Charles Munger Agrees With Me.

“Fight Against Stupidity And Bureaucracy”

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I always think it’s nice when someone agrees me. Even more so when they are well versed in the subject matter.

Charles Munger is such a guy. And he agrees with me, or at least he would do, had he read a post I wrote recently about Burger King’s move to Canada to avoid high US corporate taxes. (Click here if you want to read it.)

Anyway, we’re saying the same thing, and that’s what matters.

For those readers who don’t know who Charles Munger is, he is vice chairman of Berkshire Hathaway Inc., the world famous investment company headed by Warren Buffet, one of the richest men in the world.

Munger says people who criticize Burger King’s plan to shift its headquarters to Canada, where tax rates are lower, are “stark raving mad”. What they should be calling for are cuts in corporate taxes to encourage business to stay in the US and even relocate there.

More than 40 U.S. companies have reincorporated abroad since 1982.

In fairness it has to be said that Munger does have a vested interest of sorts to stick up for Burger King. Berkshire Hathaway committed $3 billion to help finance Miami-based Burger King’s planned takeover of Tim Hortons Inc., the doughnut maker with headquarters in Oakville, Ontario.

But that’s not why he said what he said. He is smart enough to know what is good for business generally and levying hefty taxes on corporations is not good. In fact he said, “If I were running the world, I would probably have low corporate taxes and get at the well-to-do people in some other way, like consumption taxes.”

Unfortunately President Barack Obama isn’t so smart. He has continued to criticize American companies that move to other nations in search of lower corporate tax bills.

And his Treasury Secretary, Jacob J. Lew, has recently announced new rules aimed at making it more difficult for American companies to lower their tax bills by relocating overseas and that would wipe out the benefits for those that do.

The changes will affect only deals that are completed from now on. But they could include pending inversion deals, like the one involving AbbVie, an Illinois-based pharmaceutical company that is in the process of acquiring its smaller British rival, Shire, or the Minneapolis medical device maker Medtronic, which is acquiring Covidien in Ireland.

And if the government continues on this path what will happen?

I think if US companies are prevented from making these kind of deals by ever greedy and intrusive government legislation they will simply close down altogether in the US. Wealth creation will be lost, many thousands of jobs will be lost and America will lose its long held position as the commercial powerhouse of the world.

When the American people were offered “Change” I don’t think this is what they were expecting.

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No Mo Town?

“Fight Against Stupidity And Bureaucracy”

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Here comes the Sunday Sermon folks!

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Before his first election victory the platform was one of “change” and “yes we can”, not very specific policies but the implication was that everything would get better under his administration, and people went for it.

Guess what?

“No he couldn’t” and “nothing changed”, not for the better anyhow.

Then last year during the re-election campaign he said, “We refuse to let Detroit go bankrupt”, and people went for it again.

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Guess what?

Detroit is bankrupt! Yes, last Thursday, Detroit became the largest U.S. city to declare bankruptcy, filing for Chapter 9 protection.

Are you seeing a trend here?

You should.

But it’s not all Obama’s fault. By no means. He’s just the latest in a long line of clueless politicians who made big promises and had no idea how to pay for them.

So how did it get this bad?

How did the city of Detroit that was once the powerhouse of America, and from whose industry came wealth creation that stimulated the entire economy, get to the stage of being bankrupt?

Sadly, what has happened to Detroit is the culmination of decades of political incompetence and graft and corruption.

For example, the most recent mayor, Kwame Kilpatrick, is currently facing charges of racketeering conspiracy, extortion, bribery, mail and wire fraud, filing false tax returns and income tax evasion, Quite a guy!

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It is also the culmination of years of union’s self-serving greed that meant, for example, that every car Detroit manufactured had to be sold at a loss – if it were to sell any at all.

But the problem goes even deeper than that.

Detroit is just the latest example of political and economic stupidity that has been allowed to fester within many western nations. It is not just an American malaise. The very same thing has happened in other countries, like Britain.

And it has happened because American and British politicians got the idea that their countries were a bit better than everyone else’s.

That they could leave the blue collar stuff like steel-making, ship building, car assembly and everything else that created true wealth for a nation, to be done by other ‘inferior’ places such as Japan, Korea, Taiwan and more lately China.

They actively helped to destroy their own manufacturing base through lack of investment, over taxation, needless government interference and over-regulation, etc.

Worse than this, they thought they could replace real industries making real money, with ‘service’ industries.

They never figured out that the former is the foundation that means you can afford the luxury of the latter!

And guess what? They still haven’t!

So instead of making real money, greedy banksters were allowed to conjure imaginary money out of nowhere. Then they were allowed (and encouraged) to invest money that didn’t exist in products that weren’t real either! And of course they lost the money. 

And the governments were willing accomplices to this fraud. When they could’t balance their books they simply printed more money and used this imaginary wealth in their economic statistics reports to show everyone how well they were doing.

Detroit is just the latest and biggest example of what the policy of living well beyond your means….. means!

So is this the end for this once great city?

Absolutely not. In fact it might be the making of it. There are going to be tough times ahead, but getting rid of a crippling $20 billion debt, which their bankruptcy will do, at the very least makes a recovery a possibility.

The halcyon days may be gone and never to return because of the damage the politicians have done. But there will be better days ahead.

When you reach the bottom you may bounce around there for a while but eventually the only way is back up.

If the politicians let you, that is.

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