Warren Buffett, Statist

WARNING: This article will criticize the Oracle of Omaha, so if you're concerned about your eyeballs melting, demons flying out of your nose, or other effects of reading heresy, then please consider perusing purer texts.

Warren Buffett's holding company, Berkshire Hathaway Inc., recently held its 2002 annual meeting. (Full disclosure: I regret that I have zero financial interest in Berkshire.) The annual meeting is also known affectionately as "Woodstock for Capitalists" because shareholders have the wonderful opportunity to ask anything of Buffett and his partner Charlie Munger, and interrogators don't have to limit the subject to investing. In this year's meeting, a shareholder asked whether Buffett and Munger were sporting products from Berkshire's Fruit of the Loom subsidiary, to which Buffett replied in the affirmative and jokingly suggested "Covering the Asses of the Masses" as a possible new slogan.

I enjoy reading Buffett's words because of his astounding track record and because he usually offers tremendous wisdom in a down-home, entertaining style – making Buffett the Keith Jackson of investing. Reading various notes from the recent meeting (recording devices are verboten), I felt like shouting a "Whoa, Nellie!" of my own when I came across the following according to Whitney Tilson: "The market system produces extraordinarily inequitable results, which should be mitigated by the tax system. It’s inappropriate that the spread of prosperity in a prosperous country should be so inequitable due to quirks in people’s skills. This is why I’m in favor of a progressive tax."

After peeling myself off this brick wall, the ringing in my ears was the sound of statists excitedly pecking in appeals to Buffett's authority in their pro-tax rants as they did during the death tax elimination debate. This, of course, is argumentum ad verecundiam. Buffett's investing success makes him an authority on investing, not tax policy. It's useless to point this out, however, because logic-heeding statists are trapped somewhere between military intelligence headquarters and wherever missing socks from the dryer go.

According to Salil Mehta's notes, Buffett laments that the U.S. "has been a tremendous economic system. It's a system that showers rewards on my particular skill set. Our society needs corrective aspects because this is inappropriate." The Chairman obviously hasn't been exposed to the Austrian School of economics, or he would realize that a progressive tax simply diverts the rewards aimed at productive people to skilled tax attorneys and CPAs as people seek to avoid coercive taxation. Buffett shouldn't feel guilty for his success: under Hoppe's natural order, his skills as an insurer would still be valuableu2014unlike those proficient at finding tax shelters, who merely serve as a counterbalance to market distortion due to taxation. His sense of social conscience is a Good Thing, but resorting to the coercive power of the State doesn't make one a philanthropist.

Perhaps Buffett belongs to another school of economics. Tilson attributes this argument to Buffett: "Imagine if a genie approached you and someone else while you were in the womb and said, u2018What percent of your future income would you bid in order to be born in the U.S. versus Bangladesh?' I’ll bet the bidding would get pretty high pretty fast." While we're imagining creepy Chicago School style economies of two embryos, let's allow the unborn to bid on who they will be. I might bid ninety percent of, say, Michael Jordan's income, so should His Airness be taxed at a rate of at least ninety percent? Levying taxes on a case-by-case, class envy basis would be horribly impractical but also downright absurd. Certainly Buffett can agree that peacefully spreading the prosperity of free markets to remove the punishment of being born in Bangladesh would be better – from both moral and economic perspectives – than punishing Americans out of a twisted sense of egalitarianism.

Despite these gripes, I still find Buffett to be an extraordinarily positive influence on the market. His irreverent mocking of Wall Street options accounting was powerful and stinging but much needed. In the Berkshire Owner's Manual, Buffett wrote, "Charlie Munger and I think of our shareholders as owner-partners . . ." and, even at seventy-plus grand per stub for Class A shares, investors are willing to pay the Buffett premium. As Mises would argue, it's hard to argue with his profitable record, and he sets a fantastic example for capitalists, most notably in his ideas about corporate governance, with Berkshire's shareholder-designated contributions program, by willingly owning up to his mistakes, and by openly sharing his ideas on investment.

The Buffett investment philosophy is simple: establish a circle of competence, stay well within it, and ignore everything else. Mr. Buffett, please consider taking your own advice on the issue of taxation.

May 11, 2002