Warren Buffett: I could end the deficit in 5 minutes.
ritholtz.com
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Buffett's proposal would patch this historically reoccurring weakness of representative forms of government. As hnsmurf points out, it would also create a slippery slope where no representative could be reelected if they vote for X, Y and Z policies that are not systemic threats.
As our government is not responding to an issue which can literally ruin us all, it seems to me that Buffett's proposal is the lesser of two evils. Stability demands a solvent government.
Upending congress might be tumultuous, but compared to bankrupting the nation it still counts as the lesser of two evils.
Great idea by Mr. Buffet. Similar to Brazil's balanced budget laws, btw.
Next up: funny ways of counting GDP ;-)
"Once a social or economic measure is turned into a target for policy, it will lose any information content that had qualified it to play such a role in the first place."
http://lesswrong.com/lw/1ws/the_importance_of_goodharts_law/
Did it work?
Of course not. They passed an absolutely fictional budget. It not only depends on California getting three times its previously anticipated tax revenue but it also depends on tax hikes that haven't been passed (passing a budget requires a majority while passing a tax increase requires a 2/3rds vote where at least a few Republicans have to sign on)
Bottom line: Government can always redefine terms
And in our sophistication pretty much all the intellectuals we've got busily tearing apart all the foundation that "government of laws, not men" is built on. So back to government-of-men we go. Hooray.
Hopefully that would inspire them to take a longer term view, and they would be less able to redefine terms when they are being applied as they are no longer in power. Probably hopelessly naive thinking though ...
http://www.zerohedge.com/article/aarp-screams-blood-murder-w...
Orwell was an optimist.
http://en.wikiquote.org/wiki/Alexis_de_Tocqueville#Misattrib...
Here's a more extensive (and accurate) one.
What makes you think that a faction that represents business interests does not also trade entitlements for votes? The real problem is that ALL factions in a democracy demonstrate the universal human tendency to take benefits today and put off obligations for the future.
The problem is that nobody has a long term sustainable point of view. Why worry about the eventual cluster#$%@ when you can stuff your pockets today?
The apportionment of the seats to the various states is based on population, but the overall size is not.
Then again, it would be difficult to bribe >50% of the population to pass a bill.
Another variable, you mention, is term of office. If voters only "remember 6 months back" then would having elections every 6 months instead of 2 years help?
Also, who would propose the votes, check legislation for consistency and loopholes, etc? If you crowd-source that, chances are 100% that there will be some decisions with unwelcome consequences. If you appoint people for doing that, how is that different from letting those people make the decisions, too?
I don't expect anybody to vote on all laws. It makes more sense for people to vote on the laws that are relevant/important to them. If I don't know anything about a certain issue, I shouldn't be voting on it anyway. This way, people would vote on issues relevant to them, and for people who don't care, then well, they don't care...
This is the main issue with FPTP voting. If you wish to disempower fringes, require majority approval.
You largely vote not on the issues the candidate says he supports, but on how trustworthy they seem and how well their interests align with yours.
At it's best, this means that even people who are quite apathetic get properly represented.
It was not until the communism of China was mitigated that their economy began to take off.
I understand that the same thing happened with India and their socialist policies, but I am not as versed in India's history.
There are heavy negative effects that come into play when large-scale growth happens. The Industrial Revolution is the history of the West's large-scale growth. It's taking place in China now too.
Let us not delude ourselves that sunshine, rainbows, unicorns and world peace will suddenly come about. Futurama provides a humorous glimpse into that sort of future.
People are always self-interested and selfish, in the governmental scale. While we might not like that... we always prefer better things to happen to us and our little domains.
How do we use that motivation to nurture society as a whole? I don't know. Taxes are not good enough, as we can see today, they can always be outsmarted. You can't outsmart human nature, which means billions of people struggling towards a single goal.
We cannot expect to solve the problems of human nature via economics or public policy when the philosophical and religious landscape has shifted.
See, this just isn't true. The fact that this idea is taken for granted gets at the root of the problem.
I'm happy to pay my taxes, although I don't pay more than I legally need to.
Well that's what I meant. You have no particular wish to pay taxes. You wouldn't mind stop paying them. You would mind stop having sex though. I'm talking about motivations that can't be shut off and don't need to be taught to every new kid, because you are born with them. We need to somehow harvest them to make working together attractive.
I would argue that all successful policies somehow come down to the fact that people want them in place. In that regard, taxes are clearly a failed experiment. You cannot force people to do anything (not for long, not forever as we can see from history). The only really effective law, is the one that people love to obey.
Or just some way to save in the good times, and spend in the bad times.
