Iconic investor Warren Buffett lays out the history of the US economy

what's of course on everybody's mind the last two months or so is you know what what's going to be the situation on terms of health in the United States and what's going to be the situation in terms of the economy in the United States in the months and perhaps the years to come and I don't really have anything to add your knowledge on health I in school I I did okay in accounting but I was a disaster in biology and I I'm learning about these various matters the same way you are and I think personally I feel extraordinarily good about being able to listen to dr. Fauci who I'd never heard of a year ago but I think we're very very fortunate as a country to have somebody at 79 years of age you there's to be able to work 24 hours a day and keep a good humor about him and communicate in a in a very very straightforward matter about fairly complex subjects and tell you when he knows something and when he doesn't know something so I I'm not gonna talk about any political figures at all or or politics generally this afternoon but I do feel but that I owe a huge debt of gratitude to dr. fauci for educating and informing me uh actually along with my friend Bill Gates too as to what's going on and I know I get it I got it from a straight shooter when I get it from either one of of those so thank you dr. Bacchi but the when this hit us and as I said here in the auditorium was 17 or 18,000 empty seats the last time I was here was absolutely packed Creighton was playing Villanova and there were 17 or 18 thousand whatever holds it was fall and there wasn't one person in that crowd this was in January it wasn't one person in that crowd that didn't think that that March Madness wasn't going to occur and it it's been a flip of the switch in a huge way in terms of national behavior the national psyche it's dramatic and when we started down on this journey which we didn't ask for seemed to me there was an extraordinary wide variety of possibilities on both the the health side and on the economic side I mean it was you know there was def con 5 on one side and DEFCON 1 on the other side and and nobody really knows of course all the possibilities that there are and they don't know what probability factor to stick on them but in this particular situation it it did seem to me that that there was an extraordinary range of things that could happen on the health side and they've been extraordinary range in terms of the economy and of course they intersect and affect each other so they're they're bouncing off each other as you go along and I would say again I don't I don't know anything you don't know about health matters but I do think the range of possibilities has narrowed down some other than that perspective you know we're not getting a best-case and and we know we're not getting a worst case the the possibility initially of the virus was hard to evaluate and it's still hard to evaluate there's a lot of things we've learned about it a lot of things we know we don't know but at least we know what we don't know one and some very smart people are working on and we're learning as we go along but the virus obviously was very transmissible and it's but on the good side and then it's not it's not that good but it's not as lethal as it might have been we had a we had Spanish flu in 1918 and my dad and four siblings and his parents went through it and they have a terrific story in March 15th edition of the Omaha world-herald that you can go to all more calm and look up it's also on the first page I believe on Google if you put in Spanish flu Omaha and during that particular time and maybe four months or so Omaha 974 I believed this and that was a half of one percent of the population and that figure wasn't greatly different than around the country so you think of a half of one percent of the population now you're talking a million southerner of there abouts people and unfortunately in terms of the worst case this does not appear to know and I did I think you can almost rule out it being as lethal as the Spanish flu was but it's very very transmissible and of course we have the problem we don't know the denominator in terms of exactly how oh they thought us because we don't know how many people have had it and didn't know they had it but in any event the the range of probabilities on health and narrowed down somewhat I would say the range of probabilities are possibilities and huh on the economic side are still extraordinarily wide yeah we do not know exactly what happens when you voluntarily shut down a substantial portion of your society and in two thousand eight and nine are economic train went off the tracks and there were some reasons why the roadbed was weak in terms of the banks and all of that sort of thing but straight away this time we just pulled the train off the tracks and put it on a siding and I don't really know of any parallel of terms about very very well the most important country in the world most productive huge population in effect sidelining its economy and its workforce and obviously and unavoidably creating a huge amount of anxiety and changing people's psyche and causing them to somewhat lose their bearings in some many cases understandably this is quite an experiment and then we may know the answer the most of the questions reasonably soon but we may not know the answers to some very important questions for many years so it still has this enormous range of possibilities but even facing that I would like to talk to you about haha the economic future of the country because I remain convinced as I have I was convinced to this world war 2 I was convinced too but during the Cuban Missile Crisis mmm 9/11 the financial crisis