Minor feedback and reflections on Ray Dalio’s capitalism manifesto

Ray Dalio just published a two part manifesto on how capitalism needs to be reformed.

Dalio’s Diagnosis 

Dalio’s main point is that “capitalists don’t know how to divide the pie well and socialists don’t know how to growth the pie well.”

This is a problem for capitalist countries because rising inequality has both negative affects on individuals and countries: high inequality reduces economic mobility and weakens political governance.

I am not an expert in inequality, economic mobility, or governance, so it’s hard for me evaluate his specific claims.

But my instinct is too put a little less emphasis on capitalism.

Rising inequality seems to be the trend of almost all political systems.

Walter Schiedel’s book The Great Leveler does a good job of showing how inequality tends to rise in most societies (any system can be gamed) and that it’s often only war, revolutions, state collapse, and plagues that bring inequality back down.

Dalio thinks there’s something specifically inherent about capitalism that leads to inequality. I think there’s something generally inherent about governments and power.

Once humans left hunter gatherer societies, rising inequality has been the norm in most societies.

Capitalism is just the latest manifestation of the trend.

Stability vs. Growth 

Another argument which is somewhat implicit in Dalio’s argument but I wish would have been more explicit: given the incredible compounding of even small GDP increases, we should care much more about societal stability than maximizing growth.

Over the long-run, humans will be very rich by today’s standards so long as we can survive a couple more centuries.

In most cases, growth and stability go hand-in-hand, but when they don’t (perhaps in the case of inequality), we should err on the side of stability.

Can We Do Anything About It?

Schiedel’s book presents a bleak picture about a society’s ability to reduce inequality.

But humans haven’t been around for that long. We’ve never been this wealthy. And never before have so many humans lived in democratic societies.

It took us from the Industrial Revolution to the end of World War II to find a governmental system that fit our last major round technological and economic advancement.

Most advanced countries are now some form of capitalist democracies with large welfare states (at least by historical standards).

I hope our next governance search requires less bloodshed.

If it’s simply a matter of adjusting our current system, this might be possible.

If it’s a matter of finding whole new systems of governance, then that likely means wars and revolutions, which we should all fear given the weapons at our disposal.

3 thoughts on “Minor feedback and reflections on Ray Dalio’s capitalism manifesto

  1. Leighton

    Well put – “we should care much more about societal stability than maximizing growth”. Put people first. I only had time to quickly gleam over Dalio’s 2-part manifesto. I think Dalio makes a good analogy in relating reality to a machine. Reality is an incredibly complicated machine; probably more complex than any machine we’ve created (I’m thinking AI with neural networks that are exponentially complicated and conscious). I think it’s easy to blame capitalism for the struggles of life when one is on the losing side of the Pareto distribution (I am guilty of this). It seems the 80/20 or 90/10 rule appears almost everywhere in the micro and macro world. It’s like an organic law. Maybe a degree of inequality is the price of maximum freedom? Controlling it is necessary for stability but it will be incredibly difficult. Almost impossible! I suppose it will require an aggregate of marginal gains over decades or even centuries…if we live that long. Regardless, the trajectory is positive, even for the poorest, provided there isn’t a nuclear/natural catastrophe.

  2. Wes Tazii

    That the causes of inequality may be more complex is insightful and important. I might add that its also not clear that inequality itself is bad either.

    Are the majority of those in the “1%” family dynasties accumulating wealth to enjoy life on yachts and private jets to Mallorca? Or is the 1% more complex?

    I’m sure dynasties exist. But I also look at someone like Bill Gates. From a successful family. Was widely criticized in his early years of success for NOT making any charitable contributions at all, Yet in the end has dedicated 95% of his wealth to some of the most successful efforts to improve life on the planet.

    Income and Wealth Inequality may be like Charters. They may be lifting all boats.

    Doesn’t mean there aren’t issues with dynasties. But I’m not sure the 1% is all evil, and that inequality itself is bad. Its whether the inequality in the end benefits that matters.


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