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 an investor like Ray Dalio is uniquely poised to observe about the ebb and flow of history and the repeating patterns that make the future somewhat predictable.
- Why transitional (and often painful) cycles — like recessions, pandemics, and wars — are necessary to reset and change the rules.
- How studying these cycles as symptomatic of larger problems is the best way to heal and grow from their discomfort.
- What the current state of political polarization in the United States bodes for our collective future.
- How our rivalry with China differs from our Cold War rivalry with the Soviet Union and what Ray sees as our best way of managing it.
- And much more…
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Ray Dalio doesn’t profess to possess psychic powers, but the same thing that made him one of the world’s most successful investors is the same thing that makes it possible for him to greet the future less surprised than most: he’s an excellent observer. By spotting the cause and effect patterns of certain cycles repeating over the past few hundred years of human history, he’s been able to peer into a crystal ball of sorts to divine what tomorrow is likely to bring.
On this episode, Ray rejoins us to discuss what he sees around the corner as detailed in his latest book, The Changing World Order: Why Nations Succeed and Fail. Here, we go over the political polarization and populism on both sides of the spectrum that keep us in a constant state of discord (and what’s traditionally been a consequence of this dynamic), how the forces that shape the economy seem to be willfully ignorant of what such manipulation has brought us in the past, why transitional cycles — often painful — are sometimes crucial for galvanizing necessary change, and much more. Listen, learn, and enjoy!
Please Scroll Down for Featured Resources and Transcript!
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If you missed the last time Ray Dalio was on the show, make sure to catch up with episode 491: Ray Dalio | The Changing World Order here!
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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:
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Resources from This Episode:
- The Changing World Order: Why Nations Succeed and Fail by Ray Dalio | Amazon
- Principles: Life and Work by Ray Dalio | Amazon
- Ray Dalio | The Changing World Order | Jordan Harbinger
- Ray Dalio | Principles of an Investing Pioneer Part One | Jordan Harbinger
- Ray Dalio | Principles of an Investing Pioneer Part Two | Jordan Harbinger
- Bridgewater Associates
- Ray Dalio | Website
- Ray Dalio | LinkedIn
- Ray Dalio | Instagram
- Ray Dalio | Twitter
- Ray Dalio | Facebook
- Kissinger and Dalio on Chinese-American Relations | National Committee on US-China Relations Gala Dinner
- How Seditious Conspiracy Charges Change the January 6 Narrative | Vox
- The Great Leap Forward (1958-62) | Simple History
- World War Two Veterans: ‘The People Who Say They Weren’t Frightened Are Liars’ | The Guardian
- Report: Twice as Many CT High Schoolers Are in Danger of Being Held Back | CT Mirror
- America’s Populism Problem | Cato Institute
- Immigration 101: What is a Sanctuary City? | America’s Voice
- Why Americans Are Rethinking Where They Want to Live | The Economist
- Why Infrastructure Matters: Rotten Roads, Bum Economy | The Brookings Institution
- Fairness Doctrine | The First Amendment Encyclopedia
- The Legal Defense For Fox’s Tucker Carlson: He Can’t Be Literally Believed | NPR
- What Is Fascism? What to Know About Its Brutal Origins | Time
- The 13 Dynasties that Ruled China in Order | History Hit
- Dreams of a Red Emperor: The Relentless Rise of Xi Jinping | Los Angeles Times
- The Build Back Better Framework | The White House
- How the US Can Avoid Another Civil War | Time
- China and Taiwan: A Really Simple Guide to a Growing Conflict | BBC News
- Russia-Ukraine Crisis: Why Brussels Fears Europe Is ‘Closest to War’ in Decades | BBC News
613: Ray Dalio | Why Nations Succeed and Fail
[00:00:00] Jordan Harbinger: Coming up next on The Jordan Harbinger Show.
[00:00:02] Ray Dalio: There are five types of wars. There's a trade war. There's a technology war. There is a geopolitical influence war, which is influenced by the first two. There's a capital war. And then there's a military war. We are certainly in the first four of those and that's really a competition. And how competitive we are is almost everything in that game.
[00:00:31] 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 Russian chess grandmaster, arms dealer, or tech mogul. Each episode turns our guests' wisdom into practical advice that you can use to build a deeper understanding of how the world works and become a better critical thinker.
[00:00:57] If you're new to the show, or you're looking for a handy way to tell your friends about it, we now have episodes starter packs, and these are collections of top episodes organized by popular topic. That'll help new listeners get a taste of everything that we do here on the show. Just visit jordanharbinger.com/start to get started or to help somebody else get started. Of course, I always appreciate it when you do that.
[00:01:17] Today, the one and only Ray Dalio is back on the show. We're exploring why empires rise and fall, mostly the latter. Ray has done a lot of research on the cycles of empires and we'll explore what this cycle looks like and what place the United States and much of the Western world actually falls into now. Also, will there be another civil war here in the United States? I was an am skeptical and Ray and I discuss the factors that go into this as well as the odds of it actually happening according to Ray. Lots to discuss today and it's always so good to talk to somebody who's as smart and informed as Ray Dalio.
[00:01:51] If you're wondering how I managed to book all of these amazing people on the show every week, it is because of my network. And I'm teaching you how to build your network for free over at jordanharbinger.com/course. This course is all about improving your networking and connection skills and inspiring others to develop a personal and professional relationship with you. It'll make you a better networker, a better connector, and a better thinker. That's all at jordanharbinger.com/course. By the way, most of the guests on our show already subscribe and contribute to the course. So come join us, you'll be in smart company where you belong.
[00:02:24] Now, here's Ray Dalio.
[00:02:27] Are you sick of talking about this yet, Ray? I don't know. Maybe you—
[00:02:30] Ray Dalio: I'm not even enough to be excited about it.
[00:02:33] Jordan Harbinger: Yeah.
[00:02:33] Ray Dalio: It's important.
[00:02:34] Jordan Harbinger: It is important. I think the key here, and I know — I want to get into why you did this study, but it was a little painful for me to read this, but the truth hurts sometimes, I guess is probably the old cliche. Do you get that reaction a lot when people read this new book?
[00:02:49] Ray Dalio: Well, you know what Henry Kissinger said, and a number of other people said, that basically it's a great warning and it's a great education. I have a principle, which is, if you worry, you don't have to worry. And if you don't worry, you need to worry because if you worry and you understand what's likely, then you're likely to deal with it better than if you're just not worrying about it. So it paints a picture that's clear and you can take it or leave it, but it's better to take it and consider it, I think.
[00:03:21] Jordan Harbinger: I would definitely say so. I want to start with why you did this study because looking at what you normally research, and I know I'm oversimplifying it. Look, if I'm studying economics, I want kind of the next quarter, maybe an annual kind of prediction. I'm not looking five or 10 or 20 years out, most of the time, at least most Wall Streeters are not.
[00:03:42] Ray Dalio: But I'm looking one, two, three, four years out like.
[00:03:45] Jordan Harbinger: Yeah.
[00:03:45] Ray Dalio: What I found in my life is that most of the things that surprised me were things that never happened in my lifetime before. That taught me that I needed to study past history. For example, studying the Great Depression allowed me to anticipate the 2008 financial crisis. I wouldn't understand it. Some of these things come along once in a lifetime kind of thing. And there were three things that came along that I needed to understand better to do my job. This was done as a study for me and my job of dealing with these things and not as a book. I converted it into book because it was important, but the three things that were really unprecedented in my lifetime were first the amount of debt creation and debt monetization. In other words, the printing of money to buy government debt is unprecedented. The finances are unprecedented. And as a financial person who watched his economics, I saw how it passes through the system. And that's always happened throughout history. That mechanics is, but at some precedent magnitude.
