In Which Warren Buffett Agrees With Me (or Perhaps Vice Versa)

Editor’s Note: This article previously appeared in a different format as part of The Atlantic’s Notes section, retired in 2021.
Warren Buffett playing ping-pong, at a Berkshire Hathaway meeting last year. Another billionaire looks on. (Rick Wilking / Reuters)

When I was living in and reporting from China, I spent a lot of time trying to hammer this point home: whatever you might say about China — good or bad, friendly or hostile — there was some place in the country where it was true, and also some place where its opposite was true. Thus embracing China’s contradictory realities was not some minor fine-tuning detail but a starting-point necessity in thinking about the place. In case you haven’t read China Airborne, a further riff on this theme comes after the jump.*

Today’s America is not quite as contradictory as China. Yes, the U.S. has extreme poverty and growing inequality; but no, we don’t have a peasant population in the hundreds of millions. But America is complex and contradictory enough. Thus the message of my current cover story involves this superficially contradictory sequence:

  1. The United States is suffering the ills of the Second Gilded Age, as it is distorted by the same pressures toward inequality and dislocation that affect virtually every society today.
  2. Despite point #1, America’s overall prospects remain better than any other major country’s. That’s because of scale, resources, adaptability, geographic advantage, education (yes), research-and-entrepreneurship culture, “soft power,” openness to immigration, and lots more.
  3. Despite point #2, the main American weakness, in both relative and absolute terms, is that our system of national government is at a historic ebb in effectiveness. That’s particularly troublesome now, because adapting to the turbulence of this era would be so much easier and less destructive with some national policies, like those that accompanied the adjustment to the previous Gilded Age. Then it was: worker-safety and child-labor laws, the minimum wage, unionization. Now: portability of health care, pensions, lifelong training, and other benefits as the “gig economy” replaces the long-term one-company career.
  4. Despite point #3, lots of American families, organizations, and communities are figuring out their own responses to this era’s opportunities and problems. These are worth noticing in their own right; and as they accumulate, they can provide a guide for national action — if such a thing should become possible again.
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With that, bring on Warren Buffett! Today’s NYT has a story about Buffett’s annual shareholder letter for Berkshire Hathaway. The Times headline conveys the contrast with today’s political rhetoric.

The whole thing is worth reading (in PDF here), but let highlight these two resonant parts. You’ll see why I noticed them.

First, on the overall U.S. prospect:

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.

And he goes on to explain why he thinks so.

Then, the complication:

The productivity gains that I’ve just spelled out – and countless others that have been achieved in America – have delivered awesome benefits to society….

To this thought there are offsets. First, the productivity gains achieved in recent years have largely benefitted the wealthy.

Second, productivity gains frequently cause upheaval: Both capital and labor can pay a terrible price when innovation or new efficiencies upend their worlds. We need shed no tears for the capitalists (whether they be private owners or an army of public shareholders). It’s their job to take care of themselves….

A long-employed worker faces a different equation. When innovation and the market system interact to produce efficiencies, many workers may be rendered unnecessary, their talents obsolete. Some can find decent employment elsewhere; for others, that is not an option….

The answer in such disruptions is not the restraining or outlawing of actions that increase productivity. Americans would not be living nearly as well as we do if we had mandated that 11 million people should forever be employed in farming. The solution, rather, is a variety of safety nets aimed at providing a decent life for those who are willing to work but find their specific talents judged of small value because of market forces. (I personally favor a reformed and expanded Earned Income Tax Credit that would try to make sure America works for those willing to work.) The price of achieving ever-increasing prosperity for the great majority of Americans should not be penury for the unfortunate.

So: the U.S. prospects are better than most people think, and unrecognizably better than “we are doomed!” campaign rhetoric insists. Check! And even a growing economy leaves too many people out—who for moral, political, social, and economic reasons must be brought back in. Check again!

The Buffett-Fallows mind meld is complete. Well, apart from the picking-shrewd-investments part.

And if you don’t trust Warren Buffett on U.S. economic fundamentals? Here’s the 2015 year-end economic outlook from Vanguard  (emphasis in original):

At full employment, the U.S. economy is unlikely to accelerate this year, yet is on course to experience its longest expansion in nearly a century, underscoring our long-held view of its resiliency.

As in past outlooks, we maintain that U.S. long-term (potential) GDP growth is near 2%, versus its historical average of 3.25% since 1950. This lowered projection is based on demographic headwinds and, to a lesser extent, on a more subdued expectation for labor productivity growth. However, we see our 2% U.S. trend growth estimation as neither “new” nor “subpar” relative to pre-crisis levels, if one both accounts for structurally lower population growth and removes the consumer debt-fueled boost to growth between 1980 and the global financial crisis that began in 2007.

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*As promised, here is how  I introduced the contradictions theme in the introduction to China Airborne:

The main surprise of living in China, as opposed to reading or hearing about it, is how much it is a loose assemblage of organizations and aspects and subcultures, an infinity of self- enclosed activities, rather than a “country” in the normal sense. The plainest fact about modern China for most people on the scene often seems the hardest to grasp from afar. That is simply how varied, diverse, contradictory, and quickly changing conditions within the country are.

Any large country is diverse and contradictory, but China’s variations are of a scale demanding special note. What is true in one province is false in the next. What was the exception last week is the rule today. A policy that is applied strictly in Beijing may be ignored or completely unknown in Kunming or Changsha. Millions of Chinese people are now very rich, and hundreds of millions are still very poor. Their country is a success and a failure, an opportunity and a threat, an inspiring model to the world and a nightmarish cautionary example. It is tightly controlled and it is out of control; it is futuristic and it is backward; its system is both robust and shaky. Its leaders are skillful and clumsy, supple and stubborn, visionary and foolishly shortsighted….

Such observations may sound banal—China, land of contrasts!—but I have come to think that really absorbing them is one of the greatest challenges for the outside world in reckon- ing with China and its rise.