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491: Ray Dalio | The Changing World Order
Ray Dalio (@RayDalio) is the founder of Bridgewater Associates — the largest and best-performing hedge fund in the world — and author of New York Times bestseller Principles: Life and Work. His latest book is The Changing World Order: Why Nations Succeed and Fail.
What We Discuss with Ray Dalio:
What history can tell us about the cycles our society has endured before and what we should expect from the cycles to come.
The cycle we're currently experiencing in terms of our economy and security as a country (and as a planet).
What Ray sees as the way forward to ensure these cycles serve as warnings — not just echoes of past disasters.
What the West needs to do to remain competitive with China and other emerging world powers.
What Ray has learned from grieving the recent loss of his son.
Philosopher George Santayana once said that "Those who cannot remember the past are condemned to repeat it." While uttered often enough to have become a cliche over the years, these words take on a particularly chilling meaning when read from a plaque at the Auschwitz concentration camp where over a million people were murdered by the Nazis during WWII. In a far less bleak yet still cautionary tone, legendary investor Ray Dalio rejoins us to talk about what we can learn from predictable, repeating cycles of history as outlined in his latest book, The Changing World Order: Why Nations Succeed and Fail.
In this episode, we discuss what history can tell us about the cycles our society has endured before and what we should expect from our current cycle and the cycles to come. But don't worry! It's not all gloom and doom. The good news is that Ray is optimistic we can find a way out of repeating the worst lessons of these cycles by remembering what we already learned from them the last time around and adapting accordingly. Listen, learn, and enjoy!
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Miss our conversation with Mosab Hassan Yousef, the son of a Hamas co-founder who worked undercover to thwart terrorist plots? Catch up with episode 407: Mosab Hassan Yousef | The Green Prince of Hamas here!
THANKS, RAY DALIO!
If you enjoyed this session with Ray Dalio, let him know by clicking on the link below and sending him a quick shout out at Twitter:
Click here to thank Ray Dalio at Twitter!
The Changing World Order: Why Nations Succeed and Fail by Ray Dalio | Amazon
Principles: Life and Work by Ray Dalio | Amazon
Ray Dalio | Website
Ray Dalio | LinkedIn (Includes Chapters from The Changing World Order Referenced in This Episode.)
Ray Dalio | Instagram
Ray Dalio | Twitter
Ray Dalio | Facebook
Ray Dalio | Principles of an Investing Pioneer Part One | Jordan Harbinger
Ray Dalio | Principles of an Investing Pioneer Part Two | Jordan Harbinger
Hedge-Fund Billionaire Ray Dalio Fears the GameStop Frenzy Was Really About Wealth Inequality | Markets Insider
Analysis: Feeling Lucky? Bitcoiners Who Missed Rally Express Relief and Regret | Reuters
My Journey and Reflections Following My Son's Passing by Ray Dalio | LinkedIn
The Meaning of the Serenity Prayer | Steve Rose, PhD
Healing After Loss: Daily Meditations For Working Through Grief by Martha Whitmore Hickman | Amazon
March, 1933 | FDR: Day by Day
The 2007-2008 Financial Crisis in Review | Investopedia
Populism: The Phenomenon by Ray Dalio | Economic Principles
A Presidency for All Americans | Joe Biden for President: Official Campaign Website
Why We Say "Opportunity Gap" Instead of "Achievement Gap" | Teach For America
Will the US Dollar Lose Its Place as the World's No. 1 Reserve Currency? | Newsweek
Zimbabwe's Trillion-Dollar Note: From Worthless Paper to Hot Investment | The Guardian
The Manhattan Project | Atomic Heritage Foundation
My Thoughts on Universal Basic Income by Ray Dalio | LinkedIn
Ray Dalio Eyes Class Struggle as He Ponders U.S. Tipping Point | Bloomberg
Chris Rock: Who Wants To Change Places? | HBO
The Loss of Truth In the Media Is a Threat to Our Democracy by Ray Dalio | LinkedIn
Ray Dalio | The Changing World Order (Episode 491)
Jordan Harbinger: Coming up on The Jordan Harbinger Show.
[00:00:02] Ray Dalio: One of the most important points in life, which I learned out through investing, and that is whatever success I've had in life has had to do more with how to deal with what I don't know than anything I know. And that's after doing this investing game for over 50 years.
[00:00:23] Jordan Harbinger: Welcome to the show. I'm Jordan Harbinger. On The Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people. We have in-depth conversations with people at the top of their game, astronauts and entrepreneurs, spies and psychologists, even the occasional arms dealer, legendary Hollywood director, or Russian spy. Each episode turns our guests' wisdom into practical advice you can use to build a deeper understanding of how the world works and become a better critical thinker.
[00:00:49] If you're new to the show or you're looking for a handy way to tell your friends about it, we have episodes starter packs. These are collections of your favorite episodes organized by popular topics. This will help new listeners get a taste of everything we do here on this show. Just visit jordanharbinger.com/start to get started or to help somebody else get started. And of course, we always appreciate that.
[00:01:10] Last time, we had Ray Dalio on the show, it was one of our most shared episodes. So I hope you find that to be the case with this one. Time Magazine said he was one of the hundred most influential people alive. He began investing at age 12 and he now has over $160 billion under management at his company, Bridgewater Associates. I'm not going to get too much into the weeds on a Ray Dalio intro because he's known as the Steve Jobs of investing. I'm not sure how much further you need to go here. He's been on the show before, like I mentioned. Previous episodes, by the way, with Ray Dalio — you don't need to listen to them before this one. This is a separate conversation, but if you're a Ray Dalio fan, those previous episodes do cover a lot of Ray Dalio's basics and principles. You can listen to it after this episode. Those earlier episodes are number 389 and 390, and they are linked in the show notes. You can also just go to jordanharbinger.com/389 or 390. You can do that for any episode in our catalog.
[00:02:04] I'll give a quick overview of the cycles Ray discusses here in the episode, it's part of his study of the changing world order. I thought about putting that overview into the intro here, but I hate when interviewers make their intro 15 freaking minutes. So I'm going to put the overview in the show close. You should be fine following the conversation without a full backgrounder in any case. I try to keep it relatable. Let me know if I've succeeded here once you've had a listen.
[00:02:28] Today, we'll discuss where we are in one of the most important historical cycles in terms of our economy and security as a nation and as a planet. We'll also touch on learning from grief and the loss of his son, which happened unfortunately, a few months back here for Ray. A lot of what we focus on here is what the West needs to do to ensure that we are competitive with China and other emerging world powers.
[00:02:50] A lot of you have asked me how I get guests like Ray, how do I email Ray and have him come on my podcast? Well, look, you probably don't have a podcast, this statistically speaking, although now I'm not so sure it's 2021. Doesn't everybody have to have one? Either way, you need a network for business reasons, for your job, for your career, for your personal satisfaction. A lot of the good in my life, including meeting my wife, growing this business, has all come from my network. I'm teaching you what I do to build my network. And it's not a bunch of squeezy, weird techniques. The course is free. I don't need your credit card info or any of that crap. Just go to jordanharbinger.com/course I'll teach you the methods that I'm using. It's free software. It's a set of habits. It takes five minutes a day. All right, I'm done with the plug.
[00:03:30] Most of the guests on the show, they subscribe to the course in the newsletter. Come join us, you'll be in smart company. Speaking of smart people, here's Ray Dalio.
[00:03:40] I would like to start with a — and I know you probably have to tread a little bit lightly around this because of the things you're allowed to say about investing and whatnot, and careful not to give advice, et cetera, but I'm wondering what you think of the GameStop drama. And I'm sure that everyone's asking you this lately, but it'd be a fool not to ask what you think of sort of the little guy wrestling around with hedge funds and getting everyone dirty in the process.
[00:04:02] Ray Dalio: I think there's the actual thing. And then I think like there's the question of the motivation and why did it become a big story. And I think the two different things. I mean, the actual thing is small investors being able to gang together and be able to have a short squeeze. There's the mechanics of it. And then there's, how do you deal with the clearing house and all the mechanics stuff? And that was not a big deal. I think the big deal is the question of: is it symptomatic? Does it hit a nerve related to the clash in our society? In other words, that little guy that underdog, which also represents the poor and the populace and so on whacking the other party and going yay. And even that's not so worrisome as much as we're now in a situation where there's real desire to do real harm.
[00:04:58] So it used to be the game. Like I would have been on their side, you know, when I started off, I used to caddy, get six bucks a bag, and I used to be them. And that's a fabulous way of learning, but you know, I didn't want to hurt, but we're in a society now where there's people wanting to hurt each other. And I hope it's not that, but anyway, I think that's what caused people's attention.
[00:05:21] Jordan Harbinger: We can definitely get into that because this almost like populism has to do, and it's not really populism because it's Reddit investing, but it does have a little bit of a shade of populace flavor to it. And we'll get to that in a little bit because we are going to talk about the changing world order. And I'm going to say this right now, I'm going to misspeak at some point and say the new world order. And I don't want anybody to think that we're talking about Illuminati conspiracies, because whenever you have somebody on the show, who's successful and at the upper echelon of society or investing, whenever I say anything that sounds like it might have to do with conspiracy anything, people go crazy. So I'm going to call it out now that I'm going to say new world order and I don't mean anything other than changing world order. I can't get rid of the cliche in my head here. So we'll get to the cycles in a little bit here.
