Small Cap Analysis; Buffett on Taxes and Rebuttal by Norquist

Presentation on Brick

Gottfried_TheBrick_VICNY2011 (3)    (Powerpoint)

Tap dancing to work (Buffett Interview on Charlie Rose)

Buffett Opines on Raising Taxes (Comments in Italics)

When taxes change, would-be investors will certainly change their decisions about where to direct capital, even “though the companies’ operating economics will not have changed adversely at all.” Buffett saw this clearly in 1986, with respect to Berkshire’s own investment decisions; it’s hard to believe that Buffett no longer believes that today, with respect to private investors.

November 25, 2012

A Minimum Tax for the Wealthy By WARREN E. BUFFETT

SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

It’s a catchy opener, attracting headlines and guffaws from the expected quarters. But I’m struck by his opener because I can think of at least one real-world example in which a rich investor nearly spiked a deal due to taxes: Warren Buffett himself, as recounted in Alice Schroeder’s terrific biography, The Snowball (pages 230-232).

Early in his career, Buffett invested heavily—almost one third of his early fund’s capital—in Sanborn Map, a company that mapped utility lines and such. But he soon grew frustrated with the company’s leadership, which “operated more like a club than a business,” and which refused to return greater dividends to investors. So Buffett amassed more and more stock, and with control of the company finally in hand he pressed the board of directors to split the company in two (one for the mapping business, and one to hold the company’s other outsized investments).

Finally, the board capitulated. But with victory finally at hand, Buffett nearly scuttled the deal because of … taxes. As Schroeder recounts, quoting Buffett, one director proposed that the company just cleanly break the company, despite the tax consequences—”let’s just swallow the tax,” he suggested.

To which Buffett replied (as he recounted to Schroeder): And I said, ‘Wait a minute. Let’s — “Let’s” is a contraction. It means “let us.” But who is this us?  If everyone around the table wants to do it per capita, that’s fine, but if you want to do it in a ratio of shares owned, and you get ten shares’ worth of tax and I get twenty-four thousand shares’ worth, forget it.’
Buffett was willing to walk away from a deal because the taxes would have taken too much of a bite out of it.

Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.

Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation’s economic output) increased at a rapid clip. The middle class and the rich alike gained ground.

So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.

That’s not the only time that taxes played a major role on Buffett’s decisions, as recounted by Schroeder. Later in the book (pp. 533-534), she recounts how Buffett chose to structure his investments under Berkshire Hathaway’s corporate umbrella, rather than as part of his hedge fund’s general portfolio, precisely because of the tax advantages.

In fact, as he explained in his 1986 letter to investors, changes in the 1986 tax reform act posed a specific threat to certain investment decisions:

If Berkshire, for example, were to be liquidated – which it most certainly won’t be — shareholders would, under the new law, receive far less from the sales of our properties than they would have if the properties  had been sold in the past, assuming identical prices in each sale. Though this outcome is theoretical in our case, the change in the law will very materially affect many companies. Therefore, it also affects our evaluations of prospective investments.  Take, for example, producing oil and gas businesses, selected media companies, real estate companies, etc. that might wish to sell out. The values that their shareholders can realize are likely to be significantly reduced simply because the General Utilities Doctrine has been repealed – though the companies’ operating economics will not have changed adversely at all.  My impression is that this important change in the law has not yet been fully comprehended by either investors or managers.

And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.

A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.

The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.

This outrage points to the necessity for more than a simple revision in upper-end tax rates, though that’s the place to start. I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.

Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.

Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.

But the reform of such complexities should not promote delay in our correcting simple and expensive inequities. We can’t let those who want to protect the privileged get away with insisting that we do nothing until we can do everything.

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.

In the last fiscal year, we were far away from this fiscal balance — bringing in 15.5 percent of G.D.P. in revenue and spending 22.4 percent. Correcting our course will require major concessions by both Republicans and Democrats.

All of America is waiting for Congress to offer a realistic and concrete plan for getting back to this fiscally sound path. Nothing less is acceptable.

