Common Sense Parable of an America Gone Awry

Charlie Munger, vice chairman of Warren Buffett’s Berkshire Hathaway, shares many of the plain-spoken ways of his more famous business partner. Munger also grew up in Omaha, Nebraska, and has the kind of charm that seems to come from trying to do things right by keeping them simple.

Over the weekend he had a parable he wrote published by Slate… and it’s outright depressing. He describes a nation, not unlike the US, that’s been the envy of the world since its inception. It has gotten that way by frequently, if not always, making good decisions and making them for the right reasons.

Yet, as the piece is entitled… “Basically, it’s over.” The nation has squandered so much success and so many good works that it now stands at the precipice of financial ruin.

Via, here’s a passage from the parable:

“But even a country as cautious, sound, and generous as Basicland could come to ruin if it failed to address the dangers that can be caused by the ordinary accidents of life.

“These dangers were significant by 2012, when the extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland’s citizens more and more whiled away their time in the excitement of casino gambling. Most casino revenue now came from bets on security prices under a system used in the 1920s in the United States and called “the bucket shop system.”

“The winnings of the casinos eventually amounted to 25 percent of Basicland’s GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos (many of whom were engineers needed elsewhere).

“So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called “financial derivatives.”

“Many people, particularly foreigners with savings to invest, regarded this situation as disgraceful. After all, they reasoned, it was just common sense for lenders to avoid gambling addicts. As a result, almost all foreigners avoided holding Basicland’s currency or owning its bonds. They feared big trouble if the gambling-addicted citizens of Basicland were suddenly faced with hardship.”

As the parable goes on, and as one would expect, Basicland does soon encounter hardship and the consequences are dear. In telling this story, Munger laments a time gone by, a simpler America with more honest work and clearer-cut morals.

Over time, as we’ve covered before, banking incentives shifted around in ways that have served to promote many negative outcomes… the kind that we’ve seen cause several large boom and bust cycles. Toward the end of the piece Munger describes that “the country’s credit was reduced to tatters.” Let’s hope it’s a fate that is not yet sealed.

Read the complete parable from Charlie Munger of Berkshire Hathaway in this Slate commentary.

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