[00:04:49] The second is the magnitudes of the internal conflict, which are the greatest and coming from the largest wealth and income gaps, the largest political gaps since 1900. I liked to measure things and so you see these charts and you see it goes back to 1900. And the third is the rising of a great power, the challenging existing great power, China rising to challenge the United States. Those three things coming together. Individually, they didn't happen before in my lifetime. And then coming together was unprecedented. So I needed to understand certain things. January sixth didn't come out of nowhere.
[00:05:33] Jordan Harbinger: Right.
[00:05:33] Ray Dalio: Okay. It germinated. And it's coming to the surface. And it is when we go through it and extrapolate it, and we understand how these things it's telling about 2022 to 2023, 2024. And if I don't understand these things, it's like not understanding the Great Depression and the 2008 financial crisis. So I did the study. I'm very lucky that I could speak with practically anybody in the world and I talk about things. We have interesting conversation. You know, I learned a lot and they told me how important it is. That's why Henry Kissinger, Bill Gates, a lot of people. And so that's why I put it out because I think it's important for people to read. You can judge it for yourself—
[00:06:19] Jordan Harbinger: Yeah.
[00:06:19] Ray Dalio: —whether you think it's important to read, but that's why I did it.
[00:06:22] Jordan Harbinger: Obviously. I agree with you that it's important to read. I was mostly commenting on the discomfort that comes up when you read something that you don't want it to necessarily be true. I mean, obviously a smart person takes that as a sign that they should look deeper into something instead of shoving it into the rug.
[00:06:37] Ray Dalio: I think that's a real problem of dealing with things. I learned, you know, because of the profession I'm in and so on that I have to be realistic. I want to look at things realistically and be accurate and including the bad things. Think of that if you had a disease, a terminal disease, would you want to know? Or you have a particular problem, would you want to know? Only by knowing and understanding, don't be a shy from knowing because it's discomforting. It's scary to me to not know.
[00:07:12] Jordan Harbinger: The depression and war periods that you mentioned in the book, so the Great Depression, for example, being one of them and war periods, possibly even civil war periods, you write, "They're necessary to reset and change the rules. They're transitional but painful. The swinging of cycles is the norm, not the exception." And you mentioned earlier here at the top of the show, yeah, a lot of us don't think it's the norm and not the exception because I wasn't alive for the last civil war. You weren't alive for the last civil war, but I suppose if you were 20 at the time of the civil war, it wouldn't look impossible. Like it does to many people right now where they say, "Oh, come on civil war in the United States, give me a break. You've been watching too much Newsmax, whatever it is. Get off Twitter, Jordan, calm down." It seems like the reaction.
[00:07:54] Ray Dalio: Right. Step back, and look at a picture of history. Like I say, war 1945, the cycle repeats. I can describe the cycle if you like, but you have a cycle that then ends up in a conflict when you have, internally, when you have large wealth gaps and bad finances, then externally, when you have a power, that's challenging you. The probabilities of a conflict is rising and you see this through history. And they last, and these world orders, you know, last 75 or 100 years or so, but you're right. You know, last one began in 1945 at the end of World War II. And I've been very lucky. You've been very lucky and that it's in the beginning part of that cycle. And then you get a new generation of people who didn't go through the war. My parents went through the war and therefore they're less aware of it. They're less aware of what causes it, but you see signs of these things, right?
[00:08:56] Like the January 6th is a symptom. You can imagine that in 2024, maybe neither side will accept, lose it. Okay, now, if you have neither side accepting, losing, and then you may not have resolution of that according to the constitution and the law, and then you have a power conflict that's as a profound change. Now, that's not far fetched, it shouldn't be far-fetched from anybody. And if you look at the patterns of history, you see that always the extremes tend to become greater. And those in the middle disappear because you know, there's another principle, which is when the causes that people are behind are more important to them than the system, the system is in jeopardy.
[00:09:47] And so when you get into an environment where I want to have you fight for my cause and win at all costs, history has shown you go to greater and greater polarity and you do have to fight. And that respect for things like the technicalities of law and the constitution. Think about, it's a remarkable system that we have that when you have somebody by a few votes win the popular vote and somebody win the electoral vote that they say, "Yeah, I got it and I'll step away and I'll operate by that," that can't be taken for granted. So these things exist. You need to know it.
[00:10:27] Jordan Harbinger: We realize now more and more just how precarious our system is. And it's funny to talk about this in the context of the United States, because I know we're going to talk a lot about China as well. And I take Chinese lessons a few times a week in the morning, and I'm always talking to my teachers, they're usually using a VPN. Sometimes the ones that really trust me will talk about political subjects, not their favorite subjects, generally, when they're sitting in Xi'an. But if you ask a young Chinese person, "Could there be massive disorder in China?" There'll be like, "No, not really." But then if I tell them to go ask their grandparents, they're like, "Are you kidding me? Have you heard of Mao? We lost like 20 million people. Why do you think I keep three-day old rice in a container under the table." There are teachers whose parents had canned food or whatever the equivalent thereof in clay pots, I think, under the floorboards of their house. And they're like, "Why are you keeping food here? We have supermarkets. We have whatever DoorDash is in China." And they're just old habits die hard. These older folks, they live through the equivalent of the Holocaust, essentially in their country.
[00:11:27] Ray Dalio: That's part of the cycle. For example, the inclination to war very much changes. Those people who went through those types of a war say, "I never want to go to a war. Peace is just so important." The people who wanted most to fight regretted going into wars and yet the new generation in a sense who hasn't been through a war then, you know, basically says, "I'm going to fight for this thing." And then they get into wars. And so there's a generational psychology change, even appreciating basics. Can I secure my basics? You know, those people want to basically take the worst case scenario and secure their basics. A lot of people just think that that's not it because they haven't been through it. But if you see the patterns, I think, people have got to understand that causality.
[00:12:19] Jordan Harbinger: I agree with that once we know the causes, well, first of all, we can try to head this thing off at the past if possible, but also we can at least understand why we're heading, where we may be heading.
[00:12:30] Ray Dalio: And we also can deal with it individually. So there's the collective, how do we collectively operate to make sure we don't have terrible things happen? And then there's individually, if we can't change things, how do I individually navigate this? And so what I had hoped to do, and you see the charts and you see the dot plot and you can then plot where you're going with numbers. It's not — this is our opinion as you know, in the book, these are numbers and graphs of things. So you can plot and you could add your dot block and know where you're going and to know something about, "Okay, what do I do if this happened so I'm not surprised?" So there's the individual taking care of himself. And then there's also, you know, what do you do to avoid this thing happening?
[00:13:21] Jordan Harbinger: Where there's a wealth gap at an economic downturn, there's always going to be a conflict on how to divide the pie. I think that's a paraphrase from the book itself. A lot of people are arguing, well, look, the economy is doing great, but I think the real danger here is the wealth gap. I grew up middle-class like probably most people listening to this. A lot of my friends who grew up next door to me, maybe even were a little better off or at least had more stuff growing up — hard to tell what's what now — they are either middle-class, working class, lower middle class, whatever you want to call it, very few of them count on sort of one hand of the people who have really crushed it. And the gap is becoming more and more obvious. And it's not just the same people who are wealthy before are staying wealthy and that people I know that didn't have as much are in the same position. It's almost like a lot of people are moving way up the spectrum. I mean, hundreds of times more income than they would ever need, or at least dozens. And then the rest of the folks that I know, and this is anecdotal, but of course, the data sort of bears it out, the rest of the people are sliding down in quality of life, which is not how things are, quote-unquote, "supposed to happen."
