2010 June 16 Wednesday
Gates And Buffett Quest Will Lower Investment Quality
Warren Buffett and Bill Gates are lobbying other billionaires to give away half their wealth. This is a bad idea for a few reasons:
- If wealth is spread more evenly more of it will go to consumption rather than investment. The effect will be to shift wealth abroad to foreign billionaires as Americans consume more and invest less.
- Since people capable of accumulating billions are better investors on average the effect will be to shift wealth into the hands of poorer asset allocators and hence slow economic growth. So return on investment will decline as the average quality of investment decision goes down.
- Philanthropy tends to go to kooky left-wing causes that damage society. Bill Gates' foolish attempt to raise high school student performance is an example of this phenomenon. So are many of the big charitable foundations. The Howard Hughes Medical Institute is a notable contrary example where the money actually goes to very talented medical researchers. But HHMI stands out as an exception.
"I have everything in the world I want, and then I've got all this surplus around - and I give away the surplus," Buffett said.
Buffett waited until his late 70s to give away a "surplus". Okay, question: Did he not have a "surplus" when he was in his 50s? How many billions did he need to have before any of it became a surplus?
I'll tell you why Buffett didn't give it away sooner: He enjoyed making money so much that he wanted to hold on to what he had to use it to make more. He maximized his pleasure by keeping and compounding his billions. He also ensured many corporations with good business plans were well financed and managed.
More people die of aging than all other causes put together. We should be more humanistic and look at the big picture.
I'm sure Gates and Buffet also wouldn't mind not dying uselessly and turning all their knowledge and experience into ash.
The Gates Foundation does a lot of investment in medical research for neglected developing country diseases, agriculture, etc. Applying their investment skills to investments with large positive externalities seems pretty great, and different from simply handing over their wealth in cash transfers. Other Gates expenditures like vaccinations deliver pretty amazing returns, saving a life-equivalent for amounts in the low four figure range. Yes, the Gates US education programs have been terrible, but they seem to have improved as Bill took more active control of that area (vs Melinda, and staffers he was managing less when he was more involved in Microsoft).
I've recently come to appreciate better how much most people actually are in favor of curing aging, even if they don't know it. Most women (and many men) past 24 years old have buried anxiety about aging. They know they're becoming less attractive with each year, steadily losing biological value as reality slowly turns on them.
The problem seems to be merely that most people don't believe in technological developments that are farther than 5 or 10 years out on the horizon. That means the idea of aging being "cured" is way beyond the scope of their minds.
If wealth is spread more evenly more of it will go to consumption rather than investment. The effect will be to shift wealth abroad to foreign billionaires as Americans consume more and invest less.
Even if this were the case, consumption in developing countries with low cost of living is very welfare-efficient. Anyway, Gates and Buffett are advocating development philanthropy, which involves investment, not redistribution.
Since people capable of accumulating billions are better investors on average the effect will be to shift wealth into the hands of poorer asset allocators and hence slow economic growth. So return on investment will decline as the average quality of investment decision goes down.
Asset allocation has mostly been outsourced to hedge funds and similar investment vehicles. It is true that investment into hedge funds is restricted to people with high net worth, but this is due to misguided regulations, not to any superiority in investment decisions.
Philanthropy tends to go to kooky left-wing causes that damage society.
Not even close--see previous comments. Sure, the B&MGF has invested in some kooky projects which didn't pan out, but so what? They might achieve some useful results, and at the very least they'll help refute the flawed ideas in K-12 ed.
It is not easy to give money away wisely, since there tend to be secondary effects that cancel out the effect of the gift. Compare Henry Hazlitt's Economics in One Lesson. The lesson is that you cannot do just one thing.
They're just buying salve for their consciences. Like most wealthy, both of them became wealthy at the expense of a dying middle class, (Gates more then Buffett) from a system that pays the demurrage costs of wealth by taxing economic activity.
Now that we're entering another depression due to concentration of wealth, they're trying to pretend like they doing something real. The only way they can escape their ethical conundrom is to advocate that wealth taxes replace taxes on economic activity and that tax revenue be distributed in a citizens dividend rather than manipulated toward special interests.
Since they aren't taking the leadership here, we're heading down another Keynesian dead-end.
