During the campaign, Barack Obama mentioned Warren Buffet’s support in order to add credibility to anything Obama said economically. Buffet is a gazillionaire, so it employs the "smart money" and “intelligent by association” arguments. Of course, since the election Buffet’s Berkshire Hathaway has reported profits are down 77% and the stock lost 25% of its value. With his kite sinking fast, it’s time to consider Buffet more closely.

Obama described some of Buffet’s beliefs in the "Audacity of Hope." There was the following Warren Buffet discussion about the estate tax.

“When you get rid of the estate tax,” he said, “you’re basically handing over command of the country’s resources to people who didn’t earn it. It’s like choosing the 2020 Olympic team by picking the children of all the winners at the 2000 Games.”

Buffet is afraid the elimination of the death tax would lead to a wealthy aristocracy with the rest of the people poor. Those wealthy people would not have earned it. Buffet and Obama want success based on merit. Sounds good, but passing the sound test doesn’t mean it will pass the smell test.

First of all, putting the money in the hands of politicians to spend as they please is – from a moral point of view – even more wrong that allowing it to pass to the heirs. People are far more inefficient with someone else’s money than they are with their own, regardless of how they came to acquire it. The next generation would at least have the self interest of preserving their “goose that lays a golden egg” rather than a politician who is serving goose dinner to his friends and supporters.

Secondly, the money belongs to the old guy. By the sweat of his brow he worked and by the strength of his spine he took risks. The rewards are his and not the government. Warren Buffet can pass all his money to the government if he pleases, but that is no reason to force everyone else to do the same.

Thirdly, the children of said rich man did earn something. The little girl who got up after her father left for the morning commute and only saw him when she was ready for bed in the evening paid dues so that the family fortune could grow. The successful business owner arrives before the first worker and stays after the last one leaves. The price of making all that money is a certain loneliness that comes wondering where you fit into your father's life.

Fourthly, with the death tax in place, the government would be discouraging economic growth. A successful businessman in his late 50’s or early 60’s would have no incentive to keep growing the business or start a new one.

If there was limited passing on of wealth - or I should say the potential to pass on wealth - then the successful businessman who dreamt of “hitting a home run” would never have invested in a new idea. He would have been an involved grandfather. He would sit on a beach and drink martinis all day. Economic activity in the nation would have been reduced to busier golf courses.

Lastly and most importantly, there is the notion of "shirtsleeves to shirtsleeves in 3 generations." The premise is simple. From the generation that moved from working class to upper class, it will take only 3 generations to return to working class. The first generation moves to the cultured city and enjoys all the trappings of a big-city executive. The second generation inherits both the illusion of grandeur and the resume that lacks merit-based achievement. They won’t understand the risk, reward or the value of a dollar. When the money is all gone, the third generation returns to the working class roots.

Rather than the Olympic analogy, Warren Buffet should think of kite-flying. The first generation may get the kite off the ground and hand the kite to succeeding generations, but those generations need to be able to fly a kite. Sure, inheriting a kite that is already flying is easier than starting from scratch, but the government should not go around snipping the tether lines of every kite in the interest of being fair. Even someone who inherits a kite needs to figure out which way the wind blows. The free market corrects the allocation of inheritances as swiftly and certainly as an “invisible breeze” separates the kite flyers from the rope holders.