Skills Recent Grads Need the Most: The Ethical Dimension

Bob Clary, the community manager of Webucator, has asked me to identify and blog about a valuable skill  that recent grads need to succeed. Bob would like to make the job market a less scary place to recent grads of his program, and he's asked bloggers with relevant knowledge to offer advice.  Bob writes this:  "We’re excited about this newest blogging campaign in our Webucator Asks series, and we look forward to reading about creative ways to help guarantee success!"

I decided to do Bob one better and identify four skills to write about.  The four skills that I am covering are ethics, job search, interpersonal skills, and writing.  Interpersonal skills boil down to communication, and communication is the focus of my discussion on that topic. This blog and my next three will cover these skills just as I discuss them with my students.

I start with ethics, the most basic of all managerial skills. Ethics is a competency or skill just like job search, interpersonal skills, and writing. Many students mistakenly believe that there is a dichotomy between profit-making or high wages and ethics.  That is a false dichotomy. Making money is a good, just as honesty and concern for others are goods.  Our job as business people is to balance these and other goods or virtues so that we, our associates, and society, can flourish.

As Warren Buffett pointed out in a talk he gave in the 1990s to MBA students at the University of North Carolina, ethics is much of the reason high achievers achieve.  It is true that in the short term money can be made through dishonesty; it is also true that low achievers can become successful by dishonest means. Look at those who engage in organized crime or in government corruption. They can be successful, although corrupt executives, as in the cases of Enron, Tyco, and Worldcom, pay a high price when they are caught.  Nevertheless, the reason we seek education is to achieve well, not to become drug dealers, confidence men, or thieves. Education is not necessary for such professions.  We achieve well and successfully on an ethical foundation.

The reason the most successful achievers achieve is that they play by the rules of the game. They respect their customers, their employees, their stockholders, and their society.  As society becomes more concerned with the environment, environmental concerns become business concerns.  That is why customers repeatedly return to a firm that produces great products, and that is why society turns to business in times of crisis. One of the great triumphs of General Motors was its ability to convert to war production to assist the US government during World War II.  Without such assistance American victory would have been more difficult, and more soldiers' lives would have been lost to tyrants in Europe and Japan.

Business's products are moral goods because they help many billions of people.  The ability to expand the availability of such goods to ever greater numbers of people is the moral triumph of business.  Making business more efficient and helping business to better meet customers' needs, the mission of recent grads entering the workplace, fulfills a higher moral good. To do so one must rest his or her actions on a moral foundation.

The moral foundation is a set of competencies that students need to identify for themselves.  These likely include what Warren Buffett called the "Ben Franklin virtues" that were identified by his teacher and the inventor of value-based investing,  Benjamin Graham. Buffett calls them the "Ben Franklin virtues"  because Franklin identifies them in his writings in Poor Richard's Almanac and in his 1758 book The Way to Wealth.  Franklin's virtues include honesty, sobriety, hard work, and prudence.  In ancient Greece, 2,500 years ago, Aristotle listed similar virtues--not geared to commercial life, although there is much overlap--as necessary to success.  The reason that there is much overlap between Aristotle's and Franklin's virtues, written more than 2,000 years apart and in different cultures,  is that Aristotle's students aimed to become leaders of the Athenian city state, and the virtues that he describes in his Nicomachean Ethics were geared to success in that ancient society.  These included the cardinal virtues: moderation, prudence, courage, and justice.

Justice, as in Aristotle's day and in Franklin's day, is the cornerstone of ethical competence when working in business. Just as is the case with emotional intelligence, in order to act well we need to develop ethical intelligence. Ethical intelligence means asking ourselves whether an end is justified, whether we can accomplish it prudently, whether we can reduce or eliminate costs or harm, whether we can improve quality or increase the good that we do, whether any harm is more than balanced by the good, and whether our actions serve our colleagues, society, and ourselves.

