Never Bet Against America

“Never bet against America.” These are the words of Warren Buffett in a 2021 letter to Berkshire Hathway shareholders. In an era of American self-criticism and self-doubt some question whether this sentiment is still valid.

Buffett’s comment was underpinned by his belief in our market-based economy, and the growth and success he observed. These outcomes are in turn attributable to the nature of our society and economic system. We have clear property rights, a rule of law, very broad individual freedoms, and robust governance institutions. Buffett’s seemingly homespun wisdom was well-founded.

Why then do some believe that these American times they are a-changin’? Here are just three of the ‘reasons’:

• Some actions of politicians on both ends of the political spectrum are inconsistent with the historical nature of US capitalism. Interference in public companies and the creation of government run grocery stores are two examples. Are these actions the start of a slippery slope to a largely government-run economy?
• The rest of the world is not treading water. The US will see its share of global GDP gradually decline as younger, less-developed countries make progress. The math says that it is very difficult for the large to match the growth rates of the small.
• China has become the modern-day Soviet Union in inspiring oddly based admiration and misleading extrapolations into the future. No doubt, the Chinese  government’s heavy-handed focus on technology and manufacturing has provided extraordinary results. Ask the Germans who are suffering much harm from the glut of Chinese exports. Moreover, the manipulative publicity of the latest Chinese technology has given a Halloween-worthy scare to many Western observers.

Despite temptations to be gloomy, I remain a Buffet-like believer in this country. Our system of governance remains one of the strongest in the world. China by comparison is a dictatorship; at the state level by design and at the individual level driven by the will of its current leader. The Chinese people do not have the ability to change their leaders peacefully. Property rights can be destroyed at the whim of a bureaucrat. Successful people in the business are severely punished if they do not toe the line (just ask Jimmy Lai). The deployment of sophisticated technology to ensure the compliance of the people will likely mean that the Chinese Communist Party will stay in power indefinitely. However, the system does allocate resources efficiently or encourage the independent creation of wealth.

I have a possibly naïve belief in the smarts of the American voter. No politician can stay around forever. Maybe we will continue to lurch from one poor leader to another but change will come–and the electorate has a good track record of trimming excesses.

Is investment exposure across the world a key part of diversification? Absolutely. Will some countries outperform the US for periods? Of course. But if I were a betting person, most of my chips would be placed on the 1776 red, white, and blue.

Richard Rushton