so that that nothing could basically stop America and and we faced great problems in the past him faced this exact problem in fact we haven't really faced anything quite resembles this problem but we faced tougher problems and the American miracles American magic has always prevailed and it will do so again and I would I would like to take you through a little history to essentially make my case that if you were to pick one time to be born and one place to be born and you didn't know what your sex was going to be you didn't know what your intelligence would be he didn't know what your special talents or special deficiencies would be that do that one time he would not pick 1720 he would not pick 1820 he would not pick 1920 he'd picked he picked today and you would pick America and of course the interesting thing about it is that ever since America was organized in 1789 George Washington took the oath of office people that wanted to come here can you imagine that manner for 231 years there's always been people that I wanted to come here now my friend I think is jump - conscious - shade I'm putting up slide what about but I'm gonna call from some slices Rico hog but the interesting thing about this country is what is on slide one let's put it up and and this is an extraordinarily young country now I'm comparing it to a couple of guys that are pretty old but but when you think about the fact that my age Charlie's age or our life experience and then we'll throw in this young guy over here Greg Gable and if our life experiences combined exceed the life of the United States we are a very very young country but what we've accomplished is miraculous now just think of this this little spot in history and and if we'll go to slide two I've tried to estimate oh well let's go back and that would stay with slide - but the population in 1790 you know we had 3.9 million people here ah and something when you look up census figures you find out that the they had a big fire in the Department of Commerce building in 1921 so they lost a lot of the census records so these are not quite as there's there's some things where there's a few gaps but there were three point nine million people in the United States and actually I've got point six million is it's closer to 0.7 million there were 700,000 of those people were slaves at the time but there was three point nine million people we're one half of one percent of the population of the planet and if you'd asked any of those three point nine million people any of them to imagine what life would be like 231 years later even the most optimistic person and let him could've been drinking heavily and even had a little pot and they still could not in their wildest dreams have thought that in three lifetimes Charlie's mine and Greg's that in that period you would be looking at a country with 280 million vehicles shuffling around his roads airplanes maybe not today so much but they'll be back again and them flying people at 40,000 feet coast-to-coast and five hours that great universities would exist in one state after another great hospital systems an entertainment would be delivered to people in the way nobody could have dreamt of in 1790 this this country and 231 years has exceeded anybody's dreams that I went to the internet and trying to prepare for this and I tried if you'll move to the next slide I tried to find out what was the wealth of the country in 1790 1789 her starting point and I punched in the United States well I tried 1780 and I tried 1790 I thought it might be a little easier the terms of a round year and I think four million or so references came up and I didn't look at all four million but I can tell you the data collection and those early days on many many fronts was not an even nice day you really can't you can't find but I would consider reliable figures you can you can find out how many mules or where in the country and the few things like that NAB friend I had I'm up but but in real estate and a one you find them when you're looking at houses or apartment houses or office buildings that uh you know they're they're each slightly different than each other but but they looked at comparable sales so it's hard to find a lot of countries that have been sold where the wealth was been estimated but it was interesting to go back and think about the fact that in 1803 we purchased for fifteen million dollars we made the Louisiana Purchase now that's a little later than 1789 but but that's the that's the best cop as they say in real estate that's the best cowboy we could find for land mass anyway and when we purchased made that purchase that was equal incidentally to about a quarter on eight hundred five thousand plus square miles but it was about a quarter of what the lower 48 states now contains so we bought about a quarter of the lower 48 for this fifteen million dollars back in 1803 and if you you live in Texas and your grandfather is close to dying and he calls he calls the grandchildren children around him and in his final words he always says don't sell the mineral rights well the French told us the mineral rights on that 15 million dollar deal as well so we we got that whole strip there we got all of Kansas some essentially all of Oklahoma and they produced 21 billion barrels of oil for some other natural gas since the purchase one of the sidelights is that we paid our 15 million for the Louisiana Purchase we paid 3 million of it 20 percent of it we paid with a with two hundred thousand ounces of gold valued at fifteen bucks an ounce and that three millionth of the French took and we got South Dakota as part of the Louisiana Purchase and the Homestake mine up there before it closed produced well over forty million ounces of gold and forty million