As the FT noted yesterday:
Warren Buffett has warned Berkshire Hathaway shareholders that his sprawling $905bn conglomerate has virtually “no possibility of eye-popping performance” in the years ahead, laying bare the challenges that will confront his successors.
They added
The so-called Oracle of Omaha said in his annual letter on Saturday that “There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Outside the US, there are essentially no candidates that are meaningful options for capital deployment at Berkshire."
As the FT also noted, Berkshire's cash pile, has continued to climb. It hit a record $167.6bn at the end of 2023, up $39bn over the course of the year.
If you are unfamiliar with Berkshire Hathaway, the Wikipedia entry is probably good enough to get a feel, because I am sure that the company makes sure it is right. It is a conglomerate led by Warren Buffett, 93, and until last year by Charlie Munger, who died recently at age 99. Then company was transformed from the 1960s onwards by the two of them buying companies that could either be restructured to show a profit or that had the power to grow quickly. Buffett became one of the richest handful of people in the world as a result.
And now, apparently, there is nothing left for Berkshire Hathaway to buy. There is no company worth parting with cash for. About $10 billion went back to shareholders last year. The rest of the company's cash just accumulates, doing nothing for anyone within the economy at large because, as we know, cash balances like this are not the basis on which loans are made, which always come out of new cash creation.
I can't think of a stronger metaphor for American (and so Western) capitalism having come to the end of the road than this. Buffett is not just suffering from old age. He's out of ideas, and the reason why is that there are no ideas in the marketplace that provide any obvious signs that there is profit to be made by parting with his cash pile.
So-called entrepreneurial activity would appear to be over.
Businesses can no longer generate new wants, however much they spend whilst seeking to do so. The reality is that the world's wealthy have all that they need. Persuading them to spend more is a futile exercise: the wealthy cannot drive growth any more when there is nothing else that can materially improve their collective well-being (which, as an aside, is good news for the green agenda).
On the other hand, we live in a world of massive unmet needs. We face crises that demand action. But our politicians are doing all that they can to limit the size of the state, which is the only agency capable of meeting those needs and addressing those crises. They are doing this, they say, so that room is left for what they think to be the essential private sector activity that they think will drive the growth that they believe is the precondition of additional state spending because they think that is paid for with tax and borrowing, when the reality is that it is paid for with money creation.
The inherent conflict should be obvious. The private sector can see nothing to grow. The rich have run out of the desire to spend on new wants, and are sitting on cash. Simultaneously, those in need are ever more desperate as there is said to be no cash to assist them. And the result is an ever more stressed economy, reflecting an ever more stressed society.
This is the world that we now live in. It is divided, broken, purposeless and angry. And all that is because of the absolute determination of our politicians to follow a cult-like belief that the market has an answer to all known questions when it very clearly has not.
What we need are politicians who believe that they have the power to meet needs, as states so very obviously do.
They could do that by spending more and then taxing the wealthy more to remove the inflationary consequences that would otherwise arise.
And, by changing the rules on tax relief for saving, they could redirect investment away from the meaningless and now futile creation of additional wants into the necessary creation of the resources to address the climate, education, health, energy, housing transport, rising water level, and other crises that we now face where very real rates of return for society can be created.
We could have a better world. Curiously, Berkshire Hathaway's inability to spend tells us that this is not just essential but necessary, because the rich have run out of anything to do with their money. What we now need is the clearest possible expression of the alternative that needs to be created now. And then, and only then, might we diffuse the anger that is beginning to spill over in our society.
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I have just reently watched the six part documentary In the Eye of the Storm, which is very much in sync with what you have written today.
“‘In the Eye of the Storm’ is a documentary series about the dramatic journey and inspiring vision of one of the foremost political figures of our age, the maverick Greek economist Yanis Varoufakis.”
It is a very cogent, disturbing and even moving account, not only of the issues around Greece and the EU, and IMF in 2015 onwards, but a very clear exposition of the state of advanced capitalism, as Varoufakis sees it. It is also a call to action, which is hard to ignore.
It comes with a transript ofthe text alongside each episode, which is very useful for capturing what has been said.
It is not free to view, but I found it worth every penny.
I found it here:
https://vimeo.com/ondemand/eyeofthestormenglish
Thanks
I will try to find the time to watch…
“Adults in the Room” – Varoufakis’ account of what happened – from being appointed finance minister to being booted out.
He quotes all the big players and exposes the absolutely astounding hypocrisy. Schauble – comes out worst – the guy must have bought his hypocrisy wholesale, truly a ghastly man, if not, actually evil.
Excellent post. Thank you.
If I might add a small bit.
And swanning around Earth in their private jets and mega yachts, creating pollution at the mega scale claiming it’s so essential to maintain their businesses and lifestyles. Destroying pristine habitats with ever larger mansions. With the paid for MSM opos’s fawning over how amazing the rich are.
Thank you and well said, Lee.
