By Ray Dalio
With racial prejudice, protests and riots arising from the murder of George Floyd, and attempts to maintain law and order grabbing headlines, I was asked, and feel a compelling need, to share my thoughts about what’s going on. So I will do that. However, at this time there are too many thoughts running through my mind for me to express adequately, so I beg your indulgence as I share them with you in a stream of consciousness way.
Re: Racial Prejudice, Protests, Riots, and Attempts to Maintain Law and Order
As for the issues of racial prejudices, protests, riots, and attempts to maintain law and order, while I can empathize, I haven’t walked in the shoes of those who are most deeply affected by what’s going on—e.g., I can’t know and feel what it’s like to be Black in America today, to be a policeman on the front lines, to be a leader determining what should be done to deal with this situation, etc., so I encourage you to seek out those who have those perspectives. All I can tell you is what I think from the perspective I have.
To me, the big questions are: 1) does our system provide justice and respect to all people, and 2) do we live in a country that treats all people fairly and protects their basic rights? I think that the honest answer is no, and that it doesn’t seem to be trying very hard to solve the problem. Let’s look at the history and the circumstances at hand to see whether that is right.
To me this confluence of events—i.e., racial prejudice, protests, riots, and attempts to maintain law and order—is “another one of those” in that it has come and gone many times so we can see what these are typically like. I am old enough to remember vividly the ‘65 race riots in Watts, those in Newark in 1967, those all around the country in 1968 when Dr. King was shot, those in Los Angeles in 1992 due to Rodney King’s beaters being acquitted, and those in Baltimore in 2015 when Freddie Gray sustained fatal neck injuries while in a police vehicle. So, this is an issue that flares up, passes, and then slips from national focus without resolution. Typically lots of important people make politically correct statements expressing outrage and expressing sympathy and, when the moment passes, go back to their usual ways. You are hearing a lot of these statements now. One might ask “where were all these passionately concerned people a week ago and where will they be a month from now?” Will this moment be sustained to produce real change? Probably not. History suggests to me that the problem only gets attention when it’s raised in this terrible way and then it gets neglected.
I believe the racism problem is intertwined with the cycle of the poverty problem in which poverty, crime, and inadequate education leads to systemic disadvantages including children becoming jobless adults that face few opportunities, feelings of uselessness, and prejudice, which combine to create conflicts with police and costly crime and incarceration rates in a justice system that fails to provide equal justice for all. This situation has been chronic and is also worsening. I think we should ask ourselves how it is possible that a civilized or intelligent society allows such chronically terrible, unfair, and uneconomic conditions to happen so extensively? Do we expect this not to spread to become a broader societal problem?
Consider for example that in Connecticut, one of the richest states in the country and where Bridgewater is headquartered, 22 percent of high school students are disengaged (i.e., have an absentee rate of greater than 25 percent and are failing classes) or disconnected (i.e., they dropped out of school so the schools don’t know where they are). This leads to crime and incarceration costs that add up to nearly a billion dollars a year and are growing. Consider that in this rich state there are 60,000 poor students without computers and connectivity who wouldn’t have these tools to get an education during school closures because the state couldn’t have afforded to pay for them. In Connecticut and in many places like Connecticut these problems are more likely to grow than subside, especially during economically depressed times. They are there every day of the week to see yet they remain unresolved and not widely complained about outside of the communities impacted by them. What are those who are now making those noble sounding public statements doing about these things? What is our government doing about these things? Will anyone do anything about those things—and if so, when? If not, what are the likely consequences? Should people who aren’t getting needed help be expected to continue to quietly and politely live with the status quo—or would they be better off to scream louder?
This Conflict—and Others—Will Intensify
Conflict over racial prejudice is only one of many forms of conflict that the current economic circumstances will intensify. As has been true throughout history, and as we can see now, conflicts increase when economically stressful times bring to the surface both longstanding injustices and the ugly impulse to demonize and dehumanize others. It now seems that most people have three or four types of people that they are “against”—whether the Republicans, the Democrats, the capitalists, the socialists, the rich, the poor, the Chinese, the elites, the LGBTQ community, Jews, Muslims, etc. This drive to vilify others will intensify if economic conditions get worse, which is increasingly likely in a world in which monetary policies don’t work well so central governments and central banks will have to continue to make handouts of money and credit that distort the markets in order to save the society. It is tough to keep a society, especially a democratic society, operating in an orderly way under such conditions.