Many corporations recognize this balance. For example Johnson and Johnson's Credo describes the firm's vision of ethical intelligence in dealing with nurses, doctors, customers, employees, suppliers, and the greater community.  J&J's conclusion is this: "When we operate according to these principles, the stockholders should realize a fair return."  Compare the success of this great firm with that of any of the dishonest ones that have made the news and often no longer exist.

Ethics is the most important competency because all dealings depend on it.  It is the chief recipe for long-term success. Whether we are looking for a job, dealing with the challenges of interpersonal communication, or negotiating an important deal, it is important to ask ourselves whether we are doing the right thing by balancing all considerations in a way that yields an optimal outcome for others, for society, and for ourselves.

Warren Buffett, the Ultimate Bubble, and American Decline

America is in the hands of con men.  Would that she were to return to the innovative days of laisser faire when the precursors of today's economic mountebanks resided in the populist hinterland and the fringe of the Whig and Republican Parties.  The Bush and Obama administrations have followed the failed ideologies of Friedman and Keynes as the American economy has faltered.  (A good discussion of why monetarist and Keynesian economists get it wrong is Henry Hazlitt's Economics in One Lesson.)  

In a 2003 article in Fortune  Warren Buffett, Oracle of Federal Reserve Bank Counterfeit, makes these claims:

 ...imagine that the Japanese both want to get out of their U.S. real estate and entirely away from dollar assets. They can’t accomplish that by selling their real estate to Americans, because they will get paid in dollars. And if they sell their real estate to non-Americans—say, the French, for euros—the property will remain in the hands of foreigners. With either kind of sale, the dollar assets held by the rest of the world will not (except for any concurrent shift in the price of the dollar) have changed. The bottom line is that other nations simply can’t disinvest in the U.S. unless they, as a universe, buy more goods and services from us than we buy from them. That state of affairs would be called an American trade surplus, and we don’t have one.

Mr. Buffett and Fortune mal-educate the public.  The foreigner who sells American real estate can exchange dollars for yen or yuan at his bank.  Fortune and Buffett seem not to have heard of foreign exchange windows. All currencies are traded.  Of course, if many foreigners wish to get out the dollar there will a great dollar crash.  This will occur, for the dollar, not gold, is the world's ultimate bubble.  

As well, foreigners can get out of dollars by buying commodities with dollars and then selling them for foreign currencies. For example, if a Japanese investor is holding dollars, he can use the dollars to buy gold or wheat from an American and then sell the commodity in Japan. That would leave dollars back in America and the Japanese investor with yen.  As well, he can purchase dollars from Americans who prefer to hold yen, or use dollars to purchase yen-denominated assets from Americans.  Side payments make a wide range of ways to ditch dollars possible.

The price of gold has escalated as both Americans and foreigners have begun to prefer holding gold to dollars. Foreign central banks increasingly hold gold instead of dollars.  The dollar has fallen.

Foreign central banks can end the dollar's reserve currency status and sell their treasury bonds back to Americans, then exchange the dollars they have received for their home or another currency.  Doing so would cause the dollar to fall as demand for dollars drops and demand for other currencies rises.  If many countries do so, the value of the dollar will fall precipitously.  That Mr. Buffett and Fortune claim that such a situation is an impossibility reflects the ruling class's fantasy that the current monetary arrangement, which is a dollar bubble brought about through central banks' and governments' planning in Wall Street's, corporations' and government's interests, can continue indefinitely.

Eventually, there will be a run on the dollar, and Americans will suffer.  Gold may have its ups and downs, but the instability of the American monetary system will remain until the system is replaced.


A dollar crash should have occurred long ago. All foreign trade must be two way.  If foreigners are selling merchandise here for dollars, then we must sell merchandise there for yen or yuan.  If we don't then demand for the dollar falls and we are forced to stop buying Japanese or Chinese merchandise because it has become expensive. Plants return from foreign countries because imports become expensive.  Inflation would make Americans poorer.  This has not occurred because foreigners hold dollars and dollar-denominated treasury bonds, propping up the dollar. This has caused excessive overseas investment.  The Fed has harmed working Americans while it has subsidized Wall Street, Warren Buffett, and George Soros.


