Author: Sanjeev Sabhlok

26th November 2025

Edwin Chadwick, THE ENEMY OF SOCIALISM, was powerfully influenced by Bentham and Ricardo

S.E. Finer’s 1952 book, The Life and Times of Edwin Chadwick has a superb discussion of his philosophy.

In a nutshell, he was a staunch classical economist and believer in capitalism. He rejected socialism outright. But he also would not suffer any private efforts that caused harm and reduced productivity.

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The influence of Bentham’s jurisprudence and of the French penal codes was … of paramount importance in determining Chadwick’s approach to social problems. It extended over the whole field of his social vision. [From a footnote: [S]uch admiration of the French system was a commonplace of the Benthamites among whom Chadwick was moving as early as 1824, and that he imbibed his views not from the written Code of the Master himself, but alongside of, and in the same way as, the other disciples.]

… Chadwick would interfere where necessary ; but where necessary for what? ‘The problem for the statesman (viz. Chadwick) is to define obligations and punishments in such a way that private interest shall be brought by artificial means to coincide with the public interest.’ What then was this public interest?

… Once again, his debt was to the Benthamite circle. This time it came not from Bentham himself (although in his Rationale of Reward the master had laid down the essentials) but from those epigones who developed this particular branch of philosophic Radicalism—the Mills and their friends Ricardo and McCulloch.

…Political economy grew up with the industrial age and the young Edwin Chadwick grew up with the science of political economy. … Its exponents were a tiny clique, their doctrines unknown … to the great mass of the people. It was Chadwick’s fate to grow up among the very people who formulated them. As James Mill had lamented in 1808, ‘the salutary doctrines of political economy’ were propagated only with great difficulty. Even in 1832 it was never heard of outside the Political Economy Club, except among students of Adam Smith’. … It was, paradoxically, on these very accounts that the economists, despite their paucity of numbers and their repellent prose, were able to command such respect from legislators. They were the only people who had studied legislation as a science. They followed up topics in the daily press, they collected statistics, and formed reasoned conclusions.

… This political economy of the circle to which Chadwick belonged and which he so thoroughly absorbed, was of a special and narrow type. … Of the two schools of economists, the ‘harmony’ school of bourgeois economists and the conflict school of socialist writers—birth, acquaintance, finally marriage and interests, all attracted Chadwick to the former. He regarded the socialist doctrines not merely as socially dangerous but as deluded and unscientific. The findings of orthodox political economy were laws. That unfettered private initiative was the mainspring of social progress he never doubted. Nor did he doubt that free competition could alone give free play to such initiative.

… That man and his environment could be improved and that improvements should be made, was so basic a creed for Chadwick that he rebelled against [the] fatalistic pessimism [of Malthus]. He was in good company when he argued that there was no reason why wages should not increase indefinitely, or why subsistence should. not far outrun the numbers of the population.

Typically he based his opinion upon a statistical study. In his study of ‘ Life insurance’, he pointed out that although the population of England had increased, its standard of living was higher than before. This phenomenon was general. History showed that as population increased so the standard of living rose. Nevertheless some theoretical explanation was needed. Chadwick gave this in the terms of orthodox Ricardianism. For every mouth at Nature’s feast’, he wrote, ‘there was also a pair of hands’. It was argued that an increased population entailed an increased competition for the means of subsistence, and therefore a lowered rate of wages. But the ‘means of subsistence’ were not in his opinion a constant element. Wages would have fallen ‘if the newcomers had added nothing to the fund out of which their wages came. The fund is in fact periodically consumed and reproduced by the labourer, assisted by the land and the farmer’s capital and all other things remaining the same, the amount of that fund and consequently his share of it, or in other words the amount of his wages, depends upon his industry and skill.’ Chadwick amplified this statement by cataloguing the various stages in the productive process. ‘More efficient labour makes the return to the farmer’s capital larger, and the consequent increase of the fund for the employment of labour enables and induces the capitalist to give better wages.’

The impact of this political economy upon Chadwick was very great. Fused with Benthamite penal law it turned Chadwick into the organizer, par excellence, of the state of the English manufacturing interest.

…The economic version of the ‘greatest happiness principle’ was for him either ‘greatest national product’ or (according to the context), ‘greatest national profit’. But his emphasis was on the term ‘national’, the stress was on public rather than private. Let each firm maximize its gains, but only so far as this contributed towards the greatest possible public gain. In fact, what Chadwick was dimly looking at, for he never formulated his difference from a Senior or a John Mill, was a social net product as against a private net product. The latter was the sum of the products of the various industries and individuals; the former, the social product, was the sum of the products of such industries minus any waste they might have caused in the course of production.

…It was the Manchester school of the ‘forties, the Cobdens and the Brights who were the anarchists’ in the economic field, insisting as they did upon the complete freedom of every firm and industry to go where it would. By contrast it was Chadwick who tentatively raised the point that the goal of such individual initiative, its ‘social role’ … was the maximization of net social product; and that in those cases where a private interest blocked such a maximization it might be necessary to step in forcibly to remove it.

This did not lead Chadwick to doubt the Ricardian theories in so far as these stated that, given the free play of interests, the national dividend would be increased. He differed by maintaining that certain private interests might actually block ‘free play’. … [H]e justified his action[s] on [these] grounds: he was not preventing the free play of self-interest but was making it possible. He was ‘enforcing competition’.