[00:06:07] I saw something you'd said that really does sort of smack of GME or GameStop in a nutshell. You said, "Being successful in the market is more difficult than getting a gold medal in the Olympics, but nobody thinks about trying their hand in the Olympics and everyone thinks they can compete in the market." And that to me was this sort of GameStop thing in a nutshell. It's also a cryptocurrency in a nutshell for a lot of speculators, right? Like, "I'm in on this early thing, I'm going to put in 5,000. No, wait a minute. I only have one chance at this. I'm going to mortgage my house again and put in $55,000," and nobody would think, "You know, I'm just going to try that ski jump that looks like fun. It's going to turn out great."
[00:06:46] Ray Dalio: Well, that's right. What I mean is making money in the markets is a zero-sum game. There's a buyer and there's a seller. And vast amounts of resources are put into doing it right. I mean, literally, the bridge order of hundreds of millions of dollars every year for trying to get an edge and it stopped. And so somebody coming in there and thinking like, "I'm going to make money in the markets on that," probably hasn't been experienced enough to know that that's really not easy. And so as you start to go into these investments, that's part of the way of learning.
[00:07:19] And by the way, the small size that you can invest in is a great way to learn. So to carve out a particular amount of money that you can lose, let's say, depending on how you invest, you can lose it all. You lose two-thirds. Fine. Everybody, for example, that I know in Bitcoin is the experts, the greatest bulls would still say you could lose all your money in Bitcoin. And yet it might have something that maybe it's something that we'll have 10 or 20 or X number of times. So being aware, being humble and going in there with the experiences to do it.
[00:07:52] I'll just tell you a funny story. My beginning at 12, I used to caddy. I would earn six bucks a bag. I'd get $50 and I would put it into the market. And the first stock I bought was a company by the name of Northeast Airlines. And the only reason I bought the company was because it was the only company, I heard of, that was selling for less than five dollar a share. And I thought, like my brilliant logic was, if it's going to go up, I'll make more money because I can buy more shares.
[00:08:21] Jordan Harbinger: Right.
[00:08:21] Ray Dalio: I mean, totally stupid. It was a company that was about to go bankrupt. Someone acquired it in a triple and I thought this game is easy.
[00:08:30] Jordan Harbinger: Yeah. I'm a genius.
[00:08:33] Ray Dalio: So I looked at The Wall Street Journal and there were all these lists of names. And I just figured I have to find one that goes up when that goes down or whatever. It isn't easy. But anyway, it's great that everybody can go experience, have their learning process, but I think the thing that you're trying to get across and I'd like to get across is it's not easy, be careful.
[00:08:52] Jordan Harbinger: Right now, everyone — well, I shouldn't say right now, because depending on when you're listening to this. If you bought Bitcoin last year and now you still have it, you look like and feel like maybe you're some kind of genius. And that's the problem with a lot of the speculation, right? What's the phrase? In a bull market, everyone looks like a genius or everyone thinks they're a genius. I can't remember which one it is. Probably it doesn't matter. And that can really start to convince somebody that bought Bitcoin three years in a row, that they actually know something that other people don't and aren't just lucky. And it leads to this bag holding, which can exacerbate some of these negative cycles that we're going to get into here where people feel like the system isn't working for them. And they seek to make drastic changes to it, which could end up destabilizing the whole system. And I know that when I bring this kind of thing up into discussion with any of the spectrum, whether it be crypto or stocks or GameStop on Reddit, I'm usually met with something along the lines of, okay, Boomer, even though I'm 40, but you know, it doesn't matter. They're all 22 years old. That sort of leads to the idea that the concept that you can know just enough to be dangerous.
[00:09:57] I know that we talked about this last time you were here on the show, when hiring for Bridgewater, you don't value experience as much as you value character, creativity, common sense, and the knowledge to figure out how to do something as more valuable than specific knowledge of how to do something. And that might seem unrelated, but I think that type of knowledge helps people realize that getting lucky once or realizing that they've had some good results doesn't mean that their systems are good.
[00:10:23] Ray Dalio: You're emphasizing, I think, one of the most important points in life, which I learned that through investing and that is whatever success I've had in life has had to do more with how to deal with what I don't know than anything I know. And that's after doing this investing game for over 50 years. And so once somebody deals with that risk, in other words, how do you maximize taking it in and how do you deal with unknown? Okay. Two ways to do that — I just would love this to come through to people — is it doesn't have to exist just in your head.
[00:10:57] So in other words, like for me, for my theories, let this thing should happen. Then I try to go to the smartest people I know who might disagree with me. I just did this today on Bitcoin. Find the smartest people who might disagree with you and have the back and forth. It's the quickest way to learn a subject. And when you get that sort of triangulation, where you're stress testing, you get an education, but you also improve your probabilities of right.
[00:11:22] And the other thing is diversify because if you know how to diversify, you will not lower your returns by lowering your risk. You improve your return to risk ratio, because if you balance things, you know, like they have comparable returns but you diversify, it means you can take on more, get more returns for a unit of risk. And that's the game. So the power of knowing what you don't know, and that humility is important.
[00:11:50] Also, you think about the arithmetic, basic arithmetic of investing. You lose half, you have to earn double, okay. Lose 50 percent, you have to earn a hundred percent to get back to even. So knowing how to balance those things and learn your risk and deal with it is that's what you're really saying. That's what I'm trying to emphasize. And it's in all dimensions in life. If you're dealing with, should you have a medical procedure, who should you marry, where do you live or something —like if you could take in the best thinking around you and stress test it, that's helpful.
[00:12:23] Jordan Harbinger: The decision-making process I know at Bridgewater, and again, we touched on this last time, you're on the show, but we didn't do as much of a deep dive as you do in principles, "Beware of people that argue against doing something when they can find something slash anything wrong with it, because these people tend to become poor decision makers." Does that quote ring a bell or am I pulling that out of thin air?
[00:12:44] Ray Dalio: You got the essence of it.
[00:12:45] Jordan Harbinger: Okay. So why is this the case? Why is it that we should be aware of people that argue against doing something when they can find anything wrong with it? And the idea, of course, is you can find something wrong with literally any idea. Does that mean that these people never take action or does it just mean that they don't know how to weigh what's important and what isn't?
[00:13:02] Ray Dalio: They don't know how to weigh what's important and what isn't. Every decision is weighing a pro against the con. So it's kind of lousy decision making and you say, "Okay, that thing." Weigh the pros against the con, and then you're making an expected value decision with keeping in mind that you don't want to have a risk of ruin. So no bat or no series of that should be able to take you out of the game. And then every decision should be expected value decision. And it starts to make you think differently because maybe something has a 20 percent chance of happening, but it has a 10 to one return to risk ratio. That's an expected value positive. So as you start to think about expected value, weighing pros and cons, and then making sure you don't have concentration, that's a good way to do that.
[00:13:49] Jordan Harbinger: Now, I want to switch gears a little bit and to something that I think is weighing on a lot of people's minds, because recently in the news, a lot of folks heard that you had suffered a loss in the family. And as a new parent, I myself can't imagine how I'd begin to deal with that kind of loss. Your son passed away tragically, for those that have not seen this. And you've actually written quite a few pieces on what you've learned from this, which I think is — it's amazing and also it requires you to dig pretty deep to find some sort of, I don't want to say positive outcome, but any sort of lesson that isn't just purely painful and negative. I'm wondering how that process was for you. I mean, you, you have to get philosophical in many ways about things like this. Otherwise, there's just almost no way out.
[00:14:37] Ray Dalio: I'm very much a person — pain plus reflection helps me get progress. So I'll describe it to you. I have four sons. Anyone who's raising a child knows, at least for me, that my son was more important than anything in my life, more important than my life. I would gladly change my life for his life and anything I have. So it was like an explosion that tore me apart and also tore apart the people I love, my wife, my other family members, his wife, I'm thinking about his daughter. So it was emotionally and intellectually very difficult right away to process. How do I deal with that?
[00:15:21] I did a few things, which we did. We have a very close family. And what I did was to eliminate everything from our schedules, any other intrusions, not going to speak to anybody, just give time and then togetherness for going through that. And I meditate. Meditation helps me a lot because it sorts of centers me and clarifies things. And then we went through our process of letting our feelings and our thoughts guide us. If I want to cry, I'm crying. If I want, whatever it is, to go with it and to feel it and to do with that together. And so that went on for something like, I would say five or six days, we buried him and we had that time.
[00:16:08] And then things began to change rather than feeling sorry for ourselves and myself and feeling sorry and thinking about the past and what we'll miss. So many people are going through their own losses. And so thinking about the future and how I or we could help, how could we help his wife, his daughter, his others, and thinking about the future. Then at that time, the stories, being there, feeling those stories, laughing as well as crying, and going through that. And I would say about seven, five to seven days in, I started to — I'll be trying to be quick about this, but I got the condolences. And then one thing that we did that my wife and I do every day is we want to have him with us.
[00:17:00] So, what we did is we set up, there's a picture. We have tea each morning. We sit in the same spot and there's a picture of him with his daughter, and then there's a candle and there's a flower, and then there's a journal. And so what we do each morning is we have memories and we journal that down and that brings him up and we feel it's a new relationship. I think it would have been very difficult if we just sort of said, "No traces of him. He's gone go on as normal." And so we have a new kind of relationship. He has a place in that and we're enjoying it. And whenever the mood comes, you know, we'll feel whatever our moods are that plus the process of going through it.
