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The Prosperity of America

With the Presidential election around the corner it seems no one is happy. One CNBC commentator stated with the slate of candidates it is guaranteed that 50% of America will be unhappy with the winner.

The political divide appears to be at record levels. However, does that mean America is doomed depending upon who is elected? Hardly.

For clarity on this matter, one should read the Berkshire Hathaway annual report. A significant portion of Warren Buffett’s shareholder letter this year was devoted to the economic success of America…regardless of political leaders or affiliations.

Buffett began by saying, “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. And, yes, America’s kids will live far better than their parents did.”

Since Buffett was born in 1930 American GDP per capita has increased, net of inflation, by 600%, to an astounding $56,000. This has been accomplished by working more efficiently and thereby producing far more. “This all-powerful trend is certain to continue: America's economic magic remains alive and well.”

Buffett pointed out the good news about capitalism: all members of society, regardless of political affiliation, enjoy more in goods and services today, and will in the future, than in the past. “The quality of their increased bounty will also dramatically improve. Nothing rivals the market system in producing what people want – nor, even more so, in delivering what people don’t yet know they want.”

Furthermore, Buffett opined “Too few Americans fully grasp the linkage between productivity and prosperity.” Elaborating upon this, he analyzed the efficiency and productivity of farming and railroad industry’s.

In 1900, 40% of America’s civilian work force, worked in farming. About 90 million acres were devoted to corn production which produced about 30 bushels per acre.

With technological evolution came the tractor. Many other inventions enhanced productivity in the areas of planting, harvesting, irrigation, fertilization and seed quality.

Today, we only allocate 85 million acres to corn, but yields have skyrocketed to 150 bushels per acre—a 400% increase. Even more impressively, these gains have occurred while only requiring the physical input from 2% of our workforce. The agriculture industry has made similar improvements with other crops.

In elaborating upon these improvements, Buffett added that “improved farming methods have allowed tens of millions of present-day workers to utilize their time and talents in other endeavors, a reallocation of human resources that enables Americans of today to enjoy huge quantities of non-farm goods and services they would otherwise lack.”

An analysis of the rail industry produced similar conclusions. Buffett explained that in 1947 about 3% of American workers were employed in the railroad industry. The revenue ton-miles of freight moved by Class I railroads totaled 655 billion. By 2014, Class I railroads increased ton-miles by 182%, while reducing employees needed by 86%.

If it took as many people now to move freight as in 1947, we would need more than three million workers to handle present volumes. Although that would increase employment, it would also raise freight charges tremendously.

As a result of these productivity improvements, the inflation-adjusted price for moving a ton-mile of freight has fallen by 55% since 1947. This saves shippers about $90 billion annually in current dollars.

Obviously, productivity gains frequently cause change and upheaval. Both capital and labor incur significant burdens when innovation and efficiencies are introduced.

However, Buffett said in America, gains from winning investments have always far more than offset losses from clunkers. During the 20th Century, the Dow Jones Industrial Average soared from 66 to 11,497, while its component companies pay ever-increasing dividends.

Political candidates will continue to make wild accusations and paint a draconian picture of the future if the other party is elected. As frightening as this may seem, our nation has endured, and thrived, under a variety of political parties and leaders. Throughout it all, we remain a free society.

We can vote, move freely from state to state, get additional skills and education and engage in capitalist endeavors.

Our collective success is not dependent upon one candidate or political party. Our greatness has come, and continues to be, from hard-work, ingenuity, capitalism and the strength of its population. 

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other week.

Originally published March 4, 2016 Victoria Advocate