16
Aug
A Modest Proposal for Warren Buffett
I have a modest proposal for Warren Buffett. After his New York Times Op-Ed became the talk of the town over the weekend, I got into a pretty vigorous debate with a few folks I know. “If he thinks it’s unfair that his secretary pays lower taxes than he does”, they posited, “then he should just pay the difference to the U.S. Government and leave the rest of us alone.” While I don’t necessarily agree with this position — and in fact, it’s doubtful whether the IRS knows how to process such a check (I’m betting against it…) — it got me thinking.
The point of this post is not to discuss the coddling of the rich, flat vs. progressive taxes, supply-side economics, or anything else that I’m thoroughly under-qualified to discuss. The point of this post, rather, is to put forward what I see as modest proposal that would be a winner all around. Put simply, Warren Buffett should take the difference between his actual taxes and a “fair” tax, and invest it in U.S. startups.
Here’s why it’s a winning idea all around: at the end of the day, the debate about how to reboot the U.S. economy is not a question of “what”; it’s a question of “how”. Some people believe that minimal regulation and low taxes will juice the American economy. Others think that we need reasonable regulation, higher taxes, and more public investment. We all agree, however, about the end goal: getting the economy moving and getting people back to work.
Something else we can agree on is that innovation and hard work are what made the U.S. economy the largest in the world, and that maintaining our economic leadership will require more innovation. If you accept this premise, then investing in the next generation of great companies is one of the best uses of money that I can think of.
This proposal sidesteps one other pesky problem: the inefficiency of government. I staunchly believe that some — many, in fact — services need to be publicly-run. I’m a registered Democrat. That said, government-run programs are always rife with inefficiency. Why, then, would anyone want to include an inefficient middleman when we’re investing in growing the economy and adding jobs? Let’s get money directly to businesses that can create jobs.
Based on what little I know of the man (I’m not lucky enough to have met him), Warren Buffett doesn’t typically invest in startups. This Quora answer summarizes it succinctly: “Mr. Warren Buffett’s buying criteria:
- Large purchases
- Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations)
- Businesses earning good returns on equity while employing little or no debt
- Management in place (we can’t supply it)
- Simple businesses (if there’s lots of technology, we won’t understand it)
- An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown)”
To generalize, large, established corporations are not creating jobs right now. They are doing a fantastic job of improving efficiency and delivering record-breaking earnings. They’re not, however, creating jobs or getting the economy moving again. Further, truly disruptive innovations that improve the lives of many rarely come from such institutions; their innovation tends to be more incremental and evolutionary. (Again, I’m generalizing.) The next wave of technology that will significantly increase economic and social wealth, then, is to be found in startups.
To be clear, this is not intended as a not-so-subtle ploy to get funding from Warren Buffett. We are fortunate; we don’t need his money. Nor do I think Warren Buffett would invest, since he famously invests only in things that he can understand, like soda pop and razorblades.
Rather, this is a plea on behalf of the countless promising, hardworking entrepreneurs I’ve met in New York who need a shot in the arm to get their business up and running. It’s a plea on behalf of the incredibly talented people who are toiling away on Madison Avenue and on Wall Street, who have the spirit of an entrepreneur but — due, perhaps, to a family, mortgage, or medical bills — can’t stomach the risk of jumping into a new venture. Warren Buffett’s money has the potential to unleash the next Ray Kroc, Bill Gates, or Elon Musk. Not only would this seed a new generation of exciting, growing businesses, it also has the potential to deliver handsome returns for the world’s most esteemed investor. Now that’s what I call a win-win.
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