I.O.U.S.A - Addison Wiggin [88]
an ounce. You ’ d have paid to store it and you ’ d have insured it and you ’ d have received no income from it at all. Your real return would be very, very poor.
Q: One of the attributes that people apply to the gold standard is that it exacts fi scal discipline on a government that uses gold as backing for its currency. Do you think that ’ s true?
Warren Buffett: We ’ re doing this interview in a state, Nebraska, where William Jennings Bryan said, “ Do not crucify mankind upon a cross of gold. ” It ’ s true that gold can act as a check on certain economic excesses, but it can act as a check, unfortunately, on economic activity, too. Its virtues become its sins, also. I do not think a gold standard would work well for the world.
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180 The
Interviews
Q: Can you comment on the federal debt and unfunded liabilities?
Is this something that you ’ re concerned about? Or do you think we ’ re at a manageable level?
Warren Buffett: The net federal debt is about 40 percent of GDP.
Compared to what it ’ s been historically in this country and what it is in many other countries, it ’ s not at an unreasonable level. And debt can only be measured in relation to income. You have 300
million Americans with great income potential. The government has a claim on that income in the future. It has whatever claim it wants, as a practical matter. Forty percent of GDP in that debt is not something that ’ s caused us trouble in the past. I don ’ t think it ’ s something that will cause us trouble in the future.
Q: What do you think of the defi cit reduction of the ’90s and some of the fi nancial policies of the last seven or eight years? Would you like to see defi cit reduction? Do you think that piling up defi cits is a bad thing?
Warren Buffett: I think keeping debt within a range of GDP
makes sense. I don ’ t think you want debt to climb to 100 percent of GDP. I don ’ t think you want to pay off the national debt.
And that means if GDP grows in nominal terms, 4 to 5 percent a year, and the national debt grows at 4 to 5 percent a year, you really haven ’ t changed the fundamental economic dynamics of the country any more than if Berkshire is worth $ 10 billion and owes $ 1 billion and someday later it ’ s worth $ 100 billion and owes $ 10 billion. Nothing has really changed for the worse in terms of Berkshire ’ s credit, and the same goes for the government.
Q: Do you think that the retirement of the baby boomers will throw a curveball at this equation?
Warren Buffett: No, the demographics have worked somewhat against the standard of living for a long time. Retired people live in retirement much longer now than they did 50 years ago.
But the standard of living kept improving during the twentieth century, even as demographics moved away from ideal, if you ’ re talking about productivity. You had more and more people retired relative to the ones producing, and that ’ s continuing. But c14.indd 180
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productivity improves all the time, too, so it ’ s a good thing when people don ’ t have to work as hard to take care of the needs of the whole population. That ’ s what ’ s been happening over the years, and I think it ’ ll continue to happen.
Q: The speed at which globalization has happened, to the rise of China and economies, at the same time that the Western economies are getting older — is that changing the equation at all?
Warren Buffett: What ’ s happened, to some extent, is that China has caught on to some principles that have made this economy work so well. In 1790, there were about 4 million people in the United States and there were about 290 million people in China.
They were just as smart as we were. They had a climate that was about the same as ours. They had somewhat comparable natural resources. And yet, we did enormously well over the next 217 years in improving the lives of the people