A supporter of Obama's economic plan and a Keynesian disciple, Warren Buffett seems unable to decide if we are still in a recession.
On September 13, Bloomberg reported that Buffett announced he was "a huge bull in this market." He seemed self-assured that the economy was in no longer contracting and that "we will not have a double-dip recession at all. I see our businesses coming back almost across the board."
Buffett blamed the negative perception of the economy mostly on the media, which did not reflect his view of the business environment. The current economic doldrums apparently are a figment induced by negative reporting, which has no bearing on reality in the business world. "I've seen sentiment turn sour in the last three months or so, generally in the media," Buffett said, and then he added, "I don't see that in our businesses. I see we're employing more people than a month ago, two months ago."
Nine days later, during a CNBC interview on September 22, he said, "We're still in a recession. And...and we're not gonna be out of it for a while, but we will get out of it."
What happened to change his mind so quickly?
The interview went downhill from here. "I just think that...when a country needs more income and we do, we're only taking in 15 percent of GDP, I mean, that...that...when a country needs more income, they should get it from the people that have it." Here is a better idea: fiscal responsibility.
When pressed if it was a prudent idea to raise taxes at this time, Buffett said, "I think...sure. On some people. Yeah." Well, sir, based on your sudden reversal on the recession, I am not sure I trust your cavalier attitude about taking even more money from the struggling job-producers and investors.
To be or not to be a Keynesian?
Buffett then began his solo point and counterpoint debate between his inner Keynesian and free marketer.
Keynesian: "The government did the right thing in...in terms of...of getting the economy going again." In fact, "we've got three tools, really, in fighting a recession. And the ones you read about are monetary policy, which is the Fed. And, of course, fiscal policy."
Free marketer: "I think the most important factor in getting out of the recession actually is just the regenerative capacity of...of American capitalism. We had many recessions in the history of this country when nobody even heard of fiscal policy or monetary policy. The country always comes back."
Keynesian: "And...and...it's...it's important to have the right monetary policy. It's important for...to have the right fiscal policy."
Free marketer: "But it's nowhere near as important as just the normal regenerative capacity of American capitalism."
Keynesian: "But...but I mean, we've used up a lot of bullets. And we talk about stimulus. But the truth is, we're running a...federal deficit that's nine percent of GDP. That is stimulative as all get-out. I mean, that is more stimulative than any policy we've followed since World War II. And, of course, World War II, we had a huge stimulus and it...it took us out of...a depression. But we are...it doesn't depend on calling it the 'Stimulus Bill' to be stimulating. I mean, if...if...if the government is spending $3 for every $2 it takes in, that is...that is fiscal stimulus."
Free marketer: "It isn't kick-starting things as much as the American public would like. I'm sure as much as the administration or Congress would like. It's probably had some effect, probably less than the economists thought it would have going into this."
With the debate concluded, Buffett finally divulged the real reason for our economic malaise. It is our fault because we do not like Washington. "Sentiment has turned very sour in the last three or four or five months. It's been generally sour on Congress and Washington, but it seems to have taken a turn for the worse. I...I hope we get over it pretty soon, because it's...it's not productive. We will come back regardless of how people feel about Washington. But...but it's not helpful to...to have people...as unhappy as they are about what's...what's going on in Washington. And...I'm...I'm not sure exactly what's gonna get us out of that, but we'll get out of it."
Fortunately, Buffett knows who will lead us out of this recession. If you guessed big business and new college graduates, then you are correct. "What will take us out of this is people like these 23 people that...that we gave a diploma to today. And big business. I mean, everybody glorifies small business. God bless 'em, you know? And...and I'm not supposed to talk about mother on Father's Day."
Now let's recap what we have learned from Mr. Buffett.
We were not in a recession early this month, but we are now. Government intervention policies were not necessary in the past, but are necessary now and in the future. Higher taxes on the wealthy will not hurt the recovery. The politicians should take whatever they spend, and we should love them for it. Small businesses play an insignificant role in an economic recovery in comparison to big businesses and college graduates. And the winner of the Keynesian versus the free marketer debate is the Keynesian.