(Author's note: Pornography and avuncular billionaire investors don't usually seem to have much in common. Just the same, in this post we explain why we think Warren Buffet's 1992 dissection of a complicated business topic has much to teach about how to cut through the noise of today's debates over porn addiction. Happy reading!)
Fans of good writing and clear thinking treasure Warren Buffett’s annual letter to shareholders of his holding company, Berkshire Hathaway. Combining folksy wisdom with razor-sharp analysis, Buffett’s letters deliver a master class in distilling sense from an often chaotic and contradictory modern (business) culture. We count ourselves among Buffett’s devotees.
Twenty five years ago, the “Sage of Omaha” dedicated a significant portion of his annual missive to the not-so-exciting-sounding subject of stock option accounting. The issue back then (and possibly still today - we’re not experts), was whether to account for options as an expense to the company that granted them. Buffett lamented that somehow business leaders had convinced their accountants that options shouldn't be treated as an expense item by arguing that options values could be difficult to quantify. It didn’t hurt that by excluding options from expense, companies could compensate those same executives richly without affecting the bottom line by even a penny.
Buffett thought all of this was hogwash. He called the effort to label options as something other than an expense “[t]he most egregious case of let’s-not-face-up-to-reality behavior” in the business world. Just because options didn’t represent “dollars out of a company’s coffers,” they were still items of value the company used to pay for services. No doubt with his trademark impish grin, Buffett offered to sell insurance from Berkshire (then its core business) to any executive who subscribed to this “no cash no cost” theory, and to accept payment in long term stock options in the executive’s company.
Buffett also pressed a trenchant point about the complexities of modern (business) life. “[I]t is both silly and cynical”, he wrote, “to say that an important item of cost should not be recognized simply because it can't be quantified with pinpoint precision.” Buffet's point was that just because imprecision and variability abound in the modern world doesn’t mean reasonable people can’t make reasonable judgments. Their estimates might be off at the margins, conceded Buffett, but no more so than as with other routine estimates of value, such as fixing the cost of a depreciating asset.
Buffett made his closing argument on the topic of option accounting in two remarkable paragraphs. We quote them here in full because, well, they're just great:
"It seems to me that the realities of stock options can be summarized quite simply: If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where in the world should they go?
The accounting profession and the SEC should be shamed by the fact that they have long let themselves be muscled by business executives on the option-accounting issue. Additionally, the lobbying that executives engage in may have an unfortunate by-product: In my opinion, the business elite risks losing its credibility on issues of significance to society - about which it may have much of value to say - when it advocates the incredible on issues of significance to itself."
Ok. Ok. Now that you’ve indulged our rhapsodizing on Warren Buffett’s wisdom, we’ll explain why we think this matters. As observers of the pornography and porn-related treatment landscape, we’re frequently amazed at how often commentators use the complexity of the topic to elide some basic realities about porn. How many times have we read critiques that conclude that we can’t yet categorize porn as a vector for addiction because it's hard to define precisely what constitutes porn, or because porn affects different people in different ways, or because porn occupies an culturally controversial position at the confluence of empiricism and moral suasion? Some pundits argue that we can’t treat porn as potentially addictive because then that would mean that anything pleasurable - like looking at pictures of cute bunny rabbits - could also be addictive. Others insist that since withdrawing from porn can’t kill you, it can’t be addictive.
And yet, isn't that all a version of the hogwash Buffett so ably exposed in 1992? Let's cut through the noise, Buffett-style. Reasonable people can agree, more or less, what constitutes media created and intended to be pornography. The vast majority of people who consume that porn do so to get sexually aroused. Porn producers design their product to serve that purpose. The most successful porn induces the most consistent and intense sexual arousal. Sexual arousal is a powerful, primordial, frequently overwhelming state of excitement and pleasure.
In short, to borrow from Warren Buffett, if modern (internet) porn isn’t a highly potent stimulant, then what is it? If highly potent stimulants aren’t vectors of addiction, then what are? If porn can’t be counted among the highly potent stimulants around which addictions arise, then where can it be categorized?
We revere Buffett’s observations about options accounting because they model clear thinking in an age of “silly and cynical” grandstanding. Obfuscation and opportunism cloud the porn debate today as much as they did the stock options controversy in 1992. Now, as then, we need more people to step up and point out the obvious: that modern (internet) porn is a product offered for consumption, that porn is expressly designed to pack a stimulative wallop that keeps consumers coming back for more, and that, because of these traits, addictive behaviors grow around consuming porn. Commenters who ignore these basic realities “risk losing [their] credibility” by “advocat[ing] the incredible on issues of significance” not just to themselves, but to every man, woman and child on the planet.