A Few Words from Ray Dalio

For this morning’s mental exercise, I offer a few words from Ray Dalio. As you know, Dalio is a hedge fund tycoon, the founder of Bridgewater Associates.

In a long essay recently posted on Linked In, he explains his theory about stable and unstable societies. You will not have too much trouble ascertaining that we are moving from stability to instability. And this essay should cure you of the hope that we are going to bounce back any time soon.

Dalio offers an analysis of two kinds of societies. The one fosters competition. The other pretends to care-- for the sick, the indigent, the poor-- and prefers to redistribute wealth.

Societies that foster healthy competition engage in productive activities. They promote industry and building. They produce wealth and distribute it according to merit, according to what people earn fairly.

Other societies are involved in a downward decadence spiral. They redistribute wealth according to need-- to each according to his needs, Marx said-- until there isn’t any wealth left to distribute. In place of merit they value suffering.

Eventually, the wealth will run out. Then, the society devolves into a conflict over diminishing resources. The fewer resources the more bitter the struggle over having them. People do not earn. They exert political power in order to confiscate what others have earned. They want to be at the front of the handout line. People who are incapable of building anything destroy what others have built.

In the latter case government does not facilitate enterprise. It becomes a secular church, dedicated to charitable giving.

In Dalio’s words:

I saw that when these struggles took the form of healthy competition that encouraged human energy to be put into productive activities, they produced productive internal orders and prosperous times and when those energies took the form of destructive internal fighting, they produced internal disorder and painfully difficult times. I saw why the swings between productive order and destructive disorder typically evolved in cycles driven by logical cause/effect relationships and how they happen in all countries for mostly the same reasons. I saw that those who rose to achieve greatness did so because of a confluence of key forces coming together to produce that greatness and those who declined did so because these forces dissipated.  

Healthy societies promote promote people on the basis of merit, not privilege. One understands that the United States, in many ways, used to promote on the basis of merit. That means allowing everyone to take the same test, and letting the test scores determine advancement. This is the system that New York City has traditionally used to determine who gets admitted to the best public high schools. It has been used in China for centuries now.

In today's war against merit, administrators want to phase it out-- because Asian students do too well and because minority children do too poorly.

One understands that mentally twisted leaders in our society have mislabeled merit-based advancement a form of privilege-- white privilege, as it were. Of course, those who today are profiting from what is called white privilege are invariably Asian, but the social justice warriors who are railing against privilege are not smart enough to make elementary distinctions.

In the most functional societies people are judged by merit, not by privilege. We must underscore that merit does not coincide with credentials. In today’s America, where diversity rules, credentials are not granted on the basis of merit. The sole exceptions seem to be in STEM subjects, though, even there, the movement in society is to judge people in those fields by criteria that do not involve merit.

Merit involves fair competition, not competition where the results need to look like America. When diversity puts a thumb on the scale, fairness is compromised.

One timeless and universal truth that I saw went back as far as I studied history, since before Confucius around 500 BC, is that those societies that draw on the widest range of people and give them responsibilities based on their merits rather than privileges are the most sustainably successful because they find the best talent to do their jobs well, they have diversity of perspectives, and they are perceived as the most fair, which fosters social stability.

In Dalio’s opinion, we have gone too far down the road to socialism. We have cancel cultures that attempt to control the American mind. We have central planning by the Federal Reserve bank. And we have manipulated markets in order to allocate capital for political means-- in order to buy votes.

We doubt that the pervasive cancel cultures that permeates US society today, or the ubiquitous central planning by the Federal Reserve coupled with manipulated central markets to promote a socialist agenda and to allocated capital and talent as the government sees fit, in the process bypassing capitalism, will allow US society to every again claim to be fair or merit-based.