Our takeaways from the Berkshire Hathaway annual meeting which was held on Saturday, May 6th. What did the two wise men, Warren Buffet and Charlie Munger tell us?
“You only have to do a few things right in your life so long as you don’t do too many wrong.” Warren Buffett
I’ve been critical of both Donald Trump and Joe Biden for their profligate spending during Covid and the resulting inflation that they caused, but I did like Trump’s tax cuts while he was still in office. I was recently listening to a Wealthion podcast with Adam Taggart, we have mentioned his work before, and he was interviewing Dr. Art Laffer, the economist. Laffer is one of my favorite people and it should be easy for you the listener to realize why. He advised Ronald Reagan, Margaret Thatcher and even Trump on his tax cuts. What you might not realize is that he also was the economic brains behind one of my favorite Democrats ever, Jerry Brown the former governor of California who was running against Bill Clinton in 1992 and was winning the primaries until he took on Jessie Jackson a a running mate but that’s another story. What I loved about Jerry Brown was his simplified flat tax. I have stood by liking that for 30 years and I still feel like it unlocks the most potential of the US citizen at the lowest cost but more importantly the lowest fraud to the taxpayer. This flat tax eliminates much of the fraud because it isn’t worth avoiding a 13% tax which is what Jerry Brown was offering, but he was making sure that everybody paid something. That means the lower end, the broadest base, had to pay something. It is really hard to do.
We often talked about how government intervention is the problem but we also concede that there are certain public goods that only a government can provide like defense etc. What lowering taxes rates does is create incentives and incentives are the most important thing in the game we call life and economy. If you are going to lower taxes and widen the base of taxpayers, the money will roll in because you will take away incentives to cheat and make more people pay taxes in the first place. Making more people pay taxes? It is really hard to do.
Poor Liz Truss got run out on a rail but it wasn’t because her logic was bad, she was going with a tax cut but still spending or increasing spending widening a deficit that couldn’t be widened at that time. The timing was just too bad to execute. If England wants to get back on their feet and whip back that double digit inflation the best thing they can do is reduce tax and create more incentives. Where their country is economically right now with double digit inflation, it is really hard to do.
Too often we point out what’s wrong without offering real solutions. That’s easy, and I probably do it far too often. It reminds me of a book I once read about poker. There was this young kid trying to learn the game and he was telling the old master that he knows he shouldn’t do this but he did it any way and then these cards come out and that he wouldn’t normally do this but he did it for this reason and then he gets this card on the turn and what did the old master think he should do? The old master says, I have no idea. The young player was stunned, what do you mean? You are this great player, how can you not know? The old master replied, I have never been in that situation. You said yourself that you shouldn’t have done this, and you wouldn’t normally do that and now you find yourself in a situation in which you are unsure of what to do. The old master smiled, my advice is to not put yourself in that position in the first place. That is kind of where we find ourselves now economically. We do need to navigate our way out of this mess and the Fed has no good options but what we really need to do is figure out how to get back on track and avoid being in where we find ourselves in the first place. How, it is really hard to do.
Warren Buffett had his annual meeting on Saturday. The first question after lunch was a good one about banks and Buffett responded that bankers not suffering is not teaching the right lesson. The penalties need to hit the people that caused the problems. Bingo. Buffett continued by talking about the US Dollar being at risk of losing the reserve currency status and he wasn’t worried because there were no alternatives and he said no one understands the dollar as the reserve currency situation better than Jay Powell. It looks like Mr. Buffett thinks Jay Powell might be our Jedi after all, but what I took away was his insistence that monetary policy wasn’t to blame. What wasn’t said was that fiscal policy was to blame. Mr. Buffett is too politically savvy to say that, but Charlie Munger, Mr. Buffett’s vice chairman has a much lower filtering threshold and said “at some point printing money to buy votes is counter-productive.” Fixing our economy means fixing our political system. It is really hard to do.
