World may be seeking economic solutions in the wrong place: Don Pittis

Recent comments by one of the world's greatest experts at making money, Berkshire Hathaway'sCharlie Munger,offer a warning that the world may be looking in the wrong place foreconomic solutions.

And as we wait this week for U.S. Federal Reserve Chair Janet Yellen's latest pronouncement on interest rates, there are increasing signs that the world economy will not be saved by big actions by big playersbut instead by revolutionary thinking by small companiesandyoung people.

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For someone who has made a lucrative career out of buying and selling financial instruments, Mungerhad some pretty radical things to say about the state of U.S. finance.

'Crazy excess'

Munger, deputyat Berkshire Hathaway to his more famous boss, Warren Buffet, made the comments ata private speech in February, but the details only came outthis month on a fund manager's website.

Effectively, the vice-chairman of the investment firm condemned the attitude of U.S. and by extension, global finance, saying too many peoplein the financial industry had becomepassive gamblers instead of builders and creators. He said it was rare for him to come down on the same side as Democratic presidential candidateBernie Sanders and Senator Elizabeth Warren, but when it came to their views onfinance, they were on the same page.

"It is true that these crazy, false values and this crazy excess is bad morals, and it's bad policy," said Munger in a question and answer session well worth reading in full. "It's bad for the nation. It's just bad, bad, bad. And there's a lot of it."

Gambling culture

He compared today's one per cent and the financial industry that serves itto the aristocratic idle rich of previous eraswho spend their time creating nothing, merelygambling on ever-rising stocks and bonds.

"So, we have a vast gambling culture, and people have made it respectable," saidMunger. "And I don't see any way of stopping it except with some big legislative change."

In the aftermath of the banking meltdownof 2008, the sole object of world leaders was to prevent shockwaves from the financialcollapse from spreading out into the wider community. The solution was to flood the world with cash and keep interest rates low.

Every time Yellenhints it is time to raise interest rates, the people running Munger'sfinancialcasinos cry outin alarm.

Disenchanted

As many commentators have observed, thesuccess of Sanders and Republican candidate Donald Trump are a symptom that voters have become disenchanted with the current "bad, bad, bad"system. And while money has enormous clout in democratic systems, there is always a chance voters will rebel.

Trump, who has implied he would dumpYellenif he were elected, appearsto sympathize with ordinary peopleseniors, for example,who are suffering because of low interestrates.

"The problem with low interest rates is that it's unfair that people who've saved every penny, paid off mortgages, andeverything they were supposed to do and they were going to retire with their beautiful nest egg, and now they're getting one-eighth of one per cent," he said.

But Trump being Trump, he has also said the exactopposite: "The best thing we have going for us is that interest rates are so low."

Besides political discontent, there are signs of stirring outside the one per cent. Despite tepid and uncertain financial results amongthe world's corporate giants, jobs and growth keep creeping up.

On Friday, Statistics Canada showed that ordinary citizens had begun to open their wallets. Gloomy prognostications from bank economists were countered by a surge in employment, even in Alberta, where the oil giants are shedding staff.

This Friday, we'll have another chance to see if the previous set of jobs andof growth figures were just a blip when StatsCan releases GDP numbers for February.

Economists have lots to worry about. The end of Moore's law means we canno longer count on endlessly faster and cheaper computers. Growth in the workforce slows as the population ages. We have exhausted the reserve of female workers who've entered the workforce since 1970sand,some say, helped the economy boom in recentdecades.

Untappedreserves

But if Munger is right, in principle,there is areserve of wealth and energy waiting to be tapped. Instead of backing the giant corporations and banks, governments must begin to think small.

Difficult as it will be, governments must think of how to begin to starve casino capitalism, removing the incentive for bright young people to pretend they are being useful "buying little pieces of paper,"as Mungerdescribedthe work of those making fortunes in the financial industry.

Big finance likes sure things:bonds andgovernment-backed mortgages and stocks that always go up. Meanwhile, young entrepreneurs have trouble getting money for theirstart-up projects.

Legislators muststruggle to bypass the power of banks, letting people who are currently making almost nothing on their savings direct a portion of that money to small online lenders so that young companies can get the seed cashthey need, the so-called fintechdescribed in 2014by Bank of Canada governor Stephen Poloz.

Well-regulated, it need not be dangerously risky.

Maybe we need to stop thinking bigand startthinking small.Certainly, there are lots of problems to solve.

Besides, as Mungersaid earlier this year, just chasing money does not makefor an adequate life. It may be that the current crop of young people are beginning to realize that.

"I'm always afraid I'll be a terrible example for the youth who want to make a lot of money and not do much for anybody else and who just want to be shrewd about buying little pieces of paper," he said.

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