Kerry's seeking bad advice

Townhall.com ^ | 5/6/04 | Alan Reynolds

[wagglebee]

Sen. John Kerry recruited two famous businessmen to what The New York Times described as his "motley team" of economic advisers. Kerry turned to Steve Jobs of Apple Computer and Warren Buffet of Berkshire Hathaway. (When Kerry said he was fighting for Jobs, we didn't realize he meant Steve).

Buffett is the second wealthiest man in the world. Steve Jobs just received America's second largest executive pay package. Both are amazingly talented at what they do. But what they do not do is economics. Until now, nobody imagined Steve Jobs had any interest in economics. Buffett, on the other hand, has sounded off on numerous topics. Unfortunately, Buffet's paper trail makes it reasonable to conclude that Kerry approves of his views. And that could prove embarrassing.

One Buffett article the Kerry camp surely enjoyed was opposed to cutting the tax on dividends -- "Dividend Voodoo" in the May 20, 2003, Washington Post. Buffett argued that if Berkshire Hathaway were to pay $1 billion in dividends, then he would receive $310 million in tax-free income under the president's original proposal, and still a good deal even with the final 15 percent tax.

But Buffet's could easily take out much more than $310 million out of his $43 billion at any time by selling some shares and paying a 20 percent tax (now 15 percent). The capital gains tax was reduced in 1997 and 2003 because people like Buffett who do not have to sell will simply refrain from selling if the tax is too high. Unfortunately, taxing dividends at a higher rate than capital gains encouraged people like Buffett to vote against paying a dividend, even when the alternative was to risk retained earnings on high-yield euro-denominated bonds.

A major goal of reducing the tax on dividends to 15 percent was to encourage companies like Berkshire to pay a dividend. Berkshire collects dividends from stocks in companies it owns, but still refuses to pay its own shareholders. And Berkshire's 21 percent rise last year did not keep pace with the 29 percent rise in the S&P 500 or the 32 percent average rise among equity mutual funds.

Buffett's opinions about the desirability of high taxes on dividends happen to be consistent with maximizing his own wealth, but not necessarily with that of his second-class, non-voting shareholders.

Similarly, Buffett's famous crusade to compel tech companies to expense a bogus estimate of the cost of stock options is consistent with his aversion to owning tech stocks. Expensing would make it much harder for companies like Apple to compete against companies like Coca Cola for executives and capital. Kerry would be wise to keep Buffett and Jobs in separate rooms.

Buffett's most revealing article appeared in the Nov. 10, 2003, Fortune, titled "America's Growing Trade Deficit Is Selling The Nation Out From Under Us." It began with a "wildly fanciful trip" to two islands, Squanderville and Thriftville, which were both "self-sufficient" until they foolishly started to trade. Then Squanderville began to run trade deficits, which gave Thriftville the Squanderbucks to invest in Squanderville assets.

The United States was Thriftville until 1980, says Buffett. "Since then, however, it's been all downhill." But remember what the economy was like in that supposedly wonderful decade before 1980 before you buy into this fable too quickly. And realize that the best long-term example of Thriftville is Japan -- a country that has lost jobs and stock market wealth for a dozen years.

Buffett is strangely troubled by the fact that the value of foreign-owned assets in the United States exceeds by $2.5 trillion the value of U.S.-owned assets abroad. But whose assets would he rather have -- theirs or ours? He boasts of speculating in foreign currencies, but that isn't investing. Besides, the dollar rose 3 percent last month.

U.S. assets -- stocks, bonds and real estate -- have risen spectacularly since 1982, the same period when Buffet thinks everything went downhill. Meanwhile, many foreign assets -- such as Japanese stocks and Third World loans -- have fallen in value, some to zero. Some valuable foreign-owned assets include foreign drug companies and auto factories all over the United States. If those U.S. plants employ too many people and become too profitable, then Buffett fears they may end up "paying ever-increasing dividends" to stockholders in companies like Nissan or Bayer. So what? Many Americans own stock in companies like that.

Clyde Prestowitz once wrote a book called "Trading Places: How We Are Trading Our Future With Japan" (I have seen used copies on Amazon for one cent). Does Buffett really want the United States to trade places with Japan (Thriftville)? If so, why doesn't Berkshire invest in Japanese stocks?

Buffet shifts from his childish fable to advocating "a tariff called by another name." This draconian scheme is not a tariff, actually, but a very extreme import quota. It would be illegal to ever again import one dollar more than we exported. Buffet views this a "tax on consumers," but more than half of our merchandise imports consist of products essential to U.S. producers -- electronic components for U.S.-made computers and scientific equipment; parts for U.S.-made cars; chemicals for textiles and drugs; basic industrial materials such as oil and metals, and so on.

