Buffett on deficit reduction

Warren Buffett on CNBC-another deep thinker

“I could end the deficit in five minutes. You just pass a law that says that any time there’s a deficit of more than three percent of GDP, all sitting members of Congress are ineligible for re-election. Yeah, yeah, now you’ve got the incentives in the right place, right?” (Laughs)

This entry was posted in Government Spending and tagged . Bookmark the permalink.

34 Responses to Buffett on deficit reduction

  1. awakened sheep says:

    Very smart people can be ignorant also. Case in point Warren Buffet.

    Reply

    Dollar Monopoly Reply:

    @awakened sheep,

    he’s a currency user not an issuer. why would we expect him to know. the lack of knowledge doesn’t help him and certainly doesn’t seem to hurt him…at least from what i can tell.

    Reply

    Robert kelly Reply:

    @Dollar Monopoly,
    Agree. The only reason Buffett opines on this matter is if someone asks him. He has never mentioned anything regarding deficits or balanced gov’t budgets in his annual reports. He is an investor with zero desire for politics.

    This is a great thread by the way!

    Reply

  2. He could “end the deficit in five minutes” thereby creating a depression in 5.1 minutes. See: http://rodgermmitchell.wordpress.com/2009/09/07/introduction/

    Rodger Malcolm Mitchell

    Reply

    Calgacus Reply:

    @Rodger Malcolm Mitchell, Indeed. There is no economy so robust that a sufficiently large tax hike or spending decrease cannot deal with it. :)

    Reply

    WARREN MOSLER Reply:

    :)

    Reply

  3. buffett obviously doesn’t follow mmt. he is a trade deficit terrorist. mosler takes the right position. the only reason to trade is to import. the cost of importing is exporting. buffett is a very good currency user but would make a piss poor currency issuer. IMHO

    Reply

    wh10 Reply:

    @Dollar Monopoly,

    Buffett may not be a full-on MMTer, but there’s some overlap: http://pragcap.com/warren-buffett-does-mmt

    Reply

    Dollar Monopoly Reply:

    @wh10,

    cullen must not be familiar with all of buffetts writings

    buffett is old school. His Squanderville versus Thriftville is a complete repudiation of MMT. There is no reconciling the two. He fears the trade deficit any currency issuer embrace deficits. Hi obviously understands currency users but he doesn’t understand the currency issuer’s role in the economy. Nobody does. It’s exactly the reason we are in the economic situation we are in.

    http://www.freerepublic.com/focus/f-news/1053684/posts

    Reply

    beowulf Reply:

    @Dollar Monopoly,
    The trade deficit creates an enormous demand leakage ($570 billion annualized, 1Q11) If the govt loosened our fiscal stance sufficientl to fill the output gap (at least $1 trillion currently), it wouldn’t matter. But since that isn’t in the cards, then tackling trade is the 2nd best idea. Beyond that, as Marshall Auerback put it, “Shouldn’t we consider adopting a trade policy that covers the domestic considerations, such as worker displacement and higher unemployment, much as immigration policy currently does?”
    http://www.nakedcapitalism.com/2011/01/marshall-auerback-chinese-trade-policy-must-focus-on-social-consequences.html

    As Wynne Godley suggested in the mid 70s, the optimal trade policy to close the current accounts gap would be one that tightened up fiscally on foreign sector at the same time it loosened up on the domestic sector. One approach would be to use tariff revenue to replace a fraction of payroll taxes. Another would be to create a cap and trade market, where importers would buy import certificates from US exporters– which is exactly the plan Buffett proposed in that 2003 piece you cited.

    Mario Reply:

    @Dollar Monopoly,

    interesting Beowulf…I think there are many ways one can skin the cat that is the external sector either way with a CAD or a CAS and still find it work out for that nation’s economy. Like your suggestions imply, it is all about finding the nuances to that economy and adjusting accordingly. Currency inflation/depreciation is the concern on one side while unemployment and deflation the concern on the other. As the term implies those sectors need to be BALANCED. In fact, we may be heading into a new world order where most if not all of the world’s economies are more balanced and harmonious without any real major distinction among the big players’ currency valuations, etc., etc. With MMT much is possible…it does require truly scholastic public SERVANTS however. Cheers!

    Dollar Monopoly Reply:

    @beowulf

    i follow what your saying. putting political contraints in place to curb the trade deficit. however that is not the optimum approach. We want their stuff here and our currency in china’s bank account because that is exactly what a smart issuer would do. the purpose of trade is to import. the cost of importing is exporting. the difference between me and the MMT community is that i am an engineer. i think in engineering terms – optimization of a system within a resource constrained environment. How? Maximize throughput by operating your constrained resources at maximum capacity. The MMT community approachs this problem in a way that doesn’t resonate with me. Warren’s ideas are appealing because they align exactly the way an engineer thinks about these problems.