[00:14:28] Ray Dalio: Right. And that's mechanistic. Two years ago, I did a study and it, which was by quintile, top 20 percent, next 20 percent, and so on. I looked at also aggregated the bottom 60 percent. And that's a problem. Just to add to it, when you say we're getting more money, I just want to be clear that what happened was a lot of sending out more checks. We all have, now that it's been sent out a lot of money, but they just increased the amount of money. And you don't get richer by increasing the amount of money. The only way you get richer is by increasing production. And so what we're seeing is a higher level of inflation taking away those gains. And so when you have the combination of the three, the bad finances, if you're spending more than you're earning and you're printing money to do that, that's a sign. Second sign, big wealth gap. You're not going to raise that. A irreconcilable differences that people will fight over. And third sign is the rise of an external power or threatened competition that ends up happening at the same time. That confluence is something. And so it's very real. You're talking about it.
[00:15:46] I live in Connecticut and Connecticut has it's either the highest, or one of the three highest per capita incomes in the country, high per capita income. 22 percent, my wife works to help this population. 22 percent of the high school students in Connecticut are either disengaged or disconnected. Disengaged means that they have an absentee rate, which is greater than 25 percent and they're failing classes. And disconnected means they don't know where they are. They dropped out. So 22 percent of the high school students in the richest state in the country are in that condition, okay.
[00:16:29] Jordan Harbinger: Wow.
[00:16:29] Ray Dalio: And you're seeing people move from New York and places, California and so. There's big things going on, it's a combustible set of circumstances and therefore what's happening in terms of populism of the left and the right, and that whole dynamic is very, very normal, very understandable, even though it hasn't happened in our lifetimes.
[00:16:52] Jordan Harbinger: You mentioned earlier that the outside pressure of another economic power is one of the major factors. And China is a real economic rival in a way that the Soviet Union never was. You know, a lot of people will say, "Oh, but the Soviet Union, no, we kind of beat them." I'm not necessarily qualified to do this, but I do know when you look at — these are apples and oranges. The Soviet Union was almost like, it just wasn't the same thing. It wasn't the same situation as China. It was a completely different economy, but also it's a completely different set of circumstances and a completely different country in terms of its economic power.
[00:17:24] Ray Dalio: Sure. There are different kinds of power. I go through the eight different types of power. Economic power and military power are both going together. Russia was never an economic competitor. China is economically competitor. Just put it this way, China is a population that's more than four times that of the United States. So if per capita income is half the United States, that will mean that it will be economically twice the United States. That means that it can also stand on military and other things in a way that is very, very different. So it's a whole different kettle of fish.
[00:18:05] Jordan Harbinger: That starts to get scary when we look at authoritarian regimes. I think if Denmark was twice the economic power of the United States, people would be less alarmed about this particular situation. What do you think?
[00:18:18] Ray Dalio: Right. I think first there are different approaches, different ways of doing things. And I think the real question is whether one is imposing the other on each other. So should we be threatened by that? I mean, they're certainly threatened by the competition, but should we be threatened by that? And I think at the end of the day, the most important thing is how strong is America, okay. It's simple. Just be strong. The big war is with ourselves that standing in with this internal conflict and the financial things. If we can be strong and do those things right, then we're going to be in the best of shape, there'll be less threat.
[00:19:02] And there are five types of wars. History has shown it and we see it all the time. There's a trade war. There's a technology war. There is a geopolitical influence war, which is influenced by the first two. There's a capital war. And then there's a military war. We are certainly in the first four of those and that's really a competition. So how can we be effective in trade? American inventiveness to make technology the best we possibly can. What about the geopolitical influence? And then of course, capital markets. That's a big advantage. So those are the things that will influence and how competitive we are is almost everything in that game.
[00:19:47] Jordan Harbinger: There are a couple of phases here. And of course, when you read the book, people will get this, but I'll give a little cheat sheet here because I don't want to spend an hour on it. But there's essentially the civilizations phase here with the rise phase, good education, strong leaders, a good system, like capitalism that we have here, the top phase, labor gets too expensive. We start outsourcing things. People get decadent, less productive, less battle-hardened you might say. There's a lot of borrowing, a lot of bubbles in a wealth gap. We print money to avoid the default, which is kind of where we are now from the look of it. And then we get into populism essentially. Can we talk a little bit about that? Let's define what that is and why it's appealing because when you read it on paper, you go, "Oh my gosh, this is horrible," but then it's like we're just charging full steam ahead into it in any case from the look of it.
[00:20:33] Ray Dalio: Right. So what a great summary, very quickly, most important aspects of it. As you come down there and you have this set of conditions, you have both sides saying this isn't right, and they fight for each other. So you go to greater levels of extremism and wanting to fight with each other. So there's populism of the left and populism of the right, and it hits at the core values. So you're seeing a big difference in values and that causes the fighter and the fighting. They don't want candidates now, don't want to thoughtfully present their perspective, listen to the other candidates, thoughtfully perspect their perspective, have a debate about which is best, and have the populist consider both of those and make a vote, okay. That's passe.
[00:21:30] Jordan Harbinger: Yeah. I'm laughing to myself, for those watching on YouTube, I'm laughing because I'm like, I remember those days kind of, I think.
[00:21:38] Ray Dalio: Right. It is fight for me and win at all costs.
[00:21:44] Jordan Harbinger: And America loses — well, look, it doesn't matter where you live. Everyone loses when one side is completely hyperpartisan and willing to be intellectually dishonest and doesn't really care about anything other than winning for their own cost.
[00:21:56] Ray Dalio: And the political system by its nature reinforces that because each of the parties has a moderate part and a less moderate part. But let's say to use an example, maybe 30 percent of the population is fairly right, a lot right, let's say, and 30 percent might be a lot left and you got 60 percent of the population. They represent a large part of each party. And so you have primaries now in which you're going on. 2022 will be first the primary battle, because what they will do is say, who will be the winner. And each of those fights will be who is going to fight for me. And moderates don't come across like they're the fighters for me.
[00:22:47] Jordan Harbinger: No.
[00:22:47] Ray Dalio: And so the parties tend to move more and more to the extreme for the big fight. And that's like the big fight in 24. And as I say, it's entirely possible or almost probable that neither side would accept losing, okay. Now that's a different world. That's a different change in democracy.
[00:23:09] Jordan Harbinger: Yeah.
[00:23:09] Ray Dalio: How was that resolved? It's resolved through power. That is not something that's farfetched. And in order to understand how it's worked, it's worked the same way. In the book, you go through, you see these patterns. You know, the French Revolution, Chinese Revolution, the Russian Revolution, the Cuban Revolution. I mean, it's the same thing in terms of the polarity — and you can't be in the middle. It's dangerous to be in the middle but they decide and fight.
[00:23:36] Jordan Harbinger: Yeah. I was going to comment on that. I always used to say, "Well, you know, I'm kind of a radical centrist, you know, ha-ha," that used to be my kind of like dad joke about politics until a friend told me, "You know, that the moderates and the centerist, they all die first because what happens is the left and the right, they both come for the people in the middle because they won't pick a side. So you're getting hunted by both sides." And I mean, if we're talking a civil war, it's literally being hunted by both sides. But if you're talking about a power struggle, it's pretty much the same thing. If you're not going to pick a side, you're just the enemy of both sides, which is a much more dangerous place to be. And if nobody's going to be hyperpartisan on your behalf, well, now you find yourself with your back against the wall and there's not a whole lot of people around you.
[00:24:19] Ray Dalio: Right and only when I did this, it's like watching the movie happen over and over again. You see this happen this way, so we're talking about it, but it's like, if you read the stories happening over and over again, you get it. It creates the dot plot, you know, and you can then fill it in and hopefully, we will see a deviation from that dot plot.
