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.
Ray Dalio, founder of Bridgewater Associates LP, the world’s biggest hedge fund, says capitalism has developed into a system that is promoting an ever-wider wealth gap that puts the very existence of the United States at risk. In a two-part series published on LinkedIn, the noted investor argues that capitalism is now in need of reform — and offered ways to accomplish it:
‘I have also seen capitalism evolve in a way that it is not working well for the majority of Americans because it’s producing self-reinforcing spirals up for the haves and down for the have-nots. This is creating widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic and international conflicts and weakening America’s condition.’
Ray Dalio, Bridgewater Associates
Dalio says he was fortunate to grow up in a middle-class family, to be educated at a good public school and to be able to enter a job market that offered him equal opportunity — at the time when most people believed equal education and equal opportunity were fair and productive.
The investor says he became a capitalist at 12 when he earned his first wages by delivering newspapers, mowing lawns and caddying, and invested them in the stock market while it was hot in the 1960s.
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.
Today, however, the system has produced little or no real income growth for most people for decades, according to the Dalio essay on LinkedIn. Prime-age workers in the bottom 60% have had no real (inflation-adjusted) income growth since 1980, and the percentage of children who grow up to earn more than their parents has fallen to 50% from 90% in 1970.
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The wealth gap is at its widest point since the late 1930s, with the top 1% owning more than the bottom 90% combined, “which,” Dalio notes, “is the same sort of wealth gap that existed during the 1935-40 period (a period that brought in an era of great internal and external conflicts for most countries).”
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.