If such inputs could be purchased at all under Buffett's plan, their costs would be so much higher than in other countries that the United States could not afford to export anything at world prices. That would require even tighter restrictions on imports. Developing countries hoping to sell to the United States to get the dollars to repay their debts would default and stop trading. With world markets imploding, goods would have to be liquidated far below cost, causing widespread failures of businesses, farms and banks. Buffett does not think his plan should be compared to the Smoot-Hawley tariff of 1930. He's right -- it's worse.

Buffett's last report to his shareholders cautioned that, "Our country's dynamism and resiliency have repeatedly made fools of naysayers." The trouble with politicians using naysayers like Buffett as economic advisers is that such people cannot resist peddling gloom to voters who can read the headlines and see for themselves that it's utter nonsense. As Arnold Schwarzenegger learned, however, it is not so easy to muzzle an outspoken and charming curmudgeon who's worth billions.

If Kerry is really looking for sound economic guidance, it would be best to ask a real economist. One of the best, and a self-described Clinton Democrat, is Robert Hall of Stanford. But Kerry might not grasp his enlightened Harvard-bred views on tax policy. Bob Hall, you see, is the co-author of the Hall-Rabushka flat tax.

[wagglebee]

Kerry-Buffet plan for America: We've got our's and we're going to make sure you never get your's. Do they realize how patronizing they sound?

[goodnesswins]

Democrat Party-----Party of the UBER RICH!

[BenLurkin]

Bad advice?

How about:

Imbibe a couple 'boiler makers' concocted from gin and malt liquor - wait 20 minutes - then ride the "Whirly-Gig" at the local carnival.

[Adrastus]

The elite are going to get theirs first, last and always. We have created this legion of bloodsuckers with our own little tool box. Now we need to get rid of them. No more Hollywierd, east-coast high rollers and sports stars that get a pass just because they are who they are.The idea that justice and accountability are products of a large income is obscene.

DeToqueville was observant enough to see the contrast between Europe and America: They were burdened with an elite class, whereas America was not. The time is upon us to return to the old system.

[Lael]

Steve Jobs just received America's second largest executive pay package.

Who from???

Pixar???

Apple??

[wagglebee]

There's nothing wrong with a wealthy class (as opposed to an elite class). My family is fairly wealthy and I was brought up being taught that it was a privilege, not a right, and it certainly didn't make me "better" than others because I had more "stuff". The problem with the liberal elites is their condescending attitude toward everyone else. The reason America worked is because it really is a land of opportunity -- my great-grandfather was one of 8 children of an Irish immigrant with no money, by the time he was 40 (in 1930) he was earning $1 million per year, but he didn't screw anyone over to get it and he later helped a lot of others become wealthy. The Founding Fathers embraced capitalism, this is why every other successful nation on earth emulates America. You mentioned De Toqueville, he was lashing out against the French aristocracy, most of them were living on land holdings that were centuries old and were simply birthrates, while their countrymen starved (in short they were quite similar to Kerry and Kennedy). Kerry wants to piss it all away because he doesn't think we are "refined" enough.

[wagglebee]

Actually, Jobs get $1 per year from Apple, there is another $75 million in stock options, with a catch, he has to keep them for I believe 5 years. So, its sort of misleading, he only gets the money if Apple remains viable. I hope they do, Apple's technology blows Microsoft away.

[DJtex]

This is one more example of how disorganized Kerry is. He doesn't even know what he don't know.

To just pick two business superstars for thier marquee value is so shallow. Of course, when he really needs a good economist to bone up for the debates who would want to be invited second-string for Buffet and Jobs?

If Kerry gets in, these are the types of people he'll bring into his admin.

Let's face it--Kerry is scary!!

[wagglebee]

Remember how wacky Ross Perot looked 12 years ago? Being able to make money doesn't qualify you to be POTUS. Harry Truman went broke as a tailor, but he had the forsight to drop the A-bomb and save American lives (even if he screwed up everything else after WWII), hell even Reagan bragged about voting for him.

[The Great RJ]

Buffet and Jobs are flash in the pan types, not serious economists. He should be looking to the Nobel Prize winners in Economics at the University of Chicago. Better yet he should read some common sense economic books by Thomas Sowell and and especially read Friedrich von Hyek's book "The Road To Serfdom"

[wagglebee]

But Kerry just want a couple billionaires to tell him they love paying high taxes and want the government to get most of their money when they die. And whether or not that's true doesn't really matter to the ketchup cabana boy.