The problem as I see it, is that the faction that trades entitlements for votes and the faction that trades tax breaks for votes are both simultaneously in control. The low taxes people win all the fights about taxes, and the high spending people win all the fights about spending.
The bug in democracy that led to our deficit problem is the lack of anything to prevent us from voting to have our cake and eat it too.
For example, the California state budget. There's a constitutional requirement that it be on time, but every year we were setting a new record for how late it was. Then, we pass a law saying that if it's not on time the legislators don't get paid. Mirabile dictu, the budget is now on time. Granted, the requirements for passing the budget were also lowered, but aside from that the Democrats were generally displeased with the budget they passed and I nearly certain that they would have waited around and tried to swing another 4 Republican votes rather than pass what they did.
At the federal level, there's nothing pushing the politicians to balance the budget, except for people who vote on that issue. But it's a rather abstract issue and not a lot of people vote on it compared to, say, abortion. No voting pressure, no lobbying dollars, and no legal repercussions means the problem won't get addressed. Buffet is suggesting changing the last of those three, although any of them would be enough.
The point is they shouldn't be threatening us - we should be threatening them for not getting it done.
Looking at the respective balances of the three sectors of government, domestic private, and external, it is obvious that flows are conserved. Given net imports (i.e. more money flowing into the external sector than out of it), a balanced government budget can only occur if the private sector is in deficit, i.e. more money flowing out of the private sector than flowing into it.
Empirically, external balances change only very slowly, unless artificial trade barriers (tariffs etc.) are raised.
So in the end, the political choice is between deficits in the private sector, and deficits in the government sector (and of course a range of choices in-between).
Given that government can issue additional currency, conservation of flow doesn't seem particularly obvious to me.
The additional currency that is issued by the government does not disappear in a black hole (with the possible exception that, technically, dollar bills do get lost in the wash). Instead, it either ultimately flows back to government, or ends up in one of the other sectors.
I think the relevant constraints are clear to everybody here, which is why I was not more explicit.
Now what you probably meant to say is this: The existence of the debt implies that in the future, there will be interest payments. Most likely (unless the Modern Monetary Theory revolution in education takes place before then), people in the future will be lead to believe that these interest payments come from tax payers.
This has potential moral implications because there is a tendency that those citizens who overwhelmingly receive the interest payments in the future are not the same as the ones who pay the taxes (also in the future). Absolutely. But this is more about equity and distribution than it is about the fact that there is a debt. I have also commented on this before: http://news.ycombinator.com/item?id=2730278
Edit: I have to correct myself. One could perhaps talk about some form of inter-temporal taxation in the context of using non-renewable natural resources. However, I personally think that it's still better to talk about that in terms of sustainability rather than taxation.
If, in the future, there are people who are carrying some kind of burden because of the government debt established today, then there will also be, in the future, people who are benefiting from the government debt established today.
This is why I consider it a red herring to think of the debt as an inter-temporal issue. It is, if anything, at most an distributional fairness issue among the people living at any one point in time.
You might worry that in the future, the people won't have the tools at their disposal to fix those distributional fairness issues. However, since a monetarily sovereign government has the ultimate control over the interest rate that it pays on its debts (and the flows of interest payments are what is most relevant), this is not a concern.
I realize that this last part is very counter-intuitive if you're used to thinking only in terms of options available to the currency user. Read about how interest rates and liquidity operations of the central bank actually work: http://pragcap.com/resources/understanding-modern-monetary-s...
The bottom line is: If the political will to do it is there, those distributional issues can always be fixed in the medium term by manipulating the interest rate. One might have to switch over to using fiscal policy for inflation control, and capital constraints to limit runaway bank lending, but some economists argue that this is preferable anyway.
I agree that it is silly (from a fundamental standpoint) to make such a big fuss over the federal budget deficit while completely ignoring the trade deficit, but I understand why people do it. If the powers that be were monolithic, it would be easy to fix the budget deficit. The trade deficit is more of an emergent property that people don't understand that well. Since in reality, it's all smoke and mirrors either way, I can see why people go with the easier story to tell.
You could have identical capital inflows and outflows (i.e. money coming in to the US from the international community) but it could be wasted on things it shouldn't.
3% of GDP is very reasonable unless extreme circumstances were present. In that case, politicians might just have to resign after their term.
The only reason the US is able to print money is because it is a de facto world currency.
How many years do you think it takes to replace a de facto currency for international trade?
Not many. Russia and China are already trading in their own currencies instead of the USD. I'm sure Brazil wants to follow.
There are some political thinkers who theorize that the Libyan and Iraqi wars are meant to prop up the dollar. The Libyan dictator wants a gold-backed currency for Africa and Iraq and Iran want(ed) to trade in Euros. I think the Libyan connection is pretty far fetched but I am not in the know so who really knows?
