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.
I agree: that was the best part of the article for me. I wrote about this (Nourish and manage your career, not your job) a few weeks ago. A lifetime investment in your own education and training is an investment that will likely pay good dividends and lead to a more satisfying life beyond just money.
Economics are boring. An influential billionaire telling people to go out and make something might make a difference. It's why quotes are frequently misattributed.
Who would care if Bill in cube B12 said the same thing?
Economics isn't boring at all; it's the study of choice, incentives, and why people do the things they do. It's applied psychology in the large. Learning even a little bit about economics teaches you why so much of the world is the way it is.
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.
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.
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.
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.
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.'
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.
The remark wasn't an important enough part of what he was saying to put it within the first ten paragraphs, and they knew it. Hence, they didn't put it anywhere in the first ten paragraphs. But they made it the headline, because it was the most sensationalist line they could find. Either it's important or it's not -- you can't announce to the reader that it's the most important part of Buffett's message and then backtrack once they've given you their ad impressions.
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.
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."
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.
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. :)
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.
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.
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.
"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.
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?
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.
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.
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.
i think buffets point is to find people within your lifetime to hand the money over to. i think the inheritance taxes he is seeking would limit giving money to people in old age as a lottery.
[quote]
"Well, I tell them a couple things. I tell them that they are better off making their decisions early on than later. Rich people live longer than most people and it’s the last will that counts. And if you are going to be 95 with a young blonde sitting on your lap, it is probably not the best time to be thinking about what you are going to be doing with your money. So think about it earlier on and decide really what your plans are.
"And I say, take care of everything you need yourself. The people I am talking about have a lot left over. Then try and figure out the way to improve the lot of the people in this world.
"If people have been touched by a given illness in their family, they are going to focus on that. If the school they went to made a real difference in their life they are going to want to focus on that.
"Bill and I make no recommendations to people as to what they do even when they do it, although I would be inclined to say there is some advantage in doing it earlier. In my case, by ten years after they settle on my death, all my money will be spent. It can’t go to institutions where they put it in endowments, it has to be spent. I would rather have the people I’ve selected during my lifetime handling it than some unknown person thirty or forty years hence."
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.
The headline, perhaps, but the article itself is a very good read. It's more about what made Buffett successful and what makes a good business a good business than about plutocracy. The plutocracy bit was a sort of throwaway line in the middle of the interview used as a linkbait headline. But the interview as a whole was a lot less political than you'd expect from the headline.
"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.