Clever Buffett

I read in this Wall Street Journal article that Warren Buffett and Bill Gates are starting a campaign to persuade wealthy people to donate half their wealth to charity (charity bubble anyone?).

It reminded me of a long-standing disagreement I have with Warren Buffett.  Buffett’s business and investment acumen are undeniable.  But his political, economic and tax policy viewpoints are naive.  One of Buffett’s key investment tenets is to stick with what you know.  He should adhere to this tenet in matters of the economy and taxes.

Several years ago, Buffett came out in favor of the estate tax and said the tax system isn’t fair (or just) because he pays a higher rate than some of his employees.  From an ABC article in 2007:

Buffett says he pays 18 percent of his salary to the IRS while the rest of his staff pays nearly twice that — 33 percent, a lopsided equation that put Buffett in a Robin Hood frame of mind.

“Frankly, an economy where my receptionist pays a lot higher tax rate than, than I do does not strike me as a just economy,” he told lawmakers.

Strangely, in 2003 Buffett published a column in his newspaper, the Washington Post, making a similar case (see copy of his Washington Post article by clicking on more at the end of this entry) regarding cuts in dividend tax rates.  In the 2003 article, he wrote that his tax rate was the same as his receptionist’s, about 30%.

First, I’d be interested to know what changed between 2003 and 2007 to lower his tax rate from 30% to 18%.   Did the tax code change, did his income change and put him in another tax bracket or did the type of income or tax he used to calculate his tax rate change between his two analyses?

Second, in my next post, I’ll show that Buffett used hypocrisy in 2003 to arrive at the conclusion that he would pay a much lower tax rate than his receptionist if Berkshire Hathaway paid a dividend to its shareholders and the tax law that he was criticizing passed.  His hypocrisy is that he uses inconsistent approaches to view his wealth and tax rates.  I think the way he views his wealth is valid.  The way he views his tax is not valid, nor is it consistent with the way he views his wealth.

Click to read Buffett’s 2003 Washington Post article:

Continue reading

Walter Williams Says it Well

Another gem from Walter Williams, Economic Myths, Fallacies and Stupidity.  Here are some excerpts I enjoyed.

George Orwell admonished, “Sometimes the first duty of intelligent men is the restatement of the obvious.” That’s what I want to do — talk about the obvious.

How about the criticism that businesses are just in it for money and profits? That’s supposed to be an anti-business slam but upon simple examination, it reflects gross stupidity or misunderstanding. Wal-Mart owns 8,300 stores, of which 4,000 are in 44 different countries. Its 2010 revenues are expected to top $500 billion.  Why is Wal-Mart so successful? Millions of people voluntarily enter their stores and part with their money in exchange for Wal-Mart’s products and services. In order for that to happen, Wal-Mart and millions of other profit-motivated businesses must please people.

Continue reading

Planning for the Worst

A friend sent me a link to Richard Posner’s column in the Washington Post, From oil spill to the financial crisis, why we don’t plan for the worst.

For the most part, I agree with Mr. Posner’s column, but I do have some thoughts.

I think Posner misses the role government played in the financial crisis.  I agree with Russ Roberts’s take that there was a feeling government would step in if things got bad.  Robert’s makes the case that the precedence of bailouts had been set for 30 years.  Government officials were deeply entwined in the debacle by setting public goals to expand home ownership and directing Freddie and Fannie to buy bad mortgages to fulfill their goals of expanded home ownership.  They had a horse in the race.  Why would they let if fail?

Government involvement distorted price signals in the market – something that gets no attention in the media.  Instead of buying a mortgage based solely on the economics (can this guy pay it back, will the house be worth this much?) they were also buying an implied option of a government bailout (if the guy can’t pay back or housing prices go down, government will step in and I’ll get something back).

Continue reading

Great Stossel Show

If you’re like me and don’t have the Fox Business News channel in your line-up, you’re missing good television.  Luckily, there’s this thing called Youtube where you can also view his show.  His latest show was on Milton and Rose Friedman’s book and video series, Free to Choose. The book came out in 1980.

Here’s the first segment of the show.

You can watch it and the rest of the segments by clicking here.  The Friedmans’ book is also an excellent read.  I read it last year as a check out from my library (I love my library).

I have a few thoughts on the show.

First, Stossel runs video footage of Friedman accepting his Nobel Prize where it appears there is one loud heckler.  It amazes me that the message of freedom can stir such a strong anti-response from people.  This reminds me of graffiti I saw scrawled on an old sheet metal building near by home decades ago that read, “Die Kapitalists Pigs.”  I was too young to know much about politics.  Though it did strike me as odd that my elementary school teachers only ever spoke of one candidate for President in ’76 – Jimmy Carter.  But, I often wondered when I saw that graffiti what was at the root of such message.

Second, the young lady in the 5th segment does a superb job at going toe-to-toe with the Friedman opponent, Ben Barber.

Third, Stossel and his guests do an excellent job at responding to the opponents points.  The one critique I have, though, is that he Continue reading

I agree

I’m reading David Weingberger’s book Everything is Miscellaneous: The Power of the New Digital Disorder.  I like it and recommend it.

In Chapter 9, Messiness as a Virtue, he writes about Sir Tim Berners-Lee’s, the inventor of the Internet, attempt to impose better categorization on the Internet.

