3 reasons Warren Buffett is optimistic about the U.S. economy
Billionaire Warren Buffett, CEO and chairman of Berkshire Hathaway (BRK.A) and perhaps history's greatest investor, delivered a sharp rejoinder this weekend to the Republican presidential candidates who have been arguing for months that the U.S. economy is a disaster heading for a catastrophe.
The Oracle of Omaha, who supports Democrat Hillary Clinton, sees better times ahead for the U.S., an opinion he has held for many years. In his annual letter to shareholders, Buffett refuted the claims of some presidential aspirants that America's best days were behind it. He also rejected the idea that American children will be worse off in the future.
Although Buffett didn't mention any Republican candidate specifically, Florida Senator Marco Rubio has repeatedly claimed today's generation will suffer if Democrats win the election. GOP front-runner Donald Trump often speaks about how the U.S. has been on the losing of trade and economic deals, and has promised voters to make "America Great Again" (his campaign sells baseball caps with that slogan for $25 on its website). Texas Senator Ted Cruz has vowed to provide relief for "millions of American families who are currently being crushed by the Obama economy" through a flat tax, an idea that many economists oppose.
In his shareholders letter, Buffett also said "Last year was a good one" for his mammoth company. However, in recent years, Berkshire hasn't always even matched the S&P 500 index's performance (chart below).
Still, Buffett remains quite optimistic about the country's economic prospects. Here's why:
1) When measured on a per-capita basis, U.S. GDP is about $56,000, six times higher than it was when Buffett was born in 1930. Thanks to technological advances, Americans are working far more efficiently than they did in the past, a trend that's sure to continue in the future, Buffett said.
Republicans often lament the U.S. economy's slack growth rate of about 2.4 percent over the past two years and 1 percent in 2015's final quarter. While that fourth-quarter rate represents a deceleration from the previous quarter, Buffett noted there's more to the number than meets the eye, especially when the 0.8 percent growth in the U.S. population is considered.
"That may not sound impressive," he wrote. "But in a single generation of, say, 25 years, that rate of growth leads to a gain of 34.4% in real GDP per capita. ... In turn, that 34.4% gain will produce a staggering $19,000 increase in real GDP per capita for the next generation. ... Today's politicians need not shed tears for tomorrow's children."
2) According to Buffett, people in his upper-middle-class neighborhood in Omaha enjoy a standard of living that's superior to how industrialist John D. Rockefeller lived in the early 20th century. Statistics underscore that point. Thanks to advances in medicine, the average life expectancy in the U.S. is 78.8 years. When Buffett was born in 1930, it was about 60.
3) Though Buffett has expressed some sympathy for Democrat Bernie Sanders' views on income inequality, which the Vermont senator has made a focal point of his campaign, he sees more potential for mobility than Sanders does. While the haves will struggle with the have nots, Buffett believes the poor will be better off in the future than they are today.
"The quality of their increased bounty will also dramatically improve," he wrote. "Nothing rivals the market system in producing what people want -- nor, even more so, in delivering what people don't."