What you write is supported by an infrastructure that follows the social season, sun and snow.
Last week, my former colleagues in wealth management told me, an NYC oligarch flew three courtesans business class from London for a “curated” week activities. This summer, two Miami based courtesans are being flown for similar activities around the Open.
Over the northern winter, the Middle East and tropics are favoured, so long haul destinations. In addition to flights, often by private jet, yachts are de rigueur.
FMTY, fly me to you, is now very common, post covid, and a way of the wealthy competing. It’s not just wealthy men. Wealthy women bring lovers and personal trainers.
Neither the planet nor its people can afford the wealthy and the politicians, hacks, lawyers, accountants, banksters, concierge service providers and lobbyists who make this happen.
I’m sorry – but the remark by Colonel Smithers that wealthy women bring lovers and personal trainers strikes me as fundametally sexist.
He seemed to say the same of men
This demonstrates that trickle-down economics does not work: the wealthy are wealthy because they hold on to their wealth and don’t spend it.
A better option is trickle-up economics where the government spends into the economy with those that need the money the most. They have to spend the money. If the wealthy are as clever as they make out, they’ll find a way to persuade the less wealthy to spend with them.
I wish the term “trickle-down economics” had never been invented. The problem being that to most people it conjures up the image of there being a fixed pot of money of which some people have more than their fair share and others less. Given this presupposition, the trickle-down theory is that this situation will naturally right itself.
People I have discussed the issue with often think in terms of taking from those who have too much of the pot and giving “the money” to those who have too little — i.e. to give the “trickle” from rich to poor a helping hand. There is nothing wrong with using our tax and benefit systems for the purpose of redistribution, but I find it awfully difficult to get people to see that this is not being done out of a fixed pot.
There are limits to how many books I could own or how many hot dinners I could eat. But given that the physical manifestation of most of the world’s money is as patterns of zeros and ones on a magnetic disk somewhere, there is no limit to how much money I could own. If I can effectively hijack the state’s ability to create money, then no matter how much you tax me I have the ability to re-create any inequality.
Interestingly enough Buffetts lifestyle seems less extravagant than his peers
this from his Wikipedia entry is interesting
Regarding how little he pays in taxes compared to his employees, he said, “How can this be fair? How can this be right? There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
Your analysis is correct… but never underestimate the desire of the rich to cling on to their wealth and find new ways to display it; unfortunately, it is almost destined to be that way. Many years ago when the CEO’s bonus was revealed I said “if I had that much money I would retire”…. “and that is why you will never be CEO and have that much money” was the response of an older (and wiser) colleague. Becoming seriously wealthy (unless by accident of birth) requires single minded obsession – an obsession that usually destructive to the rest of us and often to individual, too.
The corollary to this observation is that the situation will not change unless there is change imposed upon them. Let’s hope that this is at the ballot box rather than violent revolution…. and this is why alternative ideas about the way we do things need continual restatement – each repetition will be new to someone.
Agreed
I find this really interesting and I think that you are spot on.
If we go down the route of tax and spend, then obviously the rich are undertaxed as Buffet himself has said. Money is a resource in my view – what waste.
But here in Buffet’s letter we see a huge failure of capital – we know where the money needs to go – it needs to go into financing a low carbon future as well as coping with a more watery world. And he can’t see that?
I suppose it depends on what they aim their money at for a return. They seem savvy at aiming it at companies that have matured – not for them then start ups and R&D where green or medical advance is needed.
So Starmer and Reeves look like idiots for a start then.
And voters are left to inhabit the gap between political faith and financial reality.
I think that what will happen is that Starmer and Reeves will find that there is initially not a lot of incentive to get markets involved (profit etc.,) and the market will in the end either walk away or drive a harder bargain that will discriminate against voters/service users and the government itself.
The market makes a big deal about risk – even though it created what effectively is a level playing field for itself (the CBRA being part of that).
But we’ve been here before though haven’t we – it was called PFI?
Just as extreme socialism can degenerate into the ugly excesses of communism, in many places capitalism is degenerating into something much darker.
Perhaps we need a new name for where we are; it’s no more capitalism than communism is socialism. ‘Corporatism’ fits the bill, perhaps?
It does
You note that BH has a cash pile of $167.6bn at the end of 2023.
You should see the cash pile of the biggest organisation in the UK – it’s $190.4bn in December.
I would not promote giving them any more myself. Rather just set the right rules and enforce them properly and the issues you mention are self-solving.
And who is that?
Two things the super-rich are interested in right now are:
Living longer
Creating a bolt hole for themselves and some chosen people for when things go really wrong.
“It is utterly indifferent to the English bourgeois whether his working men starve or not, if only he makes money.” Engels 1845. Has much changed, since Engels excoriated both Chartist and English Socialist for undue deference?
The fact that the current crop of bourgeoisie is now using coercion to deter protest, where does that leave we Reformists?
