The annual shareholders meeting of Berkshire Hathaway Inc. was held this weekend in Omaha. More than 40,000 people attended. Yesterday CEO Warren Buffett and vice chairman Charles Munger held a five and one-half hour question and answer session for the attendees.
Says Mr. Buffett as reported by the Omaha World Herald:
“We’ve got a big appetite for wind and solar projects.” BH Energy “borrows at taxable rates and Nebraska in terms of wind is not that much different than Iowa. We’re selling electricity in Iowa at lower rates than exist in Nebraska (with public power).”
Should BH keep working with Brazilian investors 3G Capital, known for slashing jobs at companies it invests in? Replied Buffett, “The gains in this world have come from gains in productivity. … This is why we live so well. … Government can put in place policies and programs that help workers left behind by economic shifts.”
“Trade, export and import, massive trade, should be and is enormously beneficial to the U.S. and the world.”
Medical costs are the “tapeworm of American economic growth. … Corporate taxes aren’t crippling but medical costs continue to rise. … The problem seems to transcend political party.”
Conclusion. Just these few remarks, among many others from the meeting, touch on several broad economic themes which I discuss on this blog. Private enterprise is a powerful and efficient method of generating wealth for humanity. Government should intervene to help those hurt by progress. Renewable energy is profitable and here to stay. Healthcare costs have a significant effect on business growth and need to be controlled. Neither political party has a monopoly on the truth.
This morning’s Wall Street Journal has a book review by the New York fund manager, Daniel Shuchman, “Thomas Piketty Revives Karl Marx for the 21st Century” of Thomas Piketty’s new book “Capitalism in the Twenty-First Century.” As I recently discussed, Piketty makes the simple observation that income from wealth, i.e. investment income, grows faster than income from wages or GDP. He then provides a large quantity of data showing how this has played out since the end of WWII. He plausibly predicts that the value of private capital as a percentage of national income will continue to grow indefinitely into the future. This much is straightforward. The question is how we should react to a steadily increasing and very large concentration of wealth in the hands of a small percentage of people. Mr. Piketty’s own idea is, for example, to establish an 80% tax rate on incomes starting at “$500,000 or $1,000,000” in order “to put an end to such incomes.” Mr. Shuchman attempts to discredit Mr. Piketty by focusing in on such socialistic views for dealing with the problem rather than discussing the intrinsic merit of Piketty’s basic thesis about the buildup of great wealth in the first place.
My own view is that Mr. Piketty has clearly identified a weakness of capitalism and that it behooves supporters of free markets and private initiative to address this problem in a constructive way, for example, as follows.
We need fundamental broad-based tax reform, i.e. lower tax rates in exchange for closing loop-holes and lowering deductions, in order to boost the economy and create more jobs. As part of a major tax overhaul, we could also establish a relatively small wealth tax, of about 1% or 2%, on assets over $10,000,000, which would raise as much as $200 billion per year. This much money could be used to begin a large scale program of infrastructure renewal as well as leaving a lot left over to make significant payments on reducing our annual deficit.
Such an overall plan would address both income inequality and wealth inequality in a highly visible manner while simultaneously helping our economy.