Charles Munger, Warren Buffett’s long-time sidekick at Berkshire Hathaway, offers some tough medicine for the U.S. in an editorial written for today’s Washington Post.
Calling the current situation “dire”, Munger says that the current bust goes well beyond the normal boom & bust cycle, and measures should thus be taken to keep it from occurring again. “Should we opt for even more pain now to gain a better future?” he asks. “For instance, should we create new controls to stamp out much sin and folly and thus dampen future booms? The answer is yes.”
Without saying specifically how to do so, Munger talks about the need for greater moral controls in the market. He says that opposition to reform won’t just come from big money — it will also come from academics who think that traditional economic policies simply can’t be mixed with moral and accounting concepts. But Munger essentially says that, while they make things messier, those moral and accounting concepts are a part of the financial world, for better or for worse. “Those who resist the wider thinking are acting as engineers would if they rounded pi from 3.14 to an even 3 to simplify their calculations,” he writes. “The result is a kind of willful ignorance that fails to understand much that is important.”
The most significant change Munger (a Republican) suggests in his editorial involves taxes. “The United States may now have a duty similar to the one that, in the danger that followed World War II, caused the Marshall Plan to be approved in a bipartisan consensus and rebuild a devastated Europe,” he writes. “The consensus was grounded in Secretary of State George Marshall’s concept of moral duty, supplemented by prudential considerations. The modern form of this duty would demand at least some increase in conventional taxes or the imposition of some new consumption taxes. In so doing, the needed and cheering economic message, ‘We will do what it takes,’ would get a corollary: ‘and without unacceptably devaluing our money.'”
Changes like that would be hard, but now is the time for them, Munger says: “Sensible reform cannot avoid causing significant pain, which is worth enduring to gain extra safety and more exemplary conduct. And only when there is strong public revulsion, such as exists today, can legislators minimize the influence of powerful special interests enough to bring about needed revisions in law.”
Munger says that if reform is imposed in a bipartisan manner, it could reduce the country’s pain rather than add to it. His suggestion: Use the deliberative rules of the Constitutional Convention of 1787. These “worked wonders in fruitful compromise and eventually produced the U.S. Constitution,” he says. “With no Marshall figure, trusted by all, amid today’s legislators, perhaps the Founding Fathers can once more serve us.”