Thus Chadwick framed his legislation around the Ricardian concept of man and his institutions, but buttressed the … free trade school by a ruthless levelling of ‘sinister’ interests.

As a lawyer looking at political economy rather than an economist looking at legislation, Chadwick injected into the conception of the laisser-faire state his maxim of the tutelle [guardianship]. He propped up, and organized the regime of free competition, profitability, and individualism by the stringent sanctions of Benthamite administration. Cobden thought that the best way to prevent child labour in the mills was to leave their father free to emigrate; Chadwick simply illegalized such employment.

… His [work] was a ruthless and bureaucratic attempt to keep the ring clear for individual initiative wherever customs or vested interests stood in its way. It meant not merely the removal of obstructive and obsolete laws such as the law of settlement, but a new framework of laws devised to break the connexions between the individual and any institution which prevented him from standing on his own feet, whether it was parish aid or trade union activity, the B.M.A. or monopolist water companies.

Again, it meant not merely the maximum self-help by every institution or individual, but one which must serve the social purpose of amassing more and more capital. … Capital meant productivity; more capital, more productivity; and more productivity, more well-being.

And furthermore, blurring the outlines between the lawyer’s approach and the economist’s approach, Chadwick would look beyond the immediate effects of a law, coming to the problem with a wider analysis than either economist or lawyer could provide. It might, for instance, have been consistent with pure economics that there should be no Poor Laws at all; for Chadwick the pure economics did not count much against the increase of vagrancy and mendicancy that would follow the abolition of Poor Laws. … Thus the two great influences, of Benthamism on the one hand and the orthodox Ricardian economics on the other, merged in Chadwick into a social outlook of great dynamism.

… He believed in progress through the most ruthless exercise of individual initiative, and held that Labour depended upon those whose possession of the means of production could alone guide the social structure along this path. When, finally, such a social philosophy was urged into action by an intelligence of a high order, obstinate, zealous, and humourless, we have a picture of Chadwick at the age of thirty, ripe (too early perhaps) and ready to organize and remake society.

25th November 2025

Systematic corruption in FDA – letter of 2009 to Obama

SOURCE: https://web.archive.org/web/20101124033125/http://gaia-health.com/articles201/000201-letter.pdf

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration Office of Device Evaluation 9200 Corporate Boulevard Rockville, MD 20850

April 2, 2009

The Honorable Barack H. Obama

President of the United States

1600 Pennsylvania Avenue NW

Washington, DC 20500

Dear Mr. President:

The purpose of this letter is to draw your attention to the frustration and outrage that FDA physicians and scientists, public advocacy groups, the press, and the American people, have repeatedly expressed over the misdeeds of FDA officials. Recent press reports revealed extensive evidence of serious wrongdoing by Dr. Andrew von Eschenbach, Dr. Frank M. Torti, top FDA attorneys, Center and Office Directors, and many others in prominent positions of authority at FDA. As a result, Dr. Frank M. Torti, Acting Commissioner and the FDA’s first Chief Scientist, abruptly left the Agency. But, the many other FDA managers who have failed to protect the American public, who have violated laws, rules, and regulations, who have suppressed or altered scientific or technological findings and conclusions, who have abused their power and authority, and who have engaged in illegal retaliation against those who speak out, have not been held accountable and remain in place.

On Monday, March 30, 2009, Dr. Joshua Sharfstein, newly appointed Principal Deputy Commissioner, assumed the position of Acting Commissioner until Dr. Margaret Hamburg is confirmed. Numerous FDA physicians and scientists are certain that Dr. Hamburg and Dr. Sharfstein will bring the necessary change to FDA to guarantee integrity, accountability, and transparency, to ensure that all future decisions are solely based on science and in accordance with the laws, rules, and regulations. However, sweeping measures are needed to end the systemic corruption and wrongdoing that permeates all levels of FDA and has plagued the Agency far too long.

The latest example of wrongdoing was reported on March 23, 2009 from a Federal District Court Judge who ruled that FDA’s decision on the Plan B drug1 was “arbitrary and capricious because they were not the result of reasoned and good faith agency decision-making.” FDA’s top leaders at the Center for Drug Evaluation and Research (CDER) testified that they “didn’t have a choice, and . . . [weren’t] sure that [they] would be allowed to remain [in their positions if they] didn’t agree” to ignore the science and the law. To the contrary, they should be removed from their positions of authority precisely because they didn’t follow the science and the law. The judge further ruled that there was “unrebutted evidence that the FDA’s [decision] stemmed from political pressure rather than permissible health and safety concerns.” The “improper political influence” and the many “departures from its own policies” reveal that such FDA officials are incapable of ensuring integrity and science at FDA.

