I.O.U.S.A. (47 page)

Warren Buffett

Warren Buffett is regarded as one of the world ’ s greatest stock market investors. That said, it should come as no surprise that
Forbes
magazine named the “ Oracle of Omaha, ” as he is called, as the richest person in the world in 2008. This savvy businessman and noted philanthropist has been the CEO of Berkshire Hathaway since 1970.

Q:
How long has Berkshire Hathaway been here in Omaha?

Warren Buffett:
We moved in at the start of 1962. It wasn ’ t Berkshire Hathaway then, but this is the only offi ce I ’ ve had since I had an offi ce in my bedroom.

Q:
Do you fi nd things that you like and then stay there? That
seems to be the case with your house and your offi ce, and your
investing philosophy is certainly that way as well.

Warren Buffett:
If I ’ m happy with something, I don ’ t change.

I mean, if I fi nd that I like hot dogs and hamburgers and French fries and cherry Coke, that ’ s what I ’ ll be eating the rest of my life.

Q:
What do you say to people who say, “ Oh, economic matters
are too complicated, and I can ’ t fi gure it out ” ? Why should the
average American try to get a handle on these matters? Why is it
important?

Warren Buffett:
I think it ’ s very tough for the average American to understand economics well, just as it ’ s tough for them to understand physics well. It ’ s a subject that requires some experience and thought and a fair amount of interest. And, as a practical matter, a high percentage of the population probably will not be interested in economics any more than they are in meteorology or physics or biology. Because it ’ s important it does not mean that hundreds of millions of Americans are going to understand it well. And of course the real problem is that they 175

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all have this indirect, passing interest in it, and demagogues of various sorts can scare them with economics because it does apply to their everyday lives. But since the average American doesn ’ t usually have the ability to, or even the interest in thinking incisively about the question, they can be subject to very superfi cial arguments.

Q:
Why is economics fascinating to you?

Warren Buffett:
I ’ ve always liked business; I ’ ve always liked investments; I ’ ve always liked economics. But I ’ m a disaster if you ask me what happens to a split atom or what happens to a cell within a body. Different people are wired different ways.

Q:
In 2003, you wrote a story that appeared in
Fortune
magazine.

Can you tell me a little about this story? Why did you write it?

Warren Buffett:
I wrote an article for
Fortune
on the parable of Squanderville and Thriftville, which was designed to simplify for people the problems inherent in persistent and large trade imbalances. Economics tends to put people to sleep, and I thought that by creating a couple of islands populated by inhabitants with quite widely different activities that it might get across a point that otherwise they get lost on.

Q:
What ’ s the general thrust of the story?

Warren Buffett :
Well, the thrust of it is that if you own a lot of property — in this case, an island — you can trade it for the things that you consume everyday. And you can do that for a long time, but eventually you run out of property and then you have to work a whole lot harder to provide for your own needs, but also to pay back the debts you ’ ve incurred or to get back the property you want. Short - term actions have long - term consequences that sometimes people don ’ t think about in the short run.

Q:
Is there a way to characterize our country and our philosophies
nowadays?

Warren Buffett :
In the last few decades, but accentuating in the last six or eight years, this country has started consuming considerably more than it produces. In other words, it ’ s relied on the labor of others to provide things that we use day by day.

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We ’ re able to do that because we have lots of things to trade for those goods, so we can trade away little pieces of the country. And, because we ’ re so rich, we can do it for a long time and we can do it on a large scale, but we can ’ t do it forever.

Q:
Explain that to me. Why is that?

Warren Buffett:
It ’ s like a credit card. My credit ’ s pretty good at the moment; if I quit working and have no income coming in but keep spending, I can fi rst sell off my assets and then, after that, I can start borrowing on my credit card. And if I ’ ve got a good reputation, I can do that for quite awhile. But at some point, I max out. At that point, I have to start producing a whole lot more than I consume in order to clean up my debts.

Q:
Let ’ s imagine for a minute that the U.S. economy is a horse and
it ’ s in a race, and the other horses are other economies around
the world. How strong and how much of a favorite to win is
our economy today and historically?

Warren Buffett:
We have a terrifi c economy, and the real standard of living in the twentieth century, per capita, improved seven to one. There ’ s never been anything like that in history. And we will have a better economy 20 years from now, and 50 years from now, than we have now. We are continuously getting more productive in the country. We have more people turning out more things.

Our country has a fi ne future economically. You don ’ t want to bet against the United States.

On the other hand, we are creating debts and selling off assets, which will require American citizens in the future to service those debts, and that will take some part of their output. But I want to emphasize that the output left for them will still be higher per capita than it is today. We are not spending or consuming ourselves into destitution. Americans will be living better 20 years from now and 40 years from now than they do today.

Q:
Do you think that you could make an argument that Americans
are living too well, or maybe beyond their means?

Warren Buffett:
Well, we are using up some of our national credit card and selling off a small portion of our assets every c14.indd 177

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year in order to consume more than we produce. But the value of the country goes up annually and over the decades, so we can do some of that. We can still improve the standard of living per capita, not as much as if we weren ’ t consuming so much, but we will still be improving the standard of living. The time will come, however, if we continue this policy, when Americans will fi nd that 2 or 3 percent of their labor every day is going to service the debts incurred by the overconsumption of the present people. They ’ ll still live very well — I want to emphasize that.

Q:
Is the fact that we ’ re not saving as a country and the fact that
there ’ s much more foreign ownership of our bonds and our
debt interconnected, and what are the ramifi cations?

Warren Buffett:
Well, we ’ re transferring small bits of the country — ownership of the country, or IOUs — to the rest of the world, but our national pie is still growing. In other words, we ’ re like a very, very, very rich family that owns a farm the size of Texas, and we have all this output coming from the farm. Now, because we consume a little more than we produce, we ’ re selling off tiny bits of that farm daily, a couple billion worth, or we ’ re giving a small mortgage on it which we don ’ t even notice, but it does build up over time. On the other hand, the farm is getting more productive all the time. So even though we own a little less of the farm, or we create these IOUs against it, our equity in the farm actually increases somewhat. That ’ s why people will benefi t over time. But they won ’ t benefi t as much as if they hadn ’ t given the IOUs or sold off little pieces of the farm.

Q:
At some point in the last few years, for the fi rst time ever, you
bought foreign currencies. Can you explain to me your own
personal faith in the U.S. dollar? Has that faith changed or
altered in the last few years? If so, why?

Warren Buffett:
Both personally and at Berkshire Hathaway, we have far more assets in dollars than in all other currencies combined. So it is not like anything drastic is going to happen in the United States. On the other hand, if you give more and more of your IOUs to the rest of the world and you denominate them in c14.indd 178

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your own currency, history shows that countries that do that have an interest over time in infl ating and in having their currencies worth less. If I could fi nance all of my own consumption today by handing out something called Warren Bucks, or Warren IOUs, and I had the power to determine the value of those IOUs over time, believe me, I would make sure that when I repaid them 10 or 20