As you know I can’t help but think about times in history when conditions were analogous—especially when there were large wealth and values gaps, economic conditions worsened, and monetary policies were ineffective at the same time. This drew me to the 1930-45 period and later to other analogous periods in history (see my write up of these in “The Changing World Order” series). In these examinations, I saw how this confluence of conditions led to fighting within some countries becoming so destructive that they chose to abandon their democracies to become autocracies so that strong leaders could bring back order and prosperity. In the 1930s, four major democracies—Germany, Japan, Italy, and Spain—all went down that path. I am watching for signs of that happening today. It is easy for democracies to slip into anarchies and lead to autocracies when trust in the system’s ability to provide what people need breaks down. We are beginning to see this. Do we see our leaders working together, disagreeing while following the rules of how to disagree well or are they engaging in power struggles in which they punish dissenters? How will the president, governors, and mayors resolve their disagreements over who has what power to direct the use of the military in the domains that they have in common? When power struggles replace mutual respect for law and for each other as a way of resolving disputes, we can find ourselves on a slippery slope that leads toward autocracy.
Generally speaking, the media doesn’t help because it sensationalizes, distorts the truth, and picks sides in the fights (e.g. between left and right) and screams supporting opinions at their audiences to demonize the other side. There is little thoughtful disagreement to get at what’s true and what to do about it.
I see different versions of these things happening around the world and being indirectly connected. For example, I see the riots in Hong Kong as “another one of those” cases of protests, riots, and attempts to maintain law and order, and the sparks of each of these tinder boxes can ignite other boxes. The Hong Kong tinder box can ignite the Taiwan tinder box which can ignite the sparks between the US and China which can add to the flames in the US and so on.
Though we can’t equate the sufferings of all of those affected by what’s happening, I empathize with both those who face injustice and are driven to protest and those who have to come up with the policies to make things go well. I imagine that it is very challenging for those who are responsible for determining how to handle these demonstrations to achieve the right balances and resolutions. At the same time, while I think about the need for laws and abiding by them, I also think of the purposes of revolutions—to bring about changes that wouldn’t happen within existing systems.
I personally think it’s essential for leaders to have good principles for dealing for these things well and that these principles should be practical ways of bringing us together around shared values and sensible actions to make us as a society more united, peaceful, and prosperous. And they must make those principles clear to the American people so they can pull together behind these. Otherwise we won’t know where we are going and how we will get there.
To me the most important choice people have is between a) a path of thoughtful disagreement in which disparate views can be thoughtfully examined to reach an intelligent agreement about what should be done so that the key stakeholders can support and rally broad support (ideally of the majority) behind them, so that the country with all of its diversity, is brought together, and b) a path in which each person fights for what he/she thinks is best, gathering allies for their cause who together fight against the other side even if the fighting will be terribly harmful to both sides (like in a war). I believe that we are at serious risk of going down the second path. As a principle, “when the cause is more important than the system, the system is in jeopardy.” I think we are approaching the point where our passionate pursuits of individual causes and our doubts about the system’s fairness and its ability to take care of us are threatening the system, and that’s scary.
I watch closely which way these events are tilting—toward order or toward disorder. I don’t take for granted that there won’t be revolutionary changes that could have a broader disruptive effect. In fact I expect them, though I can’t tell you what forms they will take—whether they will be peaceful and productive or violent and counter-productive.
I’m not a policy maker. I’m just a citizen and an investor so it’s not my responsibility or my area of expertise to tell those who are policy makers what they should do. My responsibility is simply to help others be successful in the areas I know something about. However, having taken my stream of consciousness rambling this far, I feel compelled to touch on what I think a peaceful and productive revolution would look like. It would look like a collaborative democracy in which we start by agreeing that the American Dream depends on equal opportunity that we are failing to provide. That is an intolerable problem that has become a national emergency. Once we agree that it is a problem that must be solved, we can establish clear and agreed-upon metrics for measuring our progress in solving it that we could work together on instead of fighting over. We would pursue the best path to achieving this goal through thoughtful disagreement and compromise rather than a desire for one side to force its solutions on the other side.
The president or other leaders like governors or mayors would make clear that fighting each other is killing us and that their goal, above all else, is to bring disparate factions together to have thoughtful disagreement to achieve these goals of equal opportunity and justice for all in ways that are intelligent and work well for most people, though they won’t be exactly what anyone wants. Then they would attempt to bring together those leaders of the various constituencies who can be reasonable with each other to try to reach an agreement of what should be done to deal with the problem and then take responsibility for getting their constituents together behind this agreed upon plan. They would create a respected way of operating in which screaming, hate and not pursuing the best solution for the whole would become intolerable behavior, exercise the art of thoughtful disagreement and follow protocols to get past disagreements to move to actions that are best for the whole would be the only acceptable behavior. I recognize that this path is more difficult than the alternative path of just fighting for what one wants, but I also know that just fighting for what one wants is far more dangerous and far less rewarding than solving problems together. I believe that “United we stand and divided we fall.”
Thank you for your patience in letting me ramble about subjects that matter to me even though they extend beyond the narrower scope of my responsibilities.