[00:24:45] Jordan Harbinger: Hopefully. I mean, that's the idea, right? But it's a little bit, that almost seems like — what's an analogy here? It's kind of like those people that say, "Well, my plan for retirement is winning the lottery." "And so what are you doing?" "Well, I'm buying tickets." "Okay, a lot of people are doing that, but that's not necessarily—"
[00:25:01] Ray Dalio: But Jordan, that's what brings us back to our first point on this. Like you say, it's scary. And I say, you have to be realistic and you have to have a plan. So, right, you're saying that, you know, you're on the other side, like it sounds Pollyannish and that's right. But that's why I say, if you worry and we collectively worry, we might be able to do things. We have it in our power because the world and the countries have more money than more resources than they've ever had before. We know more, we can do more than we can have a higher living standard that we ever had before, if we can cooperate. And we must cooperate because look at what that alternative is. So there are things that we can do. I'm not saying they're easy, but the alternative is scary.
[00:25:55] Jordan Harbinger: You're listening to The Jordan Harbinger Show with our guest Ray Dalio. We'll be right back.
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[00:28:38] Now, back to Ray Dalio.
[00:28:41] It is really scary. Yeah, it is quite scary. And we'll talk about some proposed solutions, I suppose, in a little bit here, but you know, let's scare people a little bit more. Why not?
[00:28:51] You mentioned often in the book that societies that perform well are civil to one another. I'm wondering where you think the United States is in that spectrum right now. Because when I talk to people in person, even some of the most extreme people, they're still working, they don't treat people horribly to their face, but then you look online and it is a completely different universe of communication. And it's almost like, well, which one of these is real?
[00:29:17] Ray Dalio: I think you've summarized it very well. There's a great deal of change that has taken place at a very fast pace and the communications of what people are seeing. When you go to work, you're doing your work and you're not dealing with the issues and so you have something in common, perhaps. But when you're really dealing with the actual measures of what they say and how they vote or actions they take, and you plot those things, you put numbers to them and you plot those things, you can see what's happening. And you can see that it's not civil debate. I described how it used to be that both candidates would present their positions and what they can do for the country and people would consider that and the vote shows how it's all different. Yes. It's very, very different. And you do the dot plot and you can see that.
[00:30:09] So, yes. Do we have irreconcilable differences? Yeah, I think that's the real question. I think if you hear these, a lot of these issues we're doing, people will move. They'll change location, not just because of taxes, but because of knowing to be with people whose values and their circumstances are more like them, and you're seeing that happen. You'll see a big difference probably between the relationship of states and the federal government. I think more in the future state's rights — you know like the sanctuary city issue. When the federal government says, "You should do this and you do this." And the state or local government says, "I'm not," then you have the breakdown of the system. They don't just go to a rule. Then you have a power of driven set of circumstances. And I think we're moving. We know it's more like that than it was. And we see the dot plot. And if you look at history, so that's what I'm saying, I think is pretty clearly going on. I mean, why did they move from California to Texas?
[00:31:19] Jordan Harbinger: Some of it's taxes for sure, yeah.
[00:31:21] Ray Dalio: Yes. For some of it is taxes, but also things like the regulatory environment, how people should be with each other. You know, I believe in, I don't know one place self-sufficiency and another one says, I believe in the greater humanity of helping each other. Some places, this group is evil, billionaires are evil or poor people are evil or something, and you get to that, all those things, pulling people in different directions, pulling them apart. There's a section in the book that almost helps each person identify which they're going to be categorized with and which there probably is going to be their equivalent of their affinity group. It can be economic, it can be ethnic, racial. It can be values. And you go down that — you saw the park, I have blah, blah, blah, blah, blah. That's how you will be looked at.
[00:32:16] Jordan Harbinger: Do you encourage people to relocate based on where they fall in that particular type of spectrum or based on those criteria?
[00:32:24] Ray Dalio: I don't encourage people to do anything in a sense because that's like, do I encourage people to have a particular religion? Do I have encouraged people to have a particular food that they prefer? The preferences that they make are their own preferences. I'm just trying to convey the consequences to make them aware of such things. Like, for example, I've stayed in Connecticut and I'm trying to deal with this because I feel that's my home, okay. And that's a personal preference. I have to have friends who have gone to other places because they have a preference. I can't tell you what path you should do. I can only make you aware of the likelihoods of these things happening in certain ways. And then you make your choices.
[00:33:09] Jordan Harbinger: I guess what I'm trying to get to the root of the relocation thing is it sounds like your point with relocation or one of your points with relocation is since people are relocating that sets up potential for further conflict, because if you're talking about a very mixed and diverse — I live in California and you have opinions of all kinds all over the place, depending on where you live in California, that's one thing. But if everybody who lives in a large swath of California, all has one opinion and everybody, and I put everybody, let's say 90 percent of Texas has another opinion, it's much easier to have a real conflict when you have that kind of lack of—
[00:33:43] Ray Dalio: Exactly. I think what you're touching on, I explain it in the book, is this hollowing out process.
[00:33:49] Jordan Harbinger: Yes.
[00:33:50] Ray Dalio: What happens is because of going to the affinity group or that place, which tends to have people more like that, then for example, the richer people move to places that more richer people are in and tend to protect wealth more. And as a result of that, the tax base moves. And as a result of the tax base moves, there becomes a hollowing out that produces a dynamic. It's more difficult to have public services, the circumstances get worse. And then that produces its own dynamic that makes that conflict worse. And that becomes a less hospitable place to be, which creates a force to move, which reinforces that cycle. That's how it works mechanistically.
[00:34:39] Jordan Harbinger: Right. That makes sense. Because let's say I'm doing pretty well, I live in Michigan or whatever, where I grew up and I realize, "Hey, you know, I'm so sick of paying high taxes. I'm going to vote somebody in office that doesn't do that." And now we have bad roads, bad schools, bad policing like Detroit did or does. And then everybody who has money says I'm going to move to Bloomfield Hills or a suburb or just an enclave that's nicer, but we don't have enough cops. Let's just do a private security force for our area. And you know what? We're going to redo the roads. It'll be private. We're going to buy this up and take it out of city hands. And my kids are all going to go to private schools because have you seen the public schools? They're terrible. You can't even go there. They have metal detectors. People are getting stabbed. So then the people who can't afford to live in that enclave live in the equivalent of Baghdad or Fallujah or whatever. I mean, it's just a hyperbole, but they live in a place where the schools are bad, the roads are bad, and there's no cops.
[00:35:30] Ray Dalio: And it's not very much hyperbole. I've described Connecticut. I live in Greenwich, Connecticut, and the public school system spends about $24,000 per student per year. Right up the road or towns like Bridgeport, Connecticut in which they spend something like $14,000 a year per school. And if you drive around the neighborhood, it does look as you're describing and there's poverty, they need more remediation, that they need more money, not less money because they have an environment and set of circumstances where there's poverty, not just schools. So it's like you're describing, right? There's a certain amount of hyperbole, but not much hyperbole in a lot of places.
[00:36:14] Jordan Harbinger: The place where my dad grew up. There's no — I'm trying to get this right. I believe there's no trash pick up. It'll take the cops something like days to get to you. I mean, literally, they're not starting to drive there as soon as you call it in. They just might not show up at all. And it might be an hour because there's like 28 square miles or something that they have to cover, and 80 cop cars, something along those lines. It's just absolutely ridiculous. And the power system is damaged in a lot of areas. The entire blocks where one house has two old people in it or an old person in it, or two houses do. And every other house is abandoned. So they don't service that place with things like sanitation or fresh roads or pretty much anything. They're on their own.
[00:36:55] Ray Dalio: People don't understand that because a lot of people lived — you know, they're on Greenwich, Connecticut, how much time do they go? 15 minutes up the road and go to Bridgeport, Connecticut. The state capital of Connecticut is Hartford, Connecticut. It used to be the insurance capital of the world. It has that type of thing. And my wife is working to try to help that population. She's with the mayor. And they're in this control room kind of thing, where they have the cameras on different places. And there were kids who have problem walking to school because they have to pass through areas where there are gangs that have gang shootings and she asks the mayor, "Well, why can't you have the police assure safe passage?" He said, "There are 275 police. That's all we can afford because there's beliefs or this thing and that," and it's just what you're describing. So how does this take place? It's a reality. Not everywhere, but people need to get around and look at these things or look at the statistics.