ounces of gold and comes to about sixty billion dollars worth and like I say we twenty two hundred thousand ounces took care of twenty twenty percent of our purchase price so the Louisiana Purchase was a bargain but it's what the going price was for eight hundred thousand square miles I guess at the time and three cents an acre and so I decided by playing around with various numbers such as that that it as a as a reasonable estimate of the worth of the country in 1789 a billion was not crazy figure now if I'd been an act of omission or something I would have put a billion one hundred and seven million four hundred dollars or something like that or I would have made it look respectable but it's a wild guess but it's not it's not a crazy figure so what has happened let's move on to the next slide to the wealth of that country since then and here we have some figures that come out pretty regularly well they do come out regularly where the Federal Reserve estimates the net household worth of people in the United States over all the households in the United States and you can look these up and you'll you'll see that you know there's 30 trillion of stocks and and hmm I think maybe single-family homes what other there's 82 million or so owner-occupied single families and maybe 45 million rental apartments and so on so you started adding all these up and the Federal Reserve tells us and I invite you to look at the data it's kind of interesting that we now in the United States 231 years later we have a hundred trillion we have more than a hundred trillion of household wealth even though the stock market's gone down somewhat since the last quarterly report so you say well ah you know we've got a lot of inflation everything we actually in the United States but the first half of our existence roughly we didn't really have that much inflation with we had inflationary periods and deflationary periods but the general price level did not change that dramatically but I will assume again for this calculation that that high there's been 24 1 inflation that's it's way less than that and many commodities but but it's it's very hard to to measure and let's talk about equivalent benefits from different kinds of products and so on and costs but I think it's reasonable to say that the United States in real terms has increased and wealth that's something in the area of five thousand four-one which is really it's mind-blowing five thousand four-one in real terms in a country that had a half a percent of the and a bunch of raw land but a vision that accomplished that in two hundred and thirty one years there's just no denying with that that that's beyond what anybody could have dreamt earlier but it was not done and this is important because we've now hit a bump in the road it was not done without some very buries serious bumps in the road it was not two hundred and thirty one years of steady progress and matter of fact we had been in the in this birth of this country Whedon then what into it seventy-two years and if we go to the next line in 1861 we now had about 31 million people with the 1960 census showed around 31 million people were their pots in the country and 4 million of them were slaves and we had never really resolved the very much unfinished business of what was involved in in compromises in 1789 and we'll have more to say about that later but we had something but that not too many countries experienced and a few adult people in 1789 that in 17 and 72 years you were going to have a division that caused the President of the United States at Gettysburg to to say that testing whether that nation or any nation so conceived and dedicated can long endure imagine the president knows States wondering aloud whether the country that he was presiding over could long endure only 72 years or seventy four years ago days were had taken place so while this marvelous dream was being played out uh roughly a third of the way through it and we face this this really moment of decision and we he entered into a contest that will go to the next slide I made an estimate the literally killed roughly 6% of them males in the country over between 18 and 60 I'm assuming that there were more than 600 thousand deaths in the war and I think it's a reasonable estimate that that that eighteen to sixty group was males were by far the great proportion so imagine six percent of your working prime age males in a country are wiped out in four years so when we look at the progress of this country and we think of our own problems now uh I just ask you to ponder and we'll move to the next slide that would be equivalent today to having four billion males been that same age group similarly wiped out so that was one incredible interruption which this country nevertheless uh worked through while compiling this American dream that is one of the wonders of the world perhaps the one of the world in many senses so uh let's move on to the another crisis of a different sort that the country and this of course is the 1929 crash which led to the Great Depression and um here the Dow Jones average which we'll use for this at that time that's the one everybody paid attention to actually the second most important average at that time if you look at the papers was the newer times average which has disappeared and of course the Standard and Poor's has probably and regardless is a superior hard stick but the Dow Jones is a Klee adequate yardstick and on September 3rd 1929 the Dow Jones average closed the 380 117 and people were very happy and buying stocks on margin had worked wonderfully and the roaring 20s had a good feeling to it with the auto coming of age and the day of air travel coming along and all kinds of new appliances and the telephone getting