Ray Dalio: Money, Power, and the Collapse of Empires

Lex Fridman (01:33.400)

So you see that group of people

Ray Dalio (01:36.160)

supporting each other in various ways,

Lex Fridman (01:39.080)

and then wrestling around with each other

Ray Dalio (01:42.480)

for the money and power among that group.

Lex Fridman (01:45.880)

So the dynamic that's quite classic

Ray Dalio (01:48.640)

is you could look at the parties in power

Lex Fridman (01:52.860)

back in the 16th, 17th centuries.

Ray Dalio (01:57.800)

You would look at royal families, nobles,

Lex Fridman (02:01.680)

and the church, if you're in Europe,

Lex Fridman (02:05.600)

and then you would look at agricultural land,

Lex Fridman (02:10.080)

and there was a certain dynamic.

Lex Fridman (02:12.280)

And that varies over time, it changes,

Lex Fridman (02:15.140)

as those people get thrown out and technology changes.

Lex Fridman (02:20.460)

So when we evolved, when the society evolved,

Lex Fridman (02:24.100)

so that it would produce goods and services,

Lex Fridman (02:28.020)

and you have something like the Industrial Revolution,

Lex Fridman (02:31.920)

the first Industrial Revolution, you have machines,

Lex Fridman (02:35.140)

and you have the talent of people that are off the farms,

Lex Fridman (02:40.020)

and then you have a struggling for power.

Ray Dalio (02:43.400)

You see that power mix change.

Lex Fridman (02:47.500)

And so we don't see that same power mix anymore,

Lex Fridman (02:50.860)

but you still see the same dynamic.

Lex Fridman (02:53.900)

You see those with money,

Ray Dalio (02:56.700)

dealing with those who have political power

Lex Fridman (03:00.560)

around those assets that are considered most valuable

Ray Dalio (03:04.660)

to particularly the productive assets that produce money.

Lex Fridman (03:09.320)

And political power is usually centered around nation state,

Lex Fridman (03:14.060)

so the major locus of power is the nations.

Lex Fridman (03:17.860)

Yes, in 1668, after 30 years of war,

Ray Dalio (03:25.140)

there was the development of nation states.

Lex Fridman (03:29.900)

Before then, it was really the development of countries

Ray Dalio (03:34.620)

as we know it, that there were borders,

Lex Fridman (03:37.500)

and that within those borders,

Ray Dalio (03:40.440)

those who had control got to control it,

Lex Fridman (03:43.940)

and there were not to be intrusions in those borders,

Lex Fridman (03:48.100)

and that's how we established the nation state.

Lex Fridman (03:51.540)

And then, of course, within each country, there is levels.

Ray Dalio (03:56.440)

There is a central level,

Lex Fridman (03:59.660)

and then there is typically a province

Ray Dalio (04:02.700)

or state level down below,

Lex Fridman (04:05.360)

and then there's a municipal level,

Lex Fridman (04:06.980)

so they each have different levels of power,

Lex Fridman (04:10.700)

and it's the coordination of those

Ray Dalio (04:14.460)

that determines how the country is run.

Lex Fridman (04:19.260)

You write that the, quote, archetypal big cycle

Ray Dalio (04:23.340)

governs the rising and declining empires

Lex Fridman (04:25.880)

and influences everything about them,

Ray Dalio (04:27.900)

including their currencies and markets.

Lex Fridman (04:30.380)

The most important three cycles

Ray Dalio (04:31.800)

are the ones you mention in the introduction,

Lex Fridman (04:35.100)

the long term debt and capital market cycle,

Ray Dalio (04:38.220)

the internal order and disorder cycle,

Lex Fridman (04:40.540)

and the external order and disorder cycle.

Lex Fridman (04:44.660)

Can you describe this big cycle?

Lex Fridman (04:48.380)

There are two orders.

Ray Dalio (04:50.660)

There is an order, by order I mean a system,

Lex Fridman (04:55.340)

how the system works.

