by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In his annual letter to the shareholders of Berkshire Hathaway, Warren Buffett—the world’s third richest person—remarked on the state of the U.S. economy and current political fracas by writing:
It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do. That view is dead wrong: The babies being born in America today are the luckiest crop in history. …
… While his data and math are sound, Buffett makes assumptions that stand a good chance of not materializing given current economic trends. He aptly notes that “nothing rivals the market system in producing what people want,” and thus:
For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs.
The problem with this line of reasoning is that Americans have been choking this golden goose in unprecedented ways, and it is showing objective signs of decline. If this continues, today’s newborns could easily be the first generation of Americans to live materially worse than their parents. This is clear from the following graph, which displays the same calculation Buffet performed averaged over 10-year periods so that the long-term patterns are evident:
Granted, the Great Recession (2007-2009) occurred within the last decade. However, even when excluding these years, real GDP growth beyond population growth from 2010 to 2015 has been 39 percent below the average of the 25 years prior to the Great Recession. …
… Concurrent with America’s decay in economic growth per person, at least three factors with major effects on it have approached or surpassed unprecedented levels. These are federal debt, government social benefits, and regulations. Barring experimental data, it is often impossible to objectively isolate the effects of any single factor on an economy, but … these three factors may explain a large portion of what has occurred and what may continue to occur unless the nation significantly changes course.