Rather than think logically, Mr. Buffett, America's most talented financier, and Fortune, America's leading business publication, fantasize.  The notion that the dollar cannot be sold deflects attention from the instability of the American economy.  Fantasy is characteristic of participants in bubbles.  It is not impossible for foreigners to sell dollars, and purchase of manufactured goods is not the only form of trade.  As dollar demand for other currencies escalates, the dollar declines.

The flip side of Mr. Buffett's and Fortune's delusional claim that dollar sales are an impossibility will be the end of the dollar bubble--a dollar crash.  Gold and silver, anathema to Fortune, Mr. Buffett, and his Wall Street peers, will skyrocket in value.  Wall Street's victimization of the average American, accomplished by Americans' voting their victimizers' servants into office, will have been complete.

Warren Buffett Predicts Inflation, Higher Stock Market

My broker forwarded an article that Warren Buffet wrote in the New York Times today. He is long on stocks and urges buyers to view the current market decline as a buying opportunity. I agree. Yesterday I bought GE, which is selling at less than 10 times earning because of its financial risk, and the S&P 500. Buffett's most interesting statement is toward the end of the Op Ed:

"Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

"Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."

Given his prognosis of inflation, and the socially unacceptable characteristic of gold and other commodities, they may be at least as good as stocks over the next five years.

Barack Obama Is A Racist and, Worse, a Social Democrat and a Progressive

Howard S. Katz has just written blog that argues that Barack Obama is a racist:

"...Barack Obama is a racist. He sees white people through the prism of hate. He sees them in clichés...So now we know what the election of 2008 is really about. The Democrats may nominate a racial bigot who hates the large majority of the people in the country he is trying to lead. The campaign will be very simple. The Democrats probably won’t come right out and say it, but their position will be, “We hate America...

"I first met these people at Harvard in the late 1950s. The issue has nothing to do with black or white. They hate America because America is the country based on freedom. They are not liberals. Neither are they democrats (with either a lower or upper case “D”).

"The formal name of these people is Social Democrat. This was a movement founded in 1875 in Germany to prevent the ideas of freedom and democracy from advancing across the continent of Europe. In 1912, the Social Democrats took control of Germany and fomented W.W.I. Then another Social Democrat, named Adolph Hitler, fomented W.W. II.

"...This will be the Presidential campaign of 2008. The Democratic position will be, “We hate America.” The Republican position will be mealy-mouthed compromise. And the people of the world run around killing each other over the food which does not exist"

There is little doubt in my mind that Barack Obama represents a fringe element. There is also little doubt that the Democrats who back him, such as George Soros and Warren Buffett, are anti-American bigots.

The Economic Contours of a Buffett-Obama Administration

The Economic Contours of a Buffett-Obama Administration

Much has been made about Barack Obama's association with Pastor Jeremiah Wright, who represents the identity politics fringe of the Democratic Party. Mainstream Americans ought to be concerned because the Democrats have introduced leftists into staff positions in state legislatures and Congress and funded them in universities. For example, Eliot Spitzer's suggestion of granting drivers' licenses to illegal aliens likely did not spring from the mouth of his latest romantic partner, but rather from staffers whom he introduced into Albany. With associations of the Pastor Wright sort, Mr. Obama seems likely to aim to employ staffers with fringe views. If you liked the idea of granting drivers' licenses to aliens, it is certain that you will love an Obama administration.

An even more important question than identity politics, though, is what a President Obama would do to the economy. Thus, a more important association than Obama-Wright is Obama-Buffett. What clues might this relationship offer about the economic direction that an Obama administration would take? One clue is Mr. Obama's recent recommendation, quoting the authority of Mr. Buffett, to increase the capital gains tax. Mr. Buffett's investment philosophy famously involves buying and holding for the long term, and so would not be hurt and would possibly be helped by higher capital gains taxes. In contrast, traders whose investment approach involves more frequent buying and selling would be hurt. Long term holders infrequently pay capital gains taxes, while frequent traders may pay taxes more frequently. Thus, capital gains taxes would hurt Mr. Buffett's competition more than they would hurt him. That which hurts his competition would likely help him.

