

Warren Buffett: The U.S. is moving toward plutocracy - wslh
http://english.themarker.com/warren-buffett-the-u-s-is-moving-toward-plutocracy-1.351236

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wallflower
Warren Buffett has an interesting answer on dealing with inflation:

"Nevertheless, I worry about inflation always because it is such an easy
solution to things in the short term. The ultimate defense against inflation
is your own talent, your own earning power. I mean, the best doctor in town,
the best lawyer in town, the best musician, the best anything, whatever it may
be, they will always command their share of resources of their society whether
the currency is dollars or shekels or shark-sheet.

"Next to your own talent the best thing to own is a business with talent. I
mean, if you own Coca Cola, it will always be able to command, whatever the
currency, a certain portion of people’s earnings or hourly earnings. So I
always emphasize to students, develop your own talents, no one can take them
away from you, no one can even tax you until you start bringing money in from
them. And inflation can’t take your own talent away from you."

"If you know how to perform brain surgery, people are going to find you and
they are going to figure out some way to give you whatever chicken they are
producing and whatever the case may be. If you look at investments, the one
thing you don’t want to have is investments that are tied to a currency unit
as opposed to a producing business.

~~~
orijing
That's great about income preservation, but what about wealth preservation? No
matter how strongly your income growth keeps up (or exceeds) inflation,
inflation still naturally diminishes the value of your money (and on the flip
side, reduce the debt load).

No talent can protect you from the wealth-distributional effects of inflation
unless every penny of your value is in TIPS or something.

~~~
ams6110
I think he addresses that in the second point: _Next to your own talent the
best thing to own is a business with talent. I mean, if you own Coca Cola, it
will always be able to command, whatever the currency, a certain portion of
people’s earnings or hourly earnings._

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goodside
The quote in question is weaker than the headline might suggest:

"We are still a democracy, but we have moved in my lifetime towards a
plutocracy. We do not have a plutocracy, I want to emphasize that, but the
distribution of wealth and the influence of wealth have moved in that
direction."

The headline isn't elaborated on until several pages below the fold. This is
classless and sensationalist, and Haaretz can do better.

~~~
_delirium
Doesn't the headline say "moving toward plutocracy" and the quote is: "we have
moved in my lifetime towards a plutocracy"? That seems like an accurate
summary of his sentiment; it's not saying that we have _actually reached_ a
plutocracy, just that that's the trajectory.

~~~
Tycho
The interviewer fed him a leading question, and he responded by saying it's
more true now, at least, than when he was born. He also said there were things
which would prevent us reaching plutocracy. It's a bit like if you ask someone
if the US is moving towards communism, and they say 'well I guess the health
care bill is a significant step in that direction.'

~~~
borism
it is not the first time Buffett used the "plutocracy" word:

 _Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of
opportunity has been on the decline. A progressive and meaningful estate tax
is needed to curb the movement of a democracy toward a plutocracy._

at a Congressional Hearing on Estate Tax in November 2007
<http://www.cnbc.com/id/21791804>

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math
From the article. Buffet: "I wasn't worried because I knew the government
would do the right thing.". I think it's screwed up that currently a good
investment decision is one that assumes you'll get bailed out if things go
badly. What happened to the concept of risk? This mentality is a major problem
for the well being of the global economy.

~~~
Estragon
He's talking his book here. Don't forget his huge purchase of Goldman Sachs
around that time. You could just as well rephrase what he said as "I wasn't
worried, because I knew the economic and financial policy of the USG is
completely controlled by the commercial finance industry."

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scrrr
I suppose the rich elites will have to change something, probably by educating
the youth about money (basically teaching them their "tricks"), or at some
point the economical divide will get so big that their status and belongings
will be in jeopardy. It is important that people feel that there is at least
the possibility of climbing the social ladder. If this possibility disappears
from the perception of a big number of people the awakening will not be
pretty.

~~~
pmichaud
You must be middle class. In fact, what you described in precisely what the
vast majority of the lower class feels like, and grew up feeling like.

You should read the book "Pedagogy of the Oppressed," it's a classic and I bet
it'll open your eyes. You might like it.

~~~
scrrr
Thanks for the recommendation but it's really not a topic of interest for me.
I was just idly speculating what might happen if one day a generation emerges
that doesn't feel that their children can have a better life than they have. I
think there might be some interesting developments. But there are far more
qualified people to talk about such things. :)

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Tycho
_The pie will never be big enough to take care of everyone’s desires, but the
pie does get bigger._

The article is a good read. He talks about fiscal policy, sovereign debt,
investing in different countries, what he promises his investors (beating the
market by 2 or 3 %), structure of his companies, investing only in what you
understand, performance incentives, how capitalism is still the best system
despite its flaws, among other things.

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_pius
This is not a new concept. Citigroup released an infamous report to select
clients in 2005 stating that the U.S. has now become a plutonomy and advising
clients on how to exploit it: [http://www.scribd.com/doc/6674234/Citigroup-
Oct-16-2005-Plut...](http://www.scribd.com/doc/6674234/Citigroup-
Oct-16-2005-Plutonomy-Report-Part-1)

~~~
neilk
It's related but not the same concept. Plutocracy means government by the
rich; the Citigroup article discusses plutonomy, an economy of the rich.

The Citigroup report argues that income distribution is so skewed among the
elites of the Western nations, there's a whole other transnational economy
that has nothing to do with people on the lower side of the curve.

They're sort of arguing in the same vein as the "power law" meme that was
popular a few years ago; that the concept of the average consumer, in a
plutonomy, is meaningless and outmoded.

