Warren Buffett has two ideas for ending inequality

In This Article:

Warren Buffett would be the first to describe himself as a capitalist. And yet he has noted many times over the years that market forces have their limitations, and that the government plays a role particularly in addressing inequities that are created by our economy.

I sat down with Buffett at Berkshire Hathaway (BRK-A, BRK-B) headquarters in Omaha, Nebraska on March 10, just as the coronavirus was beginning to spread and become a serious issue in the United States. We mostly spoke about Berkshire, the markets and the economy. But in this section of the interview we touched on this matter of inequality too.

Buffett has noted before that there is class warfare out there and that “his class was winning.” He elaborated on that point, offering the earned income tax credit — a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children — as a solution. He also proposed a second idea for ending wealth inequality: higher taxes on the very wealthy.

Read more: Warren Buffett: Lessons from a legendary investor

Warren Buffett, chairman and CEO of Berkshire Hathaway (Yahoo Finance)
Warren Buffett, chairman and CEO of Berkshire Hathaway (Yahoo Finance)

“There's no question that capitalism, as it gets more advanced, will widen the gap between the people that have market skills, whatever that market demands, and others, unless government does something in between [such as] the Earned Income Tax Credit,” Buffett told me. “And I think that's a proper function.”

How did the gap widen, I was curious?

“If you go back to 1800 and 80% of the people were farmers, and you were the best farmer in Omaha and I was the worst, the difference in our value might be two to one,” he says. “You might be worth twice as much if we're out there picking corn, or whatever we might be doing or planting.”

Source: David Foster/Yahoo Finance
Source: David Foster/Yahoo Finance

But now the gap between the best and ordinary has widened tremendously.

Watch Warren LIVE at the 2020 Berkshire Hathaway Annual Shareholders Meeting exclusively on the Yahoo Finance app and desktop. Coverage begins May 2 at 4pm ET. Set a reminder now!

“If you're in the top 1/10 of 1% in basketball ability, or football ability, or baseball ability, you aren't worth anything,” Buffett says by way of example. “If you're in the top 100th of 1%, now you're worth millions. Sports is an easy example, because we all like to watch them. We don't want to watch a bunch of guys like you and me play basketball. So that's where the money is. But that didn't exist 200 years ago.

“And so you get this pushing of extreme rewards to people who are very, very good at something the market demands. And people demand entertainment. They demand people apparently that arbitrage securities. There's certain specialties.”