Lex Fridman (04:58.180)

So there's an internal order,

Lex Fridman (05:01.620)

that is the internal governance system,

Lex Fridman (05:04.120)

and it's usually set out in a constitution

Lex Fridman (05:06.740)

or some agreements, and then there's the world order,

Lex Fridman (05:11.420)

how the world system.

Lex Fridman (05:12.720)

So for example, in 1945, at the end of a war,

Ray Dalio (05:18.420)

which is basically a fight for determining the world order,

Lex Fridman (05:23.340)

the winners of the fight got together

Lex Fridman (05:27.620)

and created the world system as we now know it.

Lex Fridman (05:32.460)

In 1944, they created the Bretton Woods Monetary System

Ray Dalio (05:35.940)

that determined the money, pretty much,

Lex Fridman (05:38.620)

and because the United States won

Lex Fridman (05:41.440)

and had 80% of the world's money,

Lex Fridman (05:44.140)

gold was money then, and it had 80% of the world's gold,

Lex Fridman (05:47.180)

and it was half the world's economy,

Lex Fridman (05:48.780)

and it was the great military power,

Ray Dalio (05:51.500)

the order was built around an American world order,

Lex Fridman (05:55.280)

so that the United Nations was in New York,

Ray Dalio (05:58.460)

the World Bank and the IMF were in Washington,

Lex Fridman (06:00.940)

and they built that new order.

Lex Fridman (06:02.740)

So classically, you have a war

Lex Fridman (06:05.580)

to determine whose rules we're following,

Lex Fridman (06:08.660)

and then you have the new order being constructed.

Lex Fridman (06:13.380)

After that, there is usually period

Ray Dalio (06:16.220)

of extended peace and prosperity.

Lex Fridman (06:20.760)

Peace suits prosperity, and so there's not,

Lex Fridman (06:25.420)

and the reason you have the peace

Lex Fridman (06:27.020)

is because no one wants to fight with the dominant power.

Ray Dalio (06:31.820)

You know you're gonna lose, you've surrendered.

Lex Fridman (06:34.100)

There's been the surrendering.

Ray Dalio (06:35.340)

They carve up the world,

Lex Fridman (06:36.580)

they say what it's gonna look like,

Ray Dalio (06:38.460)

who's gonna control what,

Lex Fridman (06:40.140)

and then you come into that period of peace,

Lex Fridman (06:44.700)

and then prosperity, where then there's a working together.

Lex Fridman (06:50.820)

Usually, at that point, you've wiped out a lot of the debt,

Ray Dalio (06:55.820)

you've wiped out a lot of the issues,

Lex Fridman (06:59.600)

the class warfare and so on,

Lex Fridman (07:01.960)

and then there's good working together.

Lex Fridman (07:03.720)

So those great periods,

Ray Dalio (07:06.560)

such as the Industrial Revolution in the late 1800s,

Lex Fridman (07:12.560)

or what we've experienced in the post World War II period,

Ray Dalio (07:15.920)

are peaceful and prosperous periods

Lex Fridman (07:19.240)

led largely by the dominant world power.

Ray Dalio (07:22.520)

Over a period of time, since really 1500,

Lex Fridman (07:28.200)

and maybe before, but really 1500,

Ray Dalio (07:31.800)

when the Dutch invented capitalism,

Lex Fridman (07:35.840)

and what I mean by that,

Ray Dalio (07:37.040)

they invented the first capital markets,

Lex Fridman (07:39.640)

the first stocks and the first stock market,

Ray Dalio (07:43.580)

that since then, capitalism has been an effective tool

Lex Fridman (07:47.440)

for building wealth because it got resources

Ray Dalio (07:50.800)

into the hands of inventive people.

Lex Fridman (07:54.000)

That's when we moved from agriculture

Ray Dalio (07:56.540)

to the importance of inventiveness of people,

Lex Fridman (07:58.840)

they got resources, and then they built that prosperity.

Ray Dalio (08:03.500)

In that process of doing that,

Lex Fridman (08:06.020)

they create wealth gaps, naturally.

Ray Dalio (08:09.060)

Those who make a lot of money make a lot more

Lex Fridman (08:13.200)

than those that don't,

Lex Fridman (08:16.000)

and it also produces opportunity