On October 14, 2008, FDA physicians and scientists wrote to members of the House Energy and Commerce Committee reporting that top FDA officials at the Center for Devices and Radiological Health (CDRH) had distorted the scientific review of medical devices and then retaliated against those who brought this to light.2 Congressman John Dingell (then Chairman) and Congressman Bart Stupak (Chairman, Subcommittee on Oversight and Investigations) wrote to then FDA Commissioner Dr. Andrew C. von Eschenbach (since resigned), stating that there were “well-documented allegations that senior managers within CDRH” had “acted in violation of the law … [and that] sweeping measures may be necessary to address the distortion of science alleged by so many CDRH scientists.”3

On January 7, 2009, FDA physicians and scientists wrote to Mr. John Podesta4: “Through this letter and your action, we hope that future FDA employees will not experience the same frustration and anxiety that we have experienced for more than a year at the hands of FDA managers because we are committed to public integrity and were willing to speak out. Currently, there is an atmosphere at FDA in which the honest employee fears the dishonest employee, and not the other way around. Disturbingly, the atmosphere does not yet exist at FDA where honest employees committed to integrity and the FDA mission can act without fear of reprisal. … America urgently needs change at FDA because FDA is fundamentally broken, failing to fulfill its mission, and because reestablishing a proper and effectively functioning FDA is vital to the physical and economic health of the nation.”5

On January 13, 2009, the NY Times6 reported that FDA officials allowed “improper political influence”7 to guide official FDA actions. The Director of the Office of Device Evaluation, Dr. Donna-Bea Tillman, approved8 a medical device used for the detection of breast cancer despite the fact that all of the FDA experts involved recommended against approval of the device three times. Dr. Tillman’s decision to overrule the FDA experts “followed a phone call from a Connecticut congressman [Christopher Shays].”

On January 26, 2009, FDA physicians and scientists wrote to you directly9 seeking your help and recommending that “you remove and hold accountable all managers who have ordered, participated in, fostered or tolerated the well-documented corruption, wrongdoing and retaliation at the Agency.” That letter was prompted by concerns that FDA officials were planning to investigate physicians and scientists in retaliation for the January 13, 2009 story in the NY Times. These concerns were well-founded.

On March 13, 2009, one week after another episode detailing wrongdoing and improper political influence involving top FDA officials was published in the Wall Street Journal,10 Acting Commissioner Dr. Frank M. Torti and FDA attorneys sprung into action. Their solution— send an FDA-wide email11 admonishing FDA employees that they “must comply with … obligations to keep certain information … confidential … [including] e-mail to and from employees within FDA [that document the] deliberative process” and threatening that “violation … can result in disciplinary sanctions and/or individual criminal liability.”

These threats did not escape the scrutiny of Senator Chuck Grassley,12 Ranking Member of the U.S. Senate Committee on Finance. In a letter to Dr. Torti on March 24, 2009, Senator Grassley wrote: “Your memorandum … appears to run contrary to many statutes protecting executive branch communications with members of Congress. … I am concerned with the timing of your memorandum, given some recent high profile matters concerning your Agency and the release of information that has shown failures in FDA’s regulatory mission. [This] could be viewed … as an effort to chill and/or prevent FDA employees from exercising their rights under whistleblower protection laws. … Whistleblowers are some of the most patriotic people I know—men and women who labor, often anonymously, to let Congress and the American people know when the Government isn’t working so we can fix it.”

The Wall Street Journal13 and FDA documents14 revealed efforts by top FDA officials (including Dr. von Eschenbach, Dr. Torti, Mr. William McConagha, and other FDA attorneys) to cover-up their attempts to improperly influence, obstruct, impede and distort the due and proper administration of the FDA scientific regulatory process involving a knee implant device. According to the Columbia University Journalism Review,15 “the [Wall Street] Journal describes a process in this case that’s, well, corrupt. I don’t know what else you’d call it. It even has a smoking gun.”16 An advisory committee of outside experts, convened to provide advice on the safety and effectiveness of the knee implant, was misled and manipulated by Dr. Daniel Schultz (Director of CDRH) as well as top FDA attorneys. Dr. Schultz was accused of “stacking the committee to get the decision the company wanted,” and of falsely stating in an official document that the conclusions reached by the advisory committee were “clear” and “unanimous”—to the contrary, they were not. A letter17 from Senator Grassley to Dr. Torti dated March 6, 2009 indicated that Dr. Schultz and top FDA attorneys had concealed the fact that two of the authors of a major publication presented to the advisory committee in support of the knee implant device, had affiliations with the device manufacturer (“the first author of the article is [the manufacturer’s] Vice President of Scientific Affairs,” Senator Grassley noted). Dr. Jay Mabrey, Chief of orthopedic surgery at Baylor University Medical Center in Dallas and Chairman of the advisory committee, should be commended for his integrity and willingness to speak out once he became aware of what had transpired. Dr. Larry Kessler, former Director of the Office of Science and Engineering Laboratories at FDA, who had direct knowledge of the advisory committee meeting and process, characterized the process as “show[ing] the FDA at its worst.”

The culture of wrongdoing and cover-up is nothing new but is part of a longstanding pattern of behavior. For example, in July 2005,18 Dr. Daniel Schultz “approved a medical device against the unanimous opinion of his scientific staff,”19 overruling “more than twenty FDA scientists, medical officers and management staff.”20 According to the New York Times21, the decision represented the first time in the agency’s history that a director “approved a device in the face of unanimous opposition from staff scientists and administrators beneath him.” As described in a Senate Finance Committee report following an investigation led by Senator Grassley,22 Dr. Schultz never revealed to the public that the FDA scientists, medical officers, and all other staff involved, completely disagreed with his decision. The report also stated that “what remains the same in FDA’s approval of a device or a drug is the requirement that data supporting a sponsor’s application for approval be scientifically sound. Otherwise health care providers and insurers as well as patients may question the integrity and reliability of the FDA’s assessment of the safety and effectiveness of an approved product.”– We completely agree.