In the meantime, maybe you’ll run into someone with a terrific investment idea, who won’t go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

Norquist hits back against Buffett op-ed, calls argument ‘silly’

By Daniel Strauss – 11/26/12 06:12 PM ET

Americans for Tax Reform President Grover Norquist responded to an op-ed by billionaire Warren Buffett Monday, saying Buffett’s argument was “silly.”

On Monday The New York Times published an op-ed by Buffett criticizing Norquist’s anti-tax pledge and urging Congress to pass legislation rolling back the Bush-era tax rates for incomes above $500,000 a year. Later on Monday Norquist appeared on Fox News and called Buffett’s argument silly, and said Buffett got rich by “gaming the system.”

“Warren Buffett has made a lot of money, some of it off of gaming the political system. He invests in insurance companies and then lobbies to raise the death tax, which drives people to buy insurance. You can get rich playing that game but it’s all corrupt,” Norquist said. “It’s not investing; it’s playing crony politics and economics. That’s a shame. He’s done the same thing with some green investing. Shame on him for gaming the system and giving money to politicians who write rules that make your assets go up.

“The real economy, the real economy, if he thinks that the government can take a dollar and then you go to an investor who doesn’t have that dollar and it doesn’t affect investment, I’m sorry that’s just silly unless he plans on going to Obama and getting money from a stimulus package and he considers that investment. When the government takes a dollar away from the American people or a trillion dollars, that’s a trillion dollars not available to be saved and invested. I’m sorry if Buffett can’t see that but that’s kind of silly on his part.”

The back-and-forth between Norquist and Buffett comes as legislators seek to come to an agreement on a deficit-reduction package to avoid the “fiscal cliff” of spending cuts and tax increases set to hit next year.

A number of Republicans have indicated that they could disregard supporting the Americans for Tax Reform pledge in order to reach a deal.

Buffett, an outspoken supporter of President Obama, published an op-ed in the Times in 2011 arguing that the tax rates on the wealthiest Americans should be higher. The Obama administration subsequently began pushing for a “Buffett Rule” that would raise the marginal tax rate for some of the wealthiest Americans. Obama has since called for increasing the tax rate on incomes above $250,000 a year. The Buffett Rule also introduces a base 30 percent tax rate for incomes between $1 million and $10 million and a 35 percent rate for incomes over $10 million.






12 responses to “Small Cap Analysis; Buffett on Taxes and Rebuttal by Norquist

  1. A few thoughts …

    1. Citing 2 examples where Buffett changed his investing preference due to taxes is well, silly. Say you actually underestimated the number of times this actually happened and the actual instances are 5x those you stated. That is still 10 times Buffett changed his mind due to taxes. Assuming that he made, oh I don’t know, 10,000 investment decisions over his lifetime your argument means that 0.1% of the time he was influenced enough by taxes to change his decision.

    If this percentage is the same for investment community in general then is it really that worrying?

    2. Do you fundamentally believe in flat tax or progressive tax? If former then what Buffett is proposing may or may not be agreeable to you. But if it’s the later then you can clearly see the issue he’s referring to. In a progressive tax system the effective tax for ultra-wealthy should be much higher than the middle class. Is that the case in the US? We’re talking guys making $100K vs $10,000K. The poor are most likely not the problem here as their effective rate is close to zero anyway.

    3. A minimum tax is a good way to “close loopholes” in my opinion. Isn’t that what everyone wants including republicans? So what’s the problem with a minimum tax? Especially if it’s on people making > 1MM. Aren’t they supposed to pay that much anyway but get away with paying less (as clearly seen from low effective rates) due to “loopholes”. If you’re against the “loopholes” then how can you be against a solution that eliminates them? Unless you’re saying that the solution unfairly punishes the rich and should be applied to everyone. In that case maybe we should have minimum tax for every income slab (20% for 250k-1MM, 30% 1MM-10MM etc etc). Will Grover like that? Will ANYONE like that? I don’t think so.