wider use believe it or not hadn't really caught on that much prior thereto but the boobies were coming on done it was a happy place and then of course it will motor the next slide well look at what happened in the couple of months after September 3rd and the Dow Jones average almost got cut in half and that was pretty impressive until we had this recent situation were in a shorter period of time we lost about a third but the the the crash and there's a great book about it called the Great Crash by John Kenneth Galbraith I've had let me interject one little plug here there's a small business and almond eye I hate what this what truncating this meeting her changing could so dramatically has done to many of the businesses in Alma because I think small businesses beneficially were the beneficiaries of but really they got a lot of business with a berkshire meeting and they're gonna get it in the future but but they suffered during a period like this and they just had a story about the book one well the bookworm if you buy any books that come out of it I think I recommend think about just putting book worm bookworm at home on and ah the Great Crash is a wonderful book of mine John Kenneth Galbraith describes it um but I would like to get into a bit of a personal note which will have some relevance not too much but some relevance to the story of the Great Depression because in 1929 my dad who was 26 years of age then was employed as a security salesman by a a local small bank and he sold stocks and bonds but he mostly sold stocks and when stocks fall 48 percent and they were selling him to people a few months ago you really don't feel like going out and facing those same people so I think my dad probably I'd like to do as they say now shelter in place which means stay at home and there really wasn't that much in our house we just had a small yard it was wintertime anyway my dad would have been puttering around the yard anyway and I really wasn't you know television wasn't there and AH and he and my mother got along very well so under those conditions if you'll turn to the next slide I was born about nine months later so at but at that time I was actually born on August 30th but the stock market was closed that day and so I'm using the previous day its figures but they it wasn't I didn't notice at the time that the market was closed but the stock market had actually recovered over 20% during that nine and a half month period or thereabouts people did not think in the fall of 1930 they did not think they were in the great a great depression they thought it was a recession very much like that occurred at least a dozen times although not always when stock markets were important but then we'd had many processions in the in the United States over the time and this did not look like it was something dramatically out of the ordinary uh but and for a while actually for about ten days after my birth that be held on earth and the stock market actually managed to go up all of one or two percent there in those ten days but that's the last day well from that point if you'll turn to the next slide the stock market went from a level of him to 40 to 41 which was a noticeable decline because if somebody had given me $1,000 on the day I was born and I'd bought stocks with it on bought the Dow average my thousand dollars would have become one hundred and seventy dollars in in less than two years and that is something that none of us era ever experienced that we may have had it with one stock occasionally but but in terms of having a broad range of America mark now and 83% in two years and marked down eighty-nine percent of the peak it was in September 39 1929 was extraordinary and um in that intervening period less than one year after I was born the slightly less than one year my dad went to the bank where he worked and had his account and of course the bank had a sign on a closed and so he had no job and he had two kids at that point and his father had a grocery store but Charlie and I both worked for my grandfather Charlie worked there in 1940 I worked in 1941 so we didn't know each other but but my grandfather said to my father that don't worry about your groceries I already said I'll just let you build one that was not exactly he was he cared about his family but it wasn't gonna go crazy and one of the things is I look back on that period named Zion and I don't think the economists generally like to give it that much of a point of importance but but if we had the FDIC ten years earlier Wheaton the FDIC started on January 1st 1934 it was part of the sweeping legislation that took place when Roosevelt came in but if we'd had the FDIC we would have had a much much different experience I believe in the in the Great Depression people blame it on smooth smooth Hall here and I mean they there's all kinds of things and the margin requirements in 29 and all of those things entered into creating a recession but if you have over 4,000 banks fail that's 4,000 local experiences or people save and save and save and put their money away and then someday they reach for it and it's gone ah and that happens you know in all 48 states and happens to your neighbors and it happens to your relatives it it has to I'm gonna effect on the psyche that's incredible so uh one very very very good thing that came out of the person in my view as the FDIC and it would have been a somewhat different world I'm sure if the bank failures hadn't just rolled across this country and and with people that thought that they were savers find out that they had nothing when they went there and there was a sign that said closed incidentally the FDIC uh I think very few people know this but uh or at least they don't appreciate it but the FDIC has