That's Charlie Munger
gently making fun of partner Warren Buffett. Buffett had just remarked that he
gives away "4.75 percent of my stock every year. That’s $2 billion of
stock."[1]
New York Times columnist Paul Krugman just penned a piece about the affluence of the U.S.’s older generation under the headline: “The geezers are all right.”
Krugman cites the CongressionalBudget Office’s May 2013 projections for debt and deficits as a sharp rebuke to those who have long been peddling imminent fiscal doom due to the crushing toll Social Security and Medicare will have on the U.S. economy. While acknowledging that recently released reports by Social Security and Medicare trustees released Friday do indicate that the U.S. retirement system is in need of fixing, Krugman thinks not only is the usual rhetoric surrounding the issue wildly overblown, but “the data suggest that we can, if we choose, maintain social insurance as we know it with only modest adjustments.”
I won’t go into the details of Krugman’s argument. It’s pretty straightforward. But I do want to take a look at a couple of items he cites and compare them to a broader argument Buffett advanced at the Berkshire shareholder meeting.
Krugman concedes that our Social Security system can use tweaks, largely because, “The ratio of Americans older than 65 to those of working age will rise inexorably over the decades ahead, and this will translate into rising spending on Social Security and Medicare as a share of national income.”
He’s only slightly less sanguine about Medicare—somewhat surprising given his
The reason Krugman cites for optimism is this, “the latest report from the [Medicare’s] trustees still shows spending rising from 3.6 percent of GDP now to 5.6 percent in 2035. But that’s a smaller rise than in previous projections.” And the reason, Krugman theorizes, that this has happened is that the Affordable Care Act has worked; Obamacare has "bent the curve.” Furthermore, Krugman asserts, “because there are a number of cost-reducing measures in the law that have not yet kicked in, there’s every reason to believe that this favorable trend will continue.”
If those postulations are questionable (and I think they are), wait for this one: “Furthermore, there’s plenty of room for more savings, if only because recent research confirms that Americans pay far more for health procedures than citizens of other advanced countries pay; that the price premium can and should be brought down, and when it is, Medicare’s financial outlook will improve further.”
Can and should? Rather not hang my hat on that.
But my real issue with Krugman is when he writes,“The latest projections show the combined cost of Social Security and Medicare rising by a bit more than 3 percent of GDP between now and 2035, and that number could easily come down with more effort on the health care front. Now, 3 percent of GDP is a big number, but it’s not an economy-crushing number.” (Ital. mine). I really like Krugman. I do. A lot more than Chris Conover, anyway. His analysis in this case, though, relies on a lot of speculative propositions—not much of a ‘margin of safety’ in his projections. And, worse, he unhelpfully paints the magnitude of health care spending as a percentage of GDP even if the future winds up being as rosy as his outlook. And that’s a big if.
Here's Buffett's take on healthcare spending’s effect on the economy from the recent Berkshire shareholders meeting, "Health care cost is a big item. Say we spend 17 percent of GDP on health care. Most of our rivals pay 9.5 percent to 11.5 percent. There are only 100 cents in a dollar; if you give up seven cents on the dollar, that will be a major problem in competitiveness. It doesn’t relate to Medicare. The real problem is the cost, regardless of the payer system. ... Our system works, but the No. 1 problem for American business is health care costs."
Indeed.
 |
| Charlie Munger elicits a smile from Warren Buffett. |
New York Times columnist Paul Krugman just penned a piece about the affluence of the U.S.’s older generation under the headline: “The geezers are all right.”
Krugman cites the CongressionalBudget Office’s May 2013 projections for debt and deficits as a sharp rebuke to those who have long been peddling imminent fiscal doom due to the crushing toll Social Security and Medicare will have on the U.S. economy. While acknowledging that recently released reports by Social Security and Medicare trustees released Friday do indicate that the U.S. retirement system is in need of fixing, Krugman thinks not only is the usual rhetoric surrounding the issue wildly overblown, but “the data suggest that we can, if we choose, maintain social insurance as we know it with only modest adjustments.”
I won’t go into the details of Krugman’s argument. It’s pretty straightforward. But I do want to take a look at a couple of items he cites and compare them to a broader argument Buffett advanced at the Berkshire shareholder meeting.
Krugman concedes that our Social Security system can use tweaks, largely because, “The ratio of Americans older than 65 to those of working age will rise inexorably over the decades ahead, and this will translate into rising spending on Social Security and Medicare as a share of national income.”
He’s only slightly less sanguine about Medicare—somewhat surprising given his
The reason Krugman cites for optimism is this, “the latest report from the [Medicare’s] trustees still shows spending rising from 3.6 percent of GDP now to 5.6 percent in 2035. But that’s a smaller rise than in previous projections.” And the reason, Krugman theorizes, that this has happened is that the Affordable Care Act has worked; Obamacare has "bent the curve.” Furthermore, Krugman asserts, “because there are a number of cost-reducing measures in the law that have not yet kicked in, there’s every reason to believe that this favorable trend will continue.”
If those postulations are questionable (and I think they are), wait for this one: “Furthermore, there’s plenty of room for more savings, if only because recent research confirms that Americans pay far more for health procedures than citizens of other advanced countries pay; that the price premium can and should be brought down, and when it is, Medicare’s financial outlook will improve further.”
Can and should? Rather not hang my hat on that.
But my real issue with Krugman is when he writes,“The latest projections show the combined cost of Social Security and Medicare rising by a bit more than 3 percent of GDP between now and 2035, and that number could easily come down with more effort on the health care front. Now, 3 percent of GDP is a big number, but it’s not an economy-crushing number.” (Ital. mine). I really like Krugman. I do. A lot more than Chris Conover, anyway. His analysis in this case, though, relies on a lot of speculative propositions—not much of a ‘margin of safety’ in his projections. And, worse, he unhelpfully paints the magnitude of health care spending as a percentage of GDP even if the future winds up being as rosy as his outlook. And that’s a big if.
Here's Buffett's take on healthcare spending’s effect on the economy from the recent Berkshire shareholders meeting, "Health care cost is a big item. Say we spend 17 percent of GDP on health care. Most of our rivals pay 9.5 percent to 11.5 percent. There are only 100 cents in a dollar; if you give up seven cents on the dollar, that will be a major problem in competitiveness. It doesn’t relate to Medicare. The real problem is the cost, regardless of the payer system. ... Our system works, but the No. 1 problem for American business is health care costs."
Indeed.
[1]
His comment was in response to the question from a Berkshire Hathaway
shareholder at the company's annual meeting asking whether Buffett's charitable
donations had or would have an effect on the company. Buffett clearly doesn't
think so, pointing out that his donations amount to less than 1 percent of
Berkshire. "Many stocks on the exchanges trade over 100 percent a year.
One percent is absolutely peanuts."
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