    4. Grover clearly seems like he’s against the “rich gaming the system”. But won’t a minimum tax make it difficult for them to game the system? Of course $1 out of the pocket of someone is $1 less in that person’s saving and investment. However, it’s clearly NOT $1 less in total saving and investment. Yes there is a deadweight loss due to taxes. Everyone knows that. Also, govt. is not the most efficient investment vehicle. Everyone knows that too. But a $1 out of a rich guy’s pocket is not $1 completely lost. UNLESS Grover is claiming that every rich guy is brilliant capital allocator like Buffett and the opportunity cost of that $1 taken from him is too high.

    5. Is there anyone that Grover is ok with paying a higher tax? If not then there is no further discussion. But if yes then he needs to figure out who that’ll be. Where does he want to draw a line for a minimum tax? Saying Buffett is silly is easy. Not giving a cogent argument is even easier especially on a platform that leans your way. But giving an alternative solution is tougher. Again, is there anyone who Grover thinks should pay higher taxes. If yes then who?

    6. More fundamentally, do you believe in taxation? If yes then how much and what’s your idea of fairness? Do you believe in government? If yes then how big? Just saying small govt or big govt is “silly”. How big is big and how small is small? And even within that number does defense have the same status as social safety net for taxpayer dollars? If both were an investment you would look at the one that provides the higher ROI. But then what is it an investment in? Calculating I is easier here but R is far more difficult.

    7. Buffett is not wrong in saying “Above all, we should not postpone these changes in the name of “reforming” the tax code.” AS LONG AS the changes move us in the right direction. And seems like his proposal does.

    The bigger problem is how to reign in govt. expenditure. Even by Buffett’s math expenditure-cut is a bigger number. If Grover saying all this to get meaningful cuts out of democrats then more power to him. If however, he actually believes that the rich game the system yet a minimum tax on their wealth is unfair then he’s being silly.

    • Dear Comatozz:

      Thanks for the detailed comments. Your point 1 makes an assertion like Elephants can fly. If they can fly, then…. What basis in reality?

      But all investment is made with taxes in mind because value is the PV of all future AFTER-TAX cash flows. All investments Buffett has made at Berkshire reflect the tax structure he set up.

      Buffett’s howdy-doody act is for the public. He is the ultimate corporate insider. His father would have been appalled.

      Point 2: If you believe as the US Bill of Rights that all men are created equal and that the US Constitution provides EQUAL protection under the law, then any progressive tax structure is immoral, unjust and unfair.

      You get at the main point which is what do we want the government to do? JUST protect individual liberties or be a bureaucratic (fascist) despotism?

      Taxes on the wealthy are a smokescreen. If all people making over $500,000 were stripped of ALL their income and ASSETS, the government’s expenses could be covered for 10 weeks. Meaningless in terms of the overspending and future ($100 trillion) FUTURE liabilities of medicare/social security

      The issue of taxes is mainly about investment. Basic supply and demand says that the higher the tax on investment or on incomes that reduces savings then less productivity and less growth in the economy.

      The high uncertainty, high taxes now and suppressed interest rates are devastating investment and thus we are condemned for a long period of sub 2% growth at best.

      Forget politics, you can’t overturn economic law. Do we want a poorer country or a wealthier country?

      • Don’t disagree with most of what you say John. Especially the fact that just taxing the wealthy will not make any dent in our deficit/debt.

        I have no idea what you mean by the “elephants can fly assertion” so would love for you to expound.

        My specific comments pertained to the Buffett vs Norquist.

        Buffett is not incorrect in proposing this rule IF he believes in progressive taxation. Also, if you believe in closing tax loopholes then a minimum tax is not a bad idea. Grover on the other hand sounds like an idiot since he keeps contradicting himself. At this point I’m not sure what he wants.

        I’m not judging Buffett’s morals or what his father would have thought of him or whether he’s really cunning about saving taxes or not. I’m merely pointing out that he makes far more sense than Norquist.

        By the way Buffett is a huge supporter of Bowles-Simpson (which is the only decent idea out there imo). I don’t doubt that he’s a master at “tax arbitrage” but I’m hard-pressed to find his intentions sinister.