not cost the American taxpayer a dime I mean its expenses have been paid its losses have been paid all through assessments on banks has been a mutual insurance company of the banks backed by the federal government and associated with the federal government but now it holds a hundred billion dollars and that consists of premiums that were paid in an investment income on the premiums less the expenses and paying of all the losses and think of the incredible amount of peace of mind that's good that's given to people that were not similarly situated and when the Great Depression hit so the Great Depression went on and it lasted a very long time but it lasted a lot longer in the minds of people than it did actually in its effects World War two came along and on sort of an involuntary manner we adopted Keynesianism we started running fiscal deficits of course that we're absolutely huge and took our debt up to a percentage of GDP which we've never reached that never reached before and never ever since so we had an enormous economic recovery but the minds of people had been so scarred the memories parents told their children 1929 became a symbol in people's minds I mean if you said 1929 it was like saying 1776 or 1492 I mean everybody knew exactly what you were talking about and it affected stock prices in a rather remarkable way to the point if you'll change to the next slide it was January 4th of 1951 that the kid who was born on August 30th in 1930 had finished college before the stock market got back to where it was at that earlier time so take the years from 19:20 19:30 or 1929 redeemed the 1951 or take the year from my birth 20 years and bear in mind that you know the country was only a hundred and forty years old when this started that that's 20 years out of this amazing 231 year lifetime of our country that was flat out you know a time of for a long time with no economic growth and no feeling by people in terms about who else of the country the about what American economy was worth what all these corporations that were doing far far far better than they were long ago but it took all of that time to restore in the market a price level ah it was equal to but it was one I was born 20 years earlier so if you think about the fact that we're enduring a few months and will endure some many more months but and we don't know how it comes out and people in the 30s didn't know how it was going to come out but they endure and persevere prospered and the American miracle continued but it's interesting in that I actually don't have a slide for the next one because last night I was thinking after all the slides had been prepared I was actually thinking about this a little later a little bit and I remembered that um in nineteen at the start of 1954 the stock market was the Dow was only at about 280 and I remember 1954 because it was the best year I've ever had in the stock market and the Dow went from essentially what do do lady or there abouts at the start of the year to a little over 400 at the end of the year and when I went to 400 as soon as it went across 381 that famous figure from 1929 when I went to 400 ah this will be hard for some of you to believe but everybody wondered is this 1929 all over again and it seems a little far-fetched because it was a different country in 1954 but that was the common question and it actually achieved that with it was achieved such a level of worry about whether we were about to jump off another cliff just because the 3:81 of 1929 have been succeeded exceeded that they held Senator Fulbright though Fulbright of Arkansas who became very famous later in terms of the Foreign Relations Committee but he had of the Senate Banking Committee and he called a special her special investigation and he calls it the what do you call it the stock market study but it really as you if you read through it he really was questioning whether we had built another house of cards again and on his committee it's interesting to see the Senate Finance Committee one of the members was Prescott Bush the the father of George HW Bush and grandfather of George W Bush and had some illustrious names and his committee in March of 1955 with the Dow at 4:05 assembled 20 of the best minds in the United States to testify as to whether we were going crazy again because the market was at 400 the Dow was at 400 and we'd gotten in this incredible trouble before but that was the mindset of the country it's it incredible we didn't really believe America was what it was and my boss reason I'm familiar with his thousand-page book that I have here I found it last night in the library was that I was working in New York from one of the 20 people that was called down to testify before senator fuller and he testified right before Bill Martin who was running the Federal Reserve testified and right after general wood who's running sirs testify Sears was very very important and then and Bill Martin of course of the battle that longest running chairman in the history of the Fed and he's the one that gave the famous quote about the function of the Fed was to take away the bunch of balls just when the part started getting really warmed up but been where my boss sent me over to the Public Library in New York and to gather some information for him something he could do in five minutes with computer now and I've got something and he went to testify and uh on page 545 of this book I knew where to look I didn't have to go through it all but he had a quote which I remember and I remember because Ben Graham was the one of the three smartest people I've met in my life and he was the Dean of people in securities business he wrote the classic security analysis book in 1934 he wrote the book to change my life the telogen Buster