The founder of the world's largest hedge fund says capitalism needs urgent reform
Capitalism is no longer working for most Americans, according to one hedge-fund billionaire, who says the expanding wealth gap dividing the haves and have-nots is creating a volatile environment with disturbing parallels to the economic and social upheaval of the 1930s.
That experience led Dalio, 69, to become a global macro investor, a career he has pursued for nearly a half-century and one that has shaped his understanding of economics and markets. Dalio believes capitalism is the most effective allocator of resources that raise living standards, arguing that communist systems fail because they do not recognize the need for people to be rewarded properly in order to motivate them to work.
Most people in the bottom 60% “are poor,” he writes. About 40% of all Americans would struggle to raise $400 in the event of an emergency, he says, citing a recent Federal Reserve study. The childhood poverty rate stands at 17.5% and has not shown meaningful improvement in decades. That, in turn, leads to poor academic achievement, low productivity and low incomes.
Capitalists don’t know how to divide the economic pie, while socialists don’t know how to grow it, he writes, “yet we are now at a juncture in which either a) people of different ideological inclinations will work together to skillfully re-engineer the system so that the pie is both divided and grown well or b) we will have great conflict and some form of revolution that will hurt most everyone and will shrink the pie.
Change must come from the top, he writes. “You will not effect change unless you affect the people who have their hands on the levers of power so that they move them to change things the way you want them to change,” Dalio notes. “So there need to be powerful forces from the top of the country that proclaim the income/wealth/opportunity gap to be a national emergency and take on the responsibility for re-engineering the system so that it works better.
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