If the super-rich are indeed worried about living longer and having a bolt hole to escape to there are two things they have to face up to:
Firstly, although our average life span has increased dramatically since we first emerged in Africa, especially over the past couple of centuries, the evidence suggests that our maximum life span has hardly changed, if at all.
Secondly, there is no bolt hole. Ideas such as terraforming Mars are pure fantasy. Even if you could find enough oxygen, nitrogen and carbon dioxide to make a viable atmosphere, how are going to get it there? More importantly, how are you going to keep it there, given the weakness of Mars’s gravitational and magnetic fields? If you had the technology to terraform Mars, fixing the earth’s environmental problems would be a doddle.
Thank you Richard.
IMO that was one of your best and most eloquent posts.
It took about twenty years to write.
It may be a book synopsis.
“Curiously, Berkshire Hathaway’s inability to spend “,,,,,,,,,lack of imagination?.
& applying the logic of capitalism, perhaps the company should be broken up – too big, too slow (too old?).
Moving back to opportunities. Spain. Long term dry-out (Catalunya – 5 year drought), down here in Anadalucia – most reservoirs are down to 10%. Largest user of water in Spain (@ 80%) the whining farmers – demonstrating in their tractors – firmly part of the problem.
Politicos – are going to tanker (by ship) water from the north to the south. Pathetic and desparate stuff.
Meanwhile, on this windy and sunny Sunday, I looked at a couple of windfarms that were – constrained off (too much RES generation & not enough load). But there will be more renewables in Spain and more constraint – that’s clever isn’t it? (with the politicos warbling about more hydro resevoirs – I will leave gentle readers to spot the logical disconnect).
There are a range of (engineering) solutions to these problems. But. The politicos are so heavily lobbied by business interests that solutions that go against such interests are never considered. e.g. remove all the poly tunnels in Almeria – substitute PV/agrivoltaics and use the PV power for desalination – also convert some of the elec to H2 & use the heat from the electrolysers to turbo-charge the desal whilst using the O2 to turbocharge effluent treatment plants etc etc. Joined up engineering.
Key point: Buffet & co were good stock pickers (perhaps amongst the best) – but they never really created anything. & now, with all the money in the world,they are out of ideas. Poor boys. That said, what happened to BH & why did it not invest in NVIDIA?
Lastly UK readers will be amused to know that the dentist problem (Where have all the dentists gone – long time passing – where have all etc -) is the same in Spain. Want an appointment – hmm that will be two months. Europe, failing by the day, in every way.
Thanks
Regarding Buffet, the man. I understand that in terms of humanitarian aid to Ukraine, he has given (note that word)
$0.5 billion.
I raise my hat to the man. This is more than many countries. & I think he knows (given his comments) that the current system cannot last.
On the contrary.
The first thing the rich are interested in is securing the fealty of YOUR politicians so that they get the policies that help them to entrench their position and rule the world under false ideas about democracy.
Succinct but elaborately to the point. A fabulous piece of writing, a true masterclass. It deserves to be published in the MSM so you get the accolades you so richly deserve.
Whether this istrolling is hard to say……
Go with trolling. Apart from being succinct, the comment isn’t a masterclass in anything; save a sneer. Suppose I am wrong, if you can’t actually figure out what the writer means, assume it is what you can see – tripe.
Four in similar would followed – and hit the bin
[…] Cross-posted from Richard Murphy’s blog ‘Funding the Future’ […]
I first came across the name Warren Buffet approximately 40 years ago when I learnt, if my memory serves me correctly, he owned a big chunk of the Gillette Razor company.
In the intervening years razors and shaving products have gone from being commodity items, often sold for pence rather than pounds, to products so expensive that supermarkets now put security tags on them.
I am confident that this tells us something important about how neo-liberalism works, but with so many corrupt practices to choose from it is hard to identify the precise way this has been achieved.
https://www.companow.com/uk-vs-france-where-do-you-pay-the-most-taxes/
If only the english could be more like the french…?
Liberte, egalite et fraternite seems a good slogan to me.
But The final word should go to Liz Truss. She genuinely believes that giving rich people more money for them to do nothing with is the route to national salvation.
https://theconversation.com/liz-truss-a-brief-guide-to-her-economic-ideas-and-what-the-evidence-says-about-them-191735
Why doesn’t Labour respond to this? Rachel Reeves seems to agree with Liz Truss.
Warren Buffet has said he’s leaving his money to Bill gates’s foundation I wonder how much has been handed over so far as using it now would be helpful, how many diseases could we eliminate and how many advances in the green agenda could be made now.
The trouble is that these ‘gifts’ often leave control of assets very near the donors
I’d prefer to see assets under democratic control rather than at the whim of billionaires. Why should they get to decide that disease control, worthy though it is, should have priority over, say, global warming mitigation, or addressing housing needs. Those issues should, IMO, be subject to democratic accountability.
It’s concerning, that the next logical step would be all out war. Nothing creates new demand and wants, like it.