[00:37:55] Jordan Harbinger: The values gap is also something you mentioned quite a bit, not just the wealth gap, the values gap. And you touched on this a little bit earlier, but I'd love to hear more about this because it does seem more and more, especially if you pay attention to anything online that the United States is not only dealing with a wealth gap, that's quite obvious, but a values gap that is totally different. And each side calls the other side immoral and feels like they're completely in the wrong/evil. You mentioned before, people will say, "Well, poor people should work harder, but billionaires are evil depending on who you ask." And that's a huge problem if people actually believe really either of those kinds of things, wholesale.
[00:38:33] Ray Dalio: Well, the surveys show that large majority really, it would take the population. There's a middle but if you take those that have fundamentally big, big differences in terms of demonizing the others, say, "Hey, I don't want to be with the other," those kinds of things that represents something like 60 percent of the population. That's not made up. That is a reality. And you see that demonization in these patterns and you see how it works with the media. Okay. So there's a dynamic that you see repeat over and over again. And the media certainly true today. Also likes to sensationalize and beyond one side or the other and demonized. And so to find out what's true and to balance things like what are the pros and cons is not really common. It barely exists. And it's difficult. It's not easy to be talking about the reasonableness and the issues of both sides and to try to deal with the merit of both sides. I guarantee you like the history, they — the middle gets the other teams, nailed to the cross, imprisoned or shot.
[00:39:53] Jordan Harbinger: Do you remember — it's a little bit before my time, I don't know how familiar you are with this. You might not have been paying attention, but like the Fairness Doctrine. Are you familiar with that at all in media? It was essentially that if you ran two hours with a conservative, you had to run two hours with somebody who was effectively on the other side of the debate. It wasn't always exact.
[00:40:14] Ray Dalio: Yeah, I have a recollection of that. I knew through my whole experience, that the vast majority of the population of audience and media wouldn't have it otherwise by and large. That it was basically the notion of accuracy and not partisanship. It was fundamental.
[00:40:37] Jordan Harbinger: Certainly people cared more about accuracy previously, just because journalists had, they weren't competing for clicks. For example, if things were given different airtime and there was more of maybe even because there was more of a monopoly on print and news media, but for people who are not familiar, in 1949, the FCC created the Fairness Doctrine. It was a policy that required the holders of broadcast licenses to present controversial issues of public importance to do so in a manner that fairly reflected differing viewpoints. So basically, you kind of had to balance things out and I'm sure it wasn't exact, but they got rid of it in 1987 and...now we've got people who are just claiming ridiculous things because they're feeding a monster that gives them impressions so they can serve ads among other reasons.
[00:41:24] Ray Dalio: I didn't know that we certainly see those things happening, I would say, but I didn't realize in the media, if you can intentionally lie and produce harms, slander and so on, and it can be proven in case that you intentionally did that. And you can not be held accountable in any way.
[00:41:45] Jordan Harbinger: Right. Yeah. You can say it's entertainment. We can say ridiculous things. And then we can make the argument that no reasonable person would ever take a conversation that I have with you seriously, because we're totally unreasonable and we always have been. And that's why I have unreasonable viewpoints all the time. And if you don't understand it's entertainment, then it's on you, but I can present it as this is news and I'm totally unbiased. And you should definitely believe everything I say. And also I have a miracle cure for COVID that you can buy for a hundred dollars. You can do that stuff.
[00:42:15] Ray Dalio: Yeah. So I think the important thing is we see this we're commenting on what is, what in the book I tried to show is that this has happened repeatedly over and over again. It's like seeing the movie for the umpteenth time.
[00:42:32] Jordan Harbinger: Do you think that part of the reason that this is happening now is because politicians, especially in democracy, they have to prioritize short-term versus long-term thinking? And I remember hearing about this in the '90s where we were talking about the rise of Japan, which had happened, I think in the '80s and early '90s, where they were planning for their years ahead and how they were going to grow the company and invest in technology or whatever it was. And CEOs in the United States were mostly looking at shareholder value over from quarter to quarter. And now it's probably even shorter term. It seems like politicians are stuck in that same loop. Would you agree with that?
[00:43:10] Ray Dalio: Yes. You know, Larry Summers described it to me as the average time in the horizon is nine months in the future, roughly nine months in the future. And then there's motivations, for example, giving people more, which means spending more, which means you can borrow and spend more. Nobody pays attention to whether that spending is coming from borrowing. Then leads to, I will be a more popular candidate if I borrow and spend more and I will get elected. And then somewhere down the line, the other guy I'll deal with the debt. All of those things lend itself to short-term-ism. For example, not spending adequate money on education, there's hardly any better investment in terms of productivity, okay.
[00:44:00] Jordan Harbinger: Right.
[00:44:01] Ray Dalio: The return on investment for education is just enormous posted things, a fair system, but there are structural reasons. And so, yeah, there is a short-term-ism, of course, and that creates a cycle. Like if I borrow, I spend more, but then I have to pay back in the future and that creates a cycle. And of course, when the time from paying back in the future comes because that's painful, then they will print more money to make that easier, which will devalue the money. That's it. That's right. There's a cycle.
[00:44:35] Jordan Harbinger: It seems like authoritarianism. Does it just elongate the cycle? Because it seems like when you look at some of the data, it looks like maybe authoritarianism is better for building more stable societies because they can think long-term, they're not really in any danger of being replaced in an election. I am not advocating for that. I take it you're not a fan of authoritarian governance, generally. Well, I shouldn't put words in your mouth. I assume that's your opinion.
[00:44:58] Ray Dalio: I grew up in the United States, as far as I'm concerned, I would love to keep it exactly like that, right? In other words, the element of freedom, the flexibility of choice, the choice by the people and so on. Sometimes they may not make the best choices, but they have the flexibility and it's in their interest. And if it works well, it's just such a fabulous system. And then what you see in the cycles, you just see the mechanics of the cycles and it went back to Plato and as describe by the Republic in a sense, what you have is a democracy because democracy has existed for thousands of years, really. And democracy, the big risk of democracy is anarchy. When you have mad conditions and people start fighting with each other, then there's the issue of who's going to get control of those places.
[00:45:50] In the 1930 to 45 period, you got four democracies choose to be autocracies. The parliament goes out. That happened in Germany, Italy, Japan, and Spain. They said, somebody get control of this and that. And so that disorder leads to the strong — and then Plato would say that then you ideally have the benevolent despot who is sort of, "Okay, I'll take control. I'll make the trains run on time and we'll take care of that." And then with time you get the evil despot who is then operating that way and nobody can sustain that. You always have to have the change. And so then you have the revolution again, and then you keep on with the process.
[00:46:36] You know, there tends to be a cycle of those types of things, and we have to know our vulnerabilities. So to keep what we cherish, we have to behave well with each other, respect the rule of law, respect the constitution, respect thoughtful disagreement, and work together. And we have, you know, what we ideally aspire to, I think.
[00:46:59] Jordan Harbinger: Yeah. You mentioned revolution and there are people on the extreme sides calling for that sort of thing. The problem is that, and I think this is actually from your books. I'm not telling you something you don't know, but maybe you can comment on it. The winners who may have fought for equality or a place at the table or whatever it is, they never actually make things fair, right? History shows they never actually make things fair. They simply put themselves and their group on top and then redistribute resources.
[00:47:23] Ray Dalio: Well, there are many, many case — a great leader, you watch these arcs will win. The war will then have to deal with the remaining opposition. So they have to consolidate power to go on their mission in some way or another. They have to bring about stopping the fighting internally. And then they build a system that starts to improve things. And you can see the arcs in the charts, in the book because you can see, okay, education is the leading indicator. You start with education, you start with the system and then you build that particular system. And then they also has to build a system that transitions well to the next leader, because no leaders last as long as a good empire, a good dynasty. So you have to have a transition of a system. And democracy in the United States has worked pretty damn well. We only had one civil war, but it requires the cherishing of it and the operating that way in order for that arc to continue.