        But if you want to keep politics aside and talk about economic law then …

        1. I don’t know of an economic law that says that progressive tax is worse than flat tax.

        2. There is a huge spread between “JUST preserving individual liberty” and “despotism”. I cannot see either of these extremes work. There is a middle ground and it’s messy.

        3. No I do not believe in the assertion that “all men are created equal”. I believe in Darwin’s theory of evolution where WITHOUT INTERVENTION the strong become stronger and weak become weaker (and eventually perish). Moreover, the reason that happens is mostly randomness.

        It is naive to think that all men born AFTER the bill of rights was signed are to be created equal. There were huge disparities based on race, gender, education and wealth at the instance when the bill was signed. There have been several programs since the bill of rights to reduce the gap between the strong and the weak. Would you as a libertarian agree with any such intervention?

        How many years passed after signing the bill of rights before women had the right to vote? Give or take a hundred? Do you agree with women’s right to vote?

        Saying that ALL men and women were created equal even at that point (circa 1870) is naive. Because by then men already had a huge multi-century advantage. Treating women EQUAL to men at that point is not right in my opinion. To close the gap the government must intervene to give women an explicit advantage so that they can catch up. Do you agree with such an intervention? It’s clearly not JUST preserving liberty. It’s much more than that. It’s actively interfering with people’s lives to close gender gap.

        Same can be argued for race, income, education, etc etc.

        4. Jae Jun’s argument is seductive but incorrect. I’ll comment on that separately.

        You can see where I’m coming from. A small govt. that exists JUST to preserve liberty is a nice theoretical construct. I wish for that as well. Only if real life were that simple …

        • Elephants can fly….means a premise which can be true or false. Say you replaced the word elephant with Niznat (what is that?) then the premise stands without proof one way or the other. All swans are white is correct until there is proof of one black swan. The problem is why should the reader accept the premise especially given preceding contradictory evidence? You do not support your premise but ask the reader to accept it.

          I don’t have time to go into detail but the issue is not taxing the rich. Raise the tax to 200% on incomes above $200,000. For every dollar earned, you owe $2.00 (don’t laugh that tax system theoretically occurs in Cuba today), you would see incomes plummet to $0 above $200,000. Incentives matter. The issue is WHAT IS THE PURPOSE?

          Help the poor by raising minimum wage rates. Good objective but wrong method. Mandated wage rates hurt the poor. Both common sense and empirical evidence show this for thousands of years. Yet why do government persist? Political handouts to the unions. You may think that is good or bad but it is what it is–economic law is immutable.

          The issue is what exactly should the government do and at what cost? The government was founded originally to protect individual rights since all people are CREATED EQUAL so equal protection under the law.

          Economically, every dollar transferred to the govt either transfers or destroys wealth. Look around you–name one product or service that the government created.

          The taxes on the rich, fairness, is a smokescreen for more bureaucratic despotism and centralized control by government.

          Ask yourself is the government less intrusive and less costly today than it was 20 years ago? 100 years ago?

          But this is not the place to discuss.

  2. Interesting..

    I can only add to this that Berkshire *itself* is a very tax efficient construction.
    The following financial consultant explains how he set-up David Einhorn’s reinsurance business and hereby gains through something called “structural alpha”

    What’s a mystery to me is *when* did Buffett change his libertarian views into socialist ones.

    I read 1/5th of the Snowball but nothing in that part revealed this. My kindle broke down so this is a big cliffhanger.


    I also wonder whether Buffetts views are
    – *really* politically motivated (the motive Bastiat calls false/mistaken charity)
    – an opportunist choice to be “liked” by people (isn’t that his second biggest obsession as sketched in the Snowball?) –> wow, that rich guy wants to get taxed more
    – an opportunity to profit personally
    – am I missing something?

    Given he makes a stand for higher taxes in general, I cannot really reconcile this with my last option. (Or is it higher capital gain taxes which provides his holdings more financial services/consulting/shelter fees?). I personally think it is a mix of the first two.

