Ray Dalio wrote about inflation this week.
Regular readers know this, but for anyone who’s new, I should reiterate that I do like Ray. He means well, he puts a lot of effort into his writing and he genuinely cares about reforming capitalism. Or as much as someone can reasonably be expected to care when they’re an outlandishly successful capitalist.
However (and I’m going to recycle some language from a previous article), over the past several years, Dalio has morphed into a kind of self-styled philosopher-historian, to mixed results. His writing is too ambitious, needlessly repetitive, sometimes confused and suffers immensely from Ray’s almost complete disregard for paragraph breaks.
This week’s inflation missive was no exception.
He touched briefly on redistribution, a topic he’s weighed in on at length. The debate over taxing billionaires is right in his wheelhouse. He’s very rich (far richer than most of his industry peers), but also pensive and sincere.
Dalio, like Larry Fink, Leon Cooperman and other billionaires, seems to want an accounting of how his “extra” tax dollars would be spent. In that regard, many of America’s wealthiest seem unable to differentiate between taxes and private philanthropy. I discussed this at length in “The Billionaires Would Like A Receipt, Please.”
If you’re a billionaire and you start a foundation committed to — I don’t know, saving the penguins — you might demand an itemized receipt proving that every dollar the foundation spends goes towards giving a voice to voiceless (and flightless) aquatic birds. When you pay taxes, on the other hand, you’re contributing to a pool of money which is then appropriated by officials you helped elect. Society, as a body politic, gets an itemized receipt. You don’t get one personally.
In theory, if tax dollars are misspent, wasted or stolen, voters will simply remove the responsible parties at the ballot box. There are myriad problems with that system, and you might fairly allege that it’s broken beyond repair. But that still doesn’t give you the right to insist that, for example, none of your tax dollars go to environmental initiatives (maybe you think you’re already doing enough in that regard via your penguin foundation). Or to demand that under no circumstances will your taxes go to the military because you’re anti-war. That’s not how it works.
Dalio didn’t address that directly in his inflation piece, but he alluded to redistribution tangentially while discussing productivity. There was a tie-in with Friday’s “‘We Don’t Live In A Society That Pays You What You’re Worth’“.
“If you look at societies that expropriated the wealth of the rich and tried to live off it and weren’t productive, you will see that it didn’t take them long to become poor,” Dalio said, adding that,
The less productive a society, the less wealthy and hence the less powerful. By the way, spending money on investment and infrastructure rather than on consumption tends to lead to greater productivity, so investment is a good leading indicator of prosperity. On the other hand, printing money and distributing it without being productive won’t raise wealth. Keep this in mind when thinking about the implications of policy developments. Printing money and giving it away won’t make us wealthier if the money isn’t directed to raise productivity.
I could editorialize around that for days, but suffice to say every billionaire tends to repeat some version of that spiel, always in an effort to suggest they support things like infrastructure. You can’t be anti-infrastructure. That’s not a tenable position, no matter who you are, or what party you belong to.
The problem comes when society starts to make concrete strides towards actually implementing wealth expropriation in the interest of investing in productivity. Suddenly, those whose wealth is expropriated begin to adopt narrower and narrower definitions of what counts as “investment.”
What used to be unequivocal support for investment in anything and everything with the potential to raise productivity ends up as a half-hearted, begrudging acknowledgment that fixing bridges is generally a good idea and that investments in things like education and R&D are good in theory, but need to be monitored carefully for “waste.”
What I wanted to draw your attention to on Friday, though, is the irony inherent in a billionaire hedge fund manager (and Dalio is hardly the only one) insisting that society everywhere and always prioritize productivity, without so much as a polite nod to the argument that hedge funds produce absolutely nothing of value for society.
“The less productive a society, the less wealthy and hence the less powerful,” Dalio claimed. Ok, well how do hedge funds make society more productive, exactly?
Sure, there are arguments, some more compelling than others. Activist hedge funds might make existing businesses more efficient, for example. But generally speaking, what is the goal of a hedge fund? If I’m getting pitched, I don’t want to hear much in the way of high-minded rhetoric about making society more productive. I want to hear how you’re going to earn your fees in an environment where any idiot can pay five basis points to track a benchmark that returns 20% every year like clock work because the benefactors with the printing presses killed price discovery and made it virtually impossible to generate alpha.
And forgive me, but when Dalio talks about “societies that expropriated the wealth of the rich and tried to live off it,” one can’t help but discern an air of indignation and implicit condescension. For all his (sometimes loud) pretensions to being an advocate for reforming capitalism, Ray can’t help but inadvertently chafe at the notion that you’d “expropriate” his money and try to “live off of it.”
I suppose one question I’d pose to Ray (and maybe I will the next time he holds one of his “Ask Me Anything” Reddit sessions) is whether it’s at least possible that if we “expropriated” a portion of his wealth in order to — I don’t know — give thousands of single mothers a break from working three jobs in order to raise their children, we might end up with a lot more highly “productive” young adults as a direct result.
By contrast, I can’t possibly imagine what’s “productive” about Ray buying another zen garden (or whatever he spends his money on), let alone one of his employees buying a second home or a third luxury car.
“History shows that countries that have higher percentages of people who are self-sufficient tend to be more socially, politically and economically stable,” Dalio went on to write, in another implicit jab at what he described as “printing money and giving it away.”
Well, Ray, I have another question. Who’s really more “self-sufficient” and “productive”? One of your employees who, by virtue of making $350,000 a year to supervise a target-vol strategy, will never have to accept a penny of taxpayer assistance, or a single African American mother in a Chicago housing project who, with the help of three jobs, a pittance in government assistance and sheer force of maternal will, manages to keep food on the table and prevent her two sons from falling victim to gang culture?
(Hint: It’s not your employee.)
Sad and true but very funny thank you
H-Man, another jewel but hitting some nerves. When the printing presses are minting money, Ray seems to forget how much of that slop he rakes into his bowl.
Maybe the real problem that professional finance and extremely wealthy individuals have with infrastructure and other fiscal spending is that the money can bypass them, instead going directly to professional project managers (along with specific measurable goals) specialized in the areas targeted by Congress for development. Finance is then moved downstream where their income is subject to the ebbs and flows of the money generated by the projects. This is much riskier for finance than monetary funding which places them at the upstream end where they receive funding with no specific goals and an implicit government guarantee against significant future loss. Ultimately fiscal spending that bypasses finance to put money directly in the hands of people obligated to deliver specific goals in their areas of training and experience may expose the waste, fraud, and abuse inherent in modern finance. Maybe they’re insecure and afraid of popping the myth that government has a monopoly on these sins? Maybe they just don’t like competition in the “deciding what to do and how to do it” profession?