Now Sir Tim — the title sits awkwardly on this modest man — looks out at his creation and wishes it were neater [better organized].

Sir Tim would like to introduce a better way to categorize the content on the web to make things easier to find.  While that may sound good to a lot of people, a point Weinberger makes throughout the book is that attempts made to categorize things by a person, or small group of people, is subject to the tastes, preferences and knowledge of those people.

Regarding the attempt to better organize the Internet, I agree with another Tim, Tim Falconer (and maybe the cause of disagreements I’ve had with some bosses in my life):

It’s better to do something and tweak it for the rest of your life than to get thirty people into a room to figure out everything you’re ever going to need.

My reasoning is that those thirty people will not likely think about everything or even the things that are important at all.

Arnold Kling asks obvious questions

Thanks to Russ Roberts of Cafe Hayek for the link.

In his post, Matching Narrative to Policy, Arnold Kling, an economist, asks:

— if the problem was that we deregulated too much over the past 20 years, then why doesn’t the bill simply reset regulations to what they were 20 years ago? or 30 years ago?

— if the problem was that house price increases and mortgage leverage got out of hand, then why does government policy continue to try to push mortgage loans with low down payments?

— if the problem is that lenders were exploiting borrowers (which would justify a focus on consumer protection), then why is it that we ended up bailing out the lenders?

Hats off to Kling for asking obvious questions.  I wish I would have thought of those.  These are some of the first questions that journalists should ask.

Excellent Post and Comments at Cafe Hayek

Russ Roberts made reference to David Rose’s good work in his post Justice and the Rule of Law at Cafe Hayek.  The comments section was good too.  Key paragraph from Rose’s work:

But a consequentialist judge would look beyond the law and consider the insurance mandate’s impact on society. Using this criterion, the consequentialist judge might see the mandate as a “benefit to public health” and a “compelling state interest.” Such thinking would lead to a loose interpretation of the Commerce Clause and an affirmation of an unprecedented loss of personal liberty in America.

Commenter MichaelSmith writes:

“Consequentialist” — at least as it is being used in this context — essentially means “collectivist”. It is an effort to obliterate the concept of individual rights in the context of evaluating the Constitution by substituting, instead, the thoroughly collectivist notion that “the public good” — or some similar allegedly superior “right” of the collective — trumps and cancels individual rights.

Continue reading

On Success

If I need a statistician to tell me whether something worked or not, it didn’t work.

That’s a sentence that I think I came up with, but I wouldn’t doubt that I lifted it off someone and can’t remember who. Until proven otherwise, I’ll take credit.

This sentence came from my years working with statisticians employed by managers of for-profit companies to find out if something they tried worked or not.

My sentence ruffles the feathers of statisticians.  Many statisticians understand the limitations of their trade, but many  don’t.  Many non-statisticians don’t either.  When managers use statisticians to determine the effectiveness of a project, beware.

To me, the project needs to offer what I call a clear advantage.  I should be able to look at the results and clearly see that what I tried was better.

Continue reading

The New Library

I’ve posted recently about my late adoption of Blockbuster’s online business model, about my satisfaction with my local library and about Apple’s iPad vs. Amazon’s Kindle.

The thought occurred to me this morning that these are all on a crash course and it will be interesting to see how it plays out.   Here are some thoughts on what might happen:

1) Libraries begin to offer media checkouts for the iPad, Kindle, etc. that can be handled online.  Mine already does this with audiobooks, so there’s some precedent for this.

2) Amazon, or other online sites, will begin offering a subscription service like Blockbuster Online/Netflix.  For a monthly fee you get to have two to three books checked out to your reading device at a time.

3) Long-term: Libraries will not need as much space to hold books.  They will struggle for relevance.  Some will figure out other creative ways of using the space.  My library already offers story times, book clubs, entertainment for children, internet access, classes and lectures.  Maybe they’ll expand these types of offerings and become more of a hub for community education and activities.

Milton Friedman – Open Mind

Here’s an excellent, and topical, interview with Milton Friedman.

Around the 7 minute mark, Friedman says:

I have often in talking to audiences, especially liberal audiences, offered them a challenge.  I challenge you to name me a single social measure which has accomplished its intended objectives rather than opposite, which has not done more harm than good.

Around the 22 minute mark, the host Richard Heffner says,  “…you just said that mankind is selfish and greedy and that has always been the battle cry of those who said, ‘therefore, we must impose controls upon them.'”

Friedman: Therefore, we have to put power in the hands of other greedy and selfish men.

Heffner: That’s the philosophic basis of the argument that the government must step in.

Freidman: It’s a false argument.  It assumes somehow that government is a way in which you put unselfish and ungreedy men in charge of selfish and greedy men.  Government is an institution whereby the people who have the greatest drive to get power over the fellow man get in a position of controlling them.  Look at the record of government.

That’s what government supporters never seem to recognize.  That was one of the points of this post, Anyone Mad At The Government? People in government are no different than the CEOs of the corporations that everybody gets so mad at (while voluntarily buying and benefiting from the products their companies produce).

We demonize CEOs and want to fire them when they screw up – which I have no problem with – but we also want to give government more power when it screws up.  That make no sense to me.  Some might say, “but you can always elect a different person in government.”  Which takes me back to Friedman’s last comment, “Look at the record of government.