
Warren Buffett: I could end the deficit in 5 minutes. - pitdesi
http://www.ritholtz.com/blog/2011/07/warren-buffett-i-could-end-the-deficit-in-5-minutes/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
======
johnnyg
A republic or democracy presupposes that the majority of representatives will
get it right eventually. However, we've seen in the Roman Circus and we see
now that there is a weak spot to this thinking. Eventually the elected body
will split into a faction that represents business interests and a faction
that trades entitlements for votes. The latter faction eventually gains
control to an extent that they bankrupt the whole. We are nearing that stage
now. Few Republicans will oppose entitlements and both Mr. Bush and Mr. Obama
are guilty of ramp ups in deficit spending.

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.

~~~
JoeAltmaier
Stability also requires a stable government. Throwing all the scoundrels out
sounds good, but would probably happen (I think they are all too selfish and
would play chicken down to/past the wire). Resulting in chaos at the next
election - an entire elected body of unknowns with no experience.

~~~
DougWebb
That's the kind of revolution we're supposed to have when the government
becomes corrupt. Also, it wouldn't be all at once; term overlaps ensure that
there would be continuity.

~~~
moioci
Terms overlap only in the Senate; the entire House stands for re-election
every two years.

~~~
vaughanhedges
Right and then one party looks to create a situation where the other party has
more people who will be ineligible.

------
sajid
I think people are missing the point, his suggestion is not meant to be taken
literally. What he's trying to say is that reducing the budget deficit is more
a question of political will than economics.

~~~
lmkg
Very much this. If you want to predict behavior, look at incentives.

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.

------
nhaehnle
This does not address the question of whether a balanced budget is even
desirable. Equating the budget of the currency _issuer_ with the everyday
experience of the budget of the currency _user_ is a fallacy.

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).

~~~
jpadkins
What about the moral implications that deficit spending is inter-generational
taxation? I think that is a clear case of taxation without representation.

~~~
nhaehnle
Inter-temporal taxation does not exist in any meaningful way. Future citizens
do not send taxes to the present government. More importantly, when have you
last consumed a good that was produced in the future? In real terms - and that
is what ultimately matters - there is no transfer between different times
(well, there is some amount of transfer from the past to the present, but this
is usually not what people complain about ;)).

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.

~~~
gaius
Well, not in a literal sense perhaps, but practically, if you are liable for a
debt that was incurred before you were even born, let alone of voting age, how
is that any different?

~~~
nhaehnle
The question is: Who are you liable _to_? You are _never_ liable to some dead
person, but to some other living person.

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...](http://pragcap.com/resources/understanding-modern-monetary-
system)

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.

------
lucasjung
One big problem I see with this: in time of war, it is often not only
necessary but desireable to run a deficit. Imagine if we had been forced to
run a balanced budget during WWII! I would imagine that in such dire need,
members of congress would "take one for the team" and run a deficit in order
to sustain the war effort, but then you have the classic "changing horses mid-
stream" problem when you turn over literally the entire legislature in the
middle of a war.

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.

~~~
pgsucksdick
As much as you might like to think differently war is always negatively
productive.

There might be some corner cases where the destroyed wealth is replaced by
more efficient use, but they have yet to demonstrate themselves.

~~~
Dove
Oh, I don't know. I think it can be a positive thing for a nation to _not get
conquered_.

~~~
nate_meurer
I think the parent is talking just about economics. There are very few post-
industrial-revolution examples of nations benefiting economically from war.
America in WWII is the most notable exception in my mind.

~~~
Dove
In spite of my flippant tone, I had a serious point too: fighting a war may
always come with an economic cost, but losing one can come a much higher cost.
Hence, fighting a war can be a positive choice even if you lose money doing
it.

~~~
lucasjung
That's really interesting. To put it another way, economic opportunity costs
apply to armed conflict.

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.

------
hop
Buffett's father was a 4 term congressman and an almost Ron Paul-like
libertarian, btw.

<http://en.wikipedia.org/wiki/Howard_Buffett>

~~~
cheez
Warren Buffet made a tidy profit on the bailouts. He knew who was anointed to
survive and who was not.

Of course Warren loves the influence of government!

~~~
jhamburger
He lives in a modest home in Omaha and will probably give more money to
charity than anyone in history when all is said and done. Do you really think
his political views are driven by his own personal gain?

~~~
anamax
> He lives in a modest home in Omaha and will probably give more money to
> charity than anyone in history when all is said and done. Do you really
> think his political views are driven by his own personal gain?

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.)