Amazingly, just 3 weeks ago, on March 6, 2009, it was reported by the consumer advocacy organization Public Citizen that Dr. Tillman “approved a [medical] device that has failed to demonstrate any clinical benefit” and that showed “trends toward higher risks of death.”23

According to Public Citizen: The March 6, 2009 approval by Dr. Tillman24 “bears an eerie resemblance to another device, Intergel, an anti-scarring device intended for pelvic surgeries that also demonstrated reduced scarring without clinically validated outcomes. … Less than two years after Intergel was approved [by Dr. Schultz25], the company removed the product from the market26 due to reports of post-operative pain, foreign body reactions and tissue scarring requiring repeat surgery, including three deaths among women who received it. This history should have given the FDA pause before once again approving a similar device with a questionable safety record.”27

But now, things may finally change at FDA and meeting the expectations of the public may become a reality. On March 14, 2009, an FDA-wide e-mail was sent from the Acting Secretary of HHS: “Dr. Margaret “Peggy” Hamburg will be nominated by the President to serve as the next Commissioner and Dr. Joshua “Josh” Sharfstein will serve as the Principal Deputy Commissioner of the FDA. … The FDA is the premier agency of its kind in the world, and President Obama wants to revitalize the agency and empower it to make the best possible decisions for the American people based on the best science available. Dr. Hamburg and Dr. Sharfstein will work hard to support scientific integrity at FDA, strengthening the ability of the agency’s professionals to do their work on behalf of the American people. They are the perfect people to translate the President’s vision for the FDA into reality.”

We share your vision and we urge that you provide all necessary support to enable your new leadership to bring change to FDA without delay as part of your planned healthcare reform. As stated in a recent NY Times editorial, you must “send a clear signal to the bureaucracy that the days of neglect are over. Officials [must] make clear that the … practice of distorting science and weakening regulation to favor industry also is over.”28 – We completely agree.

FDA must carry out its work in a transparent manner based on sound science in order to improve the lives of all Americans, reduce health care costs, and expand health care access. Much work remains to be done at FDA and all pending matters need to be addressed. The wrongdoing revealed in the Wall Street Journal involves top FDA officials and requires immediate investigation. Astoundingly, since May 2008,29 Dr. von Eschenbach, Dr. Torti, Mr. McConagha, and numerous top FDA officials, have been well-aware of other serious wrongdoing, and failed to take any actions, while the physicians and scientists who spoke out and refused to comply have suffered retaliation.

The clearance/approval of medical devices that were not made in accordance with the laws, rules and regulations, need to be re-visited. Furthermore, those FDA employees who have engaged in wrongdoing, who have violated laws, rules, and regulations, who have abused their power and authority, and/or who have engaged in retaliation, should be dealt with swiftly. Immediate and decisive disciplinary action will send a strong message FDA-wide that wrongdoing will no longer be tolerated and those who engage in wrongdoing will be held accountable. Some wrongdoing may be beyond the scope of FDA’s jurisdiction and may need referral to the U.S. Attorney General.

All FDA employees who are committed to public integrity, who follow the laws, rules and regulations, who use science to promote public safety and health, and who have the courage and patriotism to speak out, must be protected and must have their professional lives restored. We ask that you accept nothing less.

Sincerely,

11th November 2025

John Simon’s various “Report of the Medical Officer of the Privy Council”

First report:1858

1859

3rd report: 1860

1861

Fifth report: 1862

1863

Seventh report: 1864

Eighth report: 1865

Ninth report: 1866

1867

11th report: 1868

1869

13th report: 1870 [Also here, Wellcome]

4th November 2025

No evidence if Warren Buffett said this, but I fully agree with these views

Came across this: https://youtu.be/HblpEMZ8YPo?si=6jCnOwqvzafkuYfm

No evidence is provided in the YouTube video that Buffett actually said this, and since AI can not only replicate voices but cook up stories, I am inclined to attribute this to AI.

But the content is entirely consistent with Buffett’s worldview – and in any case, his views on AI are consistent with mine. I wholeheartedly agree that AI is a massive bubble and while the technology is good, its valuation is overdone. (In my 2022 lectures to business students at MBSC Saudi Arabia, I highlighted AI as a major force for change, but that did not mean that current valuations are sensible).

TRANSCRIPT

We’re sitting here in late 2025 and I’m watching the biggest tech companies in America spend $400 billion on AI infrastructure in a single year. That’s not a typo. $400 billion. Microsoft, Amazon, Google, Meta, they’re all in a race to build data centers that could cover Manhattan. They’re buying chips like there’s no tomorrow.

Signing deals worth hundreds of billions with companies that don’t even have revenue yet. And folks, I’m getting that same sinking feeling I had back in 1999. You see, I’m 95 years old now, and I’ve lived through enough market cycles to tell you one simple truth. When everyone’s running in the same direction, you’d better look behind you to see what’s chasing them because more often than not, they’re running toward a cliff. The AI revolution is real.

I won’t deny that. But what’s happening in the markets right now, that’s not investing. That’s speculation dressed up in a three-piece suit. And history has a way of punishing speculation, no matter how smart the people involved think they are. Let me take you back to 1999. I was sitting in my office in Omaha reading about internet companies with no profits, no products, and sometimes no plans, trading at valuations that would make your head spin. Pets.com had a sock puppet and a dream.