An increased capital gains tax would provide an incentive for investors to favor investment in Berkshire Hathaway over buying and selling commodities and stocks. The Federal Reserve Bank has increasingly become involved in timing and influencing the financial markets, increasing the returns to short term traders who respond to Fed moves but potentially harming long term holders because of market unpredictability. Mr. Buffett's Berkshire stock has nevertheless performed modestly, but only modestly, well. An increase in the capital gains tax would likely increase the value of Berkshire Hathaway stock because it would provide incentives for long term holding. Hence, Mr. Obama has already been advocating policies that would prove economically beneficial to Berkshire Hathaway, and quoting Mr. Buffett in doing so.

Mr. Buffett's investments span a wide swath of businesses. He favors domestic businesses over foreign ones. Many of the businesses and stocks that Mr. Buffett's Berkshire Hathaway owns are consumer products, media, financial, insurance, food and retail businesses (Coca Cola, See's Candies, Capital Cities ABC, GEICO, Dairy Queen, reinsurance and small retail). Thus, policies that a Buffett-Obama administration would likely favor would involve support to a broad swath of domestic consumer, financial and real estate-related businesses.

A weak dollar/high inflation policy executed in the name of full employment with increased taxes to Mr. Buffett's competitors and protectionism are the most likely outcomes of a Buffett-backed Obama presidency. High inflation serves Berkshire Hathaway's interests for several reasons. First, inflation reduces real wages and so real labor costs for Berkshire's retail and construction businesses. Second, inflation reduces real debt, and the diverse businesses that Mr. Buffett owns, from house construction to consumer products, carry debt and so benefit from inflation. Third, inflation weakens the dollar. Since Mr. Buffett's businesses tend to be domestic, a weak dollar will help Berkshire because it will make American-made goods relatively cheap. Of course, this will occur in tandem with the average American's becoming poorer due to the same inflation, so while it will help Berkshire Hathaway it will harm American workers. Thus, one can expect that an Obama presidency will harm American workers in the name of helping them.

Since Mr. Buffett's businesses are primarily domestic, protectionism would prove beneficial to them as well. We can expect protectionism from an Obama presidency. This too would harm American workers by making goods more expensive but would prove helpful to Berkshire Hathaway.

One of the fundamental principles of progressive-liberalism is that it emphasizes that low wages are conducive to full employment while it de-emphasizes the benefit that low wages, low interest rates and high inflation provide to owners. Mr. Buffett is a student of John Maynard Keynes, and we can expect the Keynesian inflationary policy to be a pillar of an Obama presidency. The Keynsian argument is that increasing the money supply reduces interest rates and real wages. This stimulates employment, but it also makes workers, savers and pension holders poorer while it improves the position of owners, like Mr. Buffett.

At the margin, the stimulative effect of the Fed's printing money will include the creation of low-wage retail jobs, and this will benefit Berkshire Hathaway, which owns retail businesses. As well, Berkshire Hathaway benefits because low interest rates boost the value of its stock price. Low interest rates cause investors to value future earnings at a higher value. If an investor knows that he is going to receive a dollar in a year, if interest rates are reduced from 10% to 1%, the value of that future dollar is considerably raised in the present. Since the stock market is a mechanism to value future earnings, increasing the supply of money (that is, reducing interest rates) boosts stock market values. Since Berkshire Hathaway emphasizes long term holdings, its value will be especially enhanced. Thus, an Obama Presidency will likely prove to be inflationary through encouraging the Federal Reserve Bank to print money.

An Obama presidency will emphasize taxes that harm small investors and traders who compete with Mr. Buffett. These would include inheritance, capital gains and income taxes. It will reduce interest rates which raise the value of Berkshire Hathaway's holdings and subsidize long term holders. It will reduce the value of the dollar, which will stimulate demand for Berkshire Hathaway's domestic businesses. It will increase protectionism and raise tariffs, especially those which reduce competition to Mr. Buffett's businesses. Mr. Obama will reduce real wages, enhance income inequality and all the while will tell Americans how much he is helping them because he has created a few low-wage jobs for employees of Berkshire Hathaway.

