As you may know, I’ve never been a Warren Buffet fan (no, not Jimmy Buffet – pay attention, Steve). Than, last week, my honey gave me the low-down on why Mr. B is in favor of the death-tax: he’s built his fortune on it. I did some research and found this blog post http://reachupward.blogspot.com/2007/11/why-warren-buffett-loves-death-tax.html. Read it and the supporting articles for an eye opener.
I started disliking Buffet's economics when he pushed for corporations to expense their employee stock options (he also lost my affection when he encouraged Schwarzenneger to hike CA property taxes). His position was obviously motivated by the desire to keep “the little” guy from owning stock in corporations. I believe his motivations are twofold.
First, issuing stock to employees dilutes the value of each remaining share and thereby dilutes the control that any one investor – particularly a major stockholder - has over a corporation. Ever wonder why Berkshire Hathaway stock has never split? It’s so that Buffet’s hold on the company is never diluted. Checkout the current trading price to get an idea of what this means in the real world: http://finance.yahoo.com/q?s=BRKA&d=t. Probably not adding any BKRA to the old 401(k) in the near future, eh?
The second reason I believe Buffet opposes stock in the hands of the little guy is a corollary of the first: if the common man, on average, held stock in corporations, he could band together with other ‘common men’ to influence corporate policies. Here’s what I mean: Corporations can ride out a protest by consumers who oppose the company’s policy on a particular issue (pick your issue: promotion of homosexuality, funding of planned parenthood, hiring illegal immigrants, etc…). They just crank up the marketing machine, do some damage control PR, lower prices, etc… until the flap-up subsides. What they can’t ride out as easily, is a shareholder protest. Shareholders can literally cost executives their jobs. You might be familiar with what CalPERS is able to do in boardrooms across the country with their massive holdings and influence (the CEO of my old company, EDS, was ousted largely due to pressure from CalPERS). Well, imagine a large group of shareholders who held strong opinions about certain social and political issues; who collectively owned a good chunk of a company and who weren’t willing to compromise their convictions to save their portfolio. They might do something crazy like demand the company *really* verify the legal status of their immigrant workers, or even worse – make decisions based on the long term best interest of the whole company rather than what would drive the share price up as fast as possible this quarter.
Warren Buffet is probably a great guy. I understand he's a big fan of bridge, which seems like a pretty down-to-earth activity. I jsut don't agree with his economic positions and think there's more to them than a desire to keep his kids from becoming billionaire wastrels...