    WARREN MOSLER Reply:

    I started in engineering but It was too hard for me so switched to econ

    Dollar Monopoly Reply:

    whatever – i’m sure your real disappointed in that decision. My first year on the job field testing fiber optic equipment at the WTC for Worldcom was when I realized Wall Street was making a lot more money than I was. In fact, I was there the day the Dow broke 10k.

    Chaos Reply:

    @Dollar Monopoly,

    Maximizing trade deficit is not such a great idea. It can create long term structural problems that can arise eventually and be very destructive for the economy, society and institutions (and could trigger eventually the collapse of the currency and political regime). Take for example energy policy.

    A balanced trade is preferable IMO, with a non-convertible floating exchange regime. This will even out these problems, and reduce the risk that exists in a uncertain universe subject to exogenous shocks and constrains that we can’t predict.

    Dollar Monopoly Reply:

    @chaos

    Read page 34 in warrens book and let it sink in to your understanding of MMT. If another currency issuer (china) wants to save in your currency it’s not only harmless it is desirable because you don’t have to use up your resources on making consumer junk. Who cares who makes a toaster as long as you can buy one. Now to displace those china’ s savings our federal government needs to spend. Spend on what? R&D that can subsidize next generation technology for the private sector. Not only is the US the policeman of the world’s seas but it also needs to lead the world in technology innovation.

    The models and structure that are in place are an operational failure. The gatekeepers don’t even know why. No one does but MMT. MMT tells them what happen, what went wrong, how to fix it, and how to make the economy purr like a kitten. The trick is selling this whole MMT as a big bundle deal.

    Dude this is how you sell MMT – you paint a big f@cking vision of it’s potential. Then after they have bought into your genius MMT propositions…you tell them how the banking sector needs to be structured for transparency and stability to remove systemic risk. All the stuff warren talks about like not letting private banks sell off their loans and requiring real assets as collateral.

    Our current problems have nothing to do with ideology (capitalism/socialism/communism) but rather poor management of monetary operations. Fiscal optimization at any level of public spending by a currency issuer requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate.

    Warren – where you at my brother. Can I get an amen? Cause lord knows I’m preachin’ to the choir.

    WARREN MOSLER Reply:

    AMEN!

    Chaos Reply:

    @Dollar Monopoly,

    We will have to disagree in this point. Let me ask you a question: Would you agree with disbanding the US Army and its nuclear arsenal, because after all is rather improbable that USA will be attacked by an other nation?

    You may think that the know-how of making toasters is rather useless, because everyone can build one, but at somepoint you can’t regret that you have real know-how to back up your economy beyond financial shenanigans. Take an other example: the know-how of extracting and processing rare earths, which are very necessary for the development of a lot of modern technology, if there was a shortage of offer (natural or artificial, caused for example by policy by the Chinese)how would you increase supply? The practical know-how and developing of production to a competitive point of such activities may take up 20 years. Not good business.

    I ain’t no ‘pro export champion’, but I think a balanced current account is preferable on the long run, because is not as simple (IMO) as ‘the cost of imports are exports’, neither being to dependant on external demand OR on external offer for extended periods (chronic deficits or surplus) is good. It’s a matter of reducing fundamental uncertainty, even if you can’t eliminate it (just for example, you wouldn’t like to lose all the capital necessary for -including know-how, different machinery, resources, etc.- farming).

    WARREN MOSLER Reply:

    let me suggest that point is a long way off for the US.

    Dollar Monopoly Reply:

    @Chaos,

    Why would we be attacked? Capitalism is about choices. Don’t want to make toasters fine we’ll do it. Real “know-how” comes from R&D. In order to displace china’s savings our federal government needs to spend. Spend on what? R&D that can subsidize next generation technology for the private sector. I think if you read through the points i am trying to make we are on the same page. Real value comes from the goods and services that are built upon technology innovations.

    The reason we are in mess, besides our poorly structured banking sector, is because mainstream economists do not grasp these basic but yet somewhat counterintuitive concepts. Why do they not understand? Economic speak. We have become victims of our own thinking. We have convoluted a difficult subject to the point nobody can agree on anything.

    Reply

    Chaos Reply:

    @Dollar Monopoly,

    The example I wanted to point out with the military is that while it may be sound to do somethings at the present, it involves a factor of risk in the future. For example disbanding the military (politically wouldn’t happen, but let’s imagine that people demands it actually) could be actually good because it’s expensive and takes up real resources that probably could be expended in a more productive way. But in the future you don’t know if you would need it and building a decent army to protect yourself takes actually time and resources. The same thing applies to chronic external deficit, it can sound like a good idea now, but I’m not sure (not saying I couldn’t be wrong) it’s actually good policy in the long run.

