Questions I wonder if Obama has asked about the oil spill

To BP management and state and local governments along the coast: What can we do to help?

To his advisers: What can we do within our power to help?

Thomas Sowell Tuesday

Thomas Sowell’s column today, Degeneration of Democracy, is fantastic. Here’s a key excerpt:

Just where in the Constitution of the United States does it say that a president has the authority to extract vast sums of money from a private enterprise and distribute it as he sees fit to whomever he deems worthy of compensation? Nowhere.

And yet that is precisely what is happening with a $20 billion fund to be provided by BP to compensate people harmed by their oil spill in the Gulf of Mexico.

Many among the public and in the media may think that the issue is simply whether BP’s oil spill has damaged many people, who ought to be compensated. But our government is supposed to be “a government of laws and not of men.” If our laws and our institutions determine that BP ought to pay $20 billion– or $50 billion or $100 billion– then so be it.

But the Constitution says that private property is not to be confiscated by the government without “due process of law.” Technically, it has not been confiscated by Barack Obama, but that is a distinction without a difference. Continue reading

Why Warren Buffet is a Hypocrite

In my previous post, I accused Warren Buffet of hypocrisy.  Now I’ll state my case.

In the 2003 article, Buffett claims that if the then proposed dividend tax reductions were passed, his tax rate would drop to 3%.  Making this claim ignores the taxes Berkshire Hathaway paid on Buffett’s behalf as an owner of the corporation.   Further, I can assure you that Buffett does not ignore taxes paid by a company when evaluating how much he is willing to spend to buy a company.

Not convinced?

Buffett explains it well in his own letter to shareholders in Berkshire Hathaway’s annual reports (which I highly recommend reading for anyone remotely interested in business and investment management).

For those that don’t know, Berkshire Hathaway is Buffett’s business.  B-H is a holding company that owns many other businesses, such as Dairy Queen and GEICO  insurance, outright.  It also owns substantial positions in other publicly traded companies like Coca-Cola.   For example, B-H owns 8.6% of Coca-Cola’s outstanding shares amounting to $11.4 billion in value as of last December.

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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:

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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.

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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).

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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