Warren Buffett's mistake
The Washington Post, November 27, 2012
I hate to pick a fight with the sage of Omaha, but in an otherwise admirable New York Times op-ed Monday that offered a new version of his idea for a minimum tax for the wealthy, Warren Buffett embraced (inadvertently, I'm guessing) spending and revenue goals for the federal government that would kill any agenda for American renewal in its cradle. Because Buffett's voice is so sane and generally credible—especially with businesspeople and with President Obama—his proposed targets, if influential, could prove damaging. For the reasons I'm about to lay out, I hope he'll rethink.
Buffett argues that "our government's goal should be to bring in revenues of 18.5 percent of G.D.P. [Gross Domestic Product] and spend about 21 percent of G.D.P.—levels that have been attained over extended periods in the past and can clearly be reached again.
"As the math makes clear, this won't stem our budget deficits," he adds, but it "will keep America's debt stable in relation to the country's economic output."
This is true, but solvency (even the kind with the permanent red ink Buffett supports) is not an adequate national goal. Solvency should be the ante for our government. What we need is an agenda for national renewal. And we need it at a time when our population is aging expensively. We can't do renewal at 21 percent of GDP.
Why not? At the risk of sounding like a fiscal version of a broken record, Ronald Reagan and George Bush the elder ran the federal government at 22 percent of GDP at a time when America was much younger. We're shortly going to double the number of seniors on Social Security and Medicare. Even if we take steps to slow these programs' growth (and I've supported some reforms that put me to the right of Paul Ryan on this score), and even if we sensibly trim defense and run less of a global empire than we do today, we can't operate government at a smaller share of the economy with twice as many seniors without forcing damaging cuts in the resources we devote to other non-elderly purposes.
Yet it's these non-elderly purposes that make up most of what we think of as government—from national parks to student loans to the FBI to the border patrol and more.
And it's these non-elderly investments that (by definition) will build our future. Things such as infrastructure (new electric grid after Hurricane Sandy, anyone?) and research and development (where our once-leading position has eroded).
We also need to invest in higher salaries to lure a new generation of teaching talent to the classroom, so our schools can one day compete again with the best school systems abroad. Not to mention longer school days and years. Oh, and universal preschool.
And while we're making a non-elderly wish list, I'd also add bigger wage subsidies—via, say, some kind of mega-earned income tax credit—so that full-time work (and especially in-person service-sector work that can't be offshored) offers a reliable path to the middle class.
All this will take federal cash. And that's before we get to the biggie no one is even talking about: Shifting the burden of health costs off of corporations and onto public budgets, as virtually every other advanced nation does. Today, business spends around 4 percent of GDP running a big chunk of America's welfare state. Does any CEO think this makes sense in the 21st century? Especially when we can shift these costs to Uncle Sam via a voucher-style Romneycare/Obamacare approach that doesn't put us on any slippery slope to socialism?
Add it all up, and—even assuming we get the denominator humming again via better growth in GDP—we're probably talking around 28 percent of GDP as the boomers age (and this will be fine for the economy—but that's another column).
Can we renew an aging America for less? Only if we get our radically inefficient health-care system to meet international benchmarks of cost effectiveness, freeing up trillions for other purposes. I'm all for this, as I'm sure Buffett is. But I wouldn't bet our children's future on convincing America's Medical Industrial Complex to join this cause in time to make a big enough difference to the analysis above.
So why did Buffett go with 21 percent? I'd love to hear him explain, but my hunch is he took his cue from Alan Simpson and Erskine Bowles, who have embraced the same flawed aggregate spending target.
There's still time for them to publicly reconsider. We can obviously balance the books at any level of spending and taxes. The question our leaders must ask is why we should prefer one level over another. That can only be answered with a more concrete policy vision to bolster upward mobility, equal opportunity and economic security in a global age.
In that spirit, Warren, please have another look. Remember, it's not about solvency, it's about renewal. Craft a plan, run the numbers, and see if you don't agree that if we're serious about America's future, 21 percent of GDP will be a fatal straitjacket in an aging America.