~~~
jhamburger
On the contrary he has called for increasing the capital gains tax precisely
because he himself (and obviously others like him) pay such low effective
marginal tax rates. He even took the time to calculate that he paid an
effective 17% while his receptionist paid 30%, to criticize the effects of
Bush-era capital gains tax cuts.

I don't know how much more clear it can be that this is not financial self-
interest.

~~~
borism
In that particular case, yes.

I don't remember him advocating corporate or estate tax increases though?
Capital gains? Hardly applies to Berkshire Hathaway anyway.

~~~
anamax
<http://www.commondreams.org/headlines01/0214-01.htm> is some reporting on his
support of estate taxes.

------
T_S_
I liked the preface to the comments section below the video:

 _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._

~~~
Bluth53
I had the same reaction. While somewhat pessimistic and possibly offensive
toward some visitors, it distills the times found around the web in an
eloquent, satirical manner. While I prefer offensive and rotten humor, many
would argue this type of remark defies all sorts of social media "how-to"s and
guidelines for positive engagement yada yada.

------
mmcconnell1618
The only problem is that the sitting congress would need to pass the law
making themselves ineligible for re-election.

~~~
hugh3
I assume it'd need to be a constitutional change rather than a legislative
one, otherwise they could just rescind the law anyway.

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.

~~~
learc83
Well, we could have a constitutional convention.

~~~
protomyth
no, hell no - not with 24hr news, pundits, and political correctness.

------
Robin_Message
Would Warren Buffett fire the entire management of any company he owned that
borrowed more than 10% of earnings in one year, regardless of circumstances?
Because that is what his suggestion amounts to.

~~~
sc68cal
Firstly - I wouldn't put it past him to do something like that if he thought
that would maximize his investment. The market doesn't view a debt of +10% of
earnings to be that big of a deal however, has priced that risk accordingly,
and Buffet has never been put in that situation.

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.

~~~
coconutrandom
Is it naive to suggest that citizens are shareholders? and to extend the
metaphor, that other countries are customers/clients?

~~~
yummyfajitas
Yes. In principle, the shareholders are the people to whom the profits flow.

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.

~~~
coconutrandom
...and to infrastructure and public services and creation and maintaining of
them.

~~~
yummyfajitas
Such things actually make up a fairly small portion of government spending.

<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?

------
goombastic
I ask this here because this is a hacker forum. Why is it that in this day and
age that we still implicitly entrust another person to make decisions on our
behalf? What do you think would be the kind of systems we need to build to
make democracy more participative? What do you think would be the pitfalls we
should avoid with such a system?

~~~
ceejayoz
> Why is it that in this day and age that we still implicitly entrust another
> person to make decisions on our behalf?

We don't. Congressional approval is always horrendously low.

The alternative just sucks more.

------
davetufts
What about laws that state only Congress can declare war or the rules of the
War Powers Resolution? These don't stop the executive branch from engaging in
war. Similarly, Buffet's simplistic solution wouldn't stop future deficits,
because the ruling party could so easily redefine what a deficit is or what
the GDP numbers are.

------
cafard
You can fix failing schools in 10 minutes: establish that teachers can be
fired if the test scores aren't OK. This has the disadvantage that it's a hell
of a lot easier to go back and tweak the tests handed in (see Atlanta; see
some DC schools) than it is to educate the kids.

But the test scores look great.

~~~
brown9-2
Isn't this already the case with NCLB? Higher test scores on their own don't
"fix" the problems with education.

------
AdamN
It would take more than a law to block reelection for sitting legislators - it
would take a Constitutional amendment. I'd like to see Buffet get that done in
5 minutes.

------
yaix
Why does this populist nonsense get so many votes? Typical generalized
politicians bashing. If you feel that you rep. is so evil, than just don't
elect them. Better still, stand yourself and do a better job. Or at least help
the guy you think will be doing a better job. It's all about the participation
of the Demos, that's why they call it democracy.

~~~
MarkPNeyer
when congress' approval rates are in the single digits but reelection rates
are 80%, its clear that something is broken.

~~~
yaix
What do you mean with "something"? The brains of the voters?

------
hnsmurf
That wouldn't end the deficit, that would just ensure the deficit was 0 the
day before elections. Also there's a slippery slope. This same logic, if we
allow it to be applied to the deficit, could be applied to other things. No
congressmen could be reelected if gay marriage is legal, etc.