[00:17:50] Pain plus reflection equals progress to think about my emotional self and my intellectual self to kind of get them centered and aligned was good. And these condolences that people gave us made me feel the relationship and the whole thing changed, also focusing on priority. Like I want to hug my kids more. I want to spend — there's nothing higher priority. And then we start to think of some of the lessons and the benefits, and then helping others. All of that has put everything in a good place.
[00:18:25] In other words, we're in our new normal, right? We've adjusted to that. And then also logic, some of the principles that I wrote in principles helped me a lot. Like for example, it's correct that each of us are vessels for our DNA and our vessels are passing through and I could see in his daughter. And I could see us and her and move on. And so he's with us in that way. Then we are adapting. And it's like the serenity prayer, you know, the serenity prayer, which means God gives me the serenity to accept that, which I can't control. And God gives me the strength to control that, which I can and the wisdom to get the difference. So we have come to our appropriate, good place. It's not what we want, but on the other hand, it's got its benefits and where over the last, I would say six weeks, we've come a long way.
[00:19:22] Jordan Harbinger: The pain plus reflection process seems quite intelligent emotionally. I'm thinking about this for me. What would I do? And I have to be honest, I think if this type of event happened, I would just throw myself into work and try not to think about it. And I'm guessing that you've in the past, tried other strategies that were not as effective as the pain plus reflection equals progress.
[00:19:41] Ray Dalio: There was nothing like this before. But I do know that's the wrong strategy to throw yourself in. First of all, I think, you're not dealing with it.
[00:19:51] Ray Dalio: I think that just relaxing and giving yourself the space and feeling as you're going through that process. What do I feel? What do I think? Is that the most huge thing that has happened to you? It's the most huge thing that had happened to me in my life. So it just doesn't logically make sense that I can just go to something else, which seems so trivial. So clearing everything away, and then also being there with others — I couldn't have done it the way you're suggesting. And a lot of people take the person out of their lives and they do that, but it's not resolved.
[00:20:33] Jordan Harbinger: Yeah, I'm not suggesting that my way was a strategy by the way. I'm suggesting that that's a dysfunctional way that I would have probably ended up trying to handle the same situation, if that makes sense. And I know a lot of people do handle situations poorly like that. I mean, you read about it all the time in biographies of people who've lost their sons or daughters in World War II. And they say, "My mom never spoke of him again." And you think, "Why is that?" And then you realize once you become a parent, "Oh, it's simply too painful and they've never actually dealt with this. They've never made space for it."
[00:21:03] Ray Dalio: And I think each to their own, you know, but do think about that because not only do I have it and, I believe really in the right place and a resolution, but I have him with me and I have it with us. So he's part of that. And that's a joy, his thoughts, his personality, and what it means for his daughter in whatever. The trying to cover up the pain rather than to work it through, I think might not be the best path, but each to their own. Also, when we journal each morning, we read a page from this book that a friend sent us, you know, each day it has a page and it has advice about healing after loss. And I must say, that the quality of the concepts and so on are very good. So I would recommend this. Anybody who's going to have a loss, I'm going to send this book too, because it helps them to get to whatever approach is right for them. But I do think working oneself through it is the best path.
[00:22:11] Jordan Harbinger: We'll link to that book in the show notes if people are curious about what that is. The title is Healing After Loss, but I'll link directly to it. So people can go grab it on Amazon or wherever if they find that to be necessary in their lives or the lives of somebody that they love as well.
[00:22:27] "The future is not just another better version of the present. It's much different in reality." And that's something I believe that I took from Principles. You mentioned that this tricks investors all the time. This idea that the future is not just like version 2.0 of what's happening in your life right now, but can be radically completely different and sort of a hard reset on your own reality. This dovetails nicely into what you've been writing about and talking about recently in The Changing World Order, "The times ahead will be radically different from the times we've experienced so far in our lifetimes, but they will look similar to many other times in history." Tell me how you came to this conclusion. I know you study a lot of history and I assume that this came out of that.
[00:23:09] Ray Dalio: Well, actually I'll tell you the event. And in 1971, I was between my college and going to business school, I was clerking on the floor of the New York Stock Exchange and President Nixon on August 15th announced in a crisis that the United States was not going to allow foreigners or anybody to redeem their dollars for gold, even though it was promised that they could do that. And I thought, "Wow, that's a big deal. Money is not the same. What a crisis? Let me go down." And then I'm clerking on the floor and then Oxford the stock exchange. I thought, "Wow, the stock market's going to be down a lot." I went into the floor of the New York Stock Exchange and it was up the most in decades. So I was very surprised. So I looked in history and I found out that Roosevelt did the same thing, exact same thing on March 5th, 1933 and that it was done in history. And then I started to learn about it.
[00:24:12] So I realized that I needed to understand what was going on in financial history before. Like if the depression happened in the '30s and I didn't understand the mechanics, that's a big gap. I need to do that. And so I've always started to do that. And that's what led us in 2007 to anticipate the 2008 financial crisis where most everybody lost money and we made some good profits on that movement. And so I know that that's the case. And I know that there are big cycles and they're kind of three big cycles that go together and they're happening now.
[00:24:52] What's happening now on those three big cycles, you know, you have to go back to the 1930s to find them analogous. So you need to study them like a case. And those three things are — there's something going on with the production of debt and money, where you hit a zero-interest rate and you produce a lot of debt and it's too much debt that you can't sell it, so the Central Bank has got a print money and buy that debt, that debt monetization. And that's at the end of a long-term debt cycle. So it only happens. Like you go back to the Old Testament, they say every 50 years or something, there were that long-term debt cycles.
[00:25:33] The second thing is the gaps, the polarity that exists, the wealth gap, the values gap, and the political gap, those conflicts. I measure things by statistics, by all those measures, you'd have to go back to the '30s or before to find the type of conflict that we're having now. So when you have a lot of debt and you can't produce money, and you have an economic downturn where there is a big wealth gap, you have people at each other's throats, that's played out. That started to become apparent to me as we started out populism. So I studied the history of that, that has existed.
[00:26:13] And the third big thing that happens in the world is when there's a rising power, challenging and existing power in the world order, there can be conflict. So China as a rising power, challenging the United States. If you take those set of circumstances and you throw on a stress test, you have a lot to argue, a lot to fight about, and that's where we are.
[00:26:35] Jordan Harbinger: And then just mix in a pandemic because why not, right? Throw in the final ingredient.
[00:26:40] Ray Dalio: That's the stress test.
[00:26:42] Jordan Harbinger: That's the stress test. Okay. Gotcha.
[00:26:44] Ray Dalio: So when we look at the lay of the land, that's where we are. And if you didn't study history, you'd be in trouble. And because the arcs take about a lifetime, about three generations, roughly is what the arcs take, those at the beginning, like my dad's experience through the '30s is totally different than if you go three generations later, because if you go — by the way, empires tend to last about three generations. But what happens is you don't have the fear of those things. You don't have the financial you, readapt and there's the lost memory of, literally, what happens and the mechanics behind it. That's where it is.
[00:27:26] So studying history, it's like a doctor trying to see a disease that may come along every so often. Like the pandemic, you know, pandemics or great floods come along, maybe there's a 100-year flood. This cycle comes along with that frequency. So you're only going to get like one a lifetime. But when they come along, you know, that's 10 years or more of quite something.
[00:27:52] Jordan Harbinger: Yeah. This makes sense, right? Because if no one alive has ever seen or a handful of people alive have ever seen the conditions that you're in, in the moment, no one's going to be able to listen to those folks who are crying out warnings from experience because either they don't exist or there's 15 of them in the entire country at the time, right? That remembers what it was like at a certain point. And at this point, I think the last real pandemic we had was a hundred-plus years ago. So there's really nobody, who's an expert in this sounding the alarm, and there's no critical mass of those people doing it.
[00:28:24] And what you've shown with your articles, which again, we'll link in the show notes so that people can read the full version, but like, you know, block off a weekend for it because they're detailed. This is the set of conditions that breeds populism. Would you mind actually briefly defining what you mean by populism? Because I think a lot of people have either heard that term in passing or are not familiar with it.
[00:28:43] Ray Dalio: There's populism of the left and there's populism of the right. And it is the choice of an individual who the people believe the system is not working for them to get rid of the elites, to have the person who is representing them, then enter into a fight on their behalf, which usually is either of the left or the right. A populist tends to be a very strong fighter character of people. They tend to be very nationalist, tend to be therefore the opposite of globalists.
[00:29:21] Jordan Harbinger: Sure.
[00:29:21] Ray Dalio: So it's basically those characteristics.
[00:29:24] Jordan Harbinger: Right. We ended up — some historians can correct me if I'm wrong, but I think populist leaders are almost always authoritarian. I'm trying to think of an exception and I can't really come up with one.
[00:29:33] Ray Dalio: A lot of these leaders are authoritarian. That's right. And they're usually brought about also at a time when conditions, people say, "Will somebody get this place in order to make it run?" So in the world, in the 1930s, for democracies chose to have authoritarians populist leaders — okay, that was Germany, Hitler, Mussolini, Spain, and Japan, because they say get control of this and be that strong leader who will take us to a good result.
[00:30:09] Jordan Harbinger: The problem with authority — and I'm going to do a whole show on authoritarian leaders. But basically the problem is it would be like taking a medication that has a hundred percent chance, almost a hundred percent chance anyway, of giving you cancer. But it kills some other disease that you have, you end up with cancer, off and on.
