Munger: A little inequality is good for the economy
Investing icon Charlie Munger, Berkshire Hathaway's (BRK-B, BRK-A) vice-chairman and Warren Buffett's long-time business partner, says wealth inequality is "the inevitable consequence" of policies that make a nation grow richer and elevate the poor.
"I think that to some extent, the complaint about the rich getting richer as the as a result of the COVID panic, I think that's a misplaced concern. Nobody was trying to make the rich richer. We were trying to save the whole economy under terrible conditions. And I think, by and large, we made the most practical decisions that were available to us," Munger said on Wednesday at the Annual Meeting of Shareholders of the Daily Journal Corporation (DJCO), where he serves as chairman of the board.
When asked if the Federal Reserve keeping interest rates low will only exacerbate income inequality, Munger prefaced that "it's hard to know what exact macroeconomic policy is correct. Because no one knows for sure, just how much government intervention is wise, and what point the government should stop intervening."
The 97-year-old investor added that he doesn't have "any great gift" at making macroeconomic predictions either.
The policies made the wealthy owners of financial assets were not a "deliberate choice" but instead an "accidental byproduct of trying to save the whole civilization." What's more, it was "probably wise" that those policies were implemented.
"And it wasn't some malevolence of the rich that caused it. It was an accident. And the next time around why the poor will get richer faster than the rich, that things circulate it. Who gets rich faster by class is going to vary over time, and I don't think anybody should be too concerned by it," Munger said.
He proceeded to point out that a prosperous nation requires a free market system.
"And if you have a free market system that's trying to get rich in the way recommended by Adam Smith, what happens is that it's a very irritating system because the poverty that causes so much misery is also causing the growth that makes everybody get out of poverty. In other words, to some extent, it's a self-correcting system."
"That makes the whole thing very awkward. And it's a shame that the economics textbooks don't emphasize how much a growing economy needs poverty in order to get out of poverty. And if you try and reduce the poverty too much, it's counterproductive," Munger said.
He added that these are tough questions and most people assume there's a simple answer.
"If we could make the world richer by just raising the minimum wage to $100,000 a second or something, of course, we would do it, but we can't."
Safety nets, not wealth taxes
When asked about the long-term consequences of the Fed's policies creating financial excesses and income inequality, Munger again said no one knows how well the economy will work in the future.
"I do think that I'm way less afraid of inequality than most people who are bleating about it. I think that inequality is absolutely an inevitable consequence of having the policies that make a nation grow richer and richer and elevate the poor. So, I don't mind a little inequality," Munger said.
He observed that rich families "generally lose their power and wealth and pretty fast."
"And so I don't worry that the country is being ruined by a few people are getting ahead a little faster than the rest of us."
Responding to a question about implementing solutions such as a wealth tax to address inequality, Munger said, "any rich nation ought to have a social safety net that expands a little with its wealth."
"And that's what we've been doing through my whole lifetime. And I applaud the result," he said.
He noted that the result would have been worse if either political party had been in control all by itself.
"In other words, I think the system of checks and balances and elections that our founders gave us actually gave us pretty much the right policies during my lifetime. And I hope that that will continue in the future. But I do think politics is getting more full of hatred and irrationality than it used to be in America, and I don't think that's good."
In another question regarding the exodus of wealthy individuals and businesses from high-tax states like California, Munger observed that it's "rising as we sit here."
"I just see more and more of the rich people leaving. And of course, I think it's vastly stupid for any state to be user-friendly to the rich people. They do way more good than harm. And, and they lose their money fast enough, you don't need to worry about. Washington State is actually considering a wealth tax at the state level. I think that would be insanity. I predict that if they do that a lot of people will leave Washington."
Shares of Daily Journal closed up 1.36%, or $4.70, to end Wednesday at $351.
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.
Read more from the Daily Journal Meeting:
Charlie Munger on Robinhood and GameStop frenzy: 'It's a dirty way to make money'
Munger diverges from Buffett on Wells Fargo: 'Warren got disenchanted'
‘I have a bust of him’: Charlie Munger on why he admires Singapore's first prime minister
Munger compares Bitcoin to what Oscar Wilde said about fox hunting
Charlie Munger says Costco 'has one thing that Amazon does not'
Munger: It's 'absolute insanity' to think owning 100 stocks makes you a better investor than owning five