    Another puzzling video is his “people should get down on their knees and thank the LORD for Bernanke” moment
    “Get down on your knees and thank the LORD for Bernanke” Warren Buffet

    Libertarian greets from the paper consuming center of Europe, Belgium.

  3. here’s my problem with the whole tax the wealthy noise. It’s just noise.

    It doesn’t do anything for the country’s financial status. What’s a few billion, when the government will continue to spend trillions.

    There is HUGE difference between “tax the wealthy” and “tax the wealth”. This argument is solely focused on increasing income tax. This is not a “wealth tax” otherwise even Buffett hiimself would be against it.

    This whole topic is construed so that it looks like the “wealth” of the rich is getting taxed, but it couldn’t be further from the truth.

    Ultimately the only thing this does is make it more difficult for people to actually build wealth. The wealthy will remain wealthy, regardless of what tax rate they pay, its the rest of the people working to acquire wealth that are getting hammered.

    • Bam!

      I agree, a lot of times when socialists are trying to sell progressive *INCOME* taxes, they say it’s taxing the rich.

      I see these misleading campaigns in Belgium and France every week nowadays.

      I think it has something to do with the majority of the electorate not even knowing how people get truly rich (esp. in europe I think). A lot of people think people get rich from well-paid jobs. This I think, is because entrepreneurialism is about dead in western Europe and the only “powerful” people most people see are their bosses.

      Last week, our minister of Economy reacted to entrepreneurs, saying they did not like the budget reforms (which *again* bring higher taxes in the lowest scoring country for govt budget in the world) because it entails amendments to combat fiscal fraud.

      So its kind of logical why the opion to become an entrepreneur is not even considered by 95% of Belgians, when you come to think about it:
      Our 35% corporate income tax, and other taxes + communist ministers who are proud to imply that entrepreneurs are criminals!

    • Interesting but not entirely correct.

      1. Agree that spending is a far bigger problem than revenue. And taxation is mostly noise. People who think otherwise are deluding themselves.

      2. Agree that tax on wealthy and wealth tax are 2 different things. I’m not sure if you support the former or support the former over later or just don’t support either.

      3. Disagree that taxing wealth is any better than taxing a wealthy individual’s income. In fact taxing wealth is far worse imo. Buffett would likely be against it as he should. First of all it’s unlawful so far to tax net-wealth in the US. Secondly, I don’t know of any country that has prospered by taxing wealth.

      4. You primarily assert that an taxing the wealthy only discourages un-wealthy from becoming wealthy. How so? I would think that taxing wealth would be a far bigger discouragement. In fact that will be borderline socialism.

  4. You nailed it, Jae Jun.

  5. I don’t support entitlements, but it irks me to no end that I pay higher tax rate than Romney. In terms of public, private, and bank debt, the U.S. has more total debt than we did after WWII and people, whether they realize it or not, will be asked for shared sacrifice.

    Am I supposed to be ok to pay 35% tax rate or whatever when Romney pays 13%? Put another way…if Paris Hilton inherits $50 million and her investment income is $5 million per annum, she pays 13% tax while I pay higher tax percentage for labor income. How does this make sense? To stay with this unfair tax system is to promote plutocracy and to encourage everyone else to hire lobbyists instead of working hard and innovating. Europe had a system like this…aristocracy…didn’t fare very well.

    The only reason private equity is able to pay capital gains tax rates on income (not investment income) is because they have powerful lawyers, accountants, and lobbyists.

    Balancing the budget can’t be done just by making the tax rates more fair, but are we to reduce social security (which I equally despise) to 70 year olds while the super rich aren’t asked to pay their fair share?

    I don’t think you guys have seen the figures on how very few control so much wealth in this country. That is not healthy.

    Re gov’t’s responsibility being limited to protecting liberty, just think about diabetes. Let’s say the gov’t does nothing. Our own generals say American kids are already too fat to fight or serve. How will we defend our interests? Projections show we will spend over 100% of GDP on diabetes related care eventually. Yet conservatives want to sit on their butt and repeat “personal responsibility.”