[00:30:24] Ray Dalio: It's so interesting because if you read Plato's Republic in the cycles, every system has its weakness and there's almost a cycle. And they would say that the weakness of democracy is when you get a chaotic situation and people can't resolve it and make the best choice of leaders or make the best choice of how they work themselves through that, then you slip into anarchy. And then when you slip into anarchy, you need the benevolent despot. You know, somebody who says, "Okay, we're going to get control of this," but there's that conflict? Quite often the civil war? And then you get that kind of leader. One, supposedly in that cycle thinks the benevolent despot is there. But then what happens is that they don't remain the benevolent despot. You know, power corrupts and absolute power corrupts absolutely. And then that leads to another revolution. And then that leads to more democracy and the cycle goes on.
[00:31:25] So each has its vulnerability. I think the vulnerability for democracy, which we must understand, otherwise we will lose democracy is order. You need order and respect of rules and you have to be very careful of anarchy when the causes, that people are behind, are more important to them than the system for resolving disagreements. The system is in jeopardy and hopefully it's the fear of losing that and that anarchy that prevents people from not fighting when they should try to find cooperation. I think we have real challenges being able to bring that around today because there are irreconcilable differences. There are issues that are not going to easily be agreed to, and actually are almost of a sort that people would die for. And that's a dangerous set of circumstances.
[00:32:24] Jordan Harbinger: You're listening to The Jordan Harbinger Show with our guest Ray Dalio. We'll be right back.
[00:32:29] This episode is sponsored in part by Mailman HQ. I know you get too many emails. I know they bombarded you at all hours of the day. I used to as well. I'd get distracted by the email inbox all the time. And I know they're like, "Oh, turn off notifications." Yes, but there's like this psychology. There's a demon living in there that just knows the email is piling up. And it's just this deepest rabbit hole I've ever seen. What's even worse? You go to zero it out and as you're zeroing it out, people are replying. So that's just adding stress on top of it. Now, we use Mailman. Mailman allows you to control whenever you want to receive your emails. So you can say, "All right, I want to get email at 7:00 a.m. I want to get email at 1:30 p.m. And I don't want to see another freaking email until the next day at 7:00 a.m." All emails are collected. They get delivered in batches at those two times. Nothing comes in between nothing comes afterwards. So there's no more distraction. There's no pile up calling my name between other tasks for me to distract myself with. So go ahead and try it yourself at mailmanhq.com/jordan. And when you use our link, you get 20 percent off on your first year. Mailmenhq.com/jordan.
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[00:34:38] Jordan Harbinger: Now, back to Ray Dalio on The Jordan Harbinger Show.
[00:34:43] I definitely agree here, and I think it should scare people maybe a little bit more than it does because speaking of what we just sort of mentioned before with the whole idea that something is outside our reality, therefore it can't happen. No one around right now was alive during the last Civil War, but there are plenty of people that have moved here from countries that have Civil War and they're often screaming from the rooftops like, "Hello. We've walked across a desert or took a dangerous boat ride or both to get here because of these conditions."
[00:35:16] And this is exactly what — and then you have a lot of people, in fact, I'm guilty of the same, because I thought, "Well, okay, we're not there yet." People saying, "We're not that close. It can't happen here because of reasons," which don't matter, cause they're not necessarily valid. And the truth is there are tons of people that really do value their ideology or their particular cause over the rule of law, the system we have here, because they think that the system has failed them so much. And some of those people are crooks and crazy, but others groups of those people have a pretty valid point.
[00:35:49] And the point you make in one of your pieces is there are a lot of folks where the system of distributing wealth and education and opportunity has not worked out for them. And it's not because they're not hard workers and it's not because of dumb luck. It's because there is, there's a disparity that is just not getting better for those people and their chances are not increasing.
[00:36:13] Ray Dalio: That's right. And we have to understand that that is the nature of the system. I'm a capitalist. So I don't mean that, but the capital system then lends itself to greater wealth gaps and their mechanics, right? Your business is trying to have a profit. It might be better to use technology than people and such things evolve. The wealth gap then means that it's an opportunity gap. For example, I did this breakdown of each 20 percent, the Quintiles. And the top 40 percent on average, they will spend five times as much on their children's education than in the bottom 60 percent. They're not trying to do anything bad about that. They're trying to take good care of their children.
[00:36:58] But when you look at what the situation is — my wife and I, particularly my wife works to try to help out the poor school districts in the worst neighborhood. And you look at, it's not civil. These are children who don't have the most basic things, food, and they're in crime environments. There are gangs and shootings and literally in these places. And so you look at that to have a child have the trauma, and then also be deprived of some of the basic elements because the budgets are different and so on. How can that be? And it feeds on itself because those children grow up into adults and then they are incarcerated or they become the parents who are not taking care of their children that way. There's a dynamic here that is going on. That is self-reinforcing that is threatening to the system and is unproductive.
[00:37:50] Like education is the most important thing. Can you come close to even equal education and equal opportunity? That's basic. That was what I was lucky to have when I was growing up. I had two parents who cared for me. I went to a public school and I came out to a world of equal opportunity. And we're not doing that.
[00:38:10] Jordan Harbinger: Yeah, we're not.
[00:38:10] Ray Dalio: And to do that requires revolutionary changes. There's a lot to argue over here. That's going to be the argument. So how do you resolve those arguments? And it's like this so the existing political — let's say Biden, which I really appreciate wanting to sort of be president of the United States is also in a position where he's actually, he has to bring the others into the tent. So it's not easy to resolve. And if you don't resolve them, that's when revolutions and civil wars happen because it can't be resolved adequately. And then you have the clash and then you have the winners and then they set the rules. That's how history is shown.
[00:38:54] Jordan Harbinger: When do you think that the opportunities that you came into say coming out, going into a good public school, have these been getting worse at a faster rate or is it a consistent rate over time? And we're just now starting to see or not starting to see, but we're now finally paying attention to, I should say, the massive gap that has occurred. Or do you think that the 2008 crisis just threw gasoline on the fire of this?
[00:39:18] Ray Dalio: It's been happening and it really wasn't the 2008. I mean 2008 played a little bit of a role in it, but things like the system naturally, one is technology. Like, think of it today, if I have a robot that can work instead of an employee and they're less expensive, they don't get COVID, they don't complain, and I improve my profitability if that happens, then it's natural that those will want to develop. And then that creates a gap. If or where do I produce my products? Do I want to produce them where it's most cost effective and then money goes abroad and so on?
[00:39:58] And so what we've seen around the world is that within countries, the wealth gap is increased, but between countries, the wealth gap is narrow. So as money goes from, let's say the richer countries, like the United States to the other poor. Therefore, the ones that are the poor, the ones who are on the lower end, and also the higher countries are going to experience it the worst and it's just not dealt with. Right? So there's no plan for dealing with people related to technology, replacing them, or then even let's say monetary policy. Up until recently monetary policy would be the Central Bank would buy bonds and they would buy them from investors who would then buy other investments and then cause the prices to rise. And so financial assets would rise and those with financial assets would benefit. So there's mechanics here that needs to be dealt with in a smart way so that there's not a loss of productivity.
[00:40:59] There's a real risk here of just saying, we need money and let's just attribute money without thinking of how does that affect productivity or the value of money. At the end of the day, you have to be productive and you have to be broadly productive. So the system works for everybody. And so there's an engineering exercise that really people are not much talking about.
[00:41:21] Jordan Harbinger: It seems kind of terrifying in a way, right? Because we have this increasing wealth gap, which, and of course, even with, I won't say social media, but with just media in general, maybe back a hundred or 200 years ago, we didn't really know the differences between how people lived. You had a clue that the guy in the castle was better off than you and your mud hut or whatever in your farm. But now we can really clearly see the difference in the way that people live, especially if we're on the lower end. I mean, hell people who are in the one percent are jealous of the people in the 0.1 percent, because they were looking at it on Instagram, whether it's real or not.
[00:41:57] But certainly if you're in the lower 50 percent, you can see that you are the one that didn't have this, that didn't come up with that, that can't go to this school. And price of education is skyrocketing. It's not even just, "How am I going to pay $13,000 for a college education?" Now, it's, "How am I going to pay $13,000 for the books I need to go to the classes that I would attend at this $40,000 a year institution?" I mean, it's just complete, it's wildly out of reach for most people now.
[00:42:27] Ray Dalio: And if you read history, I hope they'll read chapters eight and nine in The Changing World Order, because it's about internal order and disorders of that segment, but there's a sequence of events that's like a script and it just keeps happening over and over again. So you could see it in past revolutions. It's important to understand the mechanics of it. There's always a middle, for example, they start and then what happens is the middle is eliminated. The moderates are eliminated because you are forced to take a side. You have to be tough and you have to take a side or you're perceived as weak. You can't be in the middle and their circumstances and people get angry and then they take, and then people move. Like people are leaving certain locations, they're leaving certain cities or certain States partially because of the taxes, but also partially the environments are becoming less hospitable.
[00:43:23] And so that produces a hollowing out because when they leave, they take their tax payments with them, and then there's less money. And so structurally the government has no way of even getting the money because it's a state issue. Like education is a state issue. On average, only eight percent of the education budget comes from the federal government. So in a state where there's not much money and people leaving — and also where the tax district means that if you're in a richer tax district, you have better education than if you're in a poorer, literally. How does that structure change so that you deal with that? And what are the consequences of it not being dealt with? These are serious.
[00:44:07] Jordan Harbinger: What do you think of education being taken over by the federal government? It doesn't sound like you're recommending that, but I am curious, it sounds like you're a proponent at least of strengthening the capitalist system by investing in education. I'm wondering where you would recommend that investment come from if you had a magic wand.