Web van was going to revolutionize grocery shopping. The Globe.com, started by two college kids with $15,000 saw its stock jump 606% on the first day of trading. Never mind that they had zero revenue. And you know what everyone said about me? Warren’s lost his touch. He doesn’t understand the new economy. The old man from Omaha is finished.

I remember one particularly painful dinner party where a young venture capitalist, couldn’t have been more than 30, told me I was making the biggest mistake of my career by not investing in internet stocks. He said, and I’ll never forget this. Warren, this time is different. The internet changes everything.

Well, he was half right. The internet did change everything, but it didn’t change the laws of economics. By 2002, the NASDAQ had lost 78% of its value. That young VC, I heard he went back to working at his father’s car dealership. Now, fast forward to today. Nvidia just hit a $5 trillion market cap. $5 trillion for a chip company.

Open AI is valued at $500 billion. That’s half a trillion despite posting only$1 13 billion in projected revenue for 2025. They’ve committed to spending $300 billion with Oracle over five years, which means they’ll need to spend $60 billion a year while bringing in 13 billion. Even my fifth grade arithmetic teacher could tell you that math doesn’t work. But here’s what really concerns me.

The circular financing. Nvidia invests $100 billion in Open AI. Open AI turns around and spends that money buying Nvidia chips. Oracle builds data centers it hasn’t finished yet. For money Open AI hasn’t earned yet. This is exactly, and I mean exactly what we saw in the late 1990s with telecom companies.

Back then, companies like Global Crossing and Level Three Communications were laying fiber optic cable at a breakneck pace. They were lending money to their customers to buy their services. The customers used that money to buy more capacity. Everyone’s stock went up. Everyone felt like a genius. Four years after the bubble burst, 85% to 95% of that fiber was still sitting dark in the ground, completely unused.

Corning, the world’s largest optical fiber producer, watched its stock crash from $100 to $1. I didn’t invest in any of those companies. Not because I’m smart, but because I didn’t understand how they were going to make money. My rule has always been simple. If I can’t understand it, I won’t invest in it.

That’s what I call my circle of competence. And I’ve spent 70 years staying inside that circle. You might ask, “But Warren, didn’t you miss out on the internet boom?” Sure did. Amazon, Google, Microsoft, all of them went on to become giants. And you know what? I’m okay with that because for every Amazon that survived, there were hundreds of pets.coms that didn’t. The cemetery of dead.

com companies is filled with investors who thought they were smarter than everyone else. Here’s the thing about bubbles that most people don’t understand. They’re built on a foundation of truth. The internet was revolutionary. E-commerce did change retail. Cloud computing did transform business.

But the question isn’t whether the technology is real. It’s whether the valuations make sense. In 2000, the NASDAQ reached a price to earnings ratio of 200. Read that again. 200 times earnings. Today, we’re not quite there yet. The S&P 500’s Schiller PE ratio is sitting at about 40, approaching the third highest level in 154 years of market history.

But here’s what worries me. 80% of the market’s gains are concentrated in just a handful of technology stocks. The so-called Magnificent 7, Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla. They account for 75% of S&P 500 returns. That’s not a market. That’s a house of cards.

And the data just keeps getting more concerning. According to recent research, AI related capital expenditures now account for more than half of US GDP growth in the first half of 2025. Let me repeat that AI spending is the primary driver of economic growth in America right now. Not consumer spending, not business investment across multiple sectors, one technology trend.

I’ve seen this level of concentration exactly twice before in my life. Once during the Nifty50 bubble of the early 1970s when 50 blue chip stocks traded at absurd valuations and everyone thought they could never go down. then again in 1999 with tech stocks. Both times ended in tears. The venture capital numbers are even more alarming.

Nearly 64% of all US venture capital in the first half of 2025 went to AI companies. For comparison, internet deals only comprised about 25% of VC investment at the peak of the dot boom. We have more than 1,300 AI startups with valuations over $100 million and 498 AI quote unicorns worth more than a billion dollars each. Most of these companies aren’t profitable.

In fact, 70% of funded AI startups are still losing money, but their valuations keep climbing because everyone’s afraid of missing out. You know what we call that in Omaha? Gambling. Charlie Mer, God rest his soul, used to tell me, Warren, it’s waiting that helps you as an investor. And a lot of people just can’t stand to wait. Charlie understood something that most people on Wall Street never learn.

Making money in the stock market is about patience, not activity. Right now, I look at companies spending 22% to 30% of their revenue on capital expenditures, money they’re investing in AI infrastructure. That’s three times what utility companies spend. And utilities actually have predictable cash flows.

Meta’s planning a data center that would require over 2 gawatt of power. That’s enough electricity to power a small city just to house 1.3 million Nvidia GPUs. And I have to ask for what? to train AI models that might be obsolete in two years to compete in a race where everyone’s spending billions to maybe possibly hopefully generate returns sometime in the distant future.

This isn’t investing. This is speculation on steroids. The uncomfortable truth that nobody wants to hear is this. For all this spending to pay off, AI companies need to generate $2 trillion in annual revenue by 2030. Right now, they’re bringing in about $20 billion. That’s a 100fold increase in five years.

Not a 100% increase, a 100fold increase. I’ve been in this business since 1951. I’ve never, and I mean never, seen an industry scale that fast while maintaining profitability. It defies the laws of business gravity. Let me tell you something about numbers. They’re stubborn things. You can dress them up, put lipstick on them, call them adjusted IBIDA or AI adjusted revenue, but at the end of the day, a business either makes money or it doesn’t.