    I agree about what you say on R&D (still USA is the first nation on high valued and hi-tech exports), and policy implications, it’s sad that with so many phd’s on mathematics and physics space programs or particle accelerators are being closed or their budget cut because “there are no funds”. Same stuff for a load of things (infrastructure, education, healthcare). And that’s building capital really, but don’t neglect other forms of capital (development) because they can be externalized altogether and paid by dollars with deficit, just because others (mercantilist nations) want to, because doing so you may be masquerading structural problems (for example too much dependence on external inputs like oil, that could increase in price in the future causing all form of troubles).

    P.S: I don’t mean trade deficit is the biggest problem USA has today, nevertheless, but it should be dealt with eventually.

    Reply

    Dollar Monopoly Reply:

    @Chaos,

    Chaos – moral code without power is meaningless. it’s a quote from friedmans book “The Next Decade” the book is absolutely brilliant. my 2 favorite books is Warrens and Friedmans without a doubt.

    To speak to your concern about the trade deficit, remember our objective isn’t to balance the budget as a currency issuer, it’s to optimize it. Fiscal optimization at any level of public spending of a currency issuer requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate. Government debt of a currency issuer is the currency user’s savings as a matter of double entry accounting. It is a digital resource – a digital account corresponding to all the savings of currency users’ in banknotes, deposits, and treasuries. For those of you interested I’ve outlined a laymen’s explanation here – http://www.DollarMonopoly.com

    Dollar Monopoly Reply:

    @Chaos,
    Chaos – moral code without power is meaningless. it’s a quote from friedmans book “The Next Decade” the book is absolutely brilliant. my 2 favorite books is Warrens and Friedmans without a doubt.

    To speak to your concern about the trade deficit, remember our objective isn’t to balance the budget as a currency issuer, it’s to optimize it. Fiscal optimization at any level of public spending of a currency issuer requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate. Government debt of a currency issuer is the currency user’s savings as a matter of double entry accounting. It is a digital resource – a digital account corresponding to all the savings of currency users’ in banknotes, deposits, and treasuries. For those of you interested I’ve outlined a laymen’s explanation here – http://www.DollarMonopoly.com

    WARREN MOSLER Reply:

    best not to important strategically important goods and services, at least in the current world environment

    WARREN MOSLER Reply:

    (the other choice is to cut taxes)

    Reply

    Dollar Monopoly Reply:

    @WARREN MOSLER,

    your right cutting taxes is good. but the the R&D thing helps build a vision. how inspiring is “hey ya’ll we lowered your taxes so now you can go buy more junk” :-)

    WARREN MOSLER Reply:

    currently, for the average working family barely making it a fica suspension means a lot more than what they’d consider another gov boondoggle.
    but point taken! and we can do both

    Tom Hickey Reply:

    @Dollar Monopoly,

    Dollar Monopoly is correct on R&D (It takes an engineer). There are two major components of flow in an economy, money and energy. They are in fact somewhat parallel in operation. Money turns the wheels of commerce, and energy turns the wheels of the real economy. Disrupt either and significant challenges develop quickly. The pressing need for R&D now is not only developing alternative energy sources but also the technology and expertise for scaling them up quickly. This needs to be moved up to utmost priority. The problem is not “affordability.” Affordability is not a problem. Rather as a country and world we cannot afford not to do this ASAP.

    Reply

  4. wsm says:

    Not sure what the first commenter’s statement has to do with anything. But I think Buffett’s is a great idea.

    Reply

    beowulf Reply:

    @wsm,

    It’d be amusing to see how fast they’d find workarounds– eliminating trade deficit demand leakage ($570 bill) with a cap and trade market, then move public investments off-budget with capital budgeting ($600 billion per OMB). Oh and take net interest off-budget (any number of ways, simplest, Congress required Fed to refund all debt service and not just on Fed-held debt, $270 billion). Let’s see, that totals $1.44 trillion— hey now that the budget is balanced, let’s cut taxes by 3% of GDP ($480 billion). :o)

    Reply

    WARREN MOSLER Reply:

    If there was any merit in balancing the budget

    Reply

  5. Dan Furlano says:

    If that is such a great idea why don’t all businesses implement a loan cap. You know you cannot buy a business that is more than 3% of you annual revenue.

    Reply

    WARREN MOSLER Reply:

    My point was he thinks there is merit in balancing the budget

    Reply

    Dan Furlano Reply:

    @WARREN MOSLER,

    I understood your point I was just wondering if he would apply the same constraints to his business that he is suggesting for the government. My guess would be no.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>