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In Berkshire Hathaway’s 2016 letter, Warren Buffett did a masterful job of describing the foundation of America’s abundance. As we celebrate our country’s 250th birthday, I believe his words deserve another reading.

One word sums up our country’s achievements: miraculous. From a standing start 250 years ago…Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers. You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion ($183 trillion in 2026).

It’s true, of course, that American owners of homes, autos and other assets have often borrowed heavily to finance their purchases. If an owner defaults, however, his or her asset does not disappear or lose its usefulness. Rather, ownership customarily passes to an American lending institution that then disposes of it to an American buyer. Our nation’s wealth remains intact. As Gertrude Stein put it, “Money is always there, but the pockets change.”

Above all, it’s our market system – an economic traffic cop ably directing capital, brains and labor – that has created America’s abundance. This system has also been the primary factor in allocating rewards. Governmental redirection, through federal, state and local taxation, has in addition determined the distribution of a significant portion of the bounty.

America has, for example, decided that those citizens in their productive years should help both the old and the young. Such forms of aid – sometimes enshrined as “entitlements” – are generally thought of as applying to the aged. But don’t forget that four million American babies are born each year with an entitlement to a public education. That societal commitment, largely financed at the local level, costs about $150,000 per baby. The annual cost totals more than $600 billion, which is about 31⁄2% of GDP.

However our wealth may be divided, the mind-boggling amounts you see around you belong almost exclusively to Americans. Foreigners, of course, own or have claims on a modest portion of our wealth. Those holdings, however, are of little importance to our national balance sheet: Our citizens own assets abroad that are roughly comparable in value.

Early Americans, we should emphasize, were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it.

This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.

America’s economic achievements have led to staggering profits for stockholders. During the 20th century the Dow-Jones Industrials advanced from 66 to 11,497, a 17,320% capital gain that was materially boosted by steadily increasing dividends. The trend continues: By yearend 2016, the index had advanced a further 72%, to 19,763. (Just 10 years later, the Dow topped 52,000 for the first time.)

American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.

Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: “We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.”

During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.

As for Berkshire, our size precludes a brilliant result: Prospective returns fall as assets increase. Nonetheless, Berkshire’s collection of good businesses, along with the company’s impregnable financial strength and owner-oriented culture, should deliver decent results. We won’t be satisfied with less.

“Nonetheless, Berkshire’s collection of good businesses, along with the company’s impregnable financial strength and owner-oriented culture, should deliver decent results.
We won’t be satisfied with less.”
———————————————————-
For those of us who are passing on our long ownership of Berkshire, it is this future “delivery of decent results” that is of primary interest.

ciao

Regarding Warren's last sentence.....
All of us on this board have had it drummed into our head by Warren and Charlie that the law of large numbers precludes outsized performance by companies with Mega -Capitalization.
That our expectations for potential future annual growth at Berkshire should be tempered down to single digits.
Recent history and stock performance has proven this to be incorrect.
The shares of Apple, Google, Nvidia, Amazon, GE, Eli Lilly and many. many others have increased in valuation by over hundreds of percent in very short periods of time.
Growth at this size had never been seen like this before.
But here we are.
One can argue that this is quotational value and not intrinsic value, and sure this is true.
But these companies HAVE multiplied revenues and profits, and stockholders of these companies are not complaining about the outsized growth in share valuation.
I believe Berkshire is a coiled spring about to experience exponential growth of it's own.
Charlie always said it's best to destroy some of your own closely held beliefs.
Hopefully Greg Abel will prove that Berkshire is a powder keg of potential ready to explode upward after it's vast resources are properly deployed and current operations are optimized for profit and not just the lifestyle of the two men in their nineties that had no interest or capacity at their age to do the real dirty work necessary to run one of the largest companies in the world.
I'm looking for $2,000,000 per A share in the next 5 years as Greg Makes Berkshire Compound Again!

...If an owner defaults, however, his or her asset does not disappear or lose its usefulness. Rather, ownership customarily passes to an American lending institution that then disposes of it to an American buyer. Our nation’s wealth remains intact.

I don't want to be the skunk at the garden party, but it's more than a bit odd that WEB would write this in the aftermath of the Great Recession in which millions of Americans lost their homes as a consequence of egregious systemic faults within "American lending institution[s]" and in which many of those homes sat vacant and decaying for months, even years, were disposed of in tax auctions that resulted in deeper financial abuses, and wealth indeed vanished--for families, municipalities (such as Detroit, which suffered the largest municipal default in US history and where I worked with displaced families), and even nationally.

I'm particularly reminded of these facts due to the recent passing of Allan Greenspan. As you may remember, on Oct. 8, 2008, in his testimony before the House Committee on Oversight and Government Reform, Greenspan stated with regard to the economic philosophy that had guided his career, "I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact."

