Bill Gates, Charlie Munger, Warren Buffett on the socialism versus capitalism debate
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Bill Gates, Charlie Munger and Warren Buffett sit down with CNBC's Becky Quick to give their opinion on the debate between capitalism and socialism.
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Warren Buffett and Charlie Munger argue that capitalism is the most effective system for deploying resources and human ingenuity, but it requires regulation and government safety nets to protect those left behind by market forces, particularly as specialization increases inequality.
- Capitalism has produced unprecedented prosperity compared to centralized planned economies, as evidenced by US development from 1776 to present
- Market systems are extraordinarily effective at resource allocation, as shown by China's economic gains from adopting capitalist practices
- Government's role is not to replace markets but to regulate them and support displaced workers through taxation, social security, and public services
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As capitalism gets more advanced it becomes more specialized, creating greater differences between the haves and the have-nots, and wealthy people could but often don't take care of those left behind without policy intervention.
“we ought to worry about the people that don't then end of the system but we want the system and a lot of people are getting left further and further behind because as capitalism gets more advanced it gets more specialized and there actually is greater difference between the haves and the have-nots and the haves could take care of the have-nots”
A rich society's government may need to reallocate some resources to help those left behind, and World War Two is the closest the US has come to a socialist system through wartime price controls and production boards.
“the present government needs to reallocate some resources I mean extreme case would be in World War two I mean that's the closest we've come to socialism you had an office of Price Administration you had a war production board”
The deployment of resources and human ingenuity in the United States from 1776 to now represents an incredible achievement that is a product of the capitalist system, and what capitalism could still produce in the United States has only just begun.
“if you look at what was here in 1776 and look at what is here now this country is an incredible job in terms of the deployment of resources and and and and human ingenuity and that is a product of a system”
China's economic transformation from rural poverty to modern extreme wealth occurred because it adopted capitalist practices, as demonstrated by its growth after copying Singapore's model of allowing farmers independent plots and manufacturers independent businesses.
“Charlie you've made the great proof of how capitalism works is China when China copied Singapore and let the farmers on their own plots and let the manufacturers on their own businesses and so forth China's productivity increased many times and they went from rural poverty to modern extreme wealth and they did it by adopting a fair amount of capitalism”
The function of government is not necessarily to get bigger, but importantly to take care of people who for one reason or other get left behind in the market system while still regarding the market as the primary source of wealth and goods and services.
“the function of government is not necessarily to get bigger it may be in an important way to take care of people who for one reason or other get left behind in a market system that you also regarded as the is essentially this huge source of wealth and goods and services”
Capitalism requires regulation and rules because there are long-term costs that might not get built in through open market determinants alone.
“does that mean that every decision should be made simply by open market determinants that there's need for regulation obviously and there are things that have long-term costs and might not get built in”
The market system is an extraordinarily effective way of using human and other resources to produce incredible goods and services, and this effectiveness is proven across history.
“the market system which exists under capitalism is an extraordinarily effective way and is proven it of of using resources human and other kinds to produce incredible goods”
The Earned Income Tax Credit can make a huge jump in the direction of taking care of people left behind by capitalism and the market system.
“it comes I'm tax credit it can make a huge jump in that direction”
The market system is brutal and leaves behind people who are perfectly wonderful but lack market-related talents or have bad luck, but this problem exists within a system that generates enormous aggregate wealth.
“the market system is brutal and it leaves behind people who are perfectly wonderful people who don't have market related talents and who are just unlucky yeah just plain unlucky”
Over the years, the United States has improved public school systems and implemented Social Security and other programs that give people more equal chances and provide for those who fall by the wayside, and this pattern of improvement should continue.
“mean no Social Security all that we've done various things over the years we have improved we've improved the public school systems we've improved things that do give people more of an equal chance and take care of people who fall by the wayside we just got to keep doing it”
If government were wiser and if the two political sides didn't hate each other, the system would work much better because anger drives out reason and the cold fury between politicians on opposite sides is counterproductive.
