Buffet's view on charity

[DTEJD1997]

Hey all:

 

I thought I heard that W.E.B's stand on charity had changed a bit, can anyone confirm this?

 

It was my understanding that WEB would NEVER give ANYTHING to charity while he was living, but that charity would get over 90% of his wealth when he passed away.

 

I have heard that the Bill & Melinda Gates foundation is going to get most of it.  However, has he changed his stance on charity while he is living?

 

If not, it seems to me kind of selfish.  Good that he is giving to charity, but very bad that he did not do anything while he was living and that he deferred it for so many years.  How many people are suffering tremendously and need help NOW?

 

Any news/thoughts?

 

 

[jay21]

Yes, he started giving more to his family and charity as time progressed.  I think sometime in the 90s was when he really started to loosen up.

 

I was reading Titan and noticed how dissimilar this was to Rockerfeller who always gave some money to charity throughout his career.  Even when he was just a bookkeeper not making much.  Interesting to me.

[ragnarisapirate]

Hey all:

 

I thought I heard that W.E.B's stand on charity had changed a bit, can anyone confirm this?

 

It was my understanding that WEB would NEVER give ANYTHING to charity while he was living, but that charity would get over 90% of his wealth when he passed away.

 

I have heard that the Bill & Melinda Gates foundation is going to get most of it.  However, has he changed his stance on charity while he is living?

 

If not, it seems to me kind of selfish.  Good that he is giving to charity, but very bad that he did not do anything while he was living and that he deferred it for so many years.  How many people are suffering tremendously and need help NOW?

 

Any news/thoughts?

 

This is roughly along the lines of what I think I remember him saying:

 

Think of this as a compounding effect- how many people can compound capital at 20+%? Do we really want the best money growers to give their war chest away? I would argue that society would be better off with him growing it until he gets so big (or mentally incapable) of growing at such a great rate AND THEN giving it away.

 

If someone can only compound at say, 3%, then society would probably be better served by them giving their money away to people who can effectivly allocate to do something such as rid the world of Malaria. (unless you want to have a discussion about money flowing through the economy and employing everyone).

 

This said, a lot of rich people have given money away their whole lives. I think Ford was one. Carnegie obviously... Even Icahn and Ackman are united in their giving money to causes they like... ;P

 

[writser]

Are people suffering in the future worth less than people suffering now? If not, wouldn't it be the more rational choice to keep compounding money and give it away if you die?

[Liberty]

Buffett's position has always been, afaik, that while alive he could compound wealth and so have more to give away later. That ends up helping more people (it's not like he's spending it on caviar and hookers in the meantime). For example, if he had given away a billion dollar 20 years ago, that might be a 100 fewer billions (numbers plucked out of thin air) that he gives out in the end, so the opportunity cost is high.

 

Before calling him selfish, I suggest you look at how much you are giving to charity.

[Guest]

jay, I think a reason that Rockefeller gave money back then was probably based on his religious beliefs, too.

[ragnarisapirate]

It would be interesting to do a DCF on the utility involved in charity... both for the giver and the recipient. That could answer the whole suffering person in the future vs one suffering in the present argument.

[jay21]

jay, I think a reason that Rockefeller gave money back then was probably based on his religious beliefs, too.

 

Yes, that was the biggest driver.  I am surprised by how religious he was.  He spoke about the church as a community where individuals came together to shake hands and be friends. 

 

 

With regards to Buffet:  http://en.wikipedia.org/wiki/Warren_Buffett#Philanthropy

 

In June 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation.[118] He pledged about the equivalent of 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately US$30.7 billion as of June 23, 2006),[119] making it the largest charitable donation in history, and Buffett one of the leaders of philanthrocapitalism.[120] The foundation will receive 5% of the total donation on an annualised basis each July, beginning in 2006. (Significantly, however, the pledge is conditional upon the foundation's giving away each year, beginning in 2009, an amount that is at least equal to the value of the entire previous year's gift from Buffett, in addition to 5% of the foundation's net assets.) Buffett also will join the board of directors of the Gates Foundation, although he does not plan to be actively involved in the foundation's investments.[121][122]

[DTEJD1997]

So the consensus is that Buffet has changed his position and is now actively giving to charity before he passes?  If so, good for him.

 

I will stand by my position...I think people have an obligation to help people in the here and now.  Of course, it is also good to help people in the future too.

 

There is a problem with deferring charity until future periods.  If there are people suffering NOW, who need food, shelter, medicine etc and DO NOT get any relief, the opportunity to help may pass.  In the most extreme case, someone dies of starvation, not getting needed medical attention, etc.  In less severe cases, perhaps a family breaks apart as they lose their home or apartment, a young person strays and gets wrapped in criminality, or who knows?  The law of unintended consequences could run wild...

 

How do you put a time value on the suffering of somebody?  We will let 20 people starve to death today, so that we can probably save 100 people 20 years from now?  I don't know.