And right now, the numbers in AI don’t add up. Microsoft, Amazon, Google, and Meta are projected to spend a combined $364 billion in their 2025 fiscal years. These aren’t startup companies gambling with venture capital. These are the largest, most profitable corporations in the history of capitalism, and they’re spending money like drunken sailors on shore leave.

Microsoft just raised its capital expenditure guidance to over $120 billion for 2025. Amazon spending $100 billion. Google bumped its forecast from 75 billion to $85 billion. Meta’s at 70 to72 billion and announced they expect quote similarly significant capex dollar growth in 2026. Now, I want you to understand what these numbers mean in real terms.

Microsoft’s $120 billion in capital spending is seven times what they spent just 5 years ago. Seven times. That’s not growth. That’s a complete transformation of their business model. And they’re betting the farm that it works. But here’s where it gets interesting. Despite all this spending, AI related revenue remains a tiny fraction of their total business.

Microsoft reported that their AI services had reached a $13 billion annual run rate. That sounds impressive until you realize they’re spending $120 billion to generate $13 billion in revenue. That’s like spending $9 to make $1. But Warren, you might say this is about the future. They’re investing for long-term gains.

And you’re right, it is about the future. But there’s investing for the future and then there’s speculation. The difference is simple. Can you reasonably predict the return on that investment? In the dotcom era, companies like Global Crossing spent $15 billion building a worldwide fiber optic network. The logic was impeccable.

Internet traffic was doubling every 100 days, so we’d need massive capacity. Except they overbuilt by 99%. When the music stopped, $15 billion in investment was worth pennies on the dollar. Today’s AI infrastructure buildout is happening even faster and at an even larger scale. The parallel isn’t just similar, it’s practically identical.

And here’s something that should terrify anyone who understands market history. This spending is being funded increasingly by debt. Meta just arranged $27 billion in offbalance sheet financing. These companies are taking on leverage.

At the same time, they’re making massive uncertain bets on technology that might not pay off for years, if ever. I’ve lived through enough credit cycles to know that debt magnifies everything, both gains and losses. When things are going well, debt makes you rich faster. But when things turn, debt is what kills you.

Remember in my early days I made the mistake of buying Berkshire Hathaway itself because I was angry at management. It was a cigar butt stock cheap enough that I thought I could get one more puff out of it. That investment which I made out of emotion rather than reason probably cost me $200 billion in opportunity cost over the years. It’s the worst investment decision I ever made.

And I’ve spent decades trying to explain to people why buying a struggling textile company was such a monumental error. The lesson, even smart people make dumb decisions when they let emotion override analysis. And right now, the emotion in AI investing is fear. Fear of missing out. Fear of being left behind.

fear that if you don’t invest billions immediately, your company will become irrelevant. That’s not a recipe for good capital allocation. That’s panic dressed up as strategy. Let me give you some more uncomfortable numbers. Open AI, the poster child of the AI revolution, is on track to lose several billion dollars this year despite Chat GPT’s popularity. Despite partnerships with Microsoft, despite a $500 billion valuation, they’re hemorrhaging cash.

Their costs are so high that they need to continually raise prices while simultaneously trying to reduce the computational expense of their models. And they’re not alone. The entire AI startup ecosystem is built on the assumption that eventually someday these models will become profitable. But here’s what history teaches us. Eventually, often never comes.

In the dotcom era, we had something called the burn rate. How fast a company was spending its cash reserves. Analysts would calculate how many months of runway a startup had before it ran out of money. Today, we’re seeing the same thing with AI companies. The difference is that now they have deeper pockets backing them.

So, the burn can continue longer, but the fundamental problem hasn’t changed. Spending more than you make is not a sustainable business model. Ray Dallio recently said that he sees bubble conditions forming, but that bubbles don’t pop until monetary policy tightens. He’s right about that. The Federal Reserve’s interest rate policy has been accommodated, making capital cheap and easy to access.

But what happens when, not if, but when interest rates need to rise again? Or when the economy slows and investors start demanding profits instead of promises? That’s when we’ll see who’s swimming naked, as I like to say. And right now, I suspect there are a lot of naked swimmers in the AI pool. Here’s another parallel that keeps me up at night. Market concentration.

At the peak of the dot bubble, the top 10 stocks made up about 27% of the S&P 500’s total weight. Today, the top 10 stocks represent 39% of the index. That’s not just concentration, that’s dangerous concentration. If, or more likely, when these stocks correct, they won’t just drag down the technology sector, they’ll take the entire market with them.

Your 401k, your pension fund, your index funds, they’re all loaded up with these same companies. The average investor thinks they’re diversified because they own an S&P 500 index fund, but they’re really making a massive bet on 10 companies, most of which are spending unsustainable amounts on AI infrastructure. And here’s the thing that really bothers me.

We know how the story ends because we’ve seen it before. After the dotcom crash, it took the NASDAQ 15 years, 15 years to get back to its March 2000 peak. An entire generation of investors learned the hard way. The trees don’t grow to the sky. But the most concerning aspect isn’t the spending, it’s the revenue gap.

According to recent research, big tech has invested about $560 billion in AI infrastructure over the past two years. The combined AI related revenue from Microsoft, Meta, Tesla, Amazon, and Google, about $35 billion. That’s a 16:1 ratio spending to revenue. Now, I’m not a math genius, but I know that you can’t spend $16 to make $1 and call it a good business.

