Wealthy and Wise
Warren Buffett's lesson to the rich.
On Monday, in yet another Onion headline come to life, Warren Buffett gave his fortune to Bill Gates. The ceremony, which took place before an audience of students and invited guests at the New York Public Library, was odd and affecting. Bill and Melinda Gates lined up on stage behind Buffett's three adult children. Each came forward in turn as Buffett signed letters committing gifts to their various foundations—$1 billion apiece to the causes supported by Susan, Howard, and Peter Buffett, around $3 billion to the family foundation named for his late wife and run by his ex-son-in-law Allen Greenberg, and the bulk of his wealth, more than $30 billion, to the Bill and Melinda Gates Foundation. Wry as ever, but visibly moved, the 75-year-old Buffett noted that he thought it best to act before reaching an age where he might sign a letter that began "Dear Anna Nicole Smith." It was like King Lear, but with a happy ending.
Much has been written in the past few days about the potential effects of Buffett's gift on the practice of philanthropy, on the diseases that the Gates Foundation is focused on fighting, and on Berkshire Hathaway's share price. What has been less commented upon is the wisdom about wealth that Buffett's decision embodies. This man's brilliance at making money has now been matched by his sagacity in giving it away
Great wealth brings a special set of problems—moral, political, and emotional. Ethically, there is the question of how to justify having more money than can be consumed in a profligate lifetime while children in the developing world die of preventable diseases. Societies that aspire to equality come back time and again to the issue of how to rein in great fortunes without damaging the essential function of wealth creation. Closer to home, wealth far short of Larry Ellison's has ways of making people miserable. It can affect one's perception of reality, undermine relationships, and screw up one's children.
Buffett has thought a great deal about these difficulties over the years, and he shared some of his plain-spoken philosophy in a question-and-answer session after the ceremony. At the moral level, Buffett does not believe anyone has the right to be as rich as he is. He described wealth on the scale he has accumulated as a "claim checks on the activities of others in the future"—claim checks that he has long ago recognized would have to be returned to society rather than passed on to his descendants. He delayed giving away his money until now for two reasons. First, as a "fast compounder" (better than 20 percent average returns over the past 40 years), he could give a lot more if he waited. Second, as Gates more than anyone else has shown, successful philanthropy requires time and focus that is probably incompatible with hands-on management of a large-scale business. "It's a much tougher problem than amassing money," Buffett noted.
Buffett's views on the political subject of wealth are deeply American. Wealth like his can be justified temporarily as an expression of how much opportunity our social system affords. But passing it down across generations, he says, "flies in the face of a meritocratic society" and threatens to create the sort of aristocracy the founding fathers sought to prevent. Capitalism also falls short as a distribution mechanism for billions of people who are not born lucky. These views explain not only Buffett's giving away his money but also his strenuous opposition to the Republican effort to abolish the estate tax. "I would argue that when your kids have all the advantages anyway, in terms of how they grow up … it's neither right nor rational to be flooding them with money," he told Carol Loomis of Fortune in his first interview this week.
There's a human and personal dimension to this as well: Buffett didn't want to cripple his own children by raising them to expect a free ride. As he pointed out in response to a question Monday, people at his country club who complain about the debilitating effects of welfare should recognize that they're creating a cycle of dependency by giving their own kids "a lifetime supply and beyond of food stamps." Buffett has followed through on his beliefs. While he endows the philanthropic work of his children, he doesn't plan to leave them great personal wealth. One of his aphorisms is that you should leave your kids enough to do anything, but not enough to do nothing.
In other ways as well, Buffett's performance this week points the way for those who aspire to have wealth without having it ruin them. As he made the rounds Monday, he consistently emphasized the role of chance in getting rich. "A member of the lucky sperm club" as he described himself to Charlie Rose, he happened to born in the right country, to the right parents, at precisely the right moment, to absurdly reward his special talent at asset allocation. Few successful businessmen truly believe they owe their rewards to luck, even if they pay lip service to their good fortune. And how many great men other than Buffett don't care about attaching their names to their good works? His lack of vanity is a model for zillionaires everywhere.
Buffett modestly suggests that other rich folk might look to his gift as a model for what to do with their money after they die. In fact, he teaches something even more valuable: how to be wise with money while you're still alive.