Contra Warren Buffett, America’s best days exists for a tiny elite

Sovereign Man’s Simon Black points out why Warren Buffett is wrong with the latter’s sanguine view of America. (bold mine) 

In his most recent annual report just released yesterday, Mr. Buffet lauds the United States of America, writing:

“Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.”

Such language is typical for Mr. Buffett, he is one of America’s biggest cheerleaders. Again, with good reason.

For one, the unprecedented monetary expansion over the last decades has created a major boon for Mr. Buffet and his net worth. 

His company Berkshire Hathaway has a balance sheet worth $485 billion. 25% of that is simply invested in the stock market with big chunks of Coca Cola and American Express. 

These stock prices have boomed in an era of unprecedented money printing, adding billions to Mr. Buffett’s net worth.

Second, it’s important to note that over 75% of Berkshire’s revenue comes from highly regulated, absurdly profitable, tax advantageous businesses that are simply not accessible to the average guy. 

For example, Mr. Buffett gleefully writes about the $77 billion ‘float’ from his insurance businesses.

This is money that is collected from insurance customers. And while he might have to pay out insurance claims someday, for now he gets to borrow from that kitty at 0% and generate higher returns elsewhere.

On top of this, Mr. Buffett has been able to defer a full $57 billion in tax, indefinitely kicking the can down the road on his IRS bill thanks to industry-specific tax rules.

Again, you and I couldn’t do this because we don’t have access to these special privileges. Warren Buffett does.

Warren Buffett also has special access to lawmakers in the US who clamor to be in his favor.

During the early days of the financial crisis in 2008, for example, Buffett was getting desperate phone calls from the Treasury begging him to make investments in the financial system.

And as a result, he was able to arrange sweetheart deals, brokered by the US government.

It also may just be a wild coincidence that the US government has rejected the Keystone XL pipeline… and Mr. Buffett’s railways just -happen- to be among the prime beneficiaries.

Yes, I think if we all had the special privilege, access, and benefit that Warren Buffett enjoys, we too would all be jumping for joy about America.

But Uncle Warren lives in a different America– the America of the past.

With due deference to his investment acumen, Mr. Buffett should know that no nation in history has been able to -permanently- stand atop the world’s economic mountain. 

Like human beings ourselves, nations also rise, peak, and decline. It is their own life cycle. 

And the America that Mr. Buffett doesn’t acknowledge is the one that is in debt past its eyeballs. 

It is the America that spies on its citizens and threatens people with imprisonment for victimless crimes and administrative transgressions.

It is the America that conjures trillions of paper dollars out of thin air in total desperation, sending the labor force participation rate to multi-decade lows.

It is the new America that exists for a tiny elite at the expense of everyone else.

The above article exposes on what I call as “people up talking their industry” or a prime example of the the agency (principal agent) problem or the invisible conflict of interests between industry participants and their clients and or the public. [I should know I am a part of Mr. Buffett's industry but based on the Philippines.]

The cheerleading of Mr. Buffett on the economy has been designed to bolster Berkshire's financial interests (through implied advertisement) by encouraging the unwitting public to patronize the businesses offered by his companies via the "economy".

The other ramification is that the average investors pile into Berkshire’s stocks thereby pumping up share values and therefore magnify Berkshire's "returns" which will eventually reflect on Mr. Buffett's wealth status.

Of course what Mr. Buffett didn’t say too, which has been lucidly explained by Mr. Black, has been that Berkshire’s “economic moat” or competitive advantage has hardly been due to Ben Graham’s “value investing” but rather to “value” provided by political privileges via rent seeking political entrepreneurship, which meant special access to politicians and their regulations or exemptions in order to protect Berkshire’s interests. In terms of proportionality, 25% in stocks and 75% in rent privileges hardly speaks of value investing. 

In addition, some of the 25% of Berkshire's portfolio also benefits from political cover, as noted above.

The point is that what benefits Mr. Buffett’s Berkshire isn’t largely shared by the public. But Mr. Buffett makes it appear otherwise.

I’d like to add that Berkshire Hathaway is just one of the major recipients of government subsidies. According to a report by Philip Mattera of the taxpayer watch group Good Job First over the last two decades: 

…subsidy awards worth more than $1billion have been given to Warren Buffett’s Berkshire Hathaway by way of its holdings such as Geico, NetJets, Nebraska Furniture Mart, General Re Corporation, Lubrizol Advanced Materials, and Webb Wheel Products.

It’s not just Mr. Buffett though. An increasing number of US companies have become welfare recipients of the US government. About 75% of cumulative disclosed subsidy dollars to the tune of a whopping $110 billion notes PandoDaily.com have gone to 965 large companies where Fortune 500 firms have received receive more than 16,000 subsidies at a total cost of $63 billion. And more US government subsidies have also covered foreign firms. The 10 largest welfare corporate beneficiaries include Boeing, Alcoa, Intel, General Motors, Ford, Fiat, Royal Dutch, Nike, Nissan and Cemer. Mr. Buffett's Berkshire ranks 15th.

Bottom line: Be careful of what industry promoters say. In today’s world where politics has increasingly become a dominant force whether in the US, Asia, Europe, Latam and even in the Philippines, the rose colored-Pollyannaish outlook may all be about promoting the interests of the “tiny elite at the expense of everyone else".