Sun Valley, Idaho: Last week, one of US President Barack Obama’s economic advisers suggested that the US may need a second stimulus package. The suggestion now has a strong backer from the business community. In a CNBC interview, Warren Buffett, who runs Berkshire Hathaway Inc., says that while he supports the idea of a second stimulus, there is no quick fixing of the US economy. Edited excerpts:
Tough period: Berkshire Hathaway Inc. chairman Warren Buffett says he doesn’t know how long the global economic downturn is going to last, but that it will have a good ending. Andrew Harrer / Bloomberg
The global economic downturn was a big topic of conversation here (Sun Valley media conference). Yesterday (on Wednesday), I know, there was a big panel discussion on it. From everything I have heard, sounds like the mood was very glum. I have heard sombre. I have heard glum. It was not a positive mood. It was not a positive mood. Do you agree with that sentiment?
I would say that right now we are in a very, very tough period. We have been in it—it really took off last September, when it hit the financial world like nothing we have ever seen, and that’s gotten spilled over into the economy. And it’s a tough period now. On the other hand, this movie will have a good ending.
Good ending over what sort of time period?
I don’t know how long the movie is. I know the ending will be good but I don’t know whether it’s a two-hour movie or a four-hour movie.
You have said that the stimulus has done little, not enough, to get the economy moving. Do you think that people here agree with you on that?
I don’t know about people agreeing with me. But the stimulus was never designed to act fast. People hoped it would start trickling in. In general, I believe in the stimulus and would probably believe in another one; they may be overrated in terms of their ability to end the recession fast.
But if you are advocating another one, are they overrated?
I think they are useful, but I think that anybody who looks on them as a panacea is making a mistake. But they are useful, they are useful.
What do you think should be done now? Do you think there should be another stimulus right now?
I think there probably should be. But I wouldn’t expect miracles out of it.
But so little of the $800 billion (around Rs39 trillion) stimulus has already been spent. Does it make sense to do another stimulus now, or do we want until some of that money, or more of that money, is out there?
If you had another one you would try to load as little on the Christmas tree as possible for specific constituencies, and you would try to get it spent fast. But the (US) President said that originally; let’s try to go with the shovel-ready projects. Then Congress got into the act and I think watered it down some.
So if the stimulus is not a panacea, what is the solution?
There is no silver bullet. I mean, the original cause of this was the housing bubble. Now a lot of things were contributing to it and flowed out of it and all of that. We built a couple million housing units a year. We formed a million, 300,000 households a year, surprise; we had too many houses at a point. You can’t work that off in a day, or a week, or a month. The best thing we can do is not to be building a lot of new houses now. I mean, we will work off the excess inventory faster.
If you want to end the recession as soon as possible, you do nothing to encourage new housing construction. Very tough on the home builders but that is the prescription for getting supply and demand back into balance.
So what does that mean in terms of interest rates?
You want low interest rates. The more affordable houses are, I mean people have to have a job, too, but low interest rates are a boon to housing in that they mean people qualify for owning housing of a given type that they wouldn’t otherwise. But we still have too many houses. And the only way to do that, we can either form more households, get all the 14-year-olds to start living together, which they would probably like, or we can blow up a bunch of houses, which I don’t think any of us would like, or we can produce more than the household formation and we will use up the inventory and we will get back to a vibrant economy.
You supported President Obama...
Hundred per cent.
What do you think of his behaviour, his decisions since he’s been in office?
He is been terrific. I think it’s very important that the people in the country, just as in the 1930s, that they have a leader they believe in. They have got good reason to believe in him. Plus, he communicates extraordinarily well so they can understand what he is doing and why he is doing it and what the timetables may be and all that sort of thing. So we have the right person in the White House.
But you feel like the stimulus hasn’t done enough, so do you agree with the way he’s handled the financial crisis?
Well, the (US) Congress wrote the stimulus Bill.
You have mentioned that you are not worried about inflation right now. You are concerned about inflation down the line. What can the government and the Fed (Federal Reserve) do right now to minimize that risk?
Right now, they’re pouring the medicine on. Unfortunately, the medicine will have an after-effect, and it will be inflation, and the question is how much and how extreme? We are going to apply a lot of medicine, and we are likely to get a lot of inflation down the road. But it’s better to have the patient recover than to sit there and say I am worried about the after-effects of the medicine so we’ll just ignore it.
Oil prices have come way down over the past six weeks. Will that help the situation?
It always helps. I mean, we are importing 10-million-plus barrel a day of oil and that’s a tax that the rest of the world imposes on us. We give them goods and services that we produce in exchange for that. And the cheaper we buy oil, the better off we are.