Reading Keynes’ critique of Gesell the key intellectual failing of Keynes’ entire body of work is best exemplified in this concluding remark:
“Thus if currency notes were to be deprived of their liquidity-premium by the stamping system, a long series of substitutes would step into their shoes — bank-money, debts at call, foreign money, jewellery and the precious metals generally, and so forth.”
If Keynes had merely taken one more step beyond Gesell (and himself) to identify in-place liquidation value of net assets as the tax base (or, if one prefers, one can call it the ”demurrage base") he would have escaped the profound irony embodied in his initial observation of Gesell:
“..whose work contains flashes of deep insight and who only just failed to reach down to the essence of the matter.”
PS: The claim that a citizen's dividend would merely be spent on "consumption" doesn't address the main objection to the Bush stimulus: that people merely spent it on paying down debt. Go ahead, Randall, do some calling around and ask your congressmen why the idea of a bottom-up stimulus was rejected after the Bush stimulus. Try to convince them that it would all be spent on "consumption". Educate yourself. Touch ground.
Uh, do we all see the net result being a subsidizing of the growth of the least able, least responsible folks on the planet?
It looks like a dysgenic plot against humanity.
For the love of mercy could they just send birth control to the simple, starving folks?
I am quite skeptical that the Gates Foundation can make much progress on education. The root causes of poor performance are not amenable to fixes from a wealthy foundation.
As for other activities: The Gates Foundation is upping vaccine spending from 20% to 30% of all spending. So 30% of their money will be well spent. What about the other 70%? One wonders how they decided on that split. The other 70% is probably doing far less life saving.
As for saving a life for amounts in the low 4 figure range: They can only spend so many dollars that effectively. The cost per life saved goes up beyond some point.
not anon or anonymous,
Development philanthropy has been a failure for decades. Why should it change now?
Kooky philanthropy: If Gates and Buffett do a good job on this they'll be an exception.
The need for population growth control is certainly urgent. Buffett even agrees on this point. Yet where's the big philantropic effort to distribute birth control and do teachings on family planning?
We need a cure for aging and birth control.
Another note: Gates is assuming some success in vaccine development that can not be guaranteed to happen. Let us see in 5 years how he does in bringing new vaccines to market. He's got to succeed not only at development but also at distribution.
The difficulty with Gates and Buffett deciding that they're going to give half their fortunes away is that this is the proverbial camel's-nose-under-the-tent. It's one thing for billionaires to give their money away voluntarily; the safe bet is that there will be people calling for everybody with a net worth in excess of some as-yet-to-be-determined figure to be involuntarily separated from their money. And then when the amount of money turns out not to be as much as expected, the upper middle class will be targeted, and then the middle class. Some in Obama's administration are already talking about a plan to "annuitize" 401 K accounts, i.e. confiscate them.
Philanthropy is about helping complete strangers. Therefore the only thing that matters is how many complete strangers can you help per dollar. A good way to make this a large a number as possible is research. The best research is into the causes of aging and cures for them. Most serious diseases are more prevalent amongst aged people, therefore if aging could halted or even reversed, the more people could be helped. People will still die in accidents however long they live, but the reduction in birthrate needs to be encouraged.
Some in Obama's administration are already talking about a plan to "annuitize" 401 K accounts, i.e. confiscate them.
I'd start buying precious metals. If the Feds want to come and try to grab it, good luck to them. They're gonna need it.
I agree that developing cures for aging is the most powerful way to help people. Aging is a horrible set of diseases. Everyone suffers from these diseases. Hundreds of millions of people worldwide live in chronic pain from arthritis and other diseases caused by aging.
Randall, don't you get it yet? They don't care about "people". They only care about people who count (in terms of social status points) to care about. Mainly Africans.
Oh, yeah, I've heard plenty about how Gates is supposed to be giving his money out in some way that benefits him financially. Horseshit. He's an extended phenotype, plain and simple. The thing is, the genotype, for all its genius at commandeering other vehicles, is really stupid when it comes to solving actual technical problems like malaria -- so it doesn't tell its commandeered vehicles to do much other than flail around in ways that teenage girls find morally appealing. Come to think of it -- maybe it isn't stupid at all...