“this American bloating right now obviously would help of our government we're wiser and it would be wiser if the two sides didn't hate each other so much anger drives out reason and there is absolute cold fury between politicians on one side and politicians on the other it's quite counterproductive”
Henry Ford had to manufacture millions of cars annually because individual utility from personal vehicle ownership is low—he could use only a few cars himself, but millions of other people could use and benefit from the cars he produced.
“Henry Ford could learn a devise a system that could turn out a couple million cars a year but he could only use half a dozen himself for his whole family could use 50 I mean he had to turn out a couple of million cars that other people got to use”
Bernie Sanders, who is pulling the second-highest support in the Democratic Party, was a socialist until very recently, and advocates for policies like caps on wealth and eliminating billionaires, which goes beyond redistribution into systemic wealth limits.
“you do have someone who I think is pulling the second-highest and the Democratic Party right now who was a socialist until very recently Bernie Sanders”
In a rich society, the government calls on people left behind by markets (often with low market value) to fight in wars and pay them practically nothing, even though in peacetime the function of government is to care for these displaced people.
“believe me if we have a war or something like that but we call on those people and I'll pay them practically nothing to go fight for us and it and it we want goods slowing but it's going to displace the textile worker that we use happens on”
Buffett and Munger have never gotten angry at each other, and when they might have gotten mad at each other, they functioned poorly at business—one would try to kill the other's deals. Working well together requires not getting angry.
“Charlie and I've never been that each other yeah it just does I mean way better we got mad at each other I'd you know I try and kill his deals he'd try to help my deal off it just doesn't work that way”
People attacking capitalism online often conflate defending capitalism with defending current tax rates, misinterpreting arguments for capitalism as arguments against progressive taxation.
“some people think when you defend capitalism you're defending the tax rates we have today and saying that higher absolute tax rates are more progressive tax rates that you disagree with them”
Modern critics using the term 'socialism' often do not mean the classic definition of state control of the means of production, but rather are arguing for changes to tax policy.
“socialism you got your where she came back socialism used to mean that the state controlled the means of production and a lot of people who are promoting socialism actually aren't using that classic definition”
Having alpha males bluster and handle complex policy issues doesn't work; cooler heads that take a reputational hit to get feathers down perform better on policy.
“we don't need a couple of alpha males bluster handling or this stuff just cooler them take a little reputational hit and get get the feathers but we Otto down”
Henry Ford's assembly line system could not have been invented by a government bureau given a hundred years (starting from 1850), demonstrating that human ingenuity is better unleashed through private markets than government planning.
“I think if you'd set up a government Bureau in 1850 and given them a hundred years you'd have ever come up with anything like the assembly lines of Ford and all of the things that have happened”
Both political parties basically agree that haves should take care of have-nots; they disagree only on how to accomplish this redistribution.
“that means both parties and basically agree on that they just yes how you get there”
Warren Buffett doesn't allow himself to get angry at politicians and maintains this discipline as a personal practice to keep reason intact.
“for that reason I don't allow myself to get angry at politicians”
Warren Buffett and Charlie Munger are explicit in supporting more progressive taxation, particularly regarding the estate tax.
“in I don't think Warren and I are disagreeing that you could make the taxes more progressive in fact we've been very explicit in some areas like the estate tax and saying we think that would be a good thing”
The private sector does much better than the government sector, which is illustrated by the poor quality of government services like the Post Office that would only be worse if applied to healthcare (socialized medicine).
“you've made the same point though Charlie that you think private sector does it much better than the government sector however a lot of these people who are running also want to make government much bigger did you have a quarrel with that or now well as they say if you love your post office you're gonna love socialized medicine”
A Democratic politician who doesn't understand how capitalism transformed China through adoption of market mechanisms is nuts (irrational in their thinking about economics).
“no the Democratic politician doesn't understand that he's nuts”