in 1949 he was unbelievably smart and when he testified the Dow at 404 he had one line in there right toward the start and his written testimony and he said the stock market is high looks high it is high but it's not as high as it looks but he said it is high and since that time if we'll turn to the next slide of course we felt the American tailwind at full force and and the Dow well it's seeing the yeah and the Daoist went down Friday but when I made the slide it was about 24,000 so you're looking at a market today that has produced $100 for every dollar all you did was had to believe in American just by a cross-section of America you didn't didn't have to read The Wall Street Journal you didn't have to look up the price of your stock you didn't have to pay a lot of money in fees to anybody you just had to believe that the American miracle was intact but you'd had this testing period between 1929 and and well really certainly 1950 is indicated by what happened when and got back up to the 380 yeah this testing period and people really but they'd lost faith some degree they just didn't see the potential of what America could do and we found that that nothing to stop America when you get right down to it and it's been true all along and they have been interrupted with the scariest of scenarios when you had a war with one group of states finding another group of states and it may have been tested again in the great depression and it may be tested now to some degree but in the end the answer is never bet against America and that in my view is as true today as it was in 1789 and even was true at the during the Civil War and the depths of the depression now I'm now about to say something that that and don't change the slide yet I'm now about to say something that some of you will be tempted to argue with me about but I wouldn't make the case that we are imperfect in the great great very many ways but I would say and if you put up the next slide that we are now a better country as well as an incredibly more wealthy country than we were in 1789 were far far far from what we should be will be but we have gone dramatically in the right direction it's interesting we said in 1776 we sudden we all these truths to be self-evident that all men are created equal endowed by their are held by their creator with certain unalienable rights among these are life liberty and pursuit of happiness and yet 14 years later a year after we we really officially began the country in 1789 adopted a constitution huh we found that more than 15% of the people in the country were slaves and we wrestled with that but when you say the word self-evident that sort of sounds like you're saying any damn fool can recognize that and you certainly say you can argue maybe a little bit about life and the pursuit of happiness but I don't see how in the world anybody can reconcile liberty with the idea that that 15% of the population was enslaved and it took us a long time to at least partially correct that I got me took a civil war it took it took losing 6% of those people that a male's that were between 18 and 60 years of age duh but we've moved in the right direction we've got a long ways to go but we've moved in the right direction now in addition going back again to that 1776 statement that all men are created equal and endowed by their creator etcetera I think it was self-evident to the 50% of the population that they were getting a fair deal for over half the lifetime of the country I took 131 years of our country's 231 years it took 131 years until warm women were guaranteed the right to vote for our country's leaders and then what's even more remarkable is that after we adopted the 19th amendment 1920 it took 61 more years until a woman was allowed to join those eight males on the Supreme Court I grew up thinking that the Supreme Court you know must have said it had to be nine men but it it at sixty-one years so to 192 years before Sandra Day O'Connor was appointed to the court and now you can say that that there was a pipeline problem half the population may have been women in 1920 but they weren't half the lawyers and we're ten percent of the lawyers probably so you can understand some delay but a sixty-one years is a long time to go and to pick 33 males in between if that was entirely by chance then the odds against that you were flipping coins is about 8 billion to 1 no like I said there was a pipeline problem but it took us a long long time and it's not done yet but I think it does give meaning to the fact that we are a better society with a lot of room to go but we are a better society that existed in 1789 we you know when you go to Colonial Williamsburg you know you have that I've been there a couple of times a matter of fact I I watched the the debate between Jimmy Carter and Gerald Ford there in the 1976 and you know it it was not a great time to be black it was not a great time to be a woman and both of those categories still certainly got potential for significant improvement in terms of of fulfilling that pledge made in 1776 about how we believe that that it's self-evident all men are created equal but we have made progress we are a better society and we will as the years go by if you'll move to the next line and I believe that and I think see if I can get these slides in the proper order I believe that when you get through evaluating all of the qualitative facts what we have done toward meeting the aspirations of what we wrote in 1776 what was the wrote in 1776 wasn't a fact but it was an aspirational document and and we have worked toward those aspirations and we have a long way to go you you

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Length: 56min 0sec (3360 seconds)

Published: Mon May 04 2020