[00:44:25] Ray Dalio: There is money and then there is skill, okay. There are certain things. If I say, take it over, it always reminds me, it's like, if you have the central government run something, it's almost always ugly. It'll be like the motor vehicle Bureau and it becomes so bureaucratic. I don't think that that's a good thing. However, I do think that funding, like I see what goes underfunded in terms of just the basics and the States don't have the capacity to do that and it's not civil. So when faced with the choices, I think it does have to be federally funded.
[00:45:00] When I think about such as connectivity, we in Connecticut, Connecticut, I think it's still the richest state in the country, but each state has a very large wealth gap and is in debt. And you need computers to have online education. 60,000 students did not have computers. We, personally, had to buy those computers and we bought computers, got them. And then there's the issue of connectivity. To not have connectivity today is like not having electricity or telephone in your house. Now, who's going to pay for that? The government in one way has to, the federal government. Because you know, the only difference between the state government and the federal government financially is that they have a Central Bank that will print the money for the federal government to do it. And the States don't have one. So you have to engineer things.
[00:45:54] But you know what the big problem is? Everybody's got, they're all different opinions and they can't get past it. My own view is they're only going to be one of two things. I don't care what policies are put into place. They don't have to be my pet policies. If they do two things, if they're bipartisan, like we have to come together and they're smart, in other words, good engineering. If we can get both sides to agree and you increase productivity at the same time as you broaden the base who benefits it. I think probably we're going to need to have a third party because the polarity we're going to lose the middle. Anyway, it's an interesting time.
[00:46:37] Jordan Harbinger: It is an interesting time. I also worry that the third-party we end up with might be not the third party we need in order to deal with this particular scenario. Or do you think that having any third party will add balance?
[00:46:49] Ray Dalio: I think that we're in a dynamic following history in which it's likely that each of the parties will become more extreme and that you need to bring the country together. And I think that those in the middle who, let's call it more moderate, they're a disappearing breed. And so I think that some moderate Republicans and some moderate Democrats have much more in common, but they are being brought to each of the extremes. And I think that watching in other countries and through history, sometimes swing votes — it doesn't have to be president, it could be senators or so — have capacity to bring those parties together rather than allow one party essentially to subjugate the other party.
[00:47:36] History has shown that if you have one party, which is more dominant to the point that you can do what the other party thinks is uncompromisable. You will have clashes. No empire really has ever even been sustained by taking the uncompromisable. So you need something in which there's keeping it closed and you need a middle, I think.
[00:48:03] Jordan Harbinger: Yeah, that makes sense. If one side just has so much power that the other side really doesn't have a say in anything, despite joining the opposition party, there might as well not be an opposition party, right? Because all they're doing is saying, "Yeah, we agree with you. It is terrible that you have no money and no job. We can't do anything about it." Those are the clashes that lead to — that's what gets people shopping for pitchforks at that point.
[00:48:25] Ray Dalio: Right.
[00:48:25] Jordan Harbinger: You'd mentioned, "Just as diseases affect people, regardless of nationality, there are economic diseases that happen in every country, regardless of where or who." I was curious, what sort of economic diseases do you mean? Is this just the wealth gap? Is that another way of phrasing it? Or is there something else that you were thinking of with that comment?
[00:48:42] Ray Dalio: There's a debt cycle. That also is a capital market cycle. Think of it this way. There's real goods and services that you can buy stuff you buy. And then there are financial assets. So there are real assets and there are financial assets. What happens is that when a cycle gets far, the debts rise relative to incomes, the financial assets are also liabilities of somebody. So when you have a company, let's say, and you float a stock, and they're now saying, "I'm going to get buying power and return for giving you a share of my earnings 20 years in the future." That's what it is. When financial assets rise a lot in relationship to what they buy, there is a danger. There's a cycle that happens. And the way that cycle works is everybody's holding stocks and bonds and financial assets believes that they could sell that, get cash and buy what they want to buy. And the problem is, of course, they can. Because there's much more financial assets than there are those other assets. I mean like five times more than that.
[00:49:50] And so once that begins, it's like a wave that works the other way. And it causes like bankrupt runs and things. People selling that because they want their financial assets that causes Central Banks to print money and that devalues money and that cycle has existed through time. So that particular dynamic is a very common disease. And it's very important that people understand the mechanics of it and see it because the consequences are a lot. But it's a basic thing. If your income is less than your expenditures and your liabilities on your balance sheet — or let's say this way, your assets are not high relative to your liabilities. You're in a terrible financial situation. That's what's defining people today. And if you look at our country as a whole, our expenditures are greater than our income. And we are borrowing money. We owe a lot more money to the rest of the world, and we're having to borrow a lot of money in the Western world. And that is a threatening financial position that is likely to threaten the dollar and that's our buying power. And so that's a dynamic, that's a common disease throughout history. We should understand that disease.
[00:51:07] Jordan Harbinger: When did we talk about the dollar in reserve currency status — well, it's a little bit outside the scope of what we're talking about here, and people can read The Changing World Order — I almost said new world order — can read your article on changing world order to learn about reserve currencies. Do you think one of the reasons we haven't lost the dollar as a reserve currency is because there isn't necessarily a close second? I mean, we don't have a strong, I mean, I guess the Euro is sort of there but we're never going to pick the Chinese Yuan because it's manipulated by the government. And there's not enough transparency. Or am I wrong here? I mean, it just seems like one of the reasons that the dollar is holding on so tight is we're not going to pick the Italian Lira or the Turkish Lira or whatever anytime soon. We're not going to pick the Dutch Guilder anymore, right? So we don't really have another option, but that might just be a simplistic way of looking at things.
[00:51:55] Ray Dalio: You know I appreciate your questions. Let me explain it again mechanistically. When the government prints more money and grates more debt, it makes it less attractive and it takes that money and then it goes into other things. That's what's causing the stock market to go up. That is what's causing gold to go up. That is contributing to Bitcoin going up. And so when you see that it doesn't have to be another currency, though it is also going while the other currencies are going up in relationship to the dollar. So the dollars declined by about 12 percent in relationship to other currencies. So that dynamic will continue in that way as long as that happens. That will also then cause with a lag inflation to go up and so on and that'll happen.
[00:52:45] And then when interest rates are low and inflation is high, then people don't want to own the bonds, then they start to sell it. That's how it works mechanistically. However, it is correct that circumstances are changing in the world for the Chinese currency to become more of a competitor in the world. And that is because currency is really the debt in that instrument. Let's say if you're on a bond or your currency, it's really that you own a debt that can be paid in that currency. And if you look at the portfolios of the biggest institutional investors, and now I'm talking about Central Banks, Sovereign Wealth Fund, and so on. They have a lot of dollar denominated debt. And then we're going to ask them to buy a lot more because when we produce it, we need to sell it and you have to produce a lot more and that requires more printing.
[00:53:39] And at the same time, China is becoming more competitive. They're opening their capital markets to investment. Their investments are relatively attractive. They're offering stocks and bonds that are real competitors to the stocks and bonds that are offered in the United States. And they're offering them at attractive rates. And so there is more movement which tends to support their currency. In addition, they are moving more to internationalize the Renminbi that means use it for transactions. China is the largest trading country in the world. In other words, who does more trade in the world? China is the most, but it denominates most of its trade in dollars or other currencies, maybe a reserve currency. Increasingly, it'll denominate those in Renminbi. And so you're seeing that kind of a shift to.
[00:54:33] My main point is that if you look at dollars and dollar denominated debt, whether you look at it in relation to stocks or bonds or gold or Bitcoin or price of goods and services, or the Chinese Renminbi and so on, it's got an issue.
[00:54:48] Jordan Harbinger: This can sort of be almost infinitely complex for the casual listener, I think. But what people need to know here is that if the dollar loses its reserve status, the fact that we've been doing — it's bad, no matter what, but it's definitely going to be bad for the fact that we — one of the reasons we can borrow slash print so much is because we enjoy that reserve currency status. And as that weakens, printing money turns us into Zimbabwe over a period of time. No offense to Zimbabwe, but your currency is terrible, right? So when you have a trillion dollar bill in Zimbabwe, like that's not what we want for the United States anytime soon here. And it's not that we are in danger of that happening overnight, but we're not headed in the right direction to stabilize that. Would you agree with that? We're not headed in the right direction.
[00:55:33] Ray Dalio: That's right. We don't have to go to Zimbabwe, but when you can't borrow and people are selling, that means that you have to sell more than you buy, and that lowers your living standard. It lowers your buying power a lot and it depreciates the value of your money. And that means you can't make those purchases. That means also the power of the United States goes down. You can't spend on everything and in a world, even let's say the conflict with China in Asia, there are defense expenditures. There's challenges there. So you have to spend on defense. You have to just spend on this. You have to spend on that. There were so many different things to spend on. And somebody who's lending you the money wants to know they're going to get paid back. That's the dynamic, that's a dangerous dynamic to have, particularly when you have a situation where people are at each other's throats and everybody says, "I need more." And that you're trying to figure out. How do you make it fair? Ooh, that's a lot to deal with.
[00:56:34] Jordan Harbinger: Yeah. It's very messy. And I think people who look for an authoritarian answer, they're pointing at that and going, "Hey, we can't sit here and complain about—" I don't know what sort of a pet argument. One side always sort of tends to characterize the other side of the stupid stuff. They'll say, like, "We can't worry about what pronouns we're using when we're literally going to get taken over by the Chinese Communist Party." And it's an exaggeration in many ways and it's hysteria in many ways, but it's not completely untrue, right? It's just a bad characterization of one side versus the other.
