Berkshire Hathaway’s Warren Buffett speaks on the economy, health care, and president Obama, in an interview with CNBC at Herb Allen’s annual Sun Valley conference last week. The annual conference is by special invite only and consists mainly of CEOs from a large range of businesses and industries. Below is a quick & dirty summary.
Consumer sales are still weak.
– “It’s still very, very soft”.
Consumer economy hasn’t picked up yet.
– “there’s nothing in the figures today that tells me what’s going to happen tomorrow. What they do tell me is that today it hasn’t picked up yet.”
Global economic downturn will eventually end, but don’t know exactly when.
– “And it’s a tough period now. On the other hand, this movie will have a good ending.” ” I don’t know how long the movie will be. I know the ending will be good but I don’t know whether its a two-hour movie or a four-hour movie.”
Stimulus not meant to end the recession quickly.
– “But the stimulus was never designed to act fast. People hoped it would start trickling in. In general, I think, and this is no criticism of the administration because I believe in the stimulus and would probably believe in another one, they may be overrated in terms of their ability to end the recession fast.”
– “I think they’re useful, but I think that anybody who looks on them as a panacea is making a mistake.”
Another stimulus may be needed. But again don’t expect it to fix the problems immediately.
– “I think there probably should be. But I wouldn’t expect miracles out of it.”
The problem was from over supply of houses. The solution is to reduce the inventory of houses. That won’t happen fast.
– “We formed a million, three-hundred thousand households a year, surprise, we had too many houses at a point. You can’t work that off in a day, or a week, or a month.”
– “If you want to end the recession as soon as possible, you do nothing to encourage new housing construction. Very tough on the home builders but that is the prescription for getting supply and demand back into balance.”
Low interest rates will help.
– “Well, you want low interest rates. The more affordable houses are, I mean people have to have a job too, but low interest rates are a boon to housing in that they mean people qualify for owning housing of a given type that wouldn’t otherwise. But we still have too many houses.”
President Obama is a leader people believe in, communicates well to the people.
– “Plus he communicates extraordinarily well so they can understand what he’s doing and why he’s doing it and what the timetables may be and all that sort of thing. So we have the right person in the White House.”
High inflation likely down the road, but it’s better than not having the economy recover.
– “We’re going to apply a lot of medicine, and we’re likely to get a lot of inflation down the road. But it’s better to have the patient recover than to sit there and say I’m worried about the after-effects of the medicine so we’ll just ignore it.”
Jobs are important to reduce unemployment, but the government has less influence on the economy & unemployment than people think/like.
– “And the country is becoming unemployed to a degree. And it’s very important the economy gets, comes back.”
– “Government has less influence on how fast that happens than a lot of people would like to hope that it would. But government is a player, but it has no silver bullet.”
US health care system costs increasing faster than GDP is serious and large problem, but doesn’t know what the solution is. The problem is complicated, with a lot of associated parts and issues to look at. Tax bill proposals that are being talked about to offset health care is going to be difficult to make perfect.
– “But it’s obviously a huge problem when it’s using up whatever it may be, some people say it’s as high as 17 percent of GDP. But we can’t go on with health care accelerating at a faster rate than GDP. We’ve done it for a long time, but we need a solution, and there are better people, people better qualified than I.”
– “there will be so many tradeoffs involved, it won’t be a perfect bill. Nobody could design a perfect bill. So, you can’t really look at one part of it until you’re looking at other parts of it.”
– “But the problem you have is you have a health care situation now where more than two-trillion dollars a year is being spent. That means two-trillion dollars is going to somebody, whether its doctors, nurses, hospitals, pharmaceutical companies, you name it. Everyone is going to look at that bill and they’re going to say, ‘Am I getting more or less?’ It’s like a tax law change. Every line in the tax code has a constituency. Well, every dollar in medical expenses has a constituency, and that’s the tough thing at the end. It will take a lot of leadership and some statesmanship on the part of people to get something. But it is a question that needs to be addressed.”
Rich under-taxed compared to middle and lower class. May need to increase taxes to cover the trillions in spending. Better to adjust the tax on more wealthy individuals, to some degree.
– “I think that on balance the rich have been under taxed compared to the middle class and the lower class. I mean, over the last decade in particular, the tax law has been tilted in favor of guys like me and we don’t need any help. “I think it should be more progressive the higher up you go. But I think it’s ridiculous when my tax on capital gains is less than the payroll tax on what you’re earning today.”
– “Nobody likes having their taxes increase. I don’t like having my taxes increase. But on the other hand, we’re raising 2.3, something like that, trillion. We may spend four-trillion. There’s going to have to be some adjustment made someplace and I think it’s better to adjust it, to some degree, on guys like me rather than on the people who gave me breakfast this morning.”
Taxes will increase in the future, to cover the current spending.
– “they will go up over time because we’re not going to bring spending down from four-trillion to 2.3 trillion, and we’re not going to take up revenues unless we …. it will be helped some when we get a recovery, but we’ll need somewhat higher taxes someplace.”
I recommend reading the full transcript of the CNBC interview. It can be found on CNBC’s website along with the video:
I also found that Alice Schroeder’s book The Snowball: Warren Buffett and the Business of Life, revealed some rather interesting details of Warren Buffett at one of Herb Allen & Co’s past Sun Valley conferences just prior to the tech bust. Its a highly recommended read!
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