Warren Buffett, the oracle of Omaha, has never been one to mince his words, especially when it comes to financial matters. In a candid discussion, he delves deep into the contentious topic of the debt ceiling, shedding light on its economic implications and drawing historical parallels. As he navigates through the intricacies of currency control and the challenges of raising children in affluence, Buffett offers invaluable insights that resonate beyond just the financial realm. Dive in to understand why he believes the political tussle over the debt ceiling is not just misguided but “really stupid.”
Below is a transcript from a Berkshire Hathaway shareholder meeting in 2011 where Buffett and Munger discussed the debt ceiling debate.[1]
Interviewer Becky Quick: “Are you worried about Congress playing politics with the raising of the debt ceiling? What would this do to Berkshire Hathaway stock and to the overall economy?”
Warren Buffett: “You mean if they didn’t raise it? If they didn’t, yeah well, it would probably be the most asinine, you know, act that Congress, which ever performed. At one time in Indiana, back in the 1890s, I think, they passed a bill – I know it was introduced – you can look it up on a search engine. They passed a bill to change the value of pi, the mathematical term pi, to an even three because they said it would be easier for the school children to work with. Well, that’s the only bill I can think of that would give competition to a refusal to raise the debt ceiling. I mean, it’s extraordinary. I mean, it really is extraordinary that with our deficit running, you know, well over 100 billion dollars a month, and all kinds of items again – they changed. I mean there’s having a debt ceiling to start with is a mistake. I mean, it doesn’t – the United States of 2011 has a different debt capacity than the United States of 1911, and we’re always – it’s going to be a growing country, and we’re going to have a growing debt capacity. That doesn’t mean I think it’s a great idea at all to have debt growing as a percentage of GDP, but the strict debt ceilings on so that these games get played and all the time that gets wasted and everything – and the amount of silly statements that you hear – it just, it just seems such a waste of time for a country that’s got a lot of things to do.”
“In the end, they won’t; in my view, there’s no chance that they don’t increase the debt ceiling. And I would love to see them, you know, like I’d love to see them eliminate the idea because it just results in these periodic stalemate operations where everybody uses it for posturing purposes and everything of the sort. The United States is not going to have a debt crisis of any kind as long as we keep issuing our notes in our own currency. The difference between being able to borrow in your own currency and having to borrow in another currency is night and day. The only thing we have to worry about is a printing press and inflation. If you’re a member of the European monetary unit, you have to worry about – you can’t print money. You can go and get your coalition members to try and help you out, but giving up the right to issue debt in your own currency is a huge step. The United States has not done it. I don’t know whether we’ve ever issued U.S. bonds than any other currency, but we certainly haven’t made a habit of it. And the Japanese incidentally, which have a very high ratio of debt to GDP, also have consistently borrowed in their own currency. Believe me, when it’s time to pay somebody back, and you have a choice of paying – and you’re forced to pay in somebody else’s currency versus paying in your own – it’s an entirely different proposition.”
“Matter of fact when Charlie and I were trying to buy that bank back in Chicago in the late 1960s, and this was a time of really tight money – tight money was different than tight money today. I mean that time tight money meant no money. Somebody wanted us to buy this bank and they wanted – the only place we could find some money, I think, was in Kuwait dinars. I thought to myself, and Charlie concurred – you know who the hell knew what they were going to say the value of the dinar was when we went to pay it back? I mean, it was not something over which we had a lot of control, so we decided not to borrow the money in dinars even though I kind of wish we bought the bank.”
Charlie Munger: “But I do think, I do think you know, I remember an era when we had a bipartisan foreign policy and all that – and I like that era, and that was the Marshall Plan, and a lot of wonderful constructive things were done – and they were generous things.”
“Now it seems to me that both parties are trying to compete to see who can be the most stupid – and they keep topping one another.”
Warren Buffett: “You can tell Charlie is a fellow that’s always filed an accurate income tax form – not worried about numbers.”
Audience question: “100 years from now, Warren and Charlie, what would each of you like to be remembered for?”
Charlie Munger: “Old age. They would have said, ‘That’s the oldest looking corpse I ever saw.’ I have a different saying that came down from one of my great-grandfathers, and I think it – ‘A fortune fairly won and wisely used’ – it’s a pretty good system.”
Warren Buffett: “Yeah, I would; if you really ask me, I’d probably like ‘teacher.’ I enjoy teaching a lot, and some people think I do a little too much of the didactic stuff, but I like students coming in – and I benefited by some fabulous teachers, starting with my dad but going on to Ben Graham, going on to Tom Murphy. I mean, there’s lots of great teachers, so I would say that.”
“I might point out that on Wilt Chamberlain’s gravestone, I think it says, ‘At last I sleep alone’ – legendary.”