War on The Future in Herbert Croly's Progressive Democracy

The past century has seen the persistent belief that government best copes with change. Liberals have viewed social security and regulation as cures for psychological uncertainty arising from free market policies. Yet, most progress has been associated with free markets. In countries like Russia, North Korea, Cuba, China and today's social democratic Europe there is scant innovation. In the case of more government-controlled nations, such as North Korea and Cuba, there is deprivation. Yet, the "progressive-liberals", including (a) liberal economists (b) big business tycoons like Warren Buffet and George Soros and (c) liberal journalists, continue to claim that progress comes from big government, high taxes, inheritance taxes and the Federal Reserve Bank.

The encouragement of government is associated with short-term thinking and faulty understanding of the sources of economic progress. "Liberal-progressives" since Herbert Croly have believed that progress results from increased efficiency, democracy and equity. Although these are all legitimate social goals, and efficiency does contribute to wealth hence progress, progress results from innovation, not from them. Innovation, in turn, depends on willingness to take risks, long term thinking, a realistic faith that returns will not be appropriated, and a high valuation of the returns. Although low interest rates (a low discount rate for a future dollar) stimulate increased valuation of future returns (at two percent a dollar in a year is more valuable than it is at four percent), when the Fed increases the money supply it depreciate the currency, resulting in inflation, uncertainty and insecurity.

It is unlikely that innovators will have first access to new credit (such access is given to commercial bankers, Wall Street, Warren Buffett and the like) and so will suffer from the uncertainty that inflation causes. Thus, the interests of the commercial bankers and Wall Street diverge sharply from the public's and from free markets. Innovation depends on a stable economy and the ability to predict the future so that innovators can predict returns, while Wall Street, big business and banking benefit from (and probably would not exist in their current forms without) interest rate subsidies and state support.

The progress that exploded in the late nineteenth century was due to a stable monetary base (the US was on the gold standard in the late 19th century) and limited government. Yet, the "Progressives" of the early twentieth century did not grasp that progress and innovation had resulted from the long term thinking that result from a stable money supply. In 1913, the "Progressives" pushed through the Federal Reserve Bank in order to, they argued, stop a two percent inflation rate that arose from global gold discoveries (the average inflation rate since 1979, excluding housing which has gone up faster, has been 3.7%). For the past 70 years the Fed has encouraged low interest rates and inflation. During the same period there has been less progress and innovation than there was between 1865 and 1913. Much of the progress and innovation that was made since 1930, for example television, has been based on ideas that had been conceived much earlier, for example by Nikola Tesla.

The liberal economists, tycoons like Warren Buffett and their allies encourage short term thinking in other ways, for instance, through advocating the capital gains, income and inheritance taxes, regulation of the economy and special interest subsidies to firms like Archer Daniels Midland and AT&T that squelch competitive innovators.

Herbert Croly's Progressive Democracy (1914) is a 415 page argument in favor of reconstituting the US government in order to encourage (1) greater democratic participation; (2) unfettered government power ostensibly governed by majority vote, with voice given to political minorities via a pluralistically elected legislature; and (3) enhanced professionalization and administrative power to scientific management-style government administrators who, Croly believed, could be freed from special interest pressure.

Croly believed that progress results from the application of democratic principles to science and that business had played very little role in encouraging innovation. Croly overlooks evident history that to him had been recent. In the thirty-five years preceding Croly's book Thomas Edison, Nikola Tesla, Charles F. Kettering, Alexander Graham Bell, Guglielmo Marconi, Wilbur and Orville Wright and many others flourished and invented crucial technological breakthroughs in a business-driven, laissez faire world. These were businessmen as well as inventors, who profited substantially from their inventions. They were not market manipulators and negotiators like Bill Gates and Warren Buffett. They were breakthrough inventors who came up with and marketed crucial technological breakthroughs. Such innovators are missing today because the capital formation necessary for them has been monopolized by the Federal Reserve Bank and its clients, such as Wall Street and Buffett. In other words, the policies of the "Progressives" have reduced the pace of progress by waging war on the future.

