Hedge fund billionaire Ray Dalio became a capitalist by definition at
the age of 12 (when he started putting money earned from odd jobs into
the stock market) and has since been a firm believer in capitalism. The
system evidently served him well—over the course of 50 years, he went
from being a middle-class boy living in Queens, New York to heading the
world’s largest hedge fund firm with an enviable personal net worth of
$18 billion.
But in recent years, the 69-year-old investing guru
has increasingly felt that his success story is irreplicable for the
young people of today. And the reason, he figured, lies in the
current system of capitalism itself.
Instead of creating a society promoting equal opportunity and
economic mobility, capitalism in America today “is producing
self-reinforcing spirals up for the haves and down for the have-nots,”
Dalio recently wrote in
a lengthy essay.
The
commentary, shared on Dalio’s LinkedIn page on Thursday, was part one
of a bigger discussion about why he believes that capitalism needs to be
reformed in order to live on and how it should be done.
To most
readers who regularly follow economic news, it’s probably no surprise
that the wealth gap in the U.S. is widening between the country’s
richest and its poorest. However, in his essay, Dalio underscored a less
headline-grabbing, but more important fact, about our economy—that
widening wealth gap does not only concern people on the two extremes of
the income spectrum, but actually affects everyone in the middle as
well.
To illustrate this point, Dalio laid out a series of charts derived
from studying America’s richest top 40 percent and the remaining (or the
bottom) 60 percent. The finding was astonishing: Since 1980, real
income hasn’t grown at all for the bottom 60 percent, while income for
the top 40 percent has doubled—and tripled for the top one percent.
As
a result, “the income gap is about as high as ever and the wealth gap
is the highest since the late 1930s,” Dalio wrote. “Those in the top 40
percent now have on average more than 10 times as much wealth as those
in the bottom 60 percent. That is up from six times in 1980.”
He
argued that this increasing economic inequality is limiting the
resources for children from poor families to get good educations, which
hampers their opportunities to get well-paying jobs, which prevents
their children from getting a good education again—hence a negative
cycle of reinforcement for the poor to be stuck in poverty perpetually.
And
if the economic trend continues, there could be serious dangers to
social stability and even risks of a total collapse of the government,
Dalio warned.
“I believe that, as a principle, if there is a very
big gap in the economic conditions of people who share a budget and
there is an economic downturn, there is a high risk of bad conflict,” he
explained. “Disparity in wealth, especially when accompanied by
disparity in values, leads to increasing conflict and, in the
government, that manifests itself in the form of populism of the left
and populism of the right and often in revolutions of one sort or
another.”
That is not to say that socialism will be a possible
solution, Dalio clarified, for its inherent lack of an incentive system.
“I think that most capitalists don’t know how to divide the economic
pie well and most socialists don’t know how to grow it well.”
So what’s the fix? We’ll have to wait for part two of the discussion. You can follow the updates
here.
Filed Under:
Business,
Economy,
recession,
INCOME INEQUALITY,
Ray Dalio,
US economy
Note EU-Digest: In the context of the above report, Trumps recent partisan picks of Herman Cain and Stephen Moore, to become members
of the Federal Reserve Board is not only dangerous to the integrity of the Federal Reserve Board, but also the American economy.
Read more at: Ray Dalio Warns of Dire Consequences From America’s Failing Capitalism | Observer