[00:57:03] When you put yourself in those types of people's shoes, you start to say to yourself, that maybe I understand their perspective a little bit more when they're looking for a strong man type to just lead us out of this mess. "Hey, we can worry about whether everything is fair for you as soon as we get out of the fact that we're about to get squashed." Right? It just seems like the priorities get jumbled and then—
[00:57:25] Ray Dalio: Yeah, are you fighting for me?
[00:57:27] Jordan Harbinger: Right. Exactly. I know that When I was doing prep for this, Abby told me, "Well, Ray is hopeful because there's all these different things happening that are just sort of rays of light in this storm here." I'm curious what you think those are. You wrote at the same time, "We have great human capital and thinking technologies that can help us see how to best deal with these challenges and do the inevitable restructurings well. If we can all deal with each other well, we will certainly get past this difficult time and move on to a new prosperous period that will be quite different. We should never, especially in the worst of times, lose sight of the fact that humanity's power to adapt and quickly get to new, higher levels of wellbeing is much greater than all the bad stuff that can be thrown at us. And for that reason, I believe it's smart to believe and invest in humanities, adaptability, and inventiveness."
[00:58:16] I would love for you to speak to that a little, because this is the one thing America really has going for it, in my opinion. If we're good at anything anymore — and we are by the way, we are — but it's this, we are adaptable. We are innovative.
[00:58:27] Ray Dalio: That's correct. Right. That's it. If you put that together with, we don't hurt each other and we really figure there's kind of enough money to go around and you do it smart. So you raise productivity at the same time as you distribute it well. And if you do those things, the difficult puzzles to solve — that's why I say, if you did something like a Manhattan project and you took people from smart people from the left and the right, and the administration did something like this and said, "Okay, you have a Manhattan project." You engineer something where it's going to be bipartisan and it's going to be effective to both increase the size of the pie and divide it well, and they came back. I would take that.
[00:59:16] It doesn't have to be my exact one, but if they have the intelligence and cape of skills to know how money creates this and how it all works and engineer it well, there's the capacity. Because if you really think where we are today in relationship to our standard of living as a whole, by almost any minute, our real incomes as a whole, the world and we are better than we have ever been before.
[00:59:43] So from that perspective, with adaptability and cohesiveness, this is all possible. Is it probable but possible? I have an expression. If you worry, you don't have to worry. And if you don't worry, you need to worry.
[00:59:58] Jordan Harbinger: You should be worried. Yeah, exactly.
[01:00:00] Ray Dalio: Right, because if you worry, then you will deal with it. I hope people will worry about the picture. I hope they will read chapters eight and nine and worry about that picture. And I hope that that worry will be a shared worry that will help people bring together to think about how to do it smart and together.
[01:00:21] Jordan Harbinger: This is The Jordan Harbinger Show with our guest Ray Dalio. We'll be right back. This episode is sponsored in part by BiOptimizers. Most gut health supplements include all the same old ingredients packed into capsules. Leaky Gut Guardian is a new gut health supplement that tastes great. It comes in a powder form. You can add it to water, coffee, or your favorite smoothie. I must move the guy. I'm not really trying to add stuff to my coffee. Coffee is an acquired taste as it is, but not only does it include powerful probiotics and prebiotics. It also includes a patented ingredient called IgY Max, which is an egg-based protein that comes in two flavors, vegetarian vanilla, and chocolate carnivore. I will let you guess which one is vegetarian and which one isn't. The chocolate carnivore flavor comes with collagen and bone broth. Leaky Gut Guardian is easy to add to your daily routine. Helps with gut health, helps with gas bloating.
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[01:01:23] Jordan Harbinger: Leakygutguardian.com/jordan has a ring to it, doesn't it?
[01:01:26] This episode is also sponsored by Better Help online counseling. I know what you're thinking. "I don't need therapy. My friends are my therapists." The news here is that your friends all hate you if you're treating them like your therapist, right? Good friends are natural sounding boards for your anxiety, and it is true. Talk with a friend, therapeutic fun, but you could be wrecking your relationship. That stuff does take a toll. Rather than burden friends who are not trained to handle the complexities of all your emotional baggage, why not work with an expert instead? Therapists can provide the same benefits as a great chat with a friend, but they're trained. They're got experience, they've got education. They don't have to put up with you after that, right? Because you're done. You can go out with your friends and have fun. You don't have to worry about the status of your relationship. Also, therapists are great. If you're having trouble meeting goals or you're having difficulty in relationships, trouble sleeping. You would be surprised at what a chat with a good trained therapist can really help you accomplish. Fill out a questionnaire. The hook you up in a couple of days. The service is available worldwide. You don't even have to leave your couch or leave your bed.
[01:02:26] Jen Harbinger: The Jordan Harbinger Show listeners get 10 percent off your first month at betterhelp.com/jordan. Visit better-H-E-L-P.com/jordan and join over a million people who've taken charge of their mental health with the help of an experienced Better Help professional.
[01:02:40] Jordan Harbinger: Thanks so much for listening to the show. I really appreciate it. I know you all might not be listening for me but for the guests, and I'm totally fine with that. But when you support the advertisers, that's what keeps us going around here. And I appreciate when you support those who support us, you don't have to remember any of the codes or any of those discount URLs. They're all in one place jordanharbinger.com/deals. Again, please consider supporting those who support us. And don't forget, we've got worksheets for today's episode. So if you want some of the takeaways, you're running your jog, you're lifting weights, you're driving. You don't have to take notes. We took notes for you. In the show notes, there's a worksheet. It's got the drills, exercises, and main points of the show, all-in-one easy place. Again, that link is in the show notes at jordanharbinger.com/podcast. And now for the conclusion of our episode with Ray Dalio.
[01:03:26] What do you think about something like universal basic income, which is sort of a, maybe clunky way of redistributing wealth?
[01:03:33] Ray Dalio: Well, I think the real question is, there are two questions. The first is, where does it come from?
[01:03:41] Ray Dalio: It comes from anything. And then how's the money going to be used? So when I think of it, we work with poor school districts and poverty areas, and I think that they're so starved for programs that are the most basic things. I'm talking about food, basic things that need to be taken care of. I know that that needs to be taken care of and it's indisputable and it would be great. And I worry that if you just send the check, it depends how whoever gets that check uses that check. Is it going to be used in the best possible way for that child's education or those people's education? So whatever's going to be most effective. I'm all for it. There's many benefits. You don't have to have a bureaucracy. They know their own personal needs so that they can take care of their personal needs, not into something that's rigidly given to them and so on. If you put it in the hands of the right people who know how to use it in the best possible way. That's great. But that's not always the case though. And then at the same time, you have to really think, is that at the expense of that other program, or is it an addition? And then, you know, where does the money come from? But I would say the following one of our greatest costs, the probably the greatest cost and least efficiency is in inadequate education and inadequate healthcare for children in these poor areas.
[01:05:12] The economic cost that comes from them, not graduating high school, like our mission in these areas is to try to get kids who would've dropped out of high school through high school. We did the economic studies of that. It costs very little relative to the cost of not having them graduate high school because the incarceration rates, the cost of the crime, and then the cost of incarceration and all that is so terrible. And it feeds families with — you know, it's tough to be a parent in that set of circumstances. So anyway, it's not been done in a big scale before, and it's been done in little areas, but I think those questions have to be answered.
[01:05:50] Jordan Harbinger: Yeah, I'm with you on that. It would serve as an economic stimulus, but a lot of times, like you're saying you don't want an economic stimulus, you want their kids to be able to have a good meal that has vegetables in it at school, or like be able to go and get a full night's sleep because their mom is working also a night job where they have a kid strapped to their back, things like that, right? That stuff is more important. Or to go to the doctor twice a year and make sure that they don't get a debilitating disease because they have unchecked strep throat, some crap like this. That we hear about happening.
[01:06:21] Ray Dalio: It happens all the time. Okay. Connecticut, richest state in the country, I think it still is. Hartford, Connecticut, the capital, children have a problem walking to school passing areas where gangs are shootings. So the things that you're referring to, how can a civilized society allow that? There always should be a bottom, beneath, which you can never fall. You know, there's that step basic. And these are children, I mean, so it's terrible.
[01:06:53] Jordan Harbinger: Do you believe that the United States is still generally a meritocracy? You wrote about Confucius, and you said since before Confucius 500 BC 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. I'm wondering if you feel like the United States is generally still good at this?
[01:07:25] Ray Dalio: No, the United States is not good at this. If you take any of the measures, childhood poverty rates, the disparities, and so on. I know the difference because I grew up in an America in which the goal was equal opportunity and it was really pursued. We never achieved it fully — and it did draw upon those populations. No, it's not good. And I want to be clear. That's not some left of center, socialist policy, as distinct as I say, I want productivity.
[01:08:02] It is just a basic reading of history. The things I said about that when you can draw on the greatest population, when you have less social disorder, because you teach not only education, you teach civility, how to behave well with each other. And then people say the system is by and large fair. How can that not be logically, a more productive and less socially disruptive system?