[00:48:30] So I think you can see in these cases over and over again, what's good, what's bad. And you can see the consequences. I think about the post-World War II period, what a wonderful period that was for the United States in the world. And also for Americans who had a middle-class and they were in it together and they restructured things and they built things and they worked together and then we have the cycle, get overextended, and so that's how it looks to me.
[00:48:59] Jordan Harbinger: That completely makes sense. I'm wondering what you think of are maybe the primary differences and let's say China versus American thinking, right? If we're talking about this cycle and the authoritarian versus democracy, you know that aside, it seems like China has a much longer, I mean, they talk about this all the time that they have a much longer perspective. They're thinking, they have tons of five-year plans. They have a lot of, maybe it's more philosophical than practical, but they talk in like much longer time periods and they kind of always have, right? Because you talk about dynasties and emperors. They're not thinking, "Hey man, I only got 20 years left." They're thinking, "Well, I'm going to have at least a few more generations to accomplish this particular project.
[00:49:41] Ray Dalio: That is, I know for a fact, because of direct contact that that's right. History in China is their religion. They study it. Every senior person can go back and to take each of the dynasties and they have amazing detailed history that they recorded way back then. So when they say civilization, what they really mean is like they had bureaucracies, then civilized and records and all of those things, and they see these cycles happen over and over again.
[00:50:13] I studied the dynasties. It starts, China was united in 221 BC and you can see these cycles happen and they all have it in their mind. And so a leader in China will view himself as what part of the cycle is he in. So let's say there's a new order. Their new order began in 1949. The Communist Party takes over. Mao Zedong comes in. Then there's a classic script, consolidate power, and then start to make the changes. Then fast-forward,Deng Xiaoping comes in. And then how do you get richer? Then you modernize it. And they went through that particular process. And then each leader knows where they are in that cycle and how to operate in that cycle. It's top of mind, because they've seen the stories happen over and over again.
[00:51:04] So you're right. It's a longer term history. It's not a nine-month perspective. That is how the thinking works.
[00:51:14] Jordan Harbinger: This is The Jordan Harbinger Show with our guest Ray Dalio. We'll be right back.
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[00:53:37] And now for the rest of my conversation with Ray Dalio.
[00:53:41] I don't know what kind of answer you're able to give to this, but a lot of people will say, "Well, Hey, Xi Jinping is almost like bringing China back to Mao/emperor era." And there's a lot of critique on, even on Chinese media where there's a picture of Xi Jinping seated in like a carved wooden dragon chair. Have you heard about this? And everyone's like, "He's trying to be the emperor now." And it's interesting to see because I can't really think of an equivalent in the United States because we don't have anything like that. I guess maybe if Joe Biden set on a golden throne, we might say, "Oh, look, he's trying to be the king. It's not, you know, this isn't going to work." It seems like Xi Jinping has a different idea and is almost breaking that cycle a little bit. What do you think?
[00:54:20] Ray Dalio: I think China's far more complicated and there are terrible misunderstandings and it's very difficult to just summarize those things. There are very, very, very different perspectives of Chinese living in China. For example, regarding the public, having all their information public and controlled by the government and all the data. Like they would say, "That gives me comfort and safety," or something. Or having their kids, the government says, "Your kids can't do video games more than once an hour a day." Now, in the United States, they would say, "Hey, that's a parental decision. What the hell is the government doing deciding that?"
[00:55:02] So these things become very complicated and, you know, in all countries there's a reading into all different things. So I can't really possibly summarize all of that in terms of the reactions. There are different approaches, certainly. And so I think it is definitely a more autocratic top down approach versus, you know, one of the Chinese leaders described me, you know, the United States is a country of individuals and individualism, and that makes it bottom up. And so there are different perspectives, but it's complicated.
[00:55:39] I think the main thing here is to whatever extent there could be an understanding, fine, that would be good, but to realize that let's focus internally on how strong we can be making our system work well and so on and different people will have different systems. Let's be as competitive as we can by doing the tried and true things right, right? And we know what those things are.
[00:56:08] Jordan Harbinger: Yeah. You mentioned in the book that the biggest challenge for leaders is to develop a capitalist system that is both good at growing the pie and limiting inequalities within the system. So the wealth gap was something we talked about earlier. Education was something we talked about earlier. Things like healthcare, probably, I would imagine, at least now certainly comes to mind. I probably wasn't even thinking about it two years ago or five years ago, but certainly now.
[00:56:30] Ray Dalio: Well, what you see over and over again which is common throughout history, this is almost a universal truth. That drawing from the largest population to give opportunity to is both functionally great. You will get the best talent if you can draw from the largest population. And it also makes it sense of fair inequality to produce equality, which then makes the system stable.
[00:56:57] This goes back to in all societies, if you go back to China and this meritocracy, some would say began with Confucius in meritocracy and exams and how they did it, and you can see it in different cultures. That one thing like you have to create that and together to create productivity that raises living standards and so on. And then of course, with consideration in terms of helping those who can't help themselves. But by and large, that's been a tried and true thing through that whole period of time. Because you have to make things better and you've got to pay for them too. And so to the extent that each individual is as self-sufficient as possible, and you enable them that they can pay for it and they can contribute the most. That's never perfect and so on but that notion is basically universally and timelessly ingredients for a successful society and a fair system.
[00:57:59] Jordan Harbinger: So investment and yeah, first of all, I agree. I couldn't agree more. I think a lot about the investment in infrastructure, education, you obviously do as well. You mentioned your wife is working in that probably full time, trying to figure out how to help some of these populations that don't have access to resources. We know what happens when these are neglected. If you don't know, and you're still not getting it, take a stop over in Detroit and drive around for a few hours, and you'll see what that might look like when take into some of the extremes. What do you think of programs like — I'm trying not to be partisan here, but just because it's top of mind, what do you think of something like Build Back Better, essentially stalling and Congress. I mean, we don't have to get into the nitpicky details of that particular plan, but do you think we need something that is a bold move that says, "Hey look, broadband healthcare resources, mental health facilities, whatever else—" do you think we need a bold step or do we need very small measured steps instead?
[00:58:51] Ray Dalio: I think we need a bold step. And simultaneously those are in many cases, great investments if done well to pay for themselves through their productivity. Like we encountered, as I say, through experiences, so our experiences are sort of the teachers that when COVID came along, kids didn't have, this population didn't have computers and didn't have connectivity. Okay. That's like not having water or not having electricity. Okay, it's basic. When you look at some of these things, that kind of infrastructure in terms of those basics is a great return on investment, as well as something that makes the system fair. And there were a lot of those. So you have to be conscious about those types of things.
[00:59:46] But do you get to pay for it? And how does that work? Because there's a financial part of this that has to also work, right? Because when you create a debt and you're selling the debt, there are buyers of that debt. So there's a supply demand. And if they don't buy that debt, then you have a problem that you have to print a lot of money and then you produce an inflation. And so how you balance those things requires both a skill level and a sense of what the objective is, right? In other words, you have to have the skill, to know how to balance those things and economic financial skill, how do you produce those things and so on, and then the ad is sell the bonds to balance those things. And then you have to have the goal in mind. And that goal has to be really that kind of equal opportunity and drawing. So you're being both productive and also creating prosperity that the majority of people benefit from.
[01:00:43] Jordan Harbinger: Some of these things like the wealth gap, the healthcare gap access, which we just talked about are parts of your list of red flags or indicators for strong internal conflict. Do you have others that we can be aware of? I mean, the United States is clearly facing a lot of these right now. We're more polarized and extreme than — well, I don't know. Are we more polarized and extreme than ever before in history? It seems like a civil war time surely was more polarized. I don't know how they measure that.
