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This is a World of Incentives
I thought Warren Buffett said a lot of interesting things in his recent interview with Charlie Rose.
Here are some of the bits that stood out for me.
BUFFETT: …I also think fairness is important and I think getting rid of promises that you can’t keep is important. I don’t think we should cut spending dramatically now. I don’t think that what I’m talking about on taxes solves the — the deficit gap at all. But I think fairness is important. I think having a sensible long-term plan is important to explain and I think having it be believable is terribly important because people don’t believe these out year things generally with Congress. They see too much of what’s happened.
The deficit as stimulus
BUFFETT: The deficit is our stimulus. You can — you can say a bridge someplace is part of that act, you can say cutting taxes is part of it as was the case in our stimulus act. But the stimulus is the government pouring more money out than it’s taking in. And we have a — a stimulus going on that’s 10 percent of GDP which we haven’t seen since World War II. So we have a huge stimulus going on. Nobody wants to call it a stimulus because that’s gotten to be a dirty word. But we have a big stimulus. So we do — in my view, whether we have a 10 percent of GDP deficit —
BUFFETT: — which is a huge stimulus or a 12 percent or eight percent it doesn’t make much difference. I — I think that we pushed monetary policy to a level, we’ve pushed fiscal policy to the limit but fortunately the most important thing in terms of this country ever coming out of recessions has been the natural workings of capitalism and I think you’ve seen that for the last couple of years.
BUFFETT: What our leaders were saying to us then, the key players are saying we’ll do whatever it takes. And I believed it. I knew they had the power to do whatever it took and I believed they would do it.
Now, the problem about government now is that if they come out and get on the Sunday talks shows and say “I’ll do whatever it takes”, you know, people don’t believe them. And I mean, they — they — they’ve got to see action and — and here they see something like the raising the deficit limit used as a hostage for something of vital importance to the United States. And if you — you can use it as a hostage in terms of spending, you can use it as a hostage on funding on education or anything else. I mean, it isn’t limited about it; if you’ve got something that comes up like it.
BUFFETT: But I just use it to illustrate that this is a world of incentives and we work on incentives in every way. If we work on education, in business, every other place. And what I try to think of the incentives to get somebody who comes up for re-election in a year to do something where the policy cycle goes out five years or ten years, how do you do it when the policy cycle exceeds the electoral cycle? You’ve got to make sure the electoral cycle is in the equation.