Now the arena where Mr. Buffett and Mr. Munger were speaking and answering questions was full and Mr. Buffett took questions from both the moderator and the audience. Now you don’t have to be a statistics student to quickly realize that the best way to get your question read was to have a kid submit it. There were a whole bunch of kids reading questions, not very representative of the sample of people attending. As I was watching I was struck by the hope. The kids, the foreigners who had travelled across the globe, and the stories Mr. Buffett and Mr. Munger told about the magic of the United States economy. Mr. Buffett reiterated numerous times how lucky he was to be in America and do business in America, and he even dropped a bombshell regarding selling his Taiwan Semiconductor stock because of its location. He said he wished it was in America. We need to remember and cherish hope. We would be wise to remember our Shawshank, “Hope is a good thing, maybe the best of things.” That is sweet but remember “Andy crawled through 500 yards of shit smelling foulness I can’t even imagine” to quote his buddy Red. It is really hard to do.
Here at Bygone Relics we seek to make you think, make you remember, and make you smile. We probably spend too much time on the former and fail miserably at the latter. What we also need to do is remember that the United States is a great country. Wherever you are listening or watching or reading from can be a great country. Politicians in most cases can be replaced through logic and reason and healthy debate. America has had its share of politicians and will always have politicians, but politicians that are responsible to the people are the responsibility of the people. When we remember that, we will see change. Better ideas like Jerry Brown’s ideas can serve as a bi partisan solution to our current Federal Reserve dilemma or perhaps a better solution can come about. But we must remember to own our political process, and make sure our politicians represent us. We have talked about crime and homelessness and companies leaving our cities and it doesn’t feel like those politicians are doing a very good job at that. They will get away with whatever we the people let them. We must hold the politicians in check for their policies. It is really hard to do.
One of the most difficult things for a company to figure out how to do properly is align incentives. Do we offer higher salaries? How can we make the lower wage team members buy into the ideas of the c suite? How can different departments work together when they are competing for resources? It is a difficult job for business leaders. Now imagine doing that across a nation. Imports, exports, manufacturing, single mothers, children, natural resources, and daylight savings are all among the competing items that require attention. We must remember that the American stew of mixing all those ingredients and aligning incentives was at one time the greatest in the world and maybe in the history of the world. It can be again with hope, diligence, and citizens that hold their elected representatives accountable for their decisions. This isn’t about parties, but across party lines. This isn’t about taking from one and giving to another, that isn’t what America is about. No, America and any other country that wants what America has, has to grow the pie so that everyone can eat better, have more, be more productive. That is when all incentives are aligned and it can be done. However, It is really hard to do, and solving hard problems is what success looks like.
Sincerely Yours,
C Thomas Printer
This week’s financial tip
Well, what did you find out about yourself that could cause a crisis? Today, we implement a plan. Let’s say you think that you don’t have enough medical insurance in case something happened to you or someone in your family. Break the implementation down in steps. Shop around for coverage for what you think you need. If you don’t know where to start- google it. What is normal for a person in xxx condition etc, then get a couple quotes. Ok, if this is that important to you, does this fit into your budget currently? If not, figure out how to pay for it with the many times mentioned re-evaluation of your finances. Can you save on something, or do you need more income? These are the steps to avoiding a crisis. You need to identify the proper steps and then do it. No one will help you avoid a crisis because it isn’t their problem. Let me say it again. No one will help you avoid a crisis because it isn’t their problem. Now if you help yourself, then you can find some resources that can assist you in achieving what you need. Use those resources, but it is your responsibility, and you must own it. It is really hard to do.
On this date in history
154 years ago to be exact, a really hard thing to do was completed. The golden spike was driven into a railroad tie at Promontory, Utah signaling the completion of the first transcontinental railway in the United States. That doesn’t mean the continental wasn’t gender binary.
Also born on this date
The man on the arm of the Iron Lady Margaret Thatcher, Denis Thatcher.