Illustrat
‘If you worry, you don’t have to worry’ |
Ray
Dalio made his name by predicting the financial crisis of 2008. He has
built the world’s largest hedge fund, Bridgewater Associates, with some
$223 billion under management. He has also become something of a public
intellectual and life coach, advocating a particular style of management
he describes as “radical transparency.” |
In two weeks, his third book in five years, “The Changing World Order,”
will be published. It is an attempt to better understand the current
economic environment and the challenges that it presents by delving into
centuries of economic ups and downs. |
The
book is a provocative read for those of us questioning where in the arc
of history the American Empire resides and what may happen to the
economy next. There are few tomes that coherently map such broad
economic histories as well as Mr. Dalio’s. Perhaps more unusually, Mr.
Dalio has managed to identify metrics from that history that can be
applied to understand today. He examined four empires: the Dutch,
British, American and Chinese. |
He writes that each followed almost the exact same path: |
“Rising
education leads to increased innovation and technology, which leads to
an increased share of world trade and military strength, stronger
economic output, the building of the world’s leading financial center,
and, with a lag, the establishment of the currency as a reserve
currency. And you can see how for an extended period most of these
factors stayed strong together and then declined in a similar order. The
common reserve currency, just like the world’s common language, tends
to stick around after an empire has begun its decline because the habit
of usage lasts longer than the strengths that made it so commonly used.” |
Today,
Mr. Dalio is most concerned about the end of the American Empire and
the beginning of another Chinese Empire, a transition he believes could
lead to war. He writes that Americans misunderstand the Chinese and
their own place in history.: |
“300
years seems like a very long time ago to Americans, but for the
Chinese, it isn’t long at all. While the prospect of a revolution or a
war that will overturn the US system is unimaginable to most Americans,
both seem inevitable to the Chinese because they have seen those things
happen again and again and have studied the patterns that inevitably
precede them. While most Americans focus on particular events,
especially those that are happening now, most Chinese leaders view
current events in the context of larger, more evolutionary patterns.” |
He believes any attempt by the United States to control or change China will only backfire: |
“Given
China’s impressive track record and how deeply imbued the culture
behind it is, there is no more chance of the Chinese giving up their
values and their system than there is of Americans giving up theirs.
Trying to force the Chinese and their systems to be more American would,
to them, mean subjugation of their most fundamental beliefs, which they
would fight to the death to protect. To have peaceful coexistence
Americans must understand that the Chinese believe that their values and
their approaches to living out these values are best, as much as
Americans believe their American values and their ways of living them
out are best.” |
Ultimately
he concludes that “If the US continues to decline and China continues
to rise, what matters most is whether or not each can do so gracefully.” |
I
spoke to Mr. Dalio by video call, and he acknowledged that before doing
the research, he “really didn’t have much of an understanding of the
connection with internal conflicts, external conflicts, the cost of war —
financial and nonfinancial — and the impact of nature.” |
He
was particularly shocked by the role of natural disasters on economies.
“Nature, meaning climate, it was surprising to me — that it caused more
revolutions and more deaths and wars and depressions,” he said. |
Mr.
Dalio said he’s not a pessimist. “I’m not trying to be fatalistic,” he
said. “I am trying to give that arc. I’m trying to get measurements that
are objective.” |
When
asked to name a comparable period in history that ended well, Mr. Dalio
pointed to the late 1960s, during the Vietnam War and the War on
Poverty, when the value of the dollar was decreasing and inflation was
increasing rapidly. “We got through that with adjustments,” he said,
“though we didn’t have an external power that was as strong as China.” |
Another
point of optimism, he said, is that “the worst case doesn’t affect most
people as badly as it sounds when you read it.” He cited the Great
Depression as an example. “Most people remained employed, and going
through the wars, most people remained alive.” |
Still,
he is not convinced that central bankers can solve current challenges
such as supply chain shortages and inflation, which is one of the
reasons that he has become intrigued by cryptocurrencies, especially
Bitcoin. |
He
said one of the superpowers of the central bank is that most people
don’t understand the relationship between monetary policy and the value
of their money. |
“It’ll
be hidden,” he said. “People will look at how much they’re worth in
nominal dollars, not in inflation-adjusted dollars. So they’ll say, ‘I’m
safe,’ as they will lose 4, 5, 7 percent per year.” |
Mr.
Dalio is convinced that if people better understood this and understood
the various cycles of economies, their outcomes would be better and
crises would be easier to avert. |
“I have a principle: If you worry, you don’t have to worry. And if you don’t worry, you have to worry.” |
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