The Failure of Warren Buffett
The best version of capitalism wasn't good enough.
Warren Buffett, 94, has announced that he is planning to retire. He will go down as history’s greatest investor. Berkshire Hathaway, the company that Buffett spent six decades nurturing, began as a fading textile firm. Today, it is a sprawling conglomerate worth more than a trillion dollars. Buffett racked up a cumulative investment return of over five million percent during his long career. His own net worth today stands close to $170 billion. For all those years, he followed his own counsel: “Never bet against America.”
Buffett is more than just a successful man. He is a business icon. He conducted his business affairs in a way that established him as a role model for upright capitalism. He used wisdom and hard work to identify undervalued companies, and, once he bought them, held onto them forever. He allowed his businesses to run themselves, demanding only good management. He eschewed accounting tricks. He was transparent with his investors. He laid out for them his principles, and stuck to them. He owned up to mistakes. His annual letters took on the status of religious texts. He was living proof that smarts, honesty, and sobriety could win the money game, no matter how many wolves of Wall Street he was up against.
Unlike most megabillionaires, Buffett’s principled business conduct seemed to extend to his personal life. He was humble, wryly funny, and—except for a private jet which he named “The Indefensible”—avoided most of the outward trappings of great wealth. His primary residence is still the (spacious, but hardly palatial) Omaha, Nebraska house that he purchased in 1958. He eats fast food and relishes drinking Coca-Cola. He preaches against dynastic wealth, giving his children relatively modest inheritances and pledging to give 99% of his own wealth to charity. At Berkshire Hathaway’s annual meeting in Omaha each year, which I wrote about in 2016, attendees munch $1 Dairy Queen treats and, for fun, go peruse the Berkshire-owned Nebraska Furniture Mart. It is as unlike most investment conferences as Buffett is unlike most billionaire investors.
Also unlike most billionaire investors, Buffett dispensed his investment advice for everyday people for free. It was simple: avoid fancy products, avoid flashy trading, buy a low-cost index fund and hold it forever. He famously won a million-dollar bet against a hedge fund manager that such a strategy would beat the returns of pricey hedge funds over a decade. The success of his methods was a curse to Wall Street salespeople seeking to soak the rubes for every penny. Regular people could access Buffett’s own expertise just by buying shares of Berkshire stock, and they could follow his elementary advice about patience and faith in the American stock market, and they did not have to pay any high-priced financial gurus to do so. Countless people have become millionaires in this way. The numbers didn’t lie. Buffett’s success was the unshakeable proof no tricks were required to follow his golden brick road.
Though Buffett’s investing genius and encyclopedic knowledge of companies gave him an edge that cannot be replicated, his basic belief is one that anyone can buy into: Shareholder capitalism works, and it works best in America. Berkshire holds insurance companies and railroads, candy companies and clothing manufacturers, chunks of Apple and American Express. It is, at this point, just a well-vetted cross section of all American commerce. To invest in Berkshire Hathaway is to invest in American business itself. Buffett believed that American values, American rule of law, and shareholder capitalism were enough to produce prosperity, without the need to lie or rip anyone off.
Though he endorsed a few Democrats for president, Buffett has stayed mostly out of politics. He is not a political megadonor. His words carry so much weight in part because he chooses them deliberately. There can be little doubt that he doesn’t care for Donald Trump, a man whose own business career embodied everything that Buffett rejects. But the Oracle of Omaha has seen many politicians come and go. He has never allowed the foibles of Washington to distract him from his faith in the power of commerce to create better lives. Even as he spoke out against Trump’s trade war last weekend, Buffett gazed through to a brighter day, when trade wars faded into irrelevance. “The more prosperous the rest of the world becomes, it won’t be at our expense,” he said. “The more prosperous we’ll become, and the safer we’ll feel, and your children will feel someday.”
Warren Buffett seems like a nice man. As centibillionaires go, he is certainly one of the more human ones. His vision of capitalism, furthermore, is preferable to the more predatory one typically sold to small American investors, who are viewed by Wall Street as victims to be fleeced rather than as partners. For these reasons, it makes me a little sad to say that Buffett’s life work—the elevation of shareholder capitalism as the world’s dominant economic model—is ultimately a failure, for humanity.