If any of those transitions had happened 10 years ago, the USD would be severely diminished today, reducing the power of the US. Less countries would need the currency and I believe you would see even more real inflation.
So yes, the government of the US can effectively go bankrupt if no one wants the currency anymore.
And that includes its own people. It happened in the Great Depression because some people realized it was the money system that was a large cause of the depression.
The wild card? That the US actually embarks on the "Everyone must use USD or end up like those other guys" rampage.
For what it's worth, I hold a shitload of USD-denominated assets because I believe in the American system more than any other. But man, that belief being tested hard these days...
I think that a much more practical constitutional amendment would be to simply prohibit congress from appropriating funds in excess of revenues unless a war has been declared. There is a risk of congress declaring needless wars for the sole purpose of justifying deficits, but that would require the cooperation of both parties, and I would bet that the opposition party would see more potential gain in opposing the war and demagouging its supportors than in letting the majority party have their war of convenience.
There might be some corner cases where the destroyed wealth is replaced by more efficient use, but they have yet to demonstrate themselves.
You can even extend this beyond purely defensive wars.
The most obvious extension is pre-emptive wars. A great example would be the Six Days war (aka the 1967 Arab-Israeli war). Israel knew that they were about to be attacked (the massed units on their borders were not subtle), and instead attacked preemptively. Arguably, this reduced the cost of the war for them in a number of ways. First, by seizing the initiative and the element of surprise, they likely reduced their combat losses relative to what they would have experienced if they had waited for their neighbors to attack. Even more importantly, the entire war was fought outside of their then-borders, so their infrastructure was not damaged by the fighting.
Clausewitz even makes a case for starting a war that you know you are going to lose. That sounds crazy at first, but in some scenarios it makes sense, because it's not just about the balance of power, it's about the direction in which that balance is shifting. If you are highly certain that another country is going to attack you, and that you will lose, you have to consider whether your defeat would be more or less severe in six months or a year. If the balance of power is shifting in your favor, you want to postpone hostilities as long as possible. If, on the other hand, the balance of power is shifting in favor of your enemy, you want to precipitate a war as soon as possible in the hopes of securing a better position to sue for peace. Either way you know you're going to lose, it's a question of how badly you are going to lose.
Finally, even a war of naked aggression could have a nearly immediate net positive impact on your economy if your forces are so superior that you will suffer minimal losses, and if you capture valuable resources as a result, or if you secure tactically valuable terrain that reduces your losses in an impending conflict. The German annexation of the Sudetenland is a prime example of this.
I never suggested that war has a positive influence on an economy, so I'm not sure where you got that impression. I was suggesting that one political party or the other might want to use war as an excuse for deficit spending to further their political agendas.
That being said, war can be positively productive if you are outside of it, selling to one or more of the belligerents. That's mainly how WWII was so positive for the U.S. economy: we were selling to the allies for several years before we got directly involved. The Russians made plenty of money selling to both sides of the Iran/Iraq war, and I'm sure that those are just two of many, many examples throughout history.
Governments always use a crisis to grow their power.
"No, I mean a REAL war..." Yeah.
A noble piece of paper
With free society
Struggled but it died in vain
And now Democracy is ragtime on the corner
Hoping for some rain
Looks like it's hoping
Hoping for some rain
IANAL, but my career requires me to be very familiar with certain aspects of international law because I sometimes deal with them in a very direct and pragmatic manner. I probably know more about international law than your average domestic lawyer (but certainly much less than a lawyer who actually specializes in international law!).
Almost all international law falls into one of two categories: treaties and precedent.
Precedent is huge: if you can enforce an otherwise illegal claim for long enough, it becomes established international law. That's why the U.S. military engages in freedom of navigation operations, to prevent excessive claims to territorial waters and airspace from becoming established precedent. Likewise, if you fail to enforce your sovereign rights as a nation, you eventually establish a precedent that those rights are no longer yours, much like copyright enforcement. In short, if other nations let you get away with something for long enough, it literally becomes legitimate.
