Billionaire Buffett Says Tax Cuts for Rich Not Necessary

The second wealthiest person in the US, Warren Buffett, rebutted claims that the Obama administration is unjustly hurting business orders with high taxes by saying that in fact, the wealthy have never had it so good.

"I think that people at the high end, people like myself, should be paying a lot more in taxes. We have it better than we've ever had it," he told ABC's Christiane Amanpour in a clip played on "This Week" on Sunday, Nov. 21st.

George Bush's Biography Out in a Unique, Creative Format

On the Con Slogan "Rewarding Losers"

Many analysts have agreed that conservative pundits and politicians have won the "slogan war". Conservatives (cons) have mastered the Madison Avenue art of charging $1.50 for a cup of flavored sugar-water using catchy slogans and imagery.

I encountered just such a slogan the other day when a con proclaimed that "the bailouts and stimulus are guaranteed to fail because they reward losers". These alleged losers include the failing banks and US states with regard to their troubled budgets. (The stimulus explicitly assisted with state budgets for teachers, cops, and firefighters.)

This theory goes that if you "bail out losers", you then encourage more of the same behavior, causing a further slide in the economy. Like most such slogans, it does have an element of truth. It's not entirely false, but rather an exaggeration. Or more specifically, it's a relatively small factor when considered against other factors.

The primary purpose of a Keynesian stimulus is pump money into the economy to spur economic activity. Think of it as monetary caffeine. Even if you give money to the so-called "losers", it still triggers circulation of money as they consume goods and services and pay employees.

Let's take an extreme example and assume we'll give some cash to a drunken bum. The bum may go buy a sandwich, a lottery ticket, and some Jack Daniels. The sandwich money helps out the deli; the lottery ticket helps out the state budget and ticket commission employees; and the Jack Daniels money helps out brewers and distributors. The money "bounces around" the economy.

True, if you keep giving money to the bum year after year, he or she is certainly less likely to get some help and clean up their life. But again this is a longer-term issue. The hurting economy is a here and now issue. We are all in the same boat. You punish both winners and losers by obsessing on incentives for losers.

It reminds me of those old cartoons where the home owner blasts apart his own house in an attempt to kill one annoying fly. Sure, you punished that evil "loser" fly, but took out everything around you to do it.

Now let's address the alternatives. One approach to a sour economy is to do nothing and let it fix itself. That didn't work so well for Hoover. Another approach is to stimulate the economy via tax-cuts. 1/3 of the stimulus plan was tax cuts, by the way. However, the problem with tax-cuts for the wealthy is that they tend not to spend it immediately, which is against the very mechanism of a stimulus. They have the luxury of storing it away until they see a good investment come along.

The poorer one is, the more likely they are to quickly spend any extra money because they have more immediate needs. That's just the nature of economic behavior; not an evil socialist plot to help out the poor. Rich people save, poor people don't, and a smart stimulus plan uses this fact.

Further, banks are infrastructure. Letting them fail could turn our business lending system on its head, making the problem worse for everybody. You don't tear up a road just because the road builders were crooks. Most of the original head honchos of the bad banks are gone anyhow.

The conservative obsession with punishment and revenge often ends up hurting the good guys also.

What the 2010 Election Results Mean

As of writing, it's one day before election results and I expect that Democrats will take a fairly big hit. Conservatives claim it means that Americans reject Keynesian economics (stimulus plans) and the new healthcare legislation.

The truth is that the new healthcare legislation has only begun to kick in and won't have any noticeable impact on the economy any time soon. Further, the unemployed have an even bigger need for healthcare insurance help during a bad economy.

What's really happening can be compared to being stuck in a deep ditch, where the ditch represents the economy. The Democrats have not been able to get the voter's car out of the ditch such that the voter is now trying a different towing company, some if it out of spite. They may not even understand why the first towing company couldn't get them out of the ditch; they just know they want to be pulled out somehow by someone. Bad economies have always been hard on incumbents, regardless of fault. The T-party movement itself wouldn't be so popular if voters were happy with the GOP.

That being said, perhaps there is no quick fix to the economy. Our stimulus was too small because Bush spent our rainy day fund. China's stimulus worked because they had saved up a nice big rainy-day fund (largely due to lopsided trading with the US).

The USA's financial infrastructure is still choking on bad home loans and probably will be for a several years. The mortgage problems also keep people from moving to new jobs in different cities because they can't sell their houses without taking a huge loss, which further clogs up the arteries of the economy and slows the natural corrective powers of worker churn.

And even profitable companies are still not hiring because they want to see consumer demand increase first. Expected consumption patterns are primarily what guide their staffing levels. Yet, consumers won't do much big spending until they feel secure in their jobs. Thus, it's a big game of chicken between consumers and producers.

Many conservatives claim that tax-cuts for the wealthy will jump-start the economy. Not likely. They didn't speed up recovery from the dot-com meltdown nor prevent another meltdown. Big-biz lobbyists have spent billions pushing that myth, and duped a lot of conservatives into thinking tax-cuts for the rich is some kind of magic economic crack. Perhaps it is, if the crack high is comparable to yet another bubble.