Buffett’s life, and his company, are the best argument for shareholder capitalism. They are the storybook version, drained of the blemishes of smaller greedy men who cannot see the big picture. Berkshire Hathaway has indeed made its investors rich. But making the investor class rich enough has never been American capitalism’s problem. It is the reality of what this system does to everyone else that any advocate of it needs to reckon with.
It is not just some dark coincidence that Buffett’s rise has coincided with the increasingly chaotic devolution of America into an unstable oligarchy, ruled by a dangerously narcissistic aspiring king. Buffett may be nicer than many of his wealthy peers, but his wealth has been produced by the same system that produced theirs. Buffett’s capitalism is better than the most cutthroat version, because in his version, investors can still buy into the system and share in the wealth. The pool of beneficiaries is slightly larger. But it is not large enough to keep democracy alive.
The wealth of the companies that make up Berkshire Hathaway’s portfolio is created by a system of capitalism with a logic that produces built-in incentives. One incentive is towards monopoly power. Another is towards the geometric accumulation of wealth from financial assets, which produces vast economic inequality in a society. Another is towards increasing the power of corporations in the political system. The admirable ways that Berkshire is run, from the perspective of its investors, do nothing to change these basic aspects of capitalism. And these are the aspects of capitalism that have eroded the foundations of America enough to lead us to where we are now: on the brink of political and social catastrophe.
The success of shareholder capitalism for its shareholders has produced the crisis of economic inequality that has erased the public’s belief in the American dream and led to the cynicism that gave rise to Trump. It has produced the ability of businesses to control politics through money that has erased (for good reason) the public’s belief in genuine democracy. It has produced the implacable, omniscient power of gigantic, monopolistic tech firms to control all aspects of public life, a power that is now being taken advantage of by an extreme right wing government that wants to send enemy citizens and non-citizens alike to overseas gulags. The problem with spending a lifetime making shareholder capitalism the best it can be is that the best it can be is still capitalism. Purging capitalism of its flaws would be bad for shareholders.
It is simply not true that shareholder capitalism, unleashed on the globe, is the path to human flourishing and prosperity. It is more accurate to say that it is the path to prosperity for a portion of humanity that may be modestly expanded by certain reforms, but that can never be everyone. Warren Buffett controls a fortune of more than a hundred billion dollars himself. He controls hundreds of billions of dollars more through his company. His words and deeds are so closely followed that he could very well move trillions of dollars worth of capital with his actions. This great power is derived from his demonstrated ability to produce wealth within the bounds of American capitalism. The system he has championed has come to rule the world. The world he leaves behind—the teetering and oligarchal America of today, the scary, divided, declining empire lashing out in rage and fear—is one that will not accord with his stated values. He is smart enough to figure out why, if he really wants to.
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Related reading: Warren Buffett Is the Best Argument for Capitalism. Is it Good Enough?; Hell Is Empty and All the Hedge Fund Managers Are at The Bellagio; The Underlying Problem; On Having a Maximum Wealth.
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Respectful. Thoughtful. Honest, short critique of the side-effects of shareholder capitalism.
Hamilton, your title hurt. I have studied Buffett and followed many of his investment principles throughout my life. I have owned the stock at times (for years) and attended the annual meeting a couple times. He played the game well.
But I hear you asking, “is this the right game for widespread human flourishing?”
I had a series of life events that awakened me to new perspectives about the world, more specifically the political economy. I used to separate business and politics with a clean break in my mind. I can no longer see where one begins and the other ends, nor see daylight between the two. The way we order society is a choice, most often a choice by those with immense power in the prevailing system.
The reigning ideology of our lifetimes has been managerial capitalism driven by corporate consensus. The ideology cannot seem to address the greatest issues of our current moment in time. We have a meta-crisis upon us that will require a new ideology to shake the system and reorder the political economy.
This is now my chief concern. It has drawn me into political reform as never before in my life. It is the basis for my first substack—The Common Sense Papers. My next article will speak to the ideological turning point that we now face.
Thank you for jarring me with your title. The Buffett era must close. Something new must rise. It’s time to reboot the system for the common good!
One way our old Uncle Warren, as resolute as Trump's desk, made a good bundle was by buying up trailer parks, putting in a few asphalt driveways and fake flower pots, then raising the lot fees on the poor. And so... there you get the picture.