Some of this spending will pay off eventually, sure, but all of it, not a chance. MIT recently did a study that found 95% of AI pilot projects fail to yield meaningful results. 95%. That’s despite more than $40 billion in generative AI investment. The gap between the hype and the reality is wider than the Grand Canyon. What really concerns me is the psychology behind all this spending.

It’s not based on careful analysis of returns. It’s based on fear. Fear that if you don’t invest now, you’ll be left behind. That’s the same psychology that drove the.com bubble, the housing bubble, and every other bubble in history. In my 2000 shareholder letter, I wrote about how investors were like Cinderella at the ball.

They knew that staying too long would turn everything to pumpkins and mice, but they hated to miss a single minute of the party. Today, we’re seeing the exact same behavior, just with artificial intelligence instead of the internet. The party’s in full swing right now.

The music’s playing, the champagne’s flowing, and everyone’s having a great time, but I’ve been to enough parties to know that they all end the same way with someone stuck with the cleanup bill. You know, people often ask me what the secret to successful investing is. They expect some complicated formula, some sophisticated algorithm. But the answer is simpler than they think. Don’t lose money.

That’s rule number one. Rule number two is don’t forget rule number one. It sounds simplistic, but think about what it really means. If you lose 50% of your money, you need a 100% gain just to get back to even. That’s not a game you want to play. And right now with AI valuations where they are, I see a lot of people playing that exact game. Let me tell you about a study I came across recently.

A researcher named Kai Woo examined major capital expenditure cycles throughout history. Railroads in the 1860s, automobiles in the 1900s, radio in the 1900s and 1920s, the internet in the 1990s. You know what he found? In every single case, the companies that aggressively grew their balance sheets through massive capital spending underperformed conservative peers by an average of 8.4% annually.

Let me say that again. The aggressive spenders lost to the conservative companies by 8.4% per year over a decade. That difference compounds to a massive underperformance. The patient investor beats the aggressive spender almost every single time. Why does this happen? It’s not complicated.

When companies race to build capacity, whether it’s railroad tracks, fiber optic cables, or AI data centers, they create massive overcapacity. Supply exceeds demand. Prices fall, returns evaporate, and investors are left holding the bag. Right now, we’re seeing the exact same pattern. Companies are building AI infrastructure at an unprecedented pace, all betting that demand will be there to justify the investment.

But what if it’s not? What if AI adoption is slower than everyone thinks? What if newer, more efficient technologies make current investments obsolete? I learned a valuable lesson from my mentor, Ben Graham. He taught me about the margin of safety, the idea that you should only invest when the price is significantly below the intrinsic value, giving you a cushion against mistakes or bad luck.

Today’s AI valuations have no margin of safety. They assume everything goes right. Perfect execution, continued technological progress, unlimited demand, no competition, no disruption. In my 70 years of investing, I’ve learned that everything rarely goes right. Usually something goes wrong. Sometimes everything goes wrong. That’s why you need a margin of safety.

Let me give you a concrete example of what I’m talking about. Cisco Systems was the darling of the.com era, the picks and shovels of the internet revolution. At its peak in March 2000, Cisco had a market cap of $555 billion, making it briefly the most valuable company in the world.

The stock traded at a price to sales ratio of 35 and a PE ratio above 200. Everyone said Cisco was different. It had real revenue, real profits, real products. It wasn’t some pie in the sky startup. And they were right. Cisco was different. It survived the crash. But the stock, it fell 86% from its peak. Even today, 25 years later, Cisco trades below its 2000 high. Think about that.

If you bought Cisco at the top of the market thinking you were investing in a solid, profitable technology leader, you’d still be underwater a quarter century later. That’s not even accounting for inflation. Now look at Nvidia. It’s trading at a $5 trillion market cap. Is Nvidia a good company? Absolutely. Is it revolutionizing computing? Yes.

Does it have real revenue and real profits? Yes to both. But is it worth $5 trillion? That’s where I have my doubts. For that valuation to make sense, everything has to go perfectly. AI demand has to continue growing exponentially. No competitive threats can emerge.

The company has to maintain its pricing power. Technological changes can’t obsolete current chip designs. The global economy has to remain strong. That’s a lot of things that all have to go right. And in my experience, when you need everything to go right, something usually goes wrong. Charlie Mer used to tell me, “All I want to know is where I’m going to die, so I’ll never go there.

” He was talking about avoiding obvious mistakes. And the most obvious mistake in investing is paying too much for an asset, no matter how good that asset is. I could buy the best house in America, but if I pay 10 times what it’s worth, it’s a bad investment. The same principle applies to stocks. Price matters. Valuation matters.

The enthusiasm of the crowd doesn’t change the fundamental mathematics of value. Right now, the crowd is very enthusiastic about AI. And I understand why. AI is impressive. It will change the world. But so did the internet. And that didn’t prevent the dot crash from wiping out trillions in wealth. Here’s something most people don’t realize.

Even if you’re right about the technology, you can still lose money if you pay too much. I was wrong about the internet’s impact. It changed the world more than even the optimist predicted. But if you bought the NASDAQ at its peak, you lost money for 15 years. Even though the internet transformed society, being right about the future and making money in the stock market are two different things. The difference is the price you pay.

