Sourpusses take note: One of the world’s wealthiest and most respected investors thinks you’re dead wrong about the future of the country.
In his annual letter to shareholders, published on Saturday, Berkshire Hathaway Chairman Warren Buffett made a forceful argument that Americans should look to the future with optimism, despite the dour messages broadcast from the presidential campaign trail.
“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start,” he said in the letter. “America’s golden goose of commerce and innovation will continue to lay more and larger eggs.”
For 50 years, Buffett has written the annual letters, which are widely read for his pithy and incisive analysis of the past, present and future of the holding company and the economy. This year, he laid out the case for a bright American future, even as he notes some cause for concern.
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Even though he said the American economy is growing, Buffett nodded toward growing inequality.
“Though the pie to be shared by the next generation will be far larger than today’s, how it will be divided will remain fiercely contentious. Just as is now the case, there will be struggles for the increased output of goods and services.
“. . . Congress will be the battlefield; money and votes will be the weapons. Lobbying will remain a growth industry.”
But, Buffett argued, there is a silver lining:
“Even members of the ‘losing’ sides will almost certainly enjoy – as they should – far more goods and services in the future than they have in the past,” he said.
The market excels at producing things people don’t know they want, he said. For example, Buffett noted that he never thought as a child that he would someday need a personal computer.
“I now spend ten hours a week playing bridge online,” he said. “And, as I write this letter, ‘search’ is invaluable to me. (I’m not ready for Tinder, however.)”
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A history of growth drives Buffett’s argument for optimism, which he framed as a response to the modern politics of fear.
“It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do.
“That view is dead wrong: The babies being born in America today are the luckiest crop in history. . . . Today’s politicians need not shed tears for tomorrow’s children.”
Buffett noted that American economic output, per person, has grown tremendously over his lifetime.
“American GDP per capita is now about $56,000,” he said. “As I mentioned last year that – in real terms – is a staggering six times the amount in 1930, the year I was born, a leap far beyond the wildest dreams of my parents or their contemporaries.”
American efficiency and productivity drove – and will continue to drive – that growth, he argued.
“This all-powerful trend is certain to continue: America’s economic magic remains alive and well.”
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Productivity, Buffett said early in the letter is “the all-important factor in America’s economic growth over the past 240 years” – a fact lost on too many Americans, Buffett lamented.
“That kind of improvement has been the secret sauce of America’s remarkable gains in living standards since the nation’s founding in 1776,” he said. “Unfortunately, the label of ‘secret’ is appropriate: Too few Americans fully grasp the linkage between productivity and prosperity.”
To prove his point, Buffett turned to three industries in which Berkshire has a stake: freight, insurance and utilities. Productivity gains in those and other industries “have delivered awesome benefits to society,” he said.
There are consequences, though: Productivity gains in America and abroad can disrupt lives, Buffett said.
“When low-cost competition drove shoe production to Asia, our once-prosperous Dexter operation folded, putting 1,600 employees in a small Maine town out of work. Many were past the point in life at which they could learn another trade. We lost our entire investment, which we could afford, but many workers lost a livelihood they could not replace.”
The United States should deal with such disruptions not by regulating the drivers of increased productivity but by ensuring a “variety of safety nets” exist for Americans whose skills don’t match those valued by markets. In particular, he points to the Earned Income Tax Credit, viewed by many as one of the most effective policy tools to help the poor.
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There are threats, notably cyber, biological, nuclear or chemical attacks on the nation, Buffett said.
“The probability of such mass destruction in any given year is likely very small. It’s been more than 70 years since I delivered a Washington Post newspaper headlining the fact that the United States had dropped the first atomic bomb. Subsequently, we’ve had a few close calls but avoided catastrophic destruction. We can thank our government – and luck! – for this result.
“Nevertheless, what’s a small probability in a short period approaches certainty in the longer run. (If there is only one chance in thirty of an event occurring in a given year, the likelihood of it occurring at least once in a century is 96.6%.) The added bad news is that there will forever be people and organizations and perhaps even nations that would like to inflict maximum damage on our country. Their means of doing so have increased exponentially during my lifetime. ‘Innovation’ has its dark side.”
Such risks are unavoidable, he said. And the consequences will probably be dire.
“No one knows what ‘the day after’ will look like,” Buffett said. “I think, however, that Einstein’s 1949 appraisal remains apt: ‘I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.’ “