The UN is based on treaties, as are most of the laws of war. The thing about treaties is that breaking them only matters if someone else has the will and the means to stop you. A lot of people considered the U.S. invasion of Iraq to be illegal, but the U.S. did not become an "international outlaw" because, to be perfectly honest, nobody has the means to overtly punish the U.S. for anything. The U.N. security council can't take action against the U.S. because the U.S. would just veto any anti-U.S. resolution. Outside the purview of the U.N., the only options for punishing an "international outlaw" are censure, sanctions, and military action. Censure is pretty much meaningless, as PRK, Iraq, Iran, and plenty of others have demonstrated. Any sanctions against the U.S. would hurt the rest of the world economy at least as badly as they would hurt the U.S., so nobody wants that. Military action against the U.S. would most likely result in more harm to the "punishers" than to the U.S, not to mention the damage to the world economy. Basically, the U.S. can get away with anything short of launching overt wars of aggression against peer nations, because nothing else would be worth the trouble of stopping the U.S. The main deterrent against violating the laws of war is the possibility that you might lose, in which case your leadership would be subject to Nuremburg-style trials. If you're in no danger of losing, that deterrent is nonexistent. The only other external reason to follow the laws of war is a quid-pro-quo that you and your enemy will treat each other's POWs well (which, with some notable exceptions, existed on Germany's western front in WWII but not on the eastern front). Of course, there's always internal reasons to observe the law of war, such as societal morals and values, which brings me to my next point:
International law is, when you boil it all down, "might makes right" restrained by a combination of self-restraint on the part of super-powers, and the rational desire of most nations to avoid costly and destructive wars and protectionism (with regular lapses in this rationality).
I believe trademarks work that way, not copyright.
If everyone truly took one for the team, wars wouldn't have to be as expensive, because everyone would be fighting for their survival.
While its important to win a war, should it be won at any cost and who should pay the price?
Of course Warren loves the influence of government!
I think Buffet likes to be comfortable. I don't think he has a need to show off.
But that doesn't detract from the fact that he sees it as a game to be played and a competition. It could be for really expensive beans for all he cares.
Yes, because he's human and every human's political views are driven by their personal gain.
Your mistake is in thinking that money is the only personal gain. It's not. It isn't even one of the most effective motivators.
And, in Buffet's case, there's the difference between "money made" and "money spent". At some point, the latter becomes uninteresting but that tells us nothing about the former.
And, interestingly enough, Buffet's "advice for the country" always seems to be aligned with his financial stake. (He never advocates increasing the taxes that he pays and he often advocates increasing taxes in ways that benefit him - the estate tax being a prime example.)
I don't know how much more clear it can be that this is not financial self-interest.
I don't remember him advocating corporate or estate tax increases though? Capital gains? Hardly applies to Berkshire Hathaway anyway.
You're assuming that he's going to pay significant capital gains. He's not because he lives so cheap that he doesn't sell all that much. In other words, the capital gains rate is largely irrelevant to him.
While he lives cheap, he does like to win and increase the value of Berkshire. The capital gains tax rate does have an effect on the folks selling companies to Berkshire....
Buffet also advocates increasing the estate tax, which is a two-fer. Berkshire makes a lot of money selling insurance to help people with the estate tax. Berkshire also picks up companies because the inheritors can't pay said tax.
Meanwhile, he's arranged things so the bulk of his estate will never be taxed.
http://swampland.time.com/2009/09/15/warren-buffett-could-ha...
I hate tobacco companies but I bought in 2008 when dividend yields were > 5%.
Of course, I'm no Buffet...
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Which reminds me of one of my biggest objections to the US constitution: constitutional amendments are done simply by getting a bunch of legislatures to agree to 'em, rather than by holding a referendum as in Australia.
My state, like a few others in the US, has voter initiatives that become constitutional amendments. The last one that made the news was the one that made it illegal for me to get married.
Another initiative from a few decades ago is a major part of why California can't raise enough money to fund itself now.
So yeah, I'm not a huge fan of ballot initiatives.
Compare that to 11 amendments to the US Constitution over the same period (1901 onwards) - two of which I'd point out dealt with the introduction and repeal of Prohibition (which I'd say qualified as a "swell of public sentiment").
Secondly - there is always a problem with equating governments to corporations, since governments are formed for public good and corporations are formed to maximize shareholder value. Their roles and motivations are quite different.
This ultimately typecasts actions that a government does, into business actions. Even though some of them would make absolutely no business sense. For example, why would a country raise tariffs or raise trade barriers? This would demonstrate weakpoints in the metaphor that other countries are clients.
A more extreme example would be where a country starts to kill people, by going to war with another country, or killing it's own people due to political upheaval. The metaphor really breaks down in that case. Businesses by and large, don't go and kill people intentionally. Obviously there are some historical and modern examples (Chiquita comes to mind) but I don't think that "Killing People" is in anyone's charter.
Money isn't the only way to represent wealth. The ideal government would ensure proper infrastructure(justice, defense, interstate transport) to the country without concern of profiting from it & for the benefit of all citizens. Money goes in, "shareholders"(citizens) earn dividends based off the infrastructure/programs they get back.