Let me tell you about another historical parallel that’s been on my mind. In the 1920s, there was enormous enthusiasm about radio. It was revolutionary technology. For the first time, you could transmit information through the air. Radio stocks soared. Everyone wanted in.

RCA, the dominant radio company, saw its stock rise from $85 in 1928 to a peak of $549 in 1929. Then came the crash. By 1932, RCA had fallen to $18. It took 27 years, 27 years for RCA to get back to its 1929 high. Radio did change the world. The technology was revolutionary. The early investors were right about the impact, but they paid prices that couldn’t be justified by any reasonable projection of earnings.

And they paid for that mistake with decades of underperformance. Today, I see the same pattern. Investors are paying extraordinary prices because they believe AI will change everything. They’re probably right that AI will change everything, but that doesn’t mean current prices make sense. One of the most valuable lessons I’ve learned is that the stock market is a voting machine in the short term, but a weighing machine in the long term.

Right now, the vote is strongly in favor of AI stocks. But eventually the market will weigh these companies, measure their actual earnings, their return on capital, their competitive position. And when that weighing happens, I suspect many current valuations will be found wanting. The other thing that worries me is the gain theory problem these companies face.

If Microsoft stops spending on AI, they risk falling behind Google. If Google slows down, they risk losing to Amazon. So, everyone keeps spending even though collectively they’re probably overbuilding capacity. It’s a prisoner’s dilemma and nobody wants to be the first to blink. But someone always blinks eventually.

Maybe it’s an economic slowdown that forces capital discipline. Maybe it’s a new technology that makes current investments obsolete. Maybe it’s simply investors demanding profitability instead of growth at any cost. Whatever triggers it, the dynamics will change. And when they do, the stocks that have been bid up to unsustainable levels will come back down to earth.

It happened with railroads, radio, electronics, biotechnology, the internet, and it will happen with AI. I don’t know when. Nobody does. Anyone who tells you they can time the market is lying to you or to themselves. But I know it will happen because it always happens. Bubbles always pop. Gravity always wins.

The question isn’t whether there will be a correction. The question is whether you’ll be positioned to survive it and perhaps even benefit from it. So where does that leave us? Look, I’m not saying AI is worthless. I’m not saying these companies won’t succeed. What I’m saying is the current valuations embed expectations that are almost impossible to meet.

And when you pay prices that require perfection, you’re setting yourself up for disappointment. My approach hasn’t changed in 70 years, and it won’t change now. I invest in businesses I understand at prices that make sense with a margin of safety. Right now, AI stocks meet exactly none of those criteria for me. Can I prove I’m right? Number. Maybe this time really is different.

Maybe AI will grow fast enough to justify current valuations. Maybe every one of these massive capital expenditures will generate appropriate returns. It’s possible. But I’m 95 years old and I’ve heard this time is different more times than I can count. And every single time, every single time, it wasn’t different.

The fundamental laws of economics and human nature don’t change just because the technology does. Here’s what I know with absolute certainty. If you lose 50% of your money, you need a 100% return to break even. That’s mathematics, not opinion. So, my first goal is always capital preservation.

Right now, the safest thing Bergkshire can do is what we’re doing, sitting on over $300 billion in cash and short-term securities. People criticize me for not putting that money to work. They say I’m missing opportunities. Maybe I am, but I sleep well at night knowing that when this market corrects, and it will correct, Berkshire will have the capital to take advantage of the opportunities that emerge. We’ll be able to buy wonderful companies at fair prices.

when others are forced to sell. That’s not exciting. It won’t get me on CNBC, but it’s what has worked for me for seven decades, and I see no reason to change now. The AI revolution is real. The bubble is also real. Both things can be true at the same time. Your job as an investor is not to predict which AI company will win.

Your job is to protect your capital and position yourself to profit regardless of what happens. And right now, the best way to do that is to be patient, be selective, and be willing to sit on cash when you can’t find investments that meet your criteria. As I’ve said before, the stock market is designed to transfer money from the active to the patient. Right now, there’s a lot of activity.

There’s not much patience. I know which side of that equation I want to be on. The AI bubble will burst. I don’t know when and I don’t know what will trigger it, but I know it will happen because every bubble in history has burst. And when it does, you’ll be glad you listened to an old man from Omaha who’s seen this movie before. Stay safe out there.

Look, I’ll end with this. 25 years ago, people called me a dinosaur for not investing in internet stocks. They said I didn’t understand the new economy. They said I was too old, too conservative, too stuck in the past. Then the market crashed and Bergkshire stock price doubled while the NASDAQ lost 78% of its value.

Suddenly, I wasn’t a dinosaur anymore. I was a genius. But I didn’t change. The market did. The same thing is about to happen with AI right now. I’m the old man who doesn’t understand artificial intelligence. The skeptic who’s missing the biggest opportunity of the century. The cautious investor who’s being left behind. That’s fine.

I’ve been called worse. But in a few years, maybe sooner, maybe later, we’ll look back at 2025 the same way we look back at 1999. We’ll shake our heads and wonder how people paid such crazy prices. will marvel at the speculation, the circular financing, the irrational exuberance, and the investors who preserve their capital, who stayed patient, who refused to get caught up in the mania, they’ll be the ones positioned to profit from the opportunities that emerge from the wreckage.

That’s where I plan to be. I hope you’ll join me there. Thank you and God bless.