Warren Buffett believes the vast wealth gap in America is due to 1 ‘inevitable consequence’

Unlike most billionaires, Berkshire Hathaway Chairman and CEO Warren Buffett has always been a vocal advocate for working class Americans.

He famously suggested raising taxes on wealthy individuals like himself and recently claimed that no American would have to pay “a dime of federal taxes” if other corporations paid their fair share. “We always hope at Berkshire to pay substantial federal income taxes,” he said at the company’s annual meeting.

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With that in mind, some of Buffett’s more unconventional thoughts on wealth inequality are probably worth closer inspection.

“No conspiracy lies behind this depressing fact: The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being,” the famous investor wrote in a 2015 Wall Street Journal op-ed.

“Instead, this widening gap is an inevitable consequence of an advanced market-based economy.”

Here’s a closer look at Buffett’s argument.

An advanced market economy

Buffett believes the market economy has become more and more “specialized” with “economic rewards flowing to people with specialized talents.” This, he says, has caused the wealth gap with many people barely getting by while others thrive.

“It was an agrarian economy a couple hundred years ago,” he said in an interview with CNN. “Very hard, you know, to get 20 times the wealth of the next guy because you were a little bit better farmer. But if you’re better at some skills now, you can become incredibly wealthy at a very young age … You get to capitalize [the] value of an idea. And so the wealth moves big time, even on an anticipatory basis.”

Now, he says, there’s a “mismatch” between the requirements of attractive jobs and the skills of the early American labor force, which is “simply a consequence of an economic engine that constantly requires more high-order talents while reducing the need for commodity-like tasks.”

The brutal truth, he says, is that “a great many people” will be left behind in an advanced economic system.

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According to him, the solution is the right economic policies. “First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity,” he wrote.

Simply put, he thinks it’s difficult for average Americans to earn their way to significant wealth. Investing offers a simpler way of securing your financial future and growing your money in this specialized market-based economy.

Buffett’s advice to people is “just keep buying” and ignore “jabbering” about the market. In an interview with PBS, he said, “They should be willing to bet on America … They should just keep buying and buying and buying a little bit of America as they go along. And 30 or 40 years from now, they will have a lot of money.”

Building wealth through investments

You don’t need to be a professional or an investing genius to start accumulating capital. The Vanguard S&P 500 ETF, a plain vanilla index fund that tracks the S&P 500 with an expense ratio of just 0.03{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}, has delivered average annual returns of 14.3{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} since its inception in 2010, as of the end of May.

Investors can also consider other popular asset classes, like bonds and real estate, or alternative ones, like fine art, crypto and agricultural land. Always do you research, consider your risk tolerance and consult a financial adviser when you’re exploring more niche areas.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.