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The system is broken: the billionaire investor who fears a return to the 1930s

Ray Dalio, who has a near $19bn fortune, is one of a handful of the 0.01% to go public with concerns about the system that created that wealth


Ray Dalio, the billionaire investor, has just released his first childrens book. Its a bedtime story he hopes will inspire a new generation of entrepreneurs and leaders. There are other stories that keep Dalio awake at night.

Stock markets have soared in recent years, employers are struggling to find workers, inflation is under control. And yet: This period is very similar to that of the 1930s, he says. Were at each others throats when these are the best of times. I worry about the bad times.

Dalio, the founder of investment firm Bridgewater Associates, one of the worlds largest hedge funds, and a man with a personal fortune that tops $18.7bn, is one of a handful of the 0.01% who have gone public with their worries about the system that created that wealth.

The world has gone mad, and the system is broken, he wrote in a series of viral posts on the issues he sees in the modern economy last year.

The gap between rich and poor has grown too wide, and most people have not seen real income growth in decades, he wrote. The economy is stacked against those at the bottom. Education, healthcare, the tax system, the prison system and political deadlock have created a situation that presents an existential risk to the US and the rest of the world. It was a searing indictment of the status quo, not least because it came from someone who had benefited from it the most.

While on the surface the financial numbers of the world economy look good, it is clear that the Great Recession has left a pool of seething resentment in its wake. Nationalism is sweeping the world and the political order is being overturned. As Eric Hoffer pointed out in The True Believer, his book on mass movements, the French and Russian revolutions came not at economic and social nadirs, but as living conditions were improving.

Dalio hopes, in part, that his latest book can help people at an individual level to address the dilemmas they now face and will always face no matter what the political or economic headwinds. An illustrated distillation of his bestselling book Principles for Success, the book offers the life lessons Dalio says helped him not only amass one of the worlds largest fortunes but live a successful life.

In the book, an unnamed hero in a backpack and Pharrell Williams hat negotiates a series of problems, a dark wood, a mountaintop and the loss of said hat, as he chases a blue diamond. While its not really clear what the diamond represents (maybe $18.7bn?), its really about the journey. Over 157 pages, Dalio shares his insights, a five-point system for assessing our weaknesses and overcoming problems, and somewhat hokey aphoristic formulae like Dreams + Reality + Determination = A Successful Life and Pain + Reflection = Progress.

The Hungry Caterpillar it aint.

Ray Dalio in April last year. Photograph: David Paul Morris/Bloomberg via Getty Images

He says he wrote the book because friends said they wanted it for their kids. Its hard to see pajama-clad children clamoring for Principles (Daddy, is there a follow-up on compound interest?) but the original Principles has sold over a million copies and been downloaded 3 million times, so who knows? Kids these days!

I think everybody would benefit from writing down their principles, not in an abstract way, says Dalio. It serves a purpose of bringing clarity to your thinking. Its a joy. I think these principles apply to anybody, whatever their circumstances are. He is hoping some of his peers will follow suit.

But while he is hopeful that his principles can be a practical benefit at the individual level, Dalio is worried about the future of society those individuals live in. I think the capitalism system needs to be reformed, because first of all its not fair. And secondly, its not optimally productive.

The system that Dalio grew up in, he says, is very different to the one we have today. Born in 1949 the son of a jazz musician, Dalio grew up in the Jackson Heights neighborhood of New York Citys Queens. He had loving parents, attended a good public school and entered a job market that offered me equal opportunity.

He began trading at the age of 12 and opened Bridgewater in 1981. By 2005, it had become the largest hedge fund in the world, betting on macro world-shaping economic events. He made investors a fortune correctly predicting the last recession when others bet it would be business as usual.

To have these things and use them to build a great life is what was meant by living the American Dream, he wrote last year. Now, Dalio argues, capitalism has broken that promise. The relentless pursuit of profit over people has created a structural flaw that threatens to bring the whole system down. All systems should evolve. We all need to evolve. We need to be reformed constantly, says Dalio.

He is, of course, not alone in thinking this. Democratic presidential candidates including Bernie Sanders and Elizabeth Warren would be entirely in agreement if they werent so against him. The problem for Dalio is whether anyone can hear this message from the mouth of a billionaire. Sanders has said billionaires should not exist. Warren is selling mugs stamped Billionaire Tears as she pushes plans for a huge hike in taxes on the super wealthy.

Dalio wont talk politics in the specifics, but he says he has a strong aversion to any kind of prejudice, and worries about the vitriol being leveled at him and his Croeseus-like cohorts.

When we get into an environment of demonizing people or stereotyping people. Its like if you call a leader, a billionaire, evil its almost like saying youre a poor person, then thats evil or youre a Jew or a black person, and thats evil. I think demonizing a category of people is a very bad thing, he says.

If we are to find a way out of this mess, he says, itll be with the collective involvement of people who bring not only different perspectives, but different skills to bear on the problems.

This engineering exercise has got to be done with skill so that theres a redistribution of opportunity and a redistribution so that productivity is increased, he says. Generally speaking, the capitalists focus on increasing the size of the pie, but not on dividing it well. Socialists focus more on dividing it well, not on how to increase its size.

I think that we have to work together and this all has to be done in a bipartisan or not partisan way, because I think that right now youre producing such anger and division and that is our greatest risk, he says.

Its a belief that many of his plutocratic peers share, says Dalio. The reaction to his capitalist critique from fellow billionaires has been overwhelmingly agreement, although not open agreement, he says.

Ill tell you what the fear is. Its not that they will be taxed more. Thats interesting, because I think most people think that thats their main fear. The main fear is that the system of making productivity work will be hurt, he says.

Just like corporations, billionaires are people too. Dalio is not alone in believing he has an answer to the problem that created him. Donald Trump rode into office on a wave of populist economics. Mike Bloomberg (net worth $60bn) and Tom Steyer ($1.6bn) want to replace him.

Theirs is that old, radically conservative, message: everything must change so that everything can stay the same. The question now is whether the system that produced Dalio, his principles and peers can survive the world they created. And if not, what comes after?

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