Willful Misjudgment: Charlie Munger and Inequality

I have a lot of respect for Warren Buffet, Charlie Munger and others who’ve made fortunes but then also share their observations with the world. Some of the perspectives are genuinely enlightening (and not just for people who want to “get rich”) – take Charlie Munger’s 1995 piece on misjudgment for example.

That makes it all the more enraging when someone who is clearly world-wise and smart drops blatant falsehoods into an interview. The interview in question is this one from around last month’s Berkshire Hathaway weekend event:

As usual there is lots of insightful material here and some positive observations about the benefits of single-payer healthcare and other issues. However, in the segment on inequality at around 6m is where Munger makes the argument that:

“Inequality will simply go away”

Charlie Munger, 2019

That it was a problem created by the two world wars which caused runaway inflation and messed up asset prices. Both the cause and likely “reversion to the mean” are simply false. It’s pretty well understood that the world wars actually decreased the wealth and income gaps significantly: as did much of the post war economic growth.

Worse (and more important), it is extremely unlikely “inequality” will “just go away” and Charlie Munger, I’ve no doubt, knows this very well.

Capital earnings still vastly out-scale wage earnings at the top of the income scale and more capital typically means vastly superior returns. In most countries today what are supposed to be progressive taxes (getting steeper as one goes up the income curve) are often regressive since many types of capital are taxed at lower rates than labour and consumption taxes are flat taxes. There’s ample evidence of increased wealth concentration.

The irony is that Berkshire Hathaway is one of the vehicles that people in the top tier of wealth can use to get some of those outsized returns. So it’s sad to see someone being so disingenuous with statements like these.

On the positive side same interview talks about the logic of a single-payer healthcare system. So there is good mixed with the bad.

“Nothing to see here…”

Photo by chuttersnap on Unsplash

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