have found it out by now… to discuss politics with people. I mean, you’re to have roughly half agree with you and half disagree.

So if you… if you look at this… the trouble is, Charlie and I, even though he’s a Republican, I’m a Democrat, we really don’t disagree as much as you might think based on that.

Otherwise, I could say you could just take your pick here and vote for one of us and ignore the other one, and we would offer a little something for everyone.

The amount of deficit spending in the last four years, the amount of stimulus provided… fiscal stimulus provided… I think, has been quite appropriate in relation to the threat to the economy that was posed by the greatest panic in my lifetime.

I mean, you literally had a situation where Berkshire Hathaway was getting a phone call because General Electric needed money, and we were the last stop.

That is quite a situation. It’s quite a situation when Freddie and Fannie go into conservatorship and WaMu and Wachovia fail, and where money market funds have 5 percent drained out of them in three days, and with a panic underway.

So I… we needed fiscal stimulus in this country.

Now, the real question is: how do you get off of that? And that is a problem, but it’s a lesser problem than we would’ve had if we’d decided to follow some austerity program, in my view, at least, starting in 2008.

How do you feel about that, Charlie?

Charlie Munger:

I agree with you completely.

And, by the way, so did George W. Bush.

Warren Buffett:

Yeah.

Charlie Munger:

That was bipartisan. We were in so much trouble, that on both sides of the aisle, we finally got together and supported these extreme interventions.

Warren Buffett:

George Bush issued, probably, the ten greatest words of economic thought in history. Most people don’t give him credit for that.

They think of Adam Smith and comparative advantage and Keynes and animal spirits and all those guys.

But George Bush went out there in September of 2008 and said, “If money doesn’t loosen up, this sucker could go down.”

I mean, that is a man that knew how to get to the point.

And I give him great credit for it, enormous credit.

And plenty of members of his party did not agree with what he was doing, but we owe him a lot, in that respect.

And, you know, we… our leaders, generally speaking, in both parties, once they were in the terrible trouble, I think they behaved, or came up with policies that, in general, were very useful in avoiding something far worse than what we experienced.

And they weren’t easy to do. I mean, it took some guts.

So, I am disturbed by a national debt that grows in respect to GDP. In fact, I wrote an article in The New York Times, an op-ed piece, in… I think maybe 2009 or 2010… talking about this very problem.

But, you know, we came out of World War II with a debt higher… a gross or net debt… higher in relation to GDP than we have now, and people were predicting terrible things at that time because of that situation, and the country has done sensationally.

The real danger is that it just continues to grow, and it gets easier to print money than exercise some discipline.

But we’ve encountered far worse problems than we face now. I mean, this is not our country’s toughest hour, by a huge margin.

And I think we will do fine, but with a lot of bickering, and kind of nonsense that will bother you when you read about it day to day. But when you look at it from a viewpoint of history 10 or 20 years from now, you will not be that disturbed.

Charlie?

Charlie Munger:

Well, I agree with you about George W. Bush, and I like these nonpartisan episodes when we get together and do things right.

And I also think that our current problems are quite confusing. In fact, if you aren’t confused, I don’t think you understand it very well.

Warren Buffett:

That sort of immunizes you from everything.

How bothered are you by the level of debt in relation to GDP?

Charlie Munger:

Well, I don’t think there’s any one fixed ratio that is written in the stars.

As a matter of fact, most of the debt, as I conceive it, is not even counted in what you call “debt.” The off-the-books debt of the United States is bigger than the on-the-books debt, all the present value of future promises that are unfunded.

Warren Buffett:

That can be changed, however.

Charlie Munger:

Yes. But, if they can be changed, but are we really going to take Social Security away from somebody who’s worked a lifetime?

Warren Buffett:

Well, we shouldn’t.

Charlie Munger:

I don’t think it’s very likely.

Warren Buffett:

No, no. But Social Security is not a killer, actually, in terms… if you have a GDP that rises a couple percent in real terms…

Charlie Munger:

Of course… that’s the great problem. All of our problems are trivial, if GDP will just rise at 2 percent per annum, per capita.

All these problems that the Republicans are screaming about fade into insignificance if we can do that.

But you’ve got to have policies that enable you to do it, and I’m not sure we always do that very well.

Warren Buffett:

OK. Stay tuned.

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