He continued, "Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief."

As for those us who were not in thrall to free-market fundamentalism, our shock was that so many others were shocked.

As for those us who were not in thrall to free-market fundamentalism, our shock was that so many others were shocked.


One need not be in thrall to free-market fundamentalism to acknowledge that this system, despite its flaws, seems to work very much better than all the alternatives that have been attempted.

dtb

One need not be in thrall to free-market fundamentalism to acknowledge that this system, despite its flaws, seems to work very much better than all the alternatives that have been attempted.

Many people, and much research, would disagree with the assertion that free-market fundamentalism "works very much better than" the alternatives found in every advanced economy in the world today, including the U.S. The disagreement is about the extent to which free markets require governmental regulation in order to protect against inevitable prisoners-dilemmas in which the aggregation of individual self-interested actions results in systemic catastrophes.

Or as they say, two novels that can change a 14-year old’s life are The Lord of the Rings and Atlas Shrugged. One is a childish fantasy. The other involves heroic hobbits and evil orcs.

Excerpt from Deutsche Bank report looking at how the US emerged as a global superpower, and why it’s likely to remain one despite new challenges.

==================================================

So what has caused this incredible success?

The first reason, and one of the most critical historically, has been the US’ political and institutional stability. Clearly, there have been moments of intense turmoil, most notably with the Civil War in the 1860s. Its historical path also should not be over-romanticized, with US territorial expansion during the 19th century having many similarities to that of the Old World colonial empires. Nonetheless, the US is incredibly rare in that its political system is recognizably the same over the last 200 years. This relative stability and early development of property rights provided a fertile environment for long-term investments, which in turn has aided economic growth over the centuries.

The second reason is its geographic advantages. The US possesses vast arable land, navigable rivers, large coastlines, and access to two oceans. It therefore found itself more insulated from the destructive effects of the world wars, with productive capacity not impacted in the same way. Moreover, the country borders Mexico and Canada, who in both population and GDP terms are much smaller than the United States, meaning it didn’t face the security risks that many European powers faced over the 19th and early-20th centuries.

The third reason has been its abundance of energy resources, particularly relative to Europe. In large part a corollary of its geographic strengths, this energy abundance has given the US several advantages. First of all, lowering costs for households and industry, which has helped the economy be more resilient against geopolitical shocks. Moreover, with the US becoming a net energy exporter in recent years, it also strengthens the external position.

The fourth reason for the US' relative success was that its main competitors in Europe were deeply affected by the world wars and wider political turmoil. Their productive and financial capacity was severely degraded, with the destruction causing huge loss of life as well. Even among those who survived, many scientists, engineers and entrepreneurs left for the US in the first half of the 20th century. Whilst not a US “success” as such, this meant that on a relative basis, the US’ divergence widened considerably. Indeed, in the first half of the 20th century, the US economy grew by 5.7 times, Germany by 3.4 times, the UK by 2.0 times, and France by 1.8 times.

The fifth reason for the US’ outperformance is scale. It has a large domestic market of over 300m people, with high average incomes, a common language, and low internal barriers to trade. This has given firms the ability to reach a large-scale domestically before expanding abroad. Indeed, it is notable that 8 of the world’s 10 largest firms are based in the US, whereas none are in Europe.

The sixth reason is the structural advantage of the US Dollar, which remains dominant in global trade and FX reserves. This dollar demand matters because it lowers borrowing costs and raises demand for US Treasuries. In turn, it leaves the US with an exceptional capacity to run bigger fiscal and external deficits without facing a funding crisis, and expands the geopolitical leverage that the US possesses. This has been dubbed the “exorbitant privilege”, and has been a major advantage in recent decades.

The seventh reason is financial depth. The US has a large banking system, but also a wide range of non-bank financing, which means startups have access to other sources of capital. In fact, in the decade from 2013 to 2023, annual venture capital financing was 0.7% of GDP in the US, compared to just 0.2% in the EU. This financial depth is important because innovative firms can often be loss-making for lengthy periods, so countries with bigger pools of patient risk capital are better placed to commercialize new technologies.

The eighth reason is its self-compounding advantages in education and research. The US has many of the world’s strongest research universities, including 7 of the top 10 in the Times Higher Education World University Rankings for 2026. Moreover, this research also has an economic angle, as scientific discoveries feed into startups, workforce training and industrial scale-ups. In turn, this becomes self compounding, because top global talent is attracted to the US, and ensures it remains at the forefront of new sectors such as artificial intelligence.

