Brian Gongol
Why don't we think more about stages?
A couple of issues converged in my mind this week to get me thinking about stages. We talked last week about how the factory disaster in Bangladesh was tragic, but probably inevitable given Bangladesh's state of economic and political development. Then, this weekend, I attended the Berkshire Hathaway shareholders meeting -- the annual event at which Warren Buffett and Charlie Munger famously take five hours of Q&A from the audience about business and economic topics of every imaginable sort. One of the themes that came up over and over -- and one that the general media reporting on the subject will probably overlook, since it came more often from Munger, the lesser-known of the duo -- was that of the different stages through which the company had passed under their leadership. Shareholders at the event are free to ask questions, and many of the questions came from people who were looking for life advice and investing advice. Buffett and Munger repeatedly demurred on those questions, saying that their methods and strategies had evolved considerably over time. I think a lot of people will miss this point: Trying to copy what Warren Buffett does today isn't going to work. While he may be the world's most legendary investor, what he did 50 years ago had to change to become what he was doing 40 years ago, and 30, and 20, and 10. And what was appropriate at each stage changed not only with the times, but also with what he and Munger knew, and with the scale of what they were doing. I fear that a lot of factors are pushing us into what you might call "the era of now" -- where what is happening right now, everywhere, instantaneously, is put on a pedestal, and everything else is ignored. But the future matters, as does the past, and they both provide essential context for what we should be doing. Just as an example, one of Munger's best lines was to the effect that "I shudder to think that 13-year-olds in my family are using social media to permanently document their worst ideas." On the surface, that sounds a little technophobic. But it goes deeper than that: A lot of people make parenting decisions, for instance, based upon the rules. So, once a child turns 13 and becomes legally eligible, then they're allowed to join Facebook. But, just as with driving and voting and drinking and many other activities requiring discretion and judgment, there's nothing magical about the age 13 (or 16 or 18 or 21). We have to pick those numbers, somewhat arbitrarily, because the law doesn't let us make finer or more discrete judgments based upon people's behavior or maturity. But we need to think carefully about the stages through which people must pass in their own education and self-awareness and maturity, and maybe the answer isn't just to let the letter of the law decide when it's OK for a kid to join any social-media site. And this kind of thinking applies elsewhere, too -- personal financial advice has to be understood differently by people in different life stages. Some people won't ever pick up a book on investing, so the advice that is sensible for them isn't at all the same as what applies to someone who cares deeply and studies relentlessly. And even then, it matters differently to people who have $100 to invest, or $100,000, or $100 million. We need to think about other stages in our public life, too -- what's wise for the stages in the development of a state or county or a town. One size most certainly does not fit all.
The White House budget proposed in April called for a limit of $3.4 million on the amount Americans could accumulate in tax-preferred retirement accounts. The budget itself is really just a statement of policy preference -- it's not going to turn into the actual budget -- but it does echo a recurrent theme of President Obama's time in office: That capital accumulation is something to be viewed with suspicion, bordering on hostility. On one hand, $3.4 million is a lot of money -- nobody should doubt that. But we're also nearly completely blind in America to how much is "enough" for retirement. Many people would say the word "millionaire" and imagine Uncle Pennybags or Uncle Scrooge. But consider this: If you wanted to get $40,000 a year in retirement income and do it just on interest payments alone (in other words, if you were trying to avoid taking anything out of your nest egg and just live on the interest), then if you had your money in "safe" 10-year Treasuries earning 1.78%, then you'd have to have more than $2.2 million in the bank. Under those conditions, "rich" doesn't really look so rich anymore. Instead of turning every saver into a villain (or a convenient target for heavy taxation), we should probably start to get really honest with ourselves. Our biggest single fiscal problem is that we can't afford to pay for the entitlement programs we've created at current rates of spending and taxation. That problem isn't going to be solved by discouraging people from saving (and thus making them more dependent upon government entitlement programs). That's the straightest path to a downward-spiralling negative-feedback loop. We will only get out of the fiscal trap by getting the economy to grow meaningfully faster than it is (3% to 5% would be ideal), and that's only done by getting people to save and invest in productive businesses. That also has the very positive effect of creating a larger class of people who don't need those entitlement programs to support them in their old age.
Google has now shifted from calling them the "Palestinian Territories" to "Palestine". It's not a decision that bears any diplomatic standing -- Google is, after all, just an international company...not a state -- but it's worthy of note that decisions like this by commercial entities can have more impact than, say, the same change when it's done by the UN. We may very well be in an era in which the behavior of large companies (like Google) may have greater impact on the world at large than comparable behavior by true nation-states. In other words, balance sheets may matter more than armies. Nothing presently rivals the United States for global influence, and there's certainly a tier of nations (including the UK, China, Russia, and India) that are significant enough for one reason or another to merit true global influence. But if one were to rank the relative influence of the UN Member States, there's no doubt that there are several big companies that would punch well above the weights of many member countries. It's not entirely unprecedented -- the Hudson's Bay Company and the Dutch East India Company are two examples that come quickly to mind. But we may be, as some writers have suggested, in an era when many corporations transcend the powers of nation-states, and that requires thinking about them in new ways.
Either something is wrong with the data (and/or how it's being collected), or we're blowing off some of the obvious benefits that everyone can see with their own two eyes by wasting time on Angry Birds. Or something. It may also be one of those insoluble paradoxes of trying to account for what we produce without a real measurement of our overall well-being.
When people go hungry, they're far more likely to let go of their civic freedoms in exchange for promises of food. That's what's at risk in Egypt right now: Having clawed their way to greater political freedom, the people are suffering from economic stagnation. That could put the political freedoms at risk if a sufficiently persuasive party or demagogue comes along, offering bread in exchange for those freedoms. On a related note, history will show that the stifling of political freedoms has and will continue to cost China dearly in the commercial market as well.
Big corporations with strong balance sheets can borrow money for 10 years right now at 2.625% (and for 30 years at 4.125%). That's cheaper than the governments of New Zealand, Australia, India, Italy, or Mexico can borrow for similar periods of time.
The UN says that 260,000 people died in a famine in Somalia between 2010 and 2012. That's the population of Buffalo, New York. The famine was detected early, and the crop failure that caused the food to fall into short supply could have been mitigated by humanitarian relief efforts...if it hadn't been for militant groups that kept out the relief workers and used food as a weapon of war. It's shameful that criminals like that exist, and it's shameful that we don't pay greater attention.