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Collection: Charlie Munger - #146 'Income Inequality'


Video Link: https://youtu.be/CURKqQMoxD0


In this episode, Charlie Munger was asked what can we do to help those who are currently falling behind as a result of this pandemic? And what is his thoughts on modern monetary policy and income inequality?


In this episode, you’ll learn:

  • Charlie Munger on income and wealth inequality.

To check out all Collection: Charlie Munger <click here>

 

[Transcript]

(Source: https://youtu.be/Pp4CvjNw-9Y)

JULIA LA ROCHE 00:00

We have a question from James [Inaudible] California. He writes it seems likely that the current Fed policy of keeping interest rates near zero will only exacerbate the income disparity in this country by benefiting those who own the financial assets. What do you think we can do to help those who are currently falling behind as a result of this pandemic?


CHARLIE MUNGER 00:27

Well, 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 at what point the government should stop intervening.


And I don’t think we have any great gift at making macroeconomic predictions about how the money – And I think that to some extent the complaint about the rich getting richer 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. We made the rich richer, not as a deliberate choice, but because it was an accidental byproduct of trying to save the whole civilization. And it was probably wise that we acted exactly as we did.


It wasn’t some malevolence of the rich that caused it. It was an accident. And the next time around the poor will get richer faster than the rich. That thing circulates. Who gets rich faster by class is going to vary over time and I don’t think anybody should be too concerned by it.


As a matter of fact, what happens is to make a nation rich, you need 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.


If you try and reduce the poverty too much, it’s counterproductive. These are very difficult questions and most people assume that it’s simple. 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. But we can’t.


JULIA LA ROCHE 03:26

Gavin Smith would like to know, Mr. Munger recently raised the alarm about the level of money printing taking place. What are his thoughts on modern monetary theory?


CHARLIE MUNGER 03:41

Modern monetary theory means that people are less worried about an inflationary disaster like Weimar Germany from government printing of money and spending it. [Inaudible]


Now, so far the evidence would be that maybe the monetary – modern monetary theory – is right. Put me down as skeptical. I don't know the answer.


JULIA LA ROCHE 04:12

We do have – Going back to the FED, William Roberts asks the Federal Reserve appears to be supporting asset prices. Do you think this is a worthwhile policy objective given the effect it has on creating financial excesses and income inequality? What do you think the long-term consequences will be?


CHARLIE MUNGER 04:38

Well, I don’t know how well the economy’s doing to work in the future.


And I don’t think that we or the Daily Journal is getting ahead because we’ve got some wonderful macroeconomic insight. And I do think that I’m way less afraid of inequality than most people who are bleeding 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 and what I notice is that the rich families generally lose their power and wealth — and pretty fast. So I don’t worry that the country is being ruined by a few people over getting ahead a little faster than the rest of us.


I think the Chinese were very smart. Imagine a bunch of Chinese communists turning a whole lot of Chinese and the billionaires in a big hurry. And what did the Chinese communists do with respect to death taxes? The death tax in China is zero. That’s what the communists are doing. I think they’re probably right, by the way.


JULIA LA ROCHE 06:16

We have a question from Simon Jacobs. He writes, many believe that inequality accelerated by this pandemic has reached alarming levels that demand drastic solutions such as a wealth tax. Do you agree with the premise and if so how would you address inequality?


CHARLIE MUNGER 06:37

Well, I think 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 throughout my whole lifetime. And I applaud the result. And I think the result would have been worse if either party had been in control all by itself for the whole period.


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.

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