The ninth reason is its pro-business architecture, including a greater tolerance of business failure than many European systems. For instance, Chapter 11 reorganisation is designed to preserve and restructure viable firms rather than liquidate them. This more positive approach to business failure ties into the empirical literature, which suggests that more debtor-friendly and efficient insolvency frameworks are associated with greater entrepreneurship and innovation.

The tenth reason is adaptability. The cultural acceptance of failure and capacity to reinvent itself have boosted US ability to adapt to the changing world. This has allowed it to navigate repeat boom-and-bust cycles, as well swings of the policy pendulum – between openness and isolationism, between protectionism and free trade – without threatening overall the institutional stability we highlighted above. And while capitalism has been a key underlying driving force, it is pragmatism rather than ideology that have driven continued success over time.

It is also important to note that these advantages do not play out individually, but are mutually reinforcing, with the interaction between them allowing the US to benefit from network and externality effects that few if any countries can match.

Link to full report
https://www.zerohedge.com/markets/us-250-why-ameri...

Link to new 5 episode documentary called The American Experiment if you are looking for something new to watch on Netflix relevant to America 250.
https://www.netflix.com/title/81930567

The fourth reason for the US' relative success was that its main competitors in Europe were deeply affected by the world wars

WW1 killed off the cream of the European countries male population.

Especially the British. "Because the devastation was highly concentrated among young men, the demographic impact was severe."

"One need not be in thrall to free-market fundamentalism to acknowledge that this system, despite its flaws, seems to work very much better than all the alternatives that have been attempted."

I know this is matter of semantics, but unfortunately semantics gets right to the heart of this discussion.

What is "free-markets"?

Obviously to any non-ideologue there is a lot of grey area here. Are government maintained roads (and rules of the road) free-markets? Obviously not, but most people understand why they are needed. Taken to the other end of the spectrum, what about regulations? Do regulations regarding truth in advertising ruin free market fundamentalism? Why should sellers be required to make true statements? Why can't they advertise tanks of water with a thin layer of salad oil on top as tanks of 100% salad oil (bringing this discussion on topic for all of the American Express shareholders on the board)? Shouldn't that be the seller's responsibility to figure out what is in the tanks and not require government interference? I think most people would agree that we could have some truth in advertising and fraud statutes and still be considered a free-market system.

Like everything, what it means to be a free market is based on a spectrum. On one end is lots and lots of regulations protecting people from almost everything. On the other end of the spectrum we could have a laissez faire market where anything goes with no regulation. Heck, you could stick a gun in someone's face and force them to buy your wares. No need for government interference the buyer should have protected themselves better. Corruption could be rampant, but it would be a free market.

Most people consider themselves free market believers, just to different degrees. There are those who believe any but the most basic regulations are because of communists and socialists. Then there are others who believe that anyone who doesn't want the same regulations they want must be anarchists and fraudsters. Queue the George Carlin joke about driving on the freeway. People going faster than you are maniacs, people going slower than you are idiots.

To me, I would revise your statement to be that there is no better economic system in the world than well regulated capitalism. A well regulated free market system.

Of course, that begs the question. What is a well regulated free market?

In my opinion regulations are just and warranted if they solve some of the basic problems of free markets while also avoiding creating their own problems as much as possible:

1. Tragedy of the commons. - the classic too many farmers letting their sheep graze on the common area of the town leaves it barren. This can apply to air quality, public lands, climate, water, fishing etc.
2. Free rider problems such as regulatory capture
Basically regulations shouldn't lead to a heads I win, tails everyone else loses type of situation.
3. Negative externalities - Circumstances outside of an economy can effect the economy and without decent regulations, the market will generally suffer. For example, foreign country interactions or climate effects.
4. Monopoly power - one consequence of a completely free (laissez faire) market is towards monopoly power. Winner can use their power to quash potential competitors not through competition, but through their monopoly power.
5. Asymmetric information - One party having significant difference in information over the other.

I think regulations that address these types of problems while minimizing the effect on the free trade of goods and services are the best type of regulations.

I think the person you quoted was addressing the laissez faire type of free market fundamentalism. That type of system isn't the best and works very little for most of the market participants. In fact it seems to only work best for a few market participants who can exploit some of the problems with free markets mentioned above.

For the Capitalist unable to add value, they feel it is their sacred duty to attack the vulnerabilities of the Free Market.

in some instances, even breaking the law is seen as a calculated risk of business, with a pot of fines and liabilities set aside.

although mostly true through america's history, it just seems more blatant today when those in positions to strengthen the vulnerabilities instead weaken them to take advantage personally.

Nice summary….

“ What can the rest of the world learn from the US’ success? In part, it is simply down to luck, including geographic advantages and an abundance of resources, such as energy, that cannot be replicated elsewhere. However, there are several features that could be reproduced elsewhere.