Warren Buffett: “Okay, Becky.”
Becky Quick: “Charlie, I got several variations of this question, but this one comes from Peter Kerr in Waterloo, Canada. He says, ‘Could you please let us know a couple of the most important things you learned during the last year?’ I’ll let Charlie go first.”
Charlie Munger: “Well, I hate to admit this because I’ve ignored high-tech all my life, but I actually read that book ‘In the Plex’ about Google, and I found it a very interesting book. Here I am at my advanced age, and I find it interesting the way people have created these engineering cultures, which are quite peculiar endeavors – most of what we have at Berkshire. Will I ever make any use of this? I doubt it, but I certainly enjoyed learning it, and if I enjoy learning it, I regard it as important because I think that’s what you’re here for – to go to bed every night a little wiser than you were when you got up.”
Warren Buffett: “I’m just trying to hold my own, actually. What I learned in the last year is I’m going to have Charlie write the next press release.”
Charlie Munger: “Warren, I approved that press release with no objections. The American shareholders are going to be in terrible trouble if they’re relying on me to fix your errors.”
Warren Buffett: “Okay, let’s go to number 11.
Question from the audience: “Mr. Buffett, hope you enjoyed your first trip to India. Here’s my question – one of the most important things that drive people are incentives, but if you live in a rich society, it’s very hard to get your kids to work hard and reach their full potential because they just don’t need to. So, if you or Charlie decide to have a kid in the next five years, how would you incentivize him or her to compete against the hungry and highly motivated kids from emerging markets like China, Brazil, Russia, or India?”
Warren Buffett: “I apologize for interrupting. It’s a good question. I think certainly that if you are very rich and you bring up your kids to think that they are – that they are more important in society or that they have some special privilege simply because they came out of the right womb – that’s just a terrible mistake. But Charlie has raised eight children that I know quite well, most of them, and I don’t think any of them have that sense. But it’s – if you really are going to raise your kids to think that other people should do all the work for them and that they will be entitled to sit around and fan themselves for the rest of their lives – I mean, you probably will not get a good result.”
“In my – Charlie’s been rich most of the – when his kids, many of his kids were growing up, some of his kids were growing up. I’ve been rich while my kids were getting certainly when they got into high school and college. But I don’t think – I certainly didn’t want to give them the idea that they were special just because their parents were rich. And I don’t think it – I don’t think you necessarily have to get a bad result or have children that don’t have any incentives simply because their parents are rich.”
“The one thing I don’t think you want to give them an incentive to do is try and outdo their parents at what their parents happen to be good at. I don’t think that makes sense whether you’re a professional athlete or a rich person or whatever it may be – a great novelist, or you name it. But I really think if you’re rich and your kids turn out to have no incentives, I think – I don’t think you should point at them. I think you should probably point at yourself.”
Charlie Munger: “Well, I don’t think you can raise children in an affluent family and have them love working 60 hours a week in the hot sun digging fence post holes or something – that’s not going to work. So, to some extent, you are destroying certain kinds of incentives. My advice to you is to lose your fight as gracefully as you can.”
Warren Buffett: If you can get your kids to love the idea of working 60 hours a week when they’re poor, they may have to.”
Charlie Munger: “But the kids that really get interested in something will work no matter how rich they are. But it’s rare to have an intensity of interest. You know, if you were a proctologist, you might not like your day as it went on and on.”
Warren Buffett:” I think we better move along, Becky.”
Key Takeaways
- Congressional Debt Ceiling Games: Warren Buffett emphasizes the folly of Congress using the debt ceiling as a political tool, likening it to an attempt in the 1890s to change the value of the mathematical term pi for simplicity.
- Debt and Economic Growth: The U.S. of today has a different debt capacity than a century ago. As the country grows, so does its ability to handle debt, though this shouldn’t be an excuse for unchecked increases in debt as a percentage of GDP.
- The Importance of Currency Control: The US remains in a strong position as long as it issues notes in its currency. Borrowing in one’s currency versus another’s offers a distinct advantage, safeguarding against potential economic pitfalls.
- Raising Children in Affluence: Wealth shouldn’t be a reason for children to lack motivation or incentives. Instilling values that prevent them from feeling entitled just because of their family’s wealth is crucial.
Conclusion
Warren Buffett’s insights into the debt ceiling debate underscore the importance of prudent economic decisions over political posturing. With its evolving debt capacity, the US must approach its financial future with foresight and responsibility. Furthermore, the principles of raising children in an affluent environment highlight the broader theme of instilling the correct values and work ethic, regardless of one’s financial standing. In both economic and personal realms, it’s essential to prioritize long-term wisdom over short-term gains or appearances.