It is not coincidental that Croly overlooks the link between the accumulation of wealth and innovation. Croly lacks a theory about capital formation. He does not think that workers should save because it is, in his opinion, too painful for them to forgo current consumption. He does not make a similar kind of argument against the income tax. Yet, if workers in 1913 had saved at the rate they are taxed by the federal government today, they probably would have saved enough to purchase a business just as John D. Rockefeller did in the 1850s. Croly overlooks such examples as John D. Rockefeller, who was entirely self-made, because such examples are inconsistent with his argument that it is next to impossible for small shop owners and workers to become independent businessmen.

Croly might be viewed as the early twentieth century prophet of the early twenty-first century's sub prime loans, credit subsidies and incipient economic decline. He argues for a short-term politically-driven fix. Although he lacked the economics knowledge to argue for low interest rates (that was Keynes's job twenty years later) Croly did focus on a short-term fix: syndicalism.

Croly believes that businessmen should be asked to encourage syndicalist industrial democracy without concern for risk to their investments. He seems to believe that capital forms on its own and that the risks of investment will be absorbed without cost by....well he doesn't quite say. Some of Croly's ideas may be right in principle--the Japanese have in fact utilized autonomous work teams to encourage application of scientific management tools, an idea that Croly roughly suggests, but the industrial governance system he advocates is absurdly cumbersome by today's standards (and by the early twentieth century's as well).

Croly (p. 382) argues that 19th century liberals' argument that workers should be thrifty and save in order to buy property and so become owners rather than workers is "deplorable" because thrift implies deprivation and it is cruel to ask workers to impoverish themselves in order to save money to become wealthy down the road. Croly was among the earliest of the progressive-liberals who have waged war on the future. Twenty years later, in the 1930s, Keynes was to argue that "in the long run we're all dead." This kind of short term thinking is the heart of the liberals' and free-credit Republicans' war on America's future.

The easy, get-it-for-free mentality took further root in the American psyche. In reality, it is a streamlined version of 19th century populism, which was an ideology of agrarian land speculators who combined the advocacy of easy money with anti-Semitic and anti-British feeling.

The end result of short term thinking is economic decline. Howard S. Katz this week blogs about the role that economic reporters have had in furthering the mistaken Keynesian economic notions that economic progress is due to demand. This kind of thinking is the same kind of short-term thinking that Herbert Croly advocated in the early twentieth century. The end result of this short term thinking, stimulation of low interest rates through monetary depreciation and inflation will be further American economic decline. The century after the Federal Reserve Bank was founded was far less innovative than the century preceding it. Moreover, there was less economic opportunity and greater lunges between unemployment (as in the Great Depression and the 1970s stagflation) and full employment than there had been in the 19th century. Moreover, instead of jobs improving in quality, we have become a nation of retail fast food workers. Innovation has stalled because credit has been diverted into the pockets of Warren Buffett and George Soros.

Herbert Croly and the Progressive-liberals seem to have won their war on the future. Future generations of Americans will be poor in order to satisfy Croly's and his colleagues' narcissism.

Warren Buffett Attacks Middle Class Businessmen and Farmers

On February 14, 2001 BBC News reported that:

"A group of the United States' most wealthy citizens have urged Congress to reject a plan by the new Bush administration to phase out taxes on estates and gifts by 2009...A petition, to appear in the New York Times on Sunday, is being organised by William Gates Sr, father of Microsoft chairman Bill Gates...Around 120 rich Americans, including billionaire investors George Soros and Warren Buffett, support the petition...Mr Buffett, who himself did not sign the petition because he thought it did not go far enough, said that repealing the estate tax would be a "terrible mistake."