    We need to send smart and able people to run the gov’t, not people who believe gov’t can only be a problem. I watch the same news as you guys and I’m just as disappointed with the gov’t. But the idea that people only need personal liberty and can govern themselves is naive.

    • Dear Omega:

      I agree (not that that matters) with your thoughts. What you complain about with our tax system is similar to mine; there should be EQUALITY in the law. No special preferences, set asides, tax breaks for some and not others. It is in our BILL OF RIGHTS.

      Entitlements (taking from some to give to others) is wrong and immoral since it violates equality before the law and violates property rights through coercion. However, common sense must be applied to move from here to there. People could opt out of social security over a 30 period while giving people who are on it, their “benefits.” Obviously, you need a transition.

      The bigger issues are do we want a constitutional republic or not or tyranny by the majority or our current bureaucratic fascism? What should the role of government be? If the past 1,000 years have taught anything it is that MEN ARE NOT ANGELS, POWER CORRUPTS and CENTRAL PLANNING/Socialism/fascism EVENTUALLY COLLAPSES because the price system is destroyed–resources are misallocated. Having worked for the govt. I can guarantee the last concern is the welfare of the citizens–it is all about holding onto power. FULL STOP.

      Wherever there is coercion there are problems. Look at obesity–the government pays a subsidy for HFCS, supports prices for sugar, and viola–it is in everything. You don’t need the problem to be the solution. Stop subsidizing death (Sugar). People solve problems, not the “government.”

      But for individual liberty to flourish–free exchanges amongst people–we need sanctity of contract and freedom from violence. Hence we need government to protect individual liberties. If the federal government stuck to the US Constitution we would be on our way.

      Pray for us all.

      • tyranny and fascism are too strong of words, no? I doubt sugar subsidy is the only thing causing diabetes to spike. Our brain is probably wired to eat sugary foods and, in my case, fatty foods too. I don’t want to spend too much time on this debate, but you should consider Professor Martin Whitman’s view on why heavily related mutual fund industry has less scandals by the likes of Bernie Madoff than less regulated hedge fund industry.

        Also derivates are sold in 2 forms: one in more heavily regulated futures market (I think you can be sure that you will get your money back from this one) and wild wild west form of the forward market. I would argue it was the derivatives of the forward market that made this blow on our economy much worse than perhaps an ordinary real estate bubble would have had. If the market were so efficient, why is Warren Buffett saying derivatives are the financial versions of WMD and why do so many participants get it wrong? I think no oversight of certain sections of the financial market contributed no small part to our economic problems. If you really study what happened from beginning to end, I don’t know how you can disagree. Roger Lowenstein is a respected author and he’s written a book about this.

        If you think my credibility is lacking, you should study up George Soros, Warren Buffett, Charlie Munger (especially on his opinion of Singapore’s government), and that guy who wrote about equality of opportunity (as opposed to equality of outcome). I think the government should level the playing field so people like George W. Bush (he basically had unlimited chances) can not become president and a capable child of a gas station attendant has the same opportunity as a doctor’s child.

        Steve Jobs was an orphan. Maybe w/o some kind of government safety net, he just would have starved to death. He certainly would have been at the mercy of finding the right charity at the right time if we went by Ron Paul’s view. Denzel Washington and Bill Cosby certainly wouldn’t have survived w/o some government support. I’m saying this even though I hate that our society pays seniors to do nothing. I hate that we don’t use common sense to use incentive and punishment to society’s advantage.

        I think that is a product of decades long easy economic growth conditioning our citizens and politicians to spend, spend, and spend (this is the basic view of Ray Dalio). But, to say our government can have no legitimate role beyond protecting liberties, we’re ignoring history.

        I admit I found free exchanges appealing very briefly. But keep digging. Who knows if you might change your mind? I hear Ayn Rand relied on the government subsidy she hated so much for her cancer treatment at the end of her life.

        I really urge you to read about the government in Singapore and compared that to Malaysia. I think Singapore may have found a way to keep corruption to a minimum. Aristotle also had some good ideas, but probably unworkable in our society. But basically we gotta remove temptations for corruption from politicians.

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