[01:01:09] Ray Dalio: In the book, there are different conflict measures. I created conflict gauges.
[01:01:14] Jordan Harbinger: Yeah.
[01:01:14] Ray Dalio: And so there were different kinds of conflict. And so if you were to go back, you would go back to the Vietnam War, Martin Luther King demonstrations, and so on in 1967, 68, 69-ish, and then you go back to the civil war period, if you take political conflict, when most conflicts, since 1900. So there are a number of charts in the book that shows the different kinds of conflict, but by any measures, we have high right now, conflict. You can say, is this the all-time record? It depends on which ones you're looking at. You know, that's what the picture looks like.
[01:01:56] Jordan Harbinger: What are some other red flags or indicators of strong internal conflict? We said wealth gap and things like that. What else is there?
[01:02:02] Ray Dalio: As you might remember I gave 18 indicators with measurements for each. So there were a numbers on each of those indicators, but I don't want to take you through all 18. I gave you three, which is the financial condition, the internal conflict, the external conflict. Number four, just out of curiosity is acts of nature have killed more people and, of course, more civilizations to change. But they're kind of the random things like the pandemic or a drought or something that's coming along. Also then innovation and then share of world GDP for trade, so in other words, how competitiveness are you in the world. Education in terms of all the measures is very important. Inventiveness, those would be the most important ones.
[01:02:56] You can see their charts for each one and numbers for each one, so that you can compare one country's military strength, for example, with another country's military strength. That's very important. So education levels, productivity, inventiveness, each one of those indicators is measured in an index. So that there's an index there that you can go country by country and you can compare, I have a number that allows you to compare it with the other country to see how strong it is in those regards.
[01:03:32] And when you take each one of those and you put those together, there's an overall strength index that you can see move, but you can see what type of strength, because there are different kinds of strengths such as the ones I've mentioned.
[01:03:46] Jordan Harbinger: Right. Yeah, the book has useful. Is it a rubric? Is that the right word? Ways to compare these things that aren't just sort of arbitrary or less arbitrary than a conversation without any visuals and without any paper in front of you.
[01:03:58] Ray Dalio: It's a health index and as a health index, we use it as a leading indicator. It's like health, if you look at this health index, It's like a personal health index. How's your blood, what's a urine? How overweight are you? Do you smoke? And so on, and by going down that's been shown and we show it here as a leading indicator with what happens over the next 10 years. So it's measured and shown, and these are just health measures that one sees and that are leading measures of also one's condition. So you can see the conditions improve or deteriorate. I think it's a good way to measure the success of a leader or the success of a government. You could just look at those health indexes and then if they're improving, then you're doing better. And if you're not improving, then they're doing worse, like wealth gaps in terms of that and political issues. They're all measurable.
[01:05:01] Jordan Harbinger: I believe you wrote, "Outside conflict is more likely when there's an internal vulnerability, like a civil war or internal strife." Why is outside conflict more likely when there's, let's say internal conflict, is that prompted by leadership trying to galvanize the country? Or is there something else going on?
[01:05:18] Ray Dalio: Both. There's the attack? Like if you're more vulnerable and I'm a competitor. At the most vulnerable moment, I'm more likely to cause you harm.
[01:05:30] Jordan Harbinger: Sure.
[01:05:30] Ray Dalio: Okay.
[01:05:31] Jordan Harbinger: Okay. That makes sense.
[01:05:31] Ray Dalio: If I'm winning, okay, and that internally, it's to find the external enemy that will galvanize the country.
[01:05:41] Jordan Harbinger: Right. Okay. That makes sense. It's both, you're attracting outside conflict too. You're attracting an attack theoretically, and also leadership then may take the debate on that even if it's not really an attack like Pearl Harbor, but something more like, I don't even know, China trying to take Taiwan under its controller or something, or like Russia does this in Eastern Europe, right? They have a lot of internal conflict and strife right now, huge wealth gap, a lot of things that aren't working and suddenly Ukraine is a big deal to Vladimir Putin. You can say that there's many reasons for that, but one of them almost certainly is to galvanize Russian nationalism.
[01:06:16] Ray Dalio: Well, that's through history you see, but it's also like in the animal species, when does the one take down the other, the other gets older or more vulnerable and the attack comes and that's when it happens. You don't want to go attack somebody who's going to be stronger than you. You don't pick a fight, but you look for the vulnerable moments and then you attach during that vulnerability, and then you have the galvanizing and both of those are at work.
[01:06:46] Jordan Harbinger: What's one of the biggest military risks that you see right now. I know one of the things that you wrote about in the book was Taiwan. I'd love to talk about that. My wife, her family is from Taiwan. I've been there a bunch of times. I've also been to China and I pay attention to the news there. It seems like that is a very sort of precarious situation. A lot of my friends who are military experts will say, this is almost certainly the next big thing. Even looking at what's going on in Ukraine, the next big thing for the United States could very well be the Taiwan issue.
[01:07:15] Ray Dalio: Taiwan, I would say if it wasn't for the Taiwan issue, which is a ticking time bomb. Then what you would probably have is the intense competition in the areas, I said, trade, technology, capital wars, and geopolitical influence. So if you're talking about a military, it's an existential issue. I can go through all the history and why that means that, but that's right. And then China and Russia have close relationships. There's always in history. There's the common enemy draws others together. And so their equivalent to Taiwan is the Ukraine. And for them, that means that it's the neighboring place that they believe is in their sphere of influence. And that there's threats if they don't control it and they won't tolerate, that's an existential question for them. You know, it would be, I don't know, like NATO setting up on their borders is to them something like, I don't know, Russia or China setting up in Mexico or something. And so there were those geopolitical issues and that's how the world is changing because also the power differences have narrowed in the ways that we're talking about, the military powers. And by the way, the capacities in all the different ways to do harm to each other have advanced as least as much as all other technologies have advanced since the last war. So it would be terrible if we got into that kind of war, but you pick the number one hotspot.
[01:09:04] Jordan Harbinger: As a China watcher, how likely do you think it is that that will happen in the next — I hate to put a timeline on things and next five or 10 years, you know, are we going to see something, some major action from Beijing? Or do you think a lot of it will play second fiddle to economic cooperation and trying to keep stability for the sake of development?
[01:09:25] Ray Dalio: I don't really know that I'm going to be able to do that. I put in the odds from the indicators based on that. And there's really not reliable as something like a one in three chance.
[01:09:36] Jordan Harbinger: Not insignificant, not insignificant at all.
[01:09:39] Ray Dalio: And I don't know that I'm right, but also I put in a 30 percent chance based on some of the indicators of, you know, an internal civil war type of thing. So, I don't know, if these are uncomfortably odd, high odds, you know?
[01:09:54] Jordan Harbinger: Yeah. I would agree. I would imagine also that China's paying close attention to how the world reacts to the Ukraine situation, because if everyone says, "Well, you know, and they rationalize that Ukraine was part of this and it wasn't that bad. And just give them half of this," that sort of gives China a pass to act more boldly when it comes to Taiwan.
[01:10:14] Ray Dalio: I want to get into, I don't know, you know, we're probably getting beyond my capabilities of conjecturing and anybody's capabilities of conjecturing. You know, each of those moves, I can only study history and learn the lessons from history. And I do know that as a principal, what you're saying is quite generally true.
[01:10:37] Jordan Harbinger: In closing here, what should us sort of normal folk do to prepare? Because it sounds like, okay, we've got a ton of problems. We should vote for infrastructure bills that make sense and develop the country because we know it has good ROI. We're not sure what those bills are. I'm not trying to get political here. Great. But what else? I mean, we vote in accordance with our interests, but what else can we do? You know, someone's going to be like ask them about Bitcoin, but you know, w what other strategies would you have?