[01:08:32] Jordan Harbinger: I mean, I agree with you a hundred percent on this. It's very disappointing for me to acknowledge that point, right? That we're not a great meritocracy anymore because it's one of the fundamental beliefs that I think most Americans have about ourselves is that you can be whatever you want to be when you grow up. Kind of like the one thing we all remember from childhood universally across the country. And I think, it's Chris Rock has a bit about this. When you say that to a white kid, they go, "I know that," but when you say it to somebody who's not white and I don't know the bit specifically, but when you say to somebody who's not a white kid, it's like this revelation, but the fact that it isn't even true is — it just pokes a hole in what we have and the image of ourselves as Americans, in my opinion,
[01:09:16] Ray Dalio: Right. And this could all be measured. It can be objectively seen. So, I mean, I think it's a basic thing. Do we aspire to equal opportunity? Are we increasing the size of the pie in the distribution? All of that can be measured, so their metrics. So we should be able to look at, "Okay, how are we doing on those numbers and use them as metrics?" And so if you have a president or you have somebody, we say, "That's our common goal." I don't know that Americans now agree on, you know, what are the principles that bind us together? I don't know that we agree on the principles that bind us together. I don't know that we agree on the American dream and are willing to be measured. I mean, it's us. The problem is us.
[01:10:05] Jordan Harbinger: I agree with you there. And I think it's put forth by the medium and we'll sort of wrap on this point. Although I do want to mention that you've said a few times, like, "Hey, you know, I'm still, I'm a capitalist or you say this isn't a left-wing thing." Are there people — you said that a lot, I wonder, are there people that come to you and say, "That's communist or you're being social—?" I mean, how do they reconcile that you have a, I don't know, 160-plus-billion dollars under management. You're a hedge fund manager. And then they're going to call you like Ray Dalio, billionaire communist. What's the logic there?
[01:10:33] Ray Dalio: I think both take the opposite in extremes, anything I say. In other words, all this being unfair needs to be restructured. Taxes need to be changed. We have to restructure it in this way because of the polarity. Some of those people say, "Okay, now, I'm against it." So from the left or the right, I often get people saying, getting angry, not too often, but in other words, thinking, "Okay, what is it?" So capitalism, you know, is a form of alchemy in a sense. And how do you do the cycle? These things are real. So I'm just trying to say I'm a mechanic, not just an ideological. And I think that the things I'm saying: just are they true? Do you agree with those? And then how do you engineer it there? That's all I'm trying to talk about.
[01:11:24] Jordan Harbinger: In closing here, because I know we're running short on time. You mentioned that you don't necessarily agree on the principles or the truth of the American dream or what is the truth anymore, and that dovetails well with your point about the idea about the loss of truth in the public domain, right? We're more polarized. Media distorts, propaganda distorts. There's a lot of emotional and politically motivated messaging out there. In your writing, you say, in stage five, which is kind of where we are now, where people are fighting, not civil war fighting, but we're starting to separate into our respective sides. And there's a lot of characteristics that go with that, that people can read about. "People who are fighting typically work with those in the media to manipulate people's emotions to gain support and destroy the opposition." And Martin Baron executive editor of The Washington Post says, "If you have a society where people can't agree on the basic facts, how do you have a functioning democracy?" It seems like we're there right now, right?
[01:12:16] I talk to people and I go, wait a minute, this is demonstrably false. And they say, "Well, you know, facts don't care about your feelings, Jordan." And I'm like, "Yeah, but your facts are — like, you just made that up. Or like some blog you read just made that up to get you riled up. What are you talking about? Like, there's data on this and you're just ignoring it." It's frustrating.
[01:12:33] Ray Dalio: It's a reality. It's a combination of the politicalization that commercial economics has made, such that our legal system, unlike that of Canada and the UK actually makes it legal to knowingly lie for the media. It is legal to knowingly lie. So it's a case where, "Okay, what do you do about it?" The credibility of the media has gone down so bad. I think if you think of it as a national emergency, one might hope if we believe that it's intolerable and everybody speaks to its intolerability, maybe there's a self-regulatory organization. In other words, I don't want the government to control the media.
[01:13:22] On the other hand, some organizations have self-regulatory organizations that can make the control of that along those lines. Because if not, I think that they'll be torn down. These revolutions, something that people get angry at, and they'll tear them down. You see the signs of that now. So I hope we learn and we change. Like, can we make it illegal maybe or sanctioned by the media industry that you are not allowed to knowingly lie at the media? Is that too much to ask.
[01:13:59] Jordan Harbinger: As an attorney, I'm sure that I could find a downside to that, but it's kind of hard as a layman to sit here and go, "No, no, I should be able to read an article. That's complete bull crap that somebody made up in order to get me to believe something," that helps them economically or gets them more clicks. Right?
[01:14:15] Ray Dalio: One thing is making a mistake. You know, what you'd like to see is a responsible journalist who does not want to make a mistake.
[01:14:24] Ray Dalio: Maybe that's too much to ask. Okay. But what you certainly don't want to have is a journalist who knowingly lies and to have a legal system that says you can knowingly lie and it'll be okay, there's something wrong with that. That industry's got to get, somebody's got to get control of that.
[01:14:47] Jordan Harbinger: Yeah, look, no, no argument from me on that. I'm sure that 10 seconds after I hang up, I'll say, "What about this?" And it'll come to me, but I am curious what people think. If you're listening to this right now, and you're a journalist, tell me why it should be fine for you to knowingly lie. And I will accept your argument, even if I don't agree with your logic. I'm very curious what some of the journalists who listened to this have to say on this matter, and attorneys for that matter, who might have thought deeply on this subject, which of course I have not.
[01:15:13] Ray Dalio: And pass it along to me too because I'm dying to hear the answer.
[01:15:17] Jordan Harbinger: I will. The only thing I'm expecting is some sort of crazy drawn out philosophical argument or some chilling effect that may or may not ever happen. But I look at that and I think, "Okay, but the downside of the current system is almost infinite and the downside to some chilling effect that may or may not even happen, maybe minimal and almost has to be minimal in comparison to what we're dealing with right now.
[01:15:39] Ray Dalio: And even what I'm talking about are legal systems in Canada, in the UK, these are not crazy places.
[01:15:46] Jordan Harbinger: Right. Yeah, we don't exactly see — I'd say on the Pitchfork scale, the United States right now, anyway, is a little higher on the Pitchfork scale than Canada or the UK.
[01:15:55] Ray Dalio: Some places don't allow you to knowingly lie.
[01:15:59] Ray Dalio: It's silly that we're even debating that question and shouldn't journalists, I'm talking about what should be perceived as credible journalism. I won't name names, but if you look at the publications and the ratings of those publications in terms of trustworthiness, and they have people who knowingly distort and knowingly just ignore that. So the standards are terrible. It's terrible for our country.
[01:16:26] Jordan Harbinger: I agree. The one obvious issue aside from the lack of public trust is which is the glaring numero uno there. The other thing that this accomplish, or the other problem that this causes, I should say is, I don't know about you, but I would never want to run for office because even if I were a literal saint in somehow in the previous 40 years of my life, people are going to come after you and say the most horrible things about you, your wife, your family, they're going to make your life a living hell because they don't like the fact that you're going to defund this project that they like or regulate the industry that their lobbyists are trying to get you to regulate or deregulate.
[01:17:08] Ray Dalio: That's it. I'll tell you just a quick story. I won't name the names, but a great three-star general who then left and we have lunch together. And he said, "I'm thinking about what my career should be after doing this. I'm here to brainstorm with you about that." And I said, "Well, tell me about your passion. What's most important to you?" And he said, "I would, of course, my country, my national service. That's great." I said, "Would you think about running for a political office?" And he said, "No, no, no, no, no, no, no. I would be willing to die for my country, but I would not be willing to run for public office because of the experiences that I have. And I know that my family, the distortions about my family, the distortions that would be there, that would be ruinous for others and everybody else. And there would be no opportunity to even answer those. It would be ruinous." So I know people who would consider public service. I would say that a lot of people who are not in public service will not talk about anything because fear of the media.
[01:18:17] I have to deal with the media, okay. I'm fearful of the media. It's just I can't be like afraid. I can't live this phase of my life being afraid, but that's right. This is the environment. So even being able to talk forthrightly by anybody who's against some attention, you can't talk forthrightly. It's a problem.
[01:18:39] Jordan Harbinger: It's a problem. Not only can we not talk forthrightly, but you have people that literally, I mean, this guy that you're talking about this general literally said that he'd rather get shot at, by not in so many words, but he'd rather get shot at, by the Taliban snipers than have to deal with a journalist, twisting his words, and then having that hurt his wife and kid.
[01:18:55] Ray Dalio: Well, just to be clear, he said, "I'm being willing to run, to die for my country. But I would not be willing to run for public office."
[01:19:04] Jordan Harbinger: Yeah.
[01:19:04] Ray Dalio: "And I won't be willing to run for public office because of the damage and inability to deal with the damage that it would do to his family and him, he would be incapable of being able to do his job right."
[01:19:17] Jordan Harbinger: Right, so imagine the quality leadership that we're missing out on because somebody doesn't want their family to get hurt. So we're left with, well, people that maybe are more adept at dealing with that, which is a totally different skill set than being an actual good leader or somebody who just says, "Screw it. I'm immune to this," which is also not necessarily a trait we want in somebody who's going to lead the country.
[01:19:37] Ray Dalio: So, Jordan, I think we're in as close to a hundred percent agreement that we are. I think then the question is, I mean, can you make it an issue? Can you deal with it? Will somebody take responsibility? They're almost fearful of the media, but will somebody deal with this problem? And shouldn't a self-regulatory organization — would that be, how bad could that be?
[01:20:01] Jordan Harbinger: Exactly. Well, look, we can talk all day — well, we shouldn't, I'll get in trouble with Abby and she's been she and you have been very generous in setting this up. So thank you so much for coming back on the show. I really appreciate your expertise. Maybe you should run for office, but who has the time?
