I know Barack Obama thinks pretty highly of Warren Buffett's economic wisdom. The so-called Oracle of Omaha has helped persuade Obama that higher taxes will have no effect on economic growth. Obama mentions it in his book, The Audacity of Hope. And in a recent New York Times interview, Obama said the following: "If you talk to Warren, he'll tell you his preference is not to meddle in the economy at all—let the market work, however way it's going to work, and then just tax the heck out of people at the end and just redistribute it."
But I wonder if Obama also buys into this little bit of Buffettology that the billionaire unleashed at a symposium on the U.S. indebtedness to promote I.O.U.S.A., a new documentary: "Even if we grow at 1 percent per year, we double the GDP per capita in 75 years. The pie will grow enough that everyone will get more of the pie."
Except, Mr. Buffett, typical U.S. per capita GDP growth is usually more like 3 percent a year. At that rate of growth, our standard of living would go up by 10 times rather than just double over the next 75 years. And the richer we are, the easier it will be to deal with just about any problem you can name. Take Social Security, for instance. Under a slow-growth, Buffett scenario, the trust fund will be exhausted around 2030. Under a high-growth scenario, the trust fund never runs out. That's why when we think about how to deal with our huge entitlement debt, it's important not to do anything that will hurt economic growth. Like taxing the heck out of people.