Hedge fund founder warns of U.S. capitalism’s failings

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This article was published 06/04/2019 (2376 days ago), so information in it may no longer be current.

Ray Dalio, the billionaire founder of the world’s biggest hedge fund, said he believes flaws in American capitalism have created destructive and self-reinforcing gaps in education, social mobility, assets and income — and the result could be another revolution.

Writing in a new essay, the Bridgewater Associates co-chairman points to statistics showing the bottom 60 per cent of income earners in the U.S. keep falling further behind the top 40 per cent.

One example: those in the upper group have on average 10 times more wealth than the rest, up from six times in 1980. Another: health among the poor is declining overall and American men earning the least probably will die 10 years earlier than those making the most.

While Dalio, 69, previously has focused on inequality and warned about the dangers of populism, his 18-page treatise goes into more detail about the “existential threats” they present to American society. He cites a weaker economy, the loss of competitiveness relative to rival nations and a “high risk of bad conflict.”

“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,” Dalio writes.

Drawing on data from sources including the U.S. Census Bureau, the World Economic Forum and Gallup Inc., he paints a picture of capitalism in crisis:

● Wages for most Americans have been stagnant for decades; those who grow up in the middle class increasingly earn less than their parents and the income gap between the richest and poorest is as wide as ever.

● Wealth increasingly determines the quality of education kids receive, and systemic failings at schools in poor neighbourhoods are “the equivalent of child abuse.”

● Americans who earn less being in worse health and dying earlier has direct consequences for the economy.

“These unacceptable outcomes aren’t due to either a) evil rich people doing bad things to poor people or b) lazy poor people and bureaucratic inefficiencies, as much as they are due to how the capitalist system is now working,” Dalio says.

The solution, he argues, lies in better leadership at the “top of the country”; treating the wealth and income gap as a national emergency; a bipartisan commission to re-engineer the economic system; more accountability, presumably for elected officials; minimum standards for health care and education; some redistributive taxes on the wealthy; and more co-ordination of monetary and fiscal policy to stimulate growth.

One question is how many people on the political left or right are open to policy prescriptions from one of the wealthiest Americans. Thanks to Bridgewater’s asset base and investing success over time, Dalio has a fortune the Bloomberg Billionaires Index estimates at US$16.9 billion.

— Bloomberg News