 

All spiritual texts, Bible, Torah, Koran, exhort people to contribute to charity & help those in need.  None of the religious texts say grow your capital and then ONLY pass it on to people when you pass on....

 

Here is another to think of things....Imagine if Buffet loses all of his money/capital...he then dies penniless and winds up helping no one.  A most unlikely scenario for sure, but not impossible...

 

As for my selfishness, I admit to that, and that is one of my many flaws.  HOWEVER, I do give charity (actively so), not nearly as much as I could or should, but I do make a conscious effort.  I hope to improve on that in the near future also. 

 

I would challenge everyone to exam their charitable giving and see if they can't improve on it in the upcoming year.

[Liberty]

Here is another to think of things....Imagine if Buffet loses all of his money/capital...he then dies penniless and winds up helping no one.  A most unlikely scenario for sure, but not impossible...

 

If we want to imagine scenarios, imagine if Buffett had donated all the money he made from his paper routes and subsequent endeavors to charity and never compounded it. Is that a better scenario?

[Kraven]

I have a suggestion.  I think this thread needs a little more religion and politics thrown in to really round things out.  It just feels like the topic isn't otherwise being fully explored.

[ERICOPOLY]

Here is another to think of things....Imagine if Buffet loses all of his money/capital...he then dies penniless and winds up helping no one.  A most unlikely scenario for sure, but not impossible...

 

If we want to imagine scenarios, imagine if Buffett had donated all the money he made from his paper routes and subsequent endeavors to charity and never compounded it. Is that a better scenario?

 

Suppose he put his money in a foundation that can compound it tax-free while distributing the required 5% annually. 

 

5% annual bleed of the foundation's money is similar to being taxed only 16.7% on a 30% gain.

 

So if he could have achieved 30% annually on his own after winding up the Buffett partnership then he should have done better than owning Berkshire.

 

But, that's all with hindsight 20/20.  And he deserves to live an interesting life, and being the Chairman of Berkshire has made his life perhaps far more interesting.

[Tim Eriksen]

I have a suggestion.  I think this thread needs a little more religion and politics thrown in to really round things out.  It just feels like the topic isn't otherwise being fully explored.

 

I am pretty sure you are joking.  It is hard to talk about issues like charity without religion entering into it.  For many it is the moral framework out of which their giving to charity is based. 

 

Setting religion aside, if we can, Buffett always made a rational (or utilitarian) argument that it was better for society for him to compound and society to wait.  This bordered on a moral argument to me.  (He could have chosen an "it is my money and therefore my choice argument" but did not).  In 2005, he changed his mind (Snowball p. 662).  I am just curious if anyone knows of an interview where he addresses the change?  Does he admit that his previous view was wrong?  Or, does he not acknowledge that and imply that facts changed (e.g. his rate of compounding decreased or world needs became more immediate)?       

[kevin4u2]

 

I will stand by my position...I think people have an obligation to help people in the here and now. 

 

 

Interesting thoughts, here are some of mine.  First, you may be under obligation but I am not.  Christians are under no obligation either.  God loves a cheerful giver, not a resentful giver. 

 

Another problem with giving out of obligation is that you are doing it for egocentric (selfish) reasons.  Isn’t that ironic.  Some may do it to look good for others, peer pressure, for respect, to earn someone’s favor, or perhaps to bribe God.  That is why I am under no such obligation. 

 

Another key question is why are people suffering?  Why not deal with the root cause of the suffering, which is a lack of personal freedom and education. 

 

Arguments of intimidation, such as “only someone heartless would not help the poor” doesn’t work.  Such arguments are why socialism is so appealing because no one wants to be seen as heartless.  It’s a subtle way to control people.

 

What is ironic is that the poor look at the rich and they call the rich selfish.  Now by poor, I mean the poor in North America.    However in order to become rich you need to deny yourself, save and compound your capital.  The poor, on the other hand, doesn’t deny himself anything and doesn’t save any capital.  He then has the audacity to call the other guy selfish. 

 

If you think I’m kidding, just look at the most successful business people in the US.  Often they are immigrants, many from Asia, who start with absolutely nothing except freedom and opportunity.

 

Take for instance this thought experiment…  If you took all the wealth in the USA and equally distributed it among everyone, what would happen in 5-10 years?  For the most part things would be back to exactly how they were before the wealth distribution.  Why is that?  (This also explains why those who win the lottery are often no further ahead 5 years after their big win) 

 

The real source of wealth is in the ability to produce wealth not in the wealth itself.  The wealth itself is a byproduct of the character and beliefs of the person.

 

I hope these ideas make sense because they definitely are not common.  I know your comments were more related to those who are suffering (the real poor), not the rich spoiled poor people in North America.  Many of whom do don't realize that if you make an average wage (~40K/yr) in North America you are in the top 4% of the world. 

