“Buffett Effect” leading to the “Buffett Tax”.

 

Assume for a moment we have a butcher, a baker, and a candlestick maker. We will confine our discussion to financial success [vs. other types of “success”]. The three, one way or another, become owners of businesses. These businesses grow. Hence the three go through all phase of being broke, to being risk takers, to becoming successful.

Let us further assume that over time the butcher and baker are successful to the tune of $750,000 per year in income whereas the candlestick maker earns $10,000,000 per year in income. Along the way the three amass wealth but the candlestick maker has ten times the wealth of each the butcher and baker. All are financially successful merely to differing degrees.

Now let us focus on the “Buffett Effect” leading to the “Buffett Tax”. For one reason or another some people that reach the candlestick maker’s level of financial success (in the above example) feel the need to “give back”. Milton Friedman stated :


“So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not”. (1)

"...there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." (2)

Friedman was eluding to executives and owners of firms create social value by providing current and future employment and creating current and future wealth. That the social value of employment is generally over looked. That the social value of employment is what executives and owners of firms are best at doing and what they should concentrate upon.

However, rather than concentrating on their first and best recourse, the need to "give back" appears. The need to “give back” is focused upon on an exogenous area other than what Friedman eluded to above. Hence "give back" comes in the form of charitable giving which creates libraries, museums, foundations, etc.

Moreover, at some unknown but certain point, surrounding the concept of the “give back” mind set, a disconnect occurs where the giver thinks all should be like him/her. That his/her “give back” should be the norm for all. That is, the give back mind set morphs into Thomas Sowell’s explanation of notional propositions [visions of the anointed], based on the way things ought to be, argued through verbal virtuosity, merely ending in the person painting the world in her/her own self image. One might refer to the above phenomena as the "Buffet Effect". (3) (4) (5)

If one steps back for a moment and returns to Friedman, if the want-to-be “give backer” had taken his/her “social responsibility” as concentrating on what they do best, creating more and better jobs, would society be better off? If Jane and James Goodfellow have more and better jobs would that in and of itself solve more societal needs than merely “giving back” charitably?

At some point the “Buffett Effect” spills over from charitable giving to “state giving“. Some wider omni-giving mind set. That somehow philanthropy morphs into social welfare. Hence the "Buffett Tax".

Note: one would have to assume a social welfare state already exists in the background as how could the once charitable “give backer” morph into “state giving” without the social welfare outlet existing in the first place. Which then leads back to executives and owners of firms creating social value by providing current and future employment. That is, does a portion of the existing social welfare state exist do to the failure to create jobs with wealth rather than giving away wealth?

Therefore the “Buffett Effect” and the “Buffett Tax” may well be circular when a social welfare state exists. The would be job creator decides "giving back" is more valuable than his/her first and best skill as job creator. Charity is produced but less than optimal jobs are produced. The less than optimal job creation enhances the need, perpetuation, and existence of the social welfare state. The "Buffett Effect" morphs into "state giving" as an omni-giving exercise with wealth bestowed upon the welfare state. The social welfare state bloats, the charitable giving continues, optimal job creation is not produced, leading to more "state giving", and so goes the circle.

Notes:

(1) Interview "Milton Friedman Responds" in Chemtech (February 1974) p. 72.

(2) Rethinking the Social Responsibility of Business, http://reason.com/archives/2005/10/01/rethinking-the-social-responsi

(3) Thomas Sowell, Visions of the Annionted

(4) Thomas Sowell, Intellectuals and Society

(5) Thomas Sowell, A Conflict of Visions