Star Phoenix: ‘Buffet gives wise advice’

Whether it was intended as such or not, when U.S. billionaire investor Warren Buffett wrote in the New York Times this week that the so-called “mega-rich” should pay more in taxes, it was more than an expression of selfless altruism.

Mr. Buffett pointed out that while “the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet,” the mega-rich are being coddled and protected like some sort of endangered species.

The ordinary working Joe in the U.S. pays between 22 per cent and 41 per cent of their income in taxes, while the very rich pay somewhat south of 20 per cent. Mr. Buffett points out the rich will continue to invest, even under higher tax regimes, as long as the likelihood exists they will be making money on their investments.

While rare, this is not a unique view from the top of the economic heap. When former industrialist Henry Ford began mass producing Model T cars almost a century ago he simultaneously cut the costs of his product while raising the wages of his workers in the belief that it was good for business to have more people working and able to buy cars.

At its core, this is the Buffett strategy. Unless there is a social compact between the rich and the rest of society to share a greater proportion of the wealth, the economic foundations of their fortunes and the economy will collapse.

This compact, by the way, was central to why Germany’s economy performed so well for so long after the last recession. Companies cut back hours but maintained as much as possible the number of employees. The government stepped in by subsidizing that workforce rather than paying out unemployment benefits to those forced out of work. And the labour movement did its share by accepting lower wages in return for higher employment rates.

As the world crawled out of recession, Germany was able to capitalize on the demand for new products by rapidly expanding production.

Although there are limits to the German experiment – the government’s ability to extend these benefits may be limited because of a rather larger debt-to-GDP ratio caused primarily by bank bailouts and the unwise decision to prematurely close nuclear plants, which is likely to push thousands onto the rolls of unemployed – the fundamentals are sound.

As economists such as the New York Times’s Paul Krugman have made clear from the beginning of the last recession, the path back to prosperity can only be found through employment rather than tax concessions for the wealthy or blanket bailouts for the banks.

It’s worth noting that just as Mr. Buffett is asking that millionaires and billionaires carry more of the load, data was released indicating the top 25 bailed-out hedge fund managers in the U.S. last year managed to get by with an average take-home pay of $880 million.

This week, Canada’s Finance Minister Jim Flaherty joined with his counterparts from South Africa, the United Kingdom, Singapore and Australia calling for fundamental fiscal, economic and trade reforms designed “in everyone’s enlightened self-interest.”

Mr. Buffett’s clarion call for the rich investors and industrialists to do their share is also part of that enlightened selfinterest.

The editorials that appear in this space represent the opinion of The StarPhoenix. They are unsigned because they do not necessarily represent the personal views of the writers. The positions taken in the editorials are arrived at through discussion among the members of the newspaper’s editorial board, which operates independently from the news departments of the paper.

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