Fox News reports today that Buffett:

"told the Senate Finance Committee on Wednesday that Congress should keep the estate tax rather than repeal it and help a few rich Americans like him."

When you think about it, it makes sense for America's wealthiest citizens to support the estate tax since it doesn't affect them. There has been an estate tax in effect for nearly 100 years, yet America's wealthiest families have mostly avoided it. In fact, virtually nothing in the tax code is as it seems. The tax code is full of exceptions, regulations, exceptions to the exceptions and regulations that regulate the exceptions to the exceptions.

In contrast, wealthy but middle class businessmen and farmers worth $3 or $4 million have trouble affording legal talent to lobby for or find the exceptions. Not so the Rockefellers. The Gates-Buffett pro-inheritance tax movement is an effort by the very wealthy to attack and impoverish the upper middle class.

Farmers and small businessmen may find that they lack the cash to pay an inheritance tax. Owners of expensive Manhattan apartments may have to throw their less lucky children onto the street because the parents fear that they will not have the cash to cover the inheritance tax on the apartment.

It is logical for the super-rich to favor the inheritance tax because the inheritance tax has never prevented them from establishing trusts. Many of the signers of the Gates petition may do so when the glare of the news media is turned away.

Moreover, cronyism and nepotism, the hiring of friends and relatives as opposed to the best qualified candidate, is morally indefensible. Yet, Buffett has appointed one of his children to run Berkshire Hathaway. The not-so-wealthy can't afford to appoint their children to a corporate sinecure.

The opposition of the super-rich to inheritance is hypocritical for another reason. If the state did not interfere with the money supply and the economy, an inheritance tax would not be so big a problem because asset values would be lower. But it is because the Fed inflates the money supply, artificially depressing interest rates, that illiquid estates are problematic. Apartments and houses that have been in families for generations must be liquidated. Small businesses must be broken up.

Were the Fed to allow interest rates to float to a market level, rates would rise. This would be fair because interest is just the price of money. We do not subsidize the price of shoes to benefit shoe retailers or of cars to benefit car retailers. Why do we need to depress the price of money, interest, to protect stock market investors, Wall Street and commercial bankers? Can't these guys create value in a free market?

Higher, market-responsive interest rates would depress the stock market and make the super-rich less rich. Moreover higher rates would stop inflation from elevating asset values. Thus, farmers' land and New Yorkers' apartments would become less unrealistically expensive.

Messrs. Buffett, Soros and Gates do not lobby for market-driven interest rates. Instead, Messrs. Buffett, Soros and Gates argue for tax code provisions which everyone knows are complex, often unnecessarily complex, frequently dodged and subject to manipulation by the very wealthy. Hence, we must suspect that Messrs. Buffett, Soros and Gates are insincere. If they were concerned about income inequality, they would speak out for market-neutral interest rates, not for complicated enhancements to the byzantine tax code.

Although financiers like Buffett, Soros, Gates et al. have above-average intelligence, this may not be true of all who have built successful businesses. Some may have average intelligence. Their children may also have average intelligence. Why should the hard work of the parents be forfeited? In contrast, because of income taxation, government regulation, licensure and inflation, success in today's world increasingly (and unfairly) depends on the ability to gain entry to Ivy League colleges and obtain a job on Wall Street, as has been the case with Messrs. Buffett and Soros. Mr. Gates attended an Ivy League college but did not work on Wall Street. If the children of Ivy League graduates are more likely to be able to attend Ivy League colleges because of inherited genetic endowment, then they benefit by inheritance tax. They benefit because small owners are forced to sell their family businesses to large businesses such as those that Messrs. Buffett and Soros own. The low interest rates benefit them; and the emphasis on academic scores tends to benefit them. In contrast, the hard working farmer sees the state violently rip his life's work from his children. But this is fine with Mr. Buffett because Berkshire Hathaway is ready to buy at bargain basement prices.

