Learning a Lesson from Roosevelt

Warren Buffett won’t give in. The American billionaire absolutely wants to pay higher taxes. He bombards the New York Times with articles explaining that, percentage-wise, he pays less taxes on his millions in income than the average salaried employee does.

That’s unquestionably scandalous, but by no means news. Buffett could have come up with the idea that millionaires worldwide don’t pay enough taxes five years ago. Why wait until now to say so?

The reason: Buffett is shrewd — so shrewd that he’s called the “Oracle from Omaha.” And Buffett recognized that the only option the wealthy of this world have is a choice between the lesser of two evils: Either they pay more taxes (which would be a controlled loss of their assets) or the global economy crashes (which would be an uncontrolled loss of their assets). Faced with these options, Buffett prefers to remain on the bridge and at the helm. That’s why he pleads so stubbornly for higher taxes on the wealthy. He realizes that only a strong federal government can save capitalism.

So it’s no wonder that the billionaire is upset. He’s upset because the uncontrolled crash of assets that he fears so much has already begun. There is a global “system crisis” because investments can no longer keep pace with inflation. In real terms, investors are now only earning negative interest which results in a devaluation of what they own.

Even once powerful investment banks are now reporting losses, something Goldman Sachs admitted just this week. Bankers aren’t the “Masters of the Universe” as they’ve been portrayed ever since Michael Douglas played Gordon Gekko. Instead, they’re now forced to see that the financial world can’t uncouple itself from the real economy, which is the thing that produces the returns investors expect to see. To expect financial wealth to keep growing while the world slips into a recession just doesn’t work. As a financial investor, Buffett saw that he needed to change his investment strategy. Instead of buying more stocks, he now wants to accelerate economic growth.

But the economy can only grow if there’s demand — and demand is best created by government because government has one big advantage that many don’t even recognize as an advantage: It doesn’t save; on the contrary, it spends everything it takes in. We should be thankful for that because there’s far too much saving going on right now.

Above all, the wealthy are acting as piggy banks, thereby strangling exactly the growth they need to realize a return on their investments. Buffett wants to put a stop to this idiocy by making the rich pay higher taxes.

A top tax rate of 79 percent

Buffett didn’t have to be especially creative to come up with this idea; a glance back in history would have sufficed. There was a very similar economic crisis in 1929, and the best solution to it then was the “New Deal” that was begun by President Franklin D. Roosevelt. The New Deal was characterized by a top income tax rate of 79 percent and an inheritance tax rate of 77 percent.

The result, as we all now know, wasn’t the end of capitalism, but rather immense economic growth that created a large American middle class. The bottom line was that the rich also profited despite having to pay higher taxes.

Tax rates wouldn’t have to rise anywhere near those levels because back then, World War II also had to be paid for. But the lessons learned from that New Deal are still valid today: Capitalism can only survive if the capitalists invest in bigger government.

The New Deal is inseparable from Roosevelt the man. Any other president would probably not have been able to put such drastic tax increases into effect. But Roosevelt had an argument on his side that convinced even the Republicans: He was part of the elite upper 1 percent. His father was independently wealthy, and FDR himself had it financially easy all his life. The thought that this multimillionaire was willing to put the burden on his own kind convinced many wealthy Americans that higher taxes didn’t mean much-feared class warfare, but rather that higher taxes were ultimately in their own best interests.

Buffett is still misunderstood

Warren Buffett represents the first reappearance of a member of the top 1 percent who is seeking an alliance with the rest of us in order to reform an endangered capitalism. But in contrast to Roosevelt in 1933, Buffett isn’t finding a majority of Americans capable of understanding what he’s saying.

The Republicans and their tea party movement supporters are adamantly in favor of further tax cuts, while the Occupy Wall Street movement isn’t going after the real enemy when they concentrate their attacks on investment banks.

Make no mistake: Investment banks are far too powerful. Much of what they do has to be prohibited and the rest has to be carefully regulated. Nonetheless, it’s a mistake to depict banks as the root of all evil. Investment banks, in the end, are nothing more than vessels that manage the assets of the wealthy.

And it’s not enough to camp out in front of banks in New York or Frankfurt. What the demonstrators need to do is come up with a concrete list of what they want and why the wealthy should help. Those occupying Wall Street should also take a lesson from the New Deal.

During the first global economic crisis, they experimented with the wrong recipes for four whole years until they finally got it right in 1933 with the New Deal. We’re now in the third year of our own global crisis. If the historical analogy holds true, it’s still a bit too early to give up on the idea that Warren Buffett could be right.