Buffet on the Deficit

“There is no distinctly American criminal class – except Congress.” — Mark Twain

The US government runs up massive deficits. The US national debt is currently around $35 trillion (wiki.)

That number is too large for anyone to comprehend. Numbers in the hundreds — even in the thousands — make intuitive sense to us. But millions, billions and trillions are incomprehensibly large.

Here’s one way to see how our intuition is incapable of visualizing large numbers. A thousand seconds is a little less than 17 minutes. A million seconds is 12 days. That is easily understood. But then it gets harder to get a feel for the higher order numbers.

• • A billion seconds is 31 years. We humans live on average for around 2.5 billion seconds.
  • A trillion seconds is 31,688 years or 317 centuries.

Those are large numbers that we cannot make sense of. One trillion seconds ago would have been around the year 30,000 BCE., which is roughly 24,000 years before the earliest civilizations began to take shape. We were hunter-gatherers then.

Anyhow, why am I going on about this large numbers thing? Because Warren Buffet recently claimed on TV that he knows a way to end the deficit — by limiting the deficit to less than 3% of GDP every year.

Warren Buffet explains how he can end the US deficit within 5 minutes pic.twitter.com/voe5bX0IZx

— Historic Vids (@historyinmemes) July 11, 2023

I am somewhat taken aback that Buffet, who is worth upward of $100 billion and obviously capable of doing arithmetic, spoke so loosely.

The deficit, a stock, stands at ~$35 trillion. By limiting the additional flow to any positive number (3%, say) will not reduce the stock, although it will slow the growth of the stock.

Only when the flow turns negative (-10%, say), then the stock will start reducing. And that will take — let’s say — a few decades at least to be eliminated and certainly not 5 minutes. That sort of speech is beyond simple hyperbole to make a point. Deficits are stubborn things that cannot be wished away no matter how piously one wishes it to be gone.

But even if you don’t care too much about the arithmetic impossibility of Buffet’s scheme, there is another fundamental problem with his idea. He says:

“I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”

You just pass a law!? Who is the “you” there? Certainly not you and I. We don’t pass laws; the Congress passes laws. And Buffet expects the Congress to pass a law that is absolutely against their basic instinct to tax and spend? They’d much sooner put a hole in their heads than reduce their power to feather their own nests. They are no Odysseus, you know.[1]

Well intentioned though Buffet’s proposal is, it makes no sense at all. It goes against basic public choice theory.

[I’d been meaning to write about this anyway but a friend of the blog, Anirudh, asked me to comment on it. So here it is.]

NOTES:

[1] Why do you think I mentioned Odysseus (aka Ulysses) here? What’s the relevance?

Author: Atanu Dey

Economist. View all posts by Atanu Dey