2006: Where should the U.S. draw the line on entitlement spending?
AUDIENCE MEMBER: Yeah. My name is Edward Jannig (PH) from Denver, Colorado.
First, I want to thank Charlie and Peter Kaufman for their wonderful book. I think Benjamin Franklin would be very proud.
My question is, last year when asked about Social Security, you said that a country as rich as the U.S. should take care of their old people.
This year I read Pete Peterson’s book, “Running on Empty,” and I was wondering, from the standpoint that is the greatest benefit to society, where should you draw the line on entitlement spending?
And I was wondering if you gentlemen disagree on the subject at all.
WARREN BUFFETT: Now, you always have the question in every society — whether it’s formalized or not — you have the question of how you take care of the old and the young.
You know, you have people in their productive years turning out goods and services, and you have people that are too young to participate in the turning out of those goods and services but that, nevertheless, need them, and you have people that are old in the same position.
And starting in 1935, I believe, we statutorily formalized that idea. We’d always felt that way about the young, that school should be there for them when they couldn’t pay for them themselves, and that the society owed a duty to both classes. But in 1935, we took up the idea that the government would provide this base limit.
Now, I think there’s some merit to the argument that the 65 became outmoded as longevity improved. And that is now being changed, to some degree, and I think there’s probably some more change needed.
But this country has an output of almost $40,000 of GDP per person. And some people, like Charlie and myself, are very lucky to be wired in a way that in a market system we get enormously wealthy.
And other people are not so wired, and they come out and they, in a market system, do not necessarily do so well, and they’re fairly lucky if they provide for themselves during their working years and they do not have the ability to earn at a rate that takes care of them in later years.
And society has taken that on. Our country can easily handle the Social Security question.
I mean, it — and it’s kind of astounding to me that a government that is quite happy to run a 3- or $400 billion deficit now worries a lot about the fact they’re going to have a $100 billion deficit or something in Social Security 30 years from now. I mean, there’s a little bit of irony in that. (Applause)
It is true that, if we maintain the present age brackets, that eventually you have one person in the older years for every two that are producing in the younger years.
But we produce more every year as we go along. And there will always be a struggle in a representative society, in a democratic society, between how you divide up that pie.
But we have a huge pie. We have a growing pie. And we can very easily take care of people, in a manner at least as well as we take care of them now, in the future from that growing pie without the people in their productive years not — also having a gain in their standard of living.
CHARLIE MUNGER: Yeah. I think the world of Pete Peterson, but I don’t come to the same conclusion.
Of course, if we didn’t tinker with Social Security, it would eventually run low on funds.
But if the country is going to grow at 2 or 3 percent per annum for decades ahead, it’s child’s play to take a little larger share of the pie and divert it to the people who are older.
It would be crazy, I think, to think you would always freeze the share of money going to the old at exactly the same sum no matter how rich you got.
It’s a perfectly reasonable thing to do to pay a little more in the future to support what I regard as one of the most successful programs in the history of our country.
Social Security has a low overhead and does a world of good. It’s a very reasonable promise to make, and I wish my own party would wise up a little on how little an issue it is. (Applause)
WARREN BUFFETT: This is what happens when you ask a couple of guys our age how you feel about treating older people. (Laughter)
Incidentally, the — currently — and everybody likes to talk about the unified budget — you didn’t hear talk about the unified budget 30 years ago on the national level.
But the unified budget means that the Social Security surplus now gets counted toward reducing the overall budget. So they’re very happy at present to take the Social Security surplus and trumpet the number that is after that.
But then when they start talking about a Social Security deficit out 20 or 30 years, they tend to get — they want to separate that off and get very panicky about it. So I think there’s a lot of hypocrisy in the argument.