 

[LC]

I'm on the opposite side of the fence here...I actually think he should NOT give away his wealth to charity. Wait, Wait! Before you stone me, hear me out! :)

 

My thinking is this: if you look back at history, trade and industry have caused the greatest increases in the standards of living for humanity as a whole. What Warren Buffet can do is brilliant: he can effectively siphon the "excess" capital from developed societies and re-allocate it as he sees fit. 10% of everyone across the world who has excess capital and spends it on a can of Coke, he now owns that 10%. He owns the capital of everyone with excess who spends it on Sees candy. Etc. etc. etc. for all his businesses.

 

So he sucks in the capital from all these excesses, and he can redeploy it to whatever area he sees fit, usually in some "undervalued" area. So what has he done? He's taken the excess capitol that people spend on Coke and chocolate and he invests THEIR money in railroads, solar power, and battery technology. These things will increase the standard of living for all of humanity. Buffett is using capitalism to redistribute wealth from the "rich" to the "poor".

 

Let the man keep doing this! And I hope he finds other investors out there who can keep doing the exact same thing. History has shown that investments (and advancements) in sensible technology and industrial improvements are what hold the promise to feeding the hungry and sheltering the homeless.

[Guest deepValue]

 

So he sucks in the capital from all these excesses, and he can redeploy it to whatever area he sees fit...Let the man keep doing this!

 

Giving away his stake in BRK will not keep him from allocating its capital.

 

But I'm firmly in the there-will-always-be-people-who-need-help-so-compound-your-money-at-a-high-rate-and-for-goodness-sake-live-it-up-a-little-you-earned-it camp.

[SouthernYankee]

Personally, I am thrilled he made plans for his wealth to be given to charity. They will, most likely, spend it a lot more wisely than the SOB's in Washington, DC.

 

That said, it was his decision, and he could have done whatever he wanted with it. He earned it, it's his choice.

 

As for myself, I try to follow the tenets of my religion in regards to monetary contributions, yet the contributions of my time is where I find the most value.

 

Cheers.

[twacowfca]

I'm on the opposite side of the fence here...I actually think he should NOT give away his wealth to charity. Wait, Wait! Before you stone me, hear me out! :)

 

My thinking is this: if you look back at history, trade and industry have caused the greatest increases in the standards of living for humanity as a whole. What Warren Buffet can do is brilliant: he can effectively siphon the "excess" capital from developed societies and re-allocate it as he sees fit. 10% of everyone across the world who has excess capital and spends it on a can of Coke, he now owns that 10%. He owns the capital of everyone with excess who spends it on Sees candy. Etc. etc. etc. for all his businesses.

 

So he sucks in the capital from all these excesses, and he can redeploy it to whatever area he sees fit, usually in some "undervalued" area. So what has he done? He's taken the excess capitol that people spend on Coke and chocolate and he invests THEIR money in railroads, solar power, and battery technology. These things will increase the standard of living for all of humanity. Buffett is using capitalism to redistribute wealth from the "rich" to the "poor".

 

Let the man keep doing this! And I hope he finds other investors out there who can keep doing the exact same thing. History has shown that investments (and advancements) in sensible technology and industrial improvements are what hold the promise to feeding the hungry and sheltering the homeless.

 

It's really hard to give money away effectively to make a big impact on a recipient.  In North America, money is usually not the factor that limits effectiveness, but time and intelligent effort.  Lack of money is not the root cause of poverty or social ills in an affluent society. That's why most of our giving goes to poor countries through organizations that are good managers of the funds.

 

However, giving is often a greater blessing for the giver than the beneficiary.  Be proactive.  Seek out recipients where your gift will make a big difference.  Then, you'll get an even bigger blessing.  :) 

[Liberty]

Suppose he put his money in a foundation that can compound it tax-free while distributing the required 5% annually. 

 

5% annual bleed of the foundation's money is similar to being taxed only 16.7% on a 30% gain.

 

So if he could have achieved 30% annually on his own after winding up the Buffett partnership then he should have done better than owning Berkshire.

 

But, that's all with hindsight 20/20.  And he deserves to live an interesting life, and being the Chairman of Berkshire has made his life perhaps far more interesting.

 

Exactly, Buffett's path was not optimal. My point is that to call him selfish is ridiculous. In the set of all possible paths, the vast vast vast majority are worse than Buffett's when it comes to philanthropy.

[Olmsted]

Another key question is why are people suffering?  Why not deal with the root cause of the suffering, which is a lack of personal freedom and education. 

 

Arguments of intimidation, such as “only someone heartless would not help the poor” doesn’t work.  Such arguments are why socialism is so appealing because no one wants to be seen as heartless.  It’s a subtle way to control people....

 

The real source of wealth is in the ability to produce wealth not in the wealth itself.  The wealth itself is a byproduct of the character and beliefs of the person.

 

+1

 

That said, there are probably still smart policies/charitable efforts to help break the poverty cycle and help those who can't/won't help themselves.  Problem is most government policy is inertial or vote-buying, and I would argue most charity is not structured to have a long-term impact (whether through naievete, short-termism, focus on the giver's needs, etc.)