The first is its resilient institutional architecture, with a legal system and property rights that have provided a favourable environment for long-term investment. Although the US has faced severe crises in the last 250 years, including a civil war, its system of government has been recognisably the same throughout that time.

Second, it has a well developed financial system, and a tolerance for risk that’s enabled the US to embrace new technologies and emerge quicker from downturns, with resources shifting quickly to new and productive sectors. US history demonstrates how suppressing volatility and preventing resource re-allocation can be counterproductive over the long term.

Third, a key component of US success has been its adaptability to different contexts, and its ability to leverage existing strengths when under pressure. These range across its energy resources, capital markets, universities, military power, reserve currency status, and technological leadership. Even when one point has appeared under threat, others have been able to compensate.”

https://www.zerohedge.com/markets/us-250-why-ameri...

ciao

Above all, it’s our market system – an economic traffic cop ably directing capital, brains and labor – that has created America’s abundance. This system has also been the primary factor in allocating rewards. Governmental redirection, through federal, state and local taxation, has in addition determined the distribution of a significant portion of the bounty.

Now what happens if government grows and grows to comprise more and more of GDP? I don't know exactly, but I call it "empire syndrome", where the expenses of governing grows more and more and more until it implodes and then everything has to start anew (usually via wars, revolutions, major structural changes, etc, nothing particularly good).

https://bit.ly/4p2c3gi

Umm is right. "Free markets" in the productive sense are not even possible without a powerful government.

On the one hand:

Free markets are economic systems where prices, production, exchange, and investment are mostly coordinated by voluntary transactions among private actors rather than by direct government command.

On the other hand:

Real free-market systems still need:
property rights
contract enforcement
courts
fraud prevention
bankruptcy rules
currency/monetary system
limited liability rules
securities laws
antitrust enforcement
basic public goods

So the government has to be big and strong enough to maintain its monopoly on force. If individuals can use force privately, that will certainly interfere with "voluntary transactions among private actors".

But the government while being that big and strong has to resist the impulse to throw its weight around. The government can't be using its force to put its jack-booted thumbs on the scales for its cronies and allies, or deciding that it should build the factory and hire and fire the workers etc., or sell judicial decisions and contract dispute resolutions to the person who pays them off.

What a conundrum! We are going to have to make lists of things that the government MUST do to preserve free markets and other lists of things the government MUST NOT do in order to preserve free markets. And not everybody is going to agree about every detail, so we are going to have to come up with meta-rules about how we negotiate and litigate the disagreements, and are able to take a set of actions that are completely satisfactory to nobody, while they are largely satisfactory to almost everybody who can contribute to the market.

Sounds like it could get messy. Do you think it is worth it?

BTW, from the 40,000 foot view (12 km), The entire West, the whole first world, is free market in this sense.

R:)

Now what happens if government grows and grows to comprise more and more of GDP? I don't know exactly, but I call it "empire syndrome", where the expenses of governing grows more and more and more until it implodes and then everything has to start anew (usually via wars, revolutions, major structural changes, etc, nothing particularly good).

Now, what happens if the ultrawealthy grow and grow to possess more and more of GDP? I don't know exactly, but I call it "guillotine syndrome", where the suffering of their greed grows more and more and more until it implodes and then everything has to start anew, without any ultrawealthy (usually via enforcement of laws against the kleptocrats, major tax system changes, voting in politicians who actually represent their voters, all pretty good).

Now, what happens if the ultrawealthy grow and grow to possess more and more of GDP?

Excellent question, because it is happening right before our eyes...

"The top 1% of Americans hold roughly the same amount of wealth as the entire bottom 90% combined.
While the wealthiest Americans hold trillions of dollars in assets—largely driven by corporate stock ownership—the bottom 90% share the remaining pie, leaving many households with little to no investments."

"A study found that US citizens across the political spectrum dramatically underestimate the current level of wealth inequality in the US, and would prefer a far more egalitarian distribution of wealth."

"Since 1978: cumulative price increases total over 400%. Minimum wage is up 173%, and CEO pay is up 1,094%."

At what point can we just call it a Plutocracy?

PS Wow, that Trump sure is good at trading stocks! I wonder what trading strategy he's using?

https://en.wikipedia.org/wiki/Wealth_inequality_in...

https://www.epi.org/publication/ceo-pay/

It has been said that "capitalism" has lifted more people out of poverty than any other enterprise in history. At the risk of offending true believers, I must point out that "honorific" now belongs to post-Mao PRC.

I suggest that judging any system from a prejudiced POV, either pro or con, if folly. Only results that are worthy matter.

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