2011: Why do you see gold nuggets where others see salt?

CAROL LOOMIS: This is for Warren — and Charlie, too — from your longtime Omaha friend Dick Holland.

“Whenever you talk in a general way about America’s economic future, your remarks are invariably positive, even glowing, despite the severe problems of growing public and private debt, the huge budget imbalances that result, and no real policies to solve these problems.

“Some experts believe that we may reach the point where future bond offerings to cover the rising debt might fail. Many wonder if we are not entering a time of national decline.

“How can a lousy long-term U.S. economy make you so happy, and why do you see gold nuggets where others see salt?”

WARREN BUFFETT: That’s from Charlie’s good friend as well, Dick Holland, who we both have known for 60-plus years.

I don’t see how anybody can be other than enthused about this country.

If you look back to 1776 or 1789, whichever one you want to date it from, you know, it has been the most extraordinary economic period in the history of the world.

In fact, if you go back — I was born on August 30th, 1930.

Now, if somebody had come to me in the womb and said, “Let me tell you what it’s like outside now. The stock market has just crashed, but you haven’t seen anything yet. 4,000 banks are going to fail.

“The Dow Jones average is going to go down to 42. It was 381 back just a little bit before you were conceived, and it’s going to go to 42. They’re going to close the banks for a while. We’re going to have 25 percent unemployment. We’re going to have the dust bowl in the Midwest. The grasshoppers are going to take over.”

You know, it would be like in that Woody Allen movie where he says, “Go back, go back.”

All that’s happened since August 30th, 1930, is that the standard of living of the average American has increased six-for-one. Six-for-one.

You know, that’s absolutely incredible. I mean, you look at centuries where nothing happened for the average person. I mean, century after century. So we have a system that works magnificently.

It gets gummed up periodically. And it always has troubles. I mean, you know, I — my father was very anti-New Deal, so my sisters and I sat around a dinner table from the first we can remember hearing how things were going to go to hell.

As a matter of fact, my father-in-law told my wife-to-be and her mother that he wanted to have a talk with me before we got married.

And he was very much on my side, so I was not in a panic about this or anything, but I went down to his house shortly before the marriage and this wonderful man, Doc Thompson, sat in a chair for a couple of hours, and he said, “Warren,” he said. “I just want to tell you that you’re going to fail but it’s not your fault.” (Laughter)

And he said, “You and Susie, my daughter, if you starve, she would have starved anyway. I mean, it is not your fault. It’s because — you know, it’s because the Democrats are in, you know, and they’re going to take the country down the road to Communism and, you know, and just don’t worry about the fact you’re going to fail.”

And this went on for quite a while. And then he blessed me and we got married. It was a happy ending.

But ever since — when I got out of school in 1951, the two people I admired the most in the world, my dad and Ben Graham, both said, you know, you’ve got a good future but don’t start in stocks now because there’s never been a year when the Dow Jones average has not ended up below 200, and it’s above 200 now. It’s much too high, and if you start now selling stocks to people they’re going to have bad experiences. So why don’t you wait a while and go work in the Omaha National Bank or do something, park yourself on the sidelines.

There’s always negatives. The country always faces problems. I mean, this country went through, you know, it went through a civil war, you know. It — it’s gone through all kinds of things. But what happens?

You know, we have a few lousy years from time to time. We’ve had, probably, 15 recessions since the country started. And we will always have a list of 10 or 15 things at the start of the year that will tell you why this country can’t possibly work well.

But all I can tell you is that it doesn’t do it in a straight line, but the power of capitalism is incredible. I mean, you know, that’s what is bringing us out of this recession.

I mean, monetary and fiscal policy add some utility, and certainly in the fall of 2008 the government was needed in a huge, huge way. It could do what — it was the only one that could do what was needed.

But if you look at the history of the United States, you know, probably half of our recessions have occurred during — we’ll say in the 19th century — when people didn’t even know what fiscal or monetary policy was.

I mean, what happened was that excesses would come in and then the resuscitative power of capitalism would set the country back on the right — on a stronger growth pattern — and that’s happened time after time after time.

And the game isn’t over. I mean, it is not like the potential of America has been used up.

What has happened is the rest of the world has caught on, to some extent, so you’re seeing some state capitalism in places like China, and they are turning economies loose that have been dormant for centuries.

But it’s not because the people are smarter. It’s not because they work harder. It’s just because they have tapped into a system that works marvelously over time.

And I will tell you, in the next hundred years you’re going to have probably 15, maybe as many as 20 lousy years, but we will be so far ahead of where we are now that it will be unrecognizable.

Charlie? (Applause)

CHARLIE MUNGER: Well, I can go back a lot farther than that. You know, Europe survived the Black Death, where about a third of the people died. The world is going to go on.

WARREN BUFFETT: That’s wildly optimistic for Charlie. (Laughter)

Have you got anything more encouraging than that to say, Charlie? (Laughter)

CHARLIE MUNGER: I don’t know. I kind of — I understand a little bit of Dick Holland’s point of view.

And by the way, I’ve known him a long time. He aced me out of any hope of being the chief candle snuffer at the Unitarian church. (Laughter)

He was so damn good at it. (Laughter)

Anyway, what was the question? (Laughter)

WARREN BUFFETT: Can you bring yourself to say anything optimistic?

CHARLIE MUNGER: Well, I have a little bit of a twist on that. And so I would say that you can be cheerful even if things are slightly deteriorating, and that’s a very good quality to have.

I have a personal saying that has always amused me. I say, the politicians are never so bad you don’t live to want them back. (Laughter)

WARREN BUFFETT: Well, on that note of wisdom — (Laughter)