[01:11:02] Ray Dalio: I think there are two ways of answering your question. What should individuals do so that we have a better society and better chances of going forward? Or what should individuals do assuming that they can't determine that? What we should do as a country, in my opinion, is very simple. We should understand and worry about that dynamic and work together in a bi-policy, bi-partisan way. I mean, basically what I would be doing is, if I was president of the United States, I'd probably have a bi-partisan cabinet. And I'd probably send aside representatives from both parties to have a mission like the Manhattan Project and so on where they're smart and engineering and they engineer policies that will increase the size of the pie and distribute it well so that they can find a united policy and then to deal with the extremists on each of their policies seek to build a middle in somehow.
[01:12:13] I don't know, you know, maybe that even requires a third party. I can't even say, but you know, the middle and working together is going to be fundamentally the most important thing we can do, I believe, you know, collectively. Individually, it is to really understand this, understand the patterns, understand the particulars. Some of the things we talked about and a lot of them, we didn't that are in the book that are, you know, how does an individual, how do you store wealth? How does that work? In other words, I think, for example, an investor should have like two portfolios. The first portfolio is the, "I will be okay portfolio." In other words, it's a diversified portfolio of things that if things were not good, it's like your insurance policy, overcome about those things, so to know how to do that. And then you have the what's good, generally speaking type of portfolio. And then things to know about the measurements, like you said, when to move, when not to move, or where does that work for, to know how it works, so I think that that would be important. That's one of the big reasons I wrote the book.
[01:13:25] Jordan Harbinger: How hopeful are you that we can come through this successfully as a country? Those goals make sense and they don't seem incredibly lofty, but I also wonder what your level of confidence is that we can make that work.
[01:13:38] Ray Dalio: I tried to be as accurate as I'm saying, and I want to be mechanical and probabilistic. As I say, I think that there is something like a 30 percent chance of the internal conflict that becomes disorderly, a civil war of sorts. And I think that there's, you know, 30 to 35 percent chance of that I'm trying to be as accurate. And I think it's pretty easy to watch the dot plot and see where we're going and how close to the edge you are as leading indicators. So that's what I think.
[01:14:12] Jordan Harbinger: Ray, always a great conversation. If you ever want to take a 99.9 percent pay cut, you got a future in podcasting.
[01:14:19] Ray Dalio: I just follow your lead, man. It's such a great conversation. Thank you for doing it.
[01:14:25] Jordan Harbinger: By the way, we've got more with Ray Dalio. He's actually been on the show several times. Here's a trailer for one of his previous appearances.
[01:14:31] I think now it's very clear that this is an event that has happened before, but not during our lifetime.
[01:14:36] Ray Dalio: And of course it is the last one that happened was in 1918, and it happened right at the end of World War I. Today, how many pandemics wars, depressions, revolutions, and so on have we been through and they happen over and over again for the same reasons. Three big things that are happening now that haven't happened in our lifetimes before, but happened in the 1930 to 45 period.
[01:15:07] First, a long-term debt cycle that turns to the point where central banks can no longer ease monetary policy. And so we're at the end of a long-term debt cycle in which there has to be a lot of printing of money, much like in March 1933. Two there are wealth and opportunity gaps and values gaps, which are very large. And those are the sort of things that produce some form of revolutionary changes. Three, there's a rising power that is comparable to the existing world power that is challenging yet, the United States now with China.
[01:15:54] So when we look at the world, we have three big topics that we need to talk about, and they're very big and important to understand the capacity of humans to adapt and change and do things is enormous. But the likelihood of being able to work in an intelligent cooperative way to do the right things would have to be considered a long shot.
[01:16:24] Jordan Harbinger: For more with Ray Dalio, including the predictable cycles that contribute to the rise and fall of great and once-great nations on the world stage, and where race is these cycles heading now and how we should prepare ourselves for the less comfortable cycles we're bound to experience in the future, check out episode 389 of The Jordan Harbinger Show.
[01:16:43] Special thanks to Hi-Chew for sponsoring this episode of the show. Hi-Chew is an incredible candy. I've been a fan of it for decades since I discovered it in Japan. I've heard from a lot of you in Japan since then, about how much you love a Hi-Chew as well. Apparently, it's popular. It was originally invented as a gum substitute in Japan. It's impolite to remove food from your mouth in Japan. I think it's impolite everywhere, but whatever. Hi-Chew is innovative to have a texture like gum that you can swallow and it doesn't stay in your system for seven years or whatever they told us as kids. Biting into a Hi-Chew is a flavor explosion. It's like a party in your mouth, says the copy, with over 200 unique flavors like dragon fruit, acai, and even very specific flavor profiles like Valencia orange versus Mandarin orange. There's apparently a difference. Hi-Chew has a dual layer and there's a special patented flavor release technology and a unique chewy texture. Not a gummy, not a taffy, not too soft, not too hard. Hi-Chew contains no synthetic colors and is gluten free.
[01:17:34] Jen Harbinger: We want you to love Hi-Chew as much as we do. Visit hi-chew.com/win. That's H-I-dash-C-H-E-W.com/W-I-N, and enter to win an exclusive bucket full of Hi-Chew candy and swag. While you're there, check out how you can become a member of the Hi-Chew Chew Crew, which is an exclusive club where you receive special offers and all the cool things. Go to hi-chew.com/win.
[01:17:59] Jordan Harbinger: Always love talking to Ray Dalio. It's important to figure out how we navigate things like a depression, because it can happen again. It probably will happen again. And just because something hasn't happened in our lifetimes, that doesn't mean that it won't happen or that it can't happen. History shows these things happen all the time in cycles. Sometimes, we just ignore those cycles. Same thing with civil wars, you know, it's a bad idea to assume it won't or can't happen here. Usually, we think things like these are impossible simply because it hasn't ever happened while we've been alive.
[01:18:29] If you like economics and you like history, I really think you'll enjoy Ray's new book, lots of economic history of major world powers here as well. I love learning about these types of things because properly dealing with what you don't know is crucial. When you bet you're going to be wrong a lot. So we have to handle that productively. We have to plan for worst case scenarios. We know that it's liberating to plan for the worst, right? The end of the world portfolio, he goes into in the book, this is a portfolio of things that Ray thinks will outlast a lot of economic catastrophe, if there is some. Diversifying our portfolio and our investments protect us against scenarios that we cannot see. Also, and this won't be new for those who've listened to the show for a while, Ray recommends that we tag along with super smart people.
[01:19:11] And honestly, this show is my attempt to one, con people into hanging out with me who are super smart, but then record the conversation and produce this show for you so that you're hanging out with us. See how that works. Not a bad deal if I do say so myself. The book again is great at explaining how societies form and reform and the cycles that we find ourselves in. So if you like books like sapiens about humans and human societies, this is like the macroeconomic governmental version of that.
[01:19:38] Big thank you to Ray Dalio. Links to all things. Ray Dalio will be on the website in the show notes at jordanharbinger.com. Please use our website links if you buy the book. It does help support the show. Transcripts are in the show notes. There's a video of the 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.
[01:19:59] I'm teaching you how to connect with great people and manage relationships, using systems and tiny habits. The same ones that I use. That's our Six-Minute Networking course. And that course is free. It's over at jordanharbinger.com/course. Dig that well before you get thirsty. Most of the guests you hear on the show subscribe and contribute to the course. So come join us, you'll be in smart company where you belong.
[01:20:19] This show is created in association with PodcastOne. My team is Jen Harbinger, Jase Sanderson, Robert Fogarty, Millie Ocampo, Ian Baird, Josh Ballard, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for this show is that you share it with friends when you find something useful or interesting. If you know somebody who loves Ray Dalio or who is into macroeconomics or thinks we're in a crazy cycle, like we talked about today, share this episode with them. I hope you find something great in every episode of the show. And the greatest compliment you can give us is to 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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