~~~
praptak
_"This same logic, if we allow it to be applied to the deficit, could be
applied to other things."_

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.)

~~~
hnsmurf
I don't disagree with you, but a lot of people feel the same about marriage. A
lot of people (not me, btw) feel that this is a Christian country and it's
antithetical to our founders' beliefs for gays to marry and yadda yadda.

The point I'm making is that everyone has a different idea of what those core
values are.

~~~
maxharris
Just because people differ on moral values doesn't mean that a properly
discovered moral code can't or won't be objective. For example, people differ
in their understanding of physics (and often seem hopelessly wrong), but
mechanics is what it is. Just because some people don't get it yet doesn't
nullify or change physical laws.

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.

------
gojomo
What if instead of a stick – no reeslection for you! – we used a carrot? What
if the sitting lawmakers who voted for a balanced budget eventually get a
giant financial bonus? (To minimize monkeybusiness, we could require it to
have been balanced in retrospect, say via assessment 2-10 years later.)

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?

------
WalterSear
That wouldn't end the deficit: it would give us a permanent deficit of 2.99%.
Still, an improvement.

------
vorg
> I could end the deficit in 5 minutes. You just pass a law that says that
> anytime there is a deficit of more than 3% of GDP all sitting members of
> congress are ineligible for reelection.

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.

------
MarkMc
I thought the more interesting part of the interview was when he said that
social security payments should have higher priority than bond interest
payments. That sounds it would result in a worse credit rating and much larger
pain in the long term...

------
rnernento
What's sad about this is we shouldn't need to pass a law, voters could easily
enforce this. There is a massive problem right now with a lack of
accountability, not just for the debt but for all the horrible decisions
congress makes.

------
Brewer
Warren Buffet for Secretary of the Treasury

~~~
shmulkey18
No thanks.

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.

~~~
Brewer
But he could end the deficit in five minutes.

~~~
shmulkey18
No, he couldn't. His remark is a flip one that is totally impractical. Had
Ross Perot (another rich guy who likes to pop off) made this suggestion we'd
all be laughing at him.

~~~
Brewer
I should have added /sarcasm to the end of my last reply.

~~~
shmulkey18
Oh, sorry! I often fall victim to the same phenomena -- people don't
understand when I'm being sarcastic.

------
ck2
Right, they'll do that right after they give up their gold-plated healthcare
and instead take the government offering for the uninsured.

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?

------
Troll_Whisperer
>“I could end the deficit in 5 minutes. You just pass a law that says that
anytime there is a deficit of more than 3% of GDP all sitting members of
congress are ineligible for reelection.”

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?

------
jws
One possibility is that the job of congressman becomes a 2 year job and you
have to dole out enough goodies in two years to get a secure post-congress
position.

~~~
PotatoEngineer
Ouch. Accurate, but ouch. Bonus points: Eternal September in Congress, as
we're always getting a new crowd of inexperienced people.

------
gavanwoolery
<TROLL> Nice, but I can end it in 4 minutes: STOP. SPENDING. MORE. MONEY.
THAN. YOU. HAVE. </TROLL>

------
Androsynth
Wouldn't the unintended consequence be that the parties become even more
powerful than they are now? All the long-standing politicians would move out
of official govt capacity and into essentially the same position in their
parties, while unknown pawns get elected to the official positions.

------
sethg
Budget deficits shouldn’t be any more of an automatic trigger for re-election
than the unemployment rate, the inflation rate, the number of body bags coming
back from a foreign war, or any other undesirable thing.

------
JohnLBevan
Spending more than you earn? Idiots in charge. Cut back on essentials, keep
the things that make you happy, still get re-elected. Hmm, anyone else see a
minor flaw?

------
maxxxxx
I don't think it would stop the deficits. Instead we would get a new Congress
every 2 years with crazier and crazier representatives.

~~~
bdunbar
We've already _got_ a pack of thieves, idiots, never-do-wells and politicians
(but I repeat myself) in Congress.

It can't get much worse.

~~~
pnathan
No, actually, we have some fairly functional people in Congress.

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".

------
jasonmoo
my god cnbc is obnoxious. 9 logos on the same screen. breaking headlines of
the interview currently in progress. 5 different bars all blocking the view
with equally unimportant text. and the swoush sound effects... seriously you
guys. seriously.

------
skybrian
Some people will play to lose.

------
greyfade
Or, you know, he could pay his taxes.

------
shareme
Better idea... Vice Presidents who still hold shares in companies that still
hold gov contracts despite censure..Impeachment as the whole 3.4ths of current
deficit was by start of wrong wars Iraq especially..

------
naughtysriram
cool... :)