[js1138]

I am the very model of a presidential candidate,
From character to senator I know what to assassinate.
I lobby for the victims of injustice and adversity,
And care for those unfortunates who lack my great diversity.
I've slept with movie starlets and I've yachted with the Kennedys,
I've copied their initials and I've shared in their amenities.
And in the field of foreign wars my service is distinguishèd,
Or will be just as soon as all the rumors are extinguishèd.

Or will be just as soon as all the rumors are extinguishèd.
Or will be just as soon as all the rumors are extinguishèd.
Or will be just as soon as all the rumors are extinguishèd.


I'm boarding schooled and prepped and preened in snowy neutral Switzerland,
My haircuts and my super facials put me out at least a grand.
My visage in the mirror never ceases me to fascinate;
I am the very model of a presidential candidate.

In short his mirror visage never ceases him to fascinate;
He is the very model of a presidential candidate.


I married very well and proper, and I married nearly twice,
The number one had tons of money, and the kids they say are nice.
She was, advancing my career, annulled, but she remains a friend,
My second wife is richer still, and she is such a major brand.
My marriage and my intellectual positioning are pairs;
I'm married to ideas so long as they're attached to billionaires;
The nuances of laws and things are strewn among my haws and hems;
I'm very pliable and subtle like a Play upon the Thames.

He's very pliable and subtle like a Play upon the Thames.
He's very pliable and subtle like a Play upon the Thames.
He's very pliable and subtle like a Play upon the Thames.


I am the very model of a presidential candidate,
In matters war and peaceful I will always spin and vacillate.
I have a lot of incompatibly composed conflicting stands;
And ghosts fly out of Arkansaw, opposing me and my demands.

He has a lot of incompatibly composed conflicting stands;
And ghosts fly out of Arkansaw, opposing him and his demands.


When I become the president our kind can safely then inhale,
Unless a vast conspiracy of right wingers out on bail,
Demands a foolish fair election in a horrid third world state,
Or tries to overthrow a brutal and oppressive potentate,
Humiliates or disrespects a terr'ist or a tyrant lord,
Or fails to fly the white surrender banner for the mouse that roared;
I will This mad cabal remand and will severely castigate,
Unless to the U.N. or my successor I can delegate.

Unless to the U.N. or his successor he can delegate.
Unless to the U.N. or his successor he can delegate.
Unless to the U.N. or his successor he can delegate.


I am the very model of a presidential candidate;
I'm patriotic to a fault and never would renunciate;
I never would betray you and I never would equivocate.
My brain, when I am making big decisions, it can herniate.

His brain, when he is making big decisions, it can herniate.
He is the very model of a presidential candidate.

[Adrastus]

You are absolutley right. The one point that DeToqueville made that jumps off the page at you is that there were rich and poor. The big difference between America and Europe was that there was no strain between the two. The rich were aware that they had been poor and those that were poor could be their peers in short order. In other words there were certainly rich and poor, but there were no elite(nobility, if you will.). Helluva country we had, huh? Suppose we'll ever get it back?

[GailA]

I forget who said "the power to tax is the power to destroy', personally I think it should be changed to 'the power to tax, is the power to enslave."

[Adrastus]

Either way. That's why the Constitution was written the way it was...before some kindly folks made the "necessary" corrections.

[Lael]

Apple's technology blows Microsoft away

I'm hoping to acquire an iMac or an eMac in the next few weeks...I've given some of the best years of my life to Redmond Rottenware...Next 'must do' project...install ALL the security updates EVER issued for W98, WMe, and WinXP...I shudder at the thought!!! [on four separate machines...and that doesn't include the Sasser worm!!].

[wagglebee]

Yeah, I installed a bunch of microcraps updates onto my laptop last weekend and now I can't get sounds to work right (there's a delay). I tried online tech support and they tell me the computer is outdated and I need to buy a bunch of new software (I bought the computer last summer). My wife's computer crashed last month and we had to spend a few hundred bucks on Microsoft Office because the program had already been loaded, yeah you idiots it was loaded on the same computer before it crashed. So I think I'm gonna go look at some Macs before I make Bill Gates any richer.

[BenLurkin]

Wow!

Did you write that?

It is really very good!

(Old Ben was in a production of "Pirates" many, many years ago: "Here's you crowbar . . .")

[js1138]

I just noticed "Arkansaw". I was really sick with hay fever yesterday, and it went through the spell checker.

This has been a work in progress. Supercat has been proofreading it technically.