~~~
_pius
_It's related but not the same concept. Plutocracy means government by the
rich; the Citigroup article discusses plutonomy, an economy of the rich._

Great point.

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ams6110
So many good bits in this piece. I liked his summary of how he was able to
respond to the financial crisis, even though he admits that the speed and
magnitude of the housing collapse caught him by surprise: _Never owe any money
you can't pay tomorrow morning. Never let the markets dictate your actions.
Always be in a position to play your own game. Never take on more risks than
you can handle. But all of those were old lessons, unfortunately. Even though
I didn't see it coming, those lessons which are timeless allowed us to in
effect profit from it rather than suffer from it. Good businesses, good
management, plenty of liquidity, always having a loaded gun; if you play by
those principles you will do fine no matter what happens. And you don't ever
know what's going to happen._

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jonmc12
"I think it will change because we still have a democracy. Eventually the
power of a correct idea is felt, but sometimes it is long and delayed."

But what is the affect of the would-be plutocracy on the current democracy's
timeline to self-correct?

Compare the policy influence of a grassroots lobbyist against the influence of
a professional lobbyist paid by the highest bidder. This is democracy's
ability to 'correct' policy with the existing officials of the democracy.

Compare the voting influence of campaign financing from wealthy individuals
and corporations against the influence of campaign financing from the masses.
This is democracy's ability to 'correct' officials within the democracy.

Democracy is a system full of security holes - its being hacked so it self-
corrects at a slower and slower frequency (at least as it concerns the wishes
of the masses). It seems to be a characteristic of a mature capitalistic
democracy that the wealthy can slow self-correction driven by the masses, and
expedite self-correction driven by wealth.

At some point, the time it takes for 'the power of a correct idea' to be felt
exceeds the relevance of that idea. Thats the meaningful metric for when a
capitalistic democracy morphs into a plutocracy.

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wayneyeager
I was surprised that Buffett's lukewarm statement warranted such a headline,
but reading some of the interviewers questions, my "agendar" went off:

Q. Do you see things differently today... the shortcomings of capitalism? Q.
What do we need to do to improve the system and its shortcomings? Q. You are
still very optimistic about America. How do you reconcile this? Q. Does Wall
Street bear a resemblance to the robber-baron era 100 years ago? Q. Jeffrey
Sachs from Harvard [says] US is turning into a plutocracy. And this is a
feeling you get throughout the world... Do you feel that way?

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known
I believe <http://en.wikipedia.org/wiki/Direct_democracy> will fix it.

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daniel-cussen
Why does he talk up inheritance taxes so much? He said you won't have to pay
them because you're leaving little to his heirs (maybe positions in Berkshire
Hathaway), but does he have to sell people on government policy that enriches
his company? (Keep in mind that heirs of owners of private companies are
usually unable to pay the taxes to keep that company, and therefore find
themselves selling it to private equity...i.e. to Buffett.)

I don't think it's ethical for him to use his celebrity to push policy to
enrich himself.

~~~
noahc
The wealthy can avoid estate taxes via Single Premium Life insurance, but this
assumes their investments are liquid enough to pull that off.

Life insurance of any sort is a great way to avoid liquidating a company and
many wealthy folks use this to avoid both taxes and to cover estate tax needs.
I

If you're in your twenties and you expect to be wealthy in the future now is a
great time to be buying life insurance.

~~~
jdavid
i disagree with that. life insurance is not a very liquid asset. it does not
fight inflation and you can not leverage it very well. i looked into it quite
a bit in my 20's and it just didn't make sense.

i think it creates risk, you have to guarantee for 20-50-80 years that you
will be able to make the payments, and if you can not make the payments the
policy terminates.

immagine if elon musk had been buying life insurance and then was in the
fiscal mess he was in, he probably would have had to ditch the policy. the
other risk is that you don't by enough life insurance to make it worth while.

there are plenty of good ways to transfer wealth while you are living. look
into trusts. i also have a friend where his parents bought him a house over
the course of like 10 or twenty years.

if you need to do any financial planing of this sort, i highly recommend
talking to several talented fiscal planners with different risk levels. make
them compete for your money, and don't let anyone of them plan all of your
assets.

~~~
noahc
You can do Single Premium Life insurance that mitigates all your issues.

But I will agree that trusts are worth a look.

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Estragon
Ironic, coming from the guy who made out like a bandit from buying in to
Goldman Sachs...

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wheeee
I knew Mickey Mouse's dog was up to no good!

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bluedanieru
heh, "moving toward"

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davidw
This is politics, not Hacker News.

~~~
jimfl
There is a band of the economic spectrum in which entrepreneurialism can be
practiced at the scale and with the low barriers to entry we currently enjoy,
and so macro economic news can be hacker news.

Also, many successful startups simply engage in making distractions for the
middle class, so that they pay less attention to the rising temperature of the
water in the pot.

~~~
davidw
And this is playing "7 degrees of hacker news". Good effort!

Another common tactic in the game is "XYZ is really a hacker because ... and
therefore anything they happen to say must be hacker news!"

~~~
Tycho
Most of the article was about investment and cultivating personal
talent/knowledge, not politics.

