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The Wall Street Journal, August 15, 2003
Arnie's Money Man
By Donald L. Luskin
Hasta la Von Mises, baby! Gone are the hopes that Arnold Schwarzenegger
would bring his own brand of free-market Austrian economics to California's
troubled economy. The would-be tax terminator has chosen as his chief
economics advisor a tax perpetuator -- Warren Buffett.
The choice of Mr. Buffett is a betrayal of the libertarian economic ideals
that Mr. Schwarzenegger has lived by since he emigrated from Austria as a
penniless 21-year old. In introducing the 1991 re-release of Milton
Friedman's "Free To Choose" video series, Mr. Schwarzenegger said, "I come
from Austria, a socialistic country... I felt I had to come to America,
where government isn't always breathing down your neck or standing on your
shoes."
 At the 2002
shareholders meeting of Berkshire Hathaway, Mr. Buffett said "This has been
a tremendous economic system. It's a system that showers rewards on my
particular skill set... The tax system is the way to
distribute the prosperity." Mr. Schwarzenegger parlayed his own particular
skill set into a position at the very top of the pyramid -- but he did it
Mr. Friedman's way, not Mr. Buffett's.
In a campaign so far lacking in policy proposals, Mr. Schwarzenegger has
said that his approach to California's budget crisis will be to stimulate
growth by making the state a friendlier place for business. That's just the
ticket, but will Mr. Buffett advise him how to achieve that by using
taxation to "distribute the prosperity"? Been there, done that. California
is already taxed to death. And Mr. Buffett's well known opposition to every
major tax cut proposed by the Bush administration suggests that Mr.
Schwarzenegger will be advised to just keep on taxing.
Some have speculated that Mr. Buffett would bring Wall Street cred to a
Schwarzenegger administration that will have to peddle $10 billion in bonds.
That's a fantasy. Wall Street won't mistakenly believe that Mr. Buffett
knows anything about public finance, just because he's made some smart
investments in razor blades. Mr. Buffett will be at a similar loss to advise
Mr. Schwarzenegger on reinvigorating California's sputtering growth engine,
its high tech sector. Berkshire's chief has famously said, "Technology is
something we just don't understand."
Yet technology company leaders understand that Mr. Buffett has been vocally
opposed to stock options, the quintessential form of compensation for
employees at all levels of California's entrepreneurial tech culture. Mr.
Buffett says options discourage managers from paying dividends. Yet he also
opposed the elimination of dividend taxes, which do even more to discourage
them. And Berkshire Hathaway -- which issues no options -- hasn't paid a
dividend in years!
Mr. Buffett says that if companies must issue options, they should go only
to top executives-not 21-year-old immigrants from Austria. And he believes
adamantly that options should be expensed in financial statements. How's
that going to go over with potential supporters like Cisco's Republican CEO
John Chambers, who has lobbied aggressively against options expensing -- and
has plenty of earnings challenges already?
Arnold has the Reaganesque optimism and free-market ideals that could make
him a great governor. But first he'll have to get Warren Buffett to stop
standing on his shoes.
About the Author Mr. Luskin, a Californian, is chief investment officer
of Trend Macrolytics LLC, an economics research firm. |