For example, why would a country raise tariffs or raise trade barriers?
Why would Verizon put an early termination fee on a contract? Is it because the customer benefited from a subsidized phone, kind of like how business benefits from subsidized infrastructure?
If you follow the money, you discover it goes to government employee's unions, old people and various other special interests. They are the shareholders in government. Not ordinary citizens.
http://usgovernmentspending.com/piechart_2009_US_total
Further, ask yourself who makes a profit on public service - the child who is poorly educated by a failing school, or the teacher who is overpaid to provide that service?
It's not the best solution, but we really do need to do something.
We don't. Congressional approval is always horrendously low.
The alternative just sucks more.
I think we need more political parties & vast limitations on campaign financing. I'd also love if we could test reading comprehension & basic logic skills before allowing people to run for office.
But the test scores look great.
This is basically a method of legislating a budget cap. Your 'slippery slope' argument in its correct analogy is no more than passing a law that outlaws gay marriage in the first place.
I think that's the point. Short-term borrowing is sometimes a smart idea, as long as there's a real plan to pay it off. The idea would be to only discourage irresponsible borrowing.
> This same logic, if we allow it to be applied to the deficit, could be applied to other things.
I think it's fairly uncontroversial that having unpaid debt is bad and should be avoided.. so it's not too similar to issues that are actually controversial.
There are legitimate reasons to discern between the deficit and those other things. Most law systems are based on a small set of core values which are deliberately made hard to change, i.e. made part of the supreme law.
I believe that the (preventing of) deficit has the characteristics shared by those core values: there is a consensus that it is bad (especially in the long term) and yet there's strong temptation to create it for the short term benefits (buying votes.)
The point I'm making is that everyone has a different idea of what those core values are.
The right way for anyone to figure out what their core values should be is to apply reason. Dedicated, hard-core Christians feel a certain way about a lot of things, but they ultimately base their conclusions on faith, which is the antithesis of reason.
People – even Congresspeople! – respond to incentives.
Let's assume that the goal – the fiscal stability of a balanced budget – would be a noticeable boost to our $14-trillion-plus economy. Then the incentive could be quite huge – perhaps a million dollars per congressperson per year in balance – and still pay for itself, many times over.
Other interests are making millions per year from the legislative 'generosity' that results in a perpetually out-of-balance budget. Why not pay directly for the alternative result we prefer?
Incentives matter, but this incentive would attract candidates who don't want re-election, perhaps old and sick people who expect to die or retire.
Also, how do you measure GDP? Whenever someone drinks a pint of whiskey at the bar, then drives home and kills other motorists, the whiskey sold, car fix-up costs, ambulance and hospital fees, insurance and re-insurance premiums, prison costs, and court settlements all contribute to "GDP", even though real quality of life has gone way down.
And of course any law passed can be repealed by the same margin.
There is something intensely annoying about Buffett: his hypocrisy.
He claims that rich Americans are not paying their fair share of taxes, but doesn't take the obvious step of voluntarily paying more taxes by sending a big check to the IRS.
He supports the estate tax, supposedly because it is bad for America to have children receive inherited wealth. Of course, he has set up a foundation which his children will administer after his death. Naturally, they'll take a salary for this arduous assignment. And it just so happens that having an estate tax benefits the insurance companies in which he is heavily invested: 10% of insurance company revenue comes from the policies wealthy folks buy in order to avoid estate taxes.
He's all for rigorous corporate government and the avoidance of self-dealing. Except when these standards are violated by his subordinate and Berkshire-Hathaway heir-apparent David Sokol, who -- with the full knowledge of Buffett -- personally invested in a company that Sokol was pitching to Berkshire-Hathaway.
Buffett is clearly a shrewd investor. However, an economic holy man he is not.
Gabrielle Giffords would be permanently disabled and disfigured, unable to ever speak or move because of lack of therapy if she was an average citizen standing in that crowd, with the average american insurance or lack thereof.
I love how the topic is constantly steered off healthcare. Remember the mosque in NYC? Remember how all that noise suddenly disappeared?
I understand his line of thinking, but the question is could he pass that law? He has a substantial amount of money that could be spent on lobbying, media, etc. But how do you get people who have spent a career chasing power to sign a law that will strip them of that power?
It can't get much worse.
They are heinously self-interested and often vote pork and lobbyist groups, of course, but we do the same thing with our own little domains (hacking, free music, code, entrepreneurship). Very people have the ability to have the grand vision, and fewer have the ability to put that view in effect.
But we could have much worse. Much, much worse. A brief survey of world history in the 1910s, 1920s, and 1930s should serve to illustrate the meaning of "worse".