Frankly, I see little moral or respectable in the anti-inheritance or pro-inheritance tax position. Buffett's position is vicious. If the super-rich want to give their money to charity, they have every right to do so. But shouldn't the hard working upper middle class be permitted to shield their children from the rapacity of the marketplace? Or must their children be subjected to the inflationary stealing of a new generation of financial manipulators and beneficiaries of government intervention?

Warren Buffett Should Stay within His Circle of Competence

Today's New York Sun notes that while Warren Buffett complains that he is taxed too little on $46 million in income, his actual economic income last year, including unrealized capital gains, was more than $10 billion dollars. The reason is the unrealized appreciation in Berkshire Hathaway stock, which meant more than $10 billion to Buffett this year. I own four "B" shares that have climbed to $3,621 each this year so I have probably made $1,500 in unrealized appreciation. Tip money compared to a billionaire, but bless Buffett's soul.

Curiously, Buffett argues that public hedge funds and equity funds should be taxed more heavily. Presumably he includes his firm, Berkshire Hathaway. Buffett argues that because hedge fund managers are earning hundreds of millions in salaries, there should be special taxes on hedge fund managers since in many cases they pay lower taxes than those of us who count our earnings in the lowly thousands.

Those New Yorkers who have managed to survive the New York diaspora (the rest having been driven out by "humane" policies of the kind that Mr. Buffett advocates) hear about the hedge fund billionaires. They are obnoxious, boorish, greedy and, in a phrase, nouveaux riche.

Envy is natural in a free society. Success is sometimes out of proportion. This was true in the 19th century with the success of Standard Oil and John D. Rockefeller, and it was true in the twentieth century with the success of A&P, which was prosecuted for anti-trust and price fixing between the 1930s and 1950s. This also has occurred in the case of the hedge fund managers. But there is a difference. Unlike Standard Oil and A&P, hedge fund managers rely on government to profit and have not been particularly innovative in developing new products or new management methods, as did John D. Rockefeller and A&P's Hartford brothers.

Apologists for hedge fund managers, such as Weekly Standard, claim that private equity and hedge funds improve the management of firms that they buy and then resell. This claim is nonsensical. It is well known that corporate acquistions mostly destroy shareholder value in the long run. If you were to limit your investing to stocks of firms that private equity and hedge fund firms have taken off the market and then made public again my hunch is that you will be spending your retirement holding a tin cup. Mark Sirower's book Synergy Trap explains why outsiders do not make good managers. As well, Hayek noticed that management is primarily a matter of knowledge specific to time and place. Outsiders such as financiers lack specific knowledge. The most famous private equity deal involving Henry Kravis and RJR Nabisco that was immortalized in Barbarians at the Gate ended up a financial embarrassment because KKR held onto it.

Federal corporate welfare has made private equity managers, including Warren Buffett, rich. Corporate welfare takes the form of artificially low interest rates that the Fed has pursued since the 1980s. I have previously blogged that hedge fund managers, such as the Carlyle Group's William E. Conway, are well aware that Keynesian monetary policies that liberal economists and the New York Times advocate have spurred enormous profits for hedge funds and have amounted to a transfer from mainstream America to the financial community. There are other beneficiaries of Keynesian re-distribution, to include corporations, universities, mortgage payers and, of course, Warren Buffett. Those who benefit from low interest rates, which stimulate demand for unproductive investment such as $120,000 to study with Paul Krugman or $800,000 for for a condominium in Bayshore, Long Island naturally favor inflationary policies. These include Buffett, Krugman and hedge fund managers. No wonder Buffett, Gates, etc. are all liberals who support left-wing economic policies.

Buffett's father was a hard-money Republican. When Buffett was a student at Penn, he was photographed riding an elephant. However, the elephant must have smacked him upside his head with his trunk, because Buffett switched to the Democrats. Although Buffett is the greatest investor who ever lived, he lacks competence with respect to policy issues. In investing, Buffett argues that you should only invest in areas in which you have expertise, i.e., are within what he calls your "circle of competence". Perhaps he should take his own advice, and avoid advocating frivolous tax policies.