[01:20:17] Ray Dalio: No. I love my country but no. Okay, Jordan.
[01:20:22] Jordan Harbinger: Always a pleasure.
[01:20:26] Some thoughts on this episode but before I get into that, here's a glimpse of my interview with the son of a Hamas co-founder, before a change of heart, had him working undercover for Israeli intelligence against his former friends and family to thwart terrorist plots and save lives, check it out.
[01:20:43] Mosab Yousef: Hamas is an Islamic movement, like a Al-Qaeda, like the Hezbollah, Salafi-jihadist, and the rest of those groups. My father is one of the founding members of Hamas. Hamas for us was everything to the point where it became an army. It's a monster. I agreed to work with Israel with a hidden agenda. Hidden intention is simply to be a double agent. The level of pressure that they had to go through, my heart stopped for approximately 30 seconds. Most of the human beings cannot make it back. This is the level of stress that I was going through. I was a tortured mentally and physically, you know, that I still have marks on my face from that torture.
[01:21:34] The Merkava tank is like 40 or 50 tons of steel. And when you have 10 of them storming into the city, it's like an earthquake happening. And they start driving towards the city center, to my family's house. They evacuate my family first. They launched a missile into the house and they sprayed bullets like all over it. Like in my room, I had about like 150 bullets just in the wall. And the militia groups right now, they start gathering and surrounding the special forces, creating like another ring of fire and shooting at the forces and the forces shooting back at them. This is what brought the choppers. It became a war zone. Everybody in the city knew that I'm a dead man.
[01:22:21] Jordan Harbinger: For more, including what it was like growing up in one of the first families of which many consider a terrorist group and why Mosab considers it the greatest school of his life, check out episode 407 on The Jordan Harbinger Show.
[01:22:36] All right, everybody, I told you, great episode. This close by the way is a beast because I'm going to give a brief overview of his article on the cycle, we're in and the changing world order. And Ray has said in the past that his biggest mistakes in his career came from missing big market moves that hadn't happened in his lifetime, but it happened many times before.
[01:22:56] In other words, things that had happened before he was born, such as, you know, looking at things like the great depression. Having done many such studies in pursuit of timeless and universal principles, Ray says he learned that most things like prosperous periods, depressions, wars, revolutions, bull markets, bear markets, they happen repeatedly through time and often the cycle is longer than our lifetime. And this has helped him come see that most everything is quote-unquote, another one of those, right? Just like a biologist upon encountering a creature in the wild could identify which species or one of those that creature belongs to. And then think about how that species of thing works and try to have and use timeless and universal principles for dealing with it effectively.
[01:23:38] So instead of thinking that this latest thing, like a pandemic is unprecedented and brand new, and we have no idea how to prepare or deal with the problem after it occurs, which is, of course, worse. You see, "Hey, look, this has happened before. And here's what happened. And here are the mistakes." So you can learn from history, surprise, surprise. Ray says he believes that the reason people typically miss the big moments of evolution coming at them in life is that we each experience only tiny pieces of what's happening. We are like ants preoccupied with our jobs, carrying these little crumbs that are minuscule lifetimes, instead of having a broader perspective of big picture patterns and cycles along with the most important interrelated things driving them. And of course, where we are within the cycle and what's likely to transpire.
[01:24:23] And so from gaining this perspective, Ray has come to believe that there's only a limited number of personality types going down, a limited number of paths that lead them to encounter a limited number of situations to produce only — you guessed it — a limited number of stories that repeat over time. The only things that change are the clothes the characters are wearing and the technologies that they are using. So when wealth and values gaps are large and there's an economic downturn, it's likely that there will be lots of conflict about how to divide the pie. And that's where we are now, right? Wealth and values gaps are large. There's an economic downturn. There's going to be conflict on how to divide those resources.
[01:25:02] And throughout history, wealth was gained either by making it, taking it from others or finding it in the freaking ground. And so the question becomes: what are these deconstructions and reconstruction periods like for the people who experienced them, which is us right now, or soon? Since you/we haven't been through one of these yet, and the stories about them are very scary, like revolutions in Bolshevik, Russia, the prospect of being in one is pretty scary to most people. And I guess, we know that typically the majority of people stay employed during depressions. They're unharmed, during shooting wars. And we all typically on the whole survive natural disasters. Keep in mind that economic destruction periods in war periods, they don't typically last very long. They tend to last roughly two to three years. One rarely gets all three of these types of big crises. So economic, revolutions/war, and natural disaster at the same time. Then again, it can happen. It does happen.
[01:25:58] So we start to think of ascent and decline. So broadly speaking, we can look at these rises and declines as happening in three phases. One, the ascent phase, which is characterized by gaining of competitive advantages. Two, the top phase, which is characterized by sustaining the strength, but even essentially sowing the seeds for the loss of the competitive advantages that were once behind the ascent. And three, the decline phase, which is characterized by self-reinforcing declines in all of these strengths. Now, this is extremely interesting stuff. You can read about it. We'll link to it in the show notes. This is taken from Ray's work. We'll link to that longer work here in the show notes. So if you're thinking like, "Wait, hold on, I got to rewind. I got to write this down." Go read the article. It's worth it. It's a couple of hours long. If you just want the overview, I'm doing it right now.
[01:26:44] As Aristotle said a long time ago, "The poor and the rich, they quarrel with one another. And whichever side gets the better instead of establishing a just or popular government, usually regards political supremacy as the prize of victory." That's not good. In other words, what that means is when there is conflict, whichever side wins, doesn't just say, "Okay, let's set this up fairly now."They say, "Great, let's set this up so that we can control things from here on out." Not good, right? It repeats the cycle or causes the cycle to repeat. And classically, the big cycle transpires with periods of peace and productivity that increase wealth in a disproportionate way, which again, leads to a very small percentage of the population gaining and controlling exceptionally large percentages of the wealth and power. Then, of course, the empire or those people, or both become overextended, we then encounter bad times that hurt those who are the least wealthy and powerful, right?
[01:27:39] So when there's climate change, it's not going to be all of us one percenters are sitting here in our castles or whatever, figuratively speaking, well, for me, anyway, figuratively speaking that are hurt the most, it's going to be people who live in these areas that are getting affected the most and can't afford to leave. That leads to conflicts that produce revolutions, civil wars, which after completed then leads to the creation of a new order and the cycle begins once again.
[01:28:04] If you're looking for red flags, watch populism and polarization as markers. Google populism and your country name. And if you live in the United States, you're not going to like the results. If you Google polarization and you probably don't even need to Google it because whatever country you live in probably has this. And it's becoming increasingly severe wherever you live. The more population and polarization there is the further along the cycle in nation is in what Ray calls stage five, so getting closer to civil war and revolution and stage five moderates and centrists become the minority. And stage six, they cease to exist because you have to pick a side or you won't survive, literally.
[01:28:42] And populism, this is something that scares me and I've talked about it a lot here on the show. History shows us that the biggest risk to democracies is that they produce such fragmented and antagonistic decision-making that they can be ineffective. We're kind of seeing that now here in the United States and in the West. That leads to bad results, which leads to revolutions led by populist autocrats who represent large segments of the population. And those people, they want to have a strong, capable leader, get control of the chaos and make the country work for them. You have seen this over and over and over again in history. We're seeing it happen in large parts of the population here in the West as well.
[01:29:18] Also, noteworthy history has shown that during times of great conflict, Federalist democracies, like the United States, we typically have conflicts between the States and the central government over the relative power that each one has. And this would be a marker to look out for that hasn't yet arisen here in the US. It happening would signify the continued progression of this cycle towards stage six, which is revolution and/or civil war. And I am not an alarmist. I don't think we're headed inevitably towards civil war. I just think we're in dangerous waters right now. And we do need to get the situation under control, but we're not really moving in the right direction.
[01:29:54] Remember Ray said he was optimistic. So let's bank on the guy who made the study, being optimistic and not my doom-and-gloom here in the show close. Again, there's more to this we'll link to Ray's full piece here in the show notes, as I mentioned, and we'll put some of this in the worksheets. I really hope you enjoyed this. It was a hell of a lot of fun for me to record.
[01:30:12] Big thank you once again to Ray Dalio. Links to everything will always be in the show notes. Please use our links on the website if you buy books or anything from any guest on the show that does help support us. Worksheets for this episode are in the show notes. Transcripts are in the show notes. There's a video of this interview going up on our YouTube channel at jordanharbinger.com/youtube. I'm at @JordanHarbinger on both Twitter and Instagram, or just hit me on LinkedIn.
[01:30:36] I'm teaching you how to connect with great people and manage relationships using systems and tiny habits over at our Six-Minute Networking course, which is free over at jordanharbinger.com/course. Dig that well before you get thirsty. Most of the guests on the show, they subscribe to the course and the newsletter. Come join us, you'll be in smart company where you belong.
[01:30:56] This show is created in association with PodcastOne. My team includes Jen Harbinger, Jase Sanderson, Robert Fogarty, Millie Ocampo, Ian Baird, Josh Ballard, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for the show is that you share it with friends when you find something useful or interesting. If you know somebody who's into geopolitical conflict, history, loves Ray Dalio, who knows this guy is popular, share this episode with them. Hopefully, you find something great in every episode. Please do share the show with those you care about. In the meantime, do your best to apply what you hear on the show, so you can live what you listen, and we'll see you next time.
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