Warren Buffett wrote an op-ed in the Times today — he continues to be one of the few money guys I look at and think, “What a smart man he seems to be.”
His editorial piece, titled Greenback Emissions is about fiscal restraint, or the lack thereof, expressed as inflation — the inevitable outcome of deficit spending. His argument is not that we should stop spending (on the contrary), only that we must be wary … cognizant of the what will happen next. Where many proscribe actions, Buffett instead warns our Congress of the likely future outcome.
What struck me as interesting is that Buffett bracketed his editorial with a parallel to the challenge facing Congress with the pending climate legislation. To be fair, this article was not “about” climate change. But the opening and closing phrases were. In the opening paragraph he writes:
…doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.
and in the last,
Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.
It is indeed difficult to reconcile the seemingly profligate spending we’re undertaking with the need for seemingly more-profligate spending needed to deal with issues like health care, climate change, and more. More spending makes the deficit bigger, of course.
If it were that simple, the world would be dull indeed. I fully recognize that the warning Buffett asserts is valid. We’re spending a lot to buy ourselves out of these problems. Sadly, there are no simple solutions — as somewhat of a pacifist I would be thrilled to be spending our military budget on something more tangibly positive; as somewhat of a realist I recognize that “big sticks” are expensive … and necessary. Maybe Sarah Palin would like to shoot our elderly population from planes (this is what she meant by “death panels”, right?), but I am not so sure that this is a good idea, or even practical … or environmentally sensitive. Perhaps the world is dull.
What Buffett does say is that our need to control spending has a parallel with our need to control carbon emissions.
It is true that controlling carbon emissions will require a rather significant and disruptive change in how we do business, indeed, how we understand our economy, since energy is a huge part of our economy, and carbon fuels currently satisfy more than 90% of our US energy consumption. It will not be possible to deal with our problems without spending money on some things (known as “investment”) in order to gain a larger return (or smaller loss) in the future.
“Change” means that some things will be different than before, which in most cases means that some people and companies will benefit more than others. For example, I doubt that companies selling fossil fuels will benefit from cap and trade as will those who create renewable energy sources (unless, and yes, I know this is unthinkable, the companies now selling fossil fuels invest in renewable energy).
So, Buffett says we have a challenge with how we deal with climate change, and, as I understand, Buffett asserts the same challenge with the rest of our economy.
We currently have a dishwasher. It seemed expensive at the time we bought it, but having more “features” than actual quality in retrospect — it “bought the farm” last weekend, after far fewer than ten years on the job. We realize now that spending money on a high quality dishwasher makes sense, even if it costs 25% more than the seemingly equivalent (but obviously less well-constructed) models that can be had for less. But now, we have no dishwasher, and it turns out that getting a replacement isn’t either cheap, easy, or fast. Perhaps the high-quality dishwasher would have been the better deal in the long run?
I think, whether we’re talking about dishwashers, stimulative government spending, health care, or climate change, we’re all in the same situation. We bought a fancy, but cheap version of the product a while back. It seemed to work, if with a few issues. But now, it has failed (or is about to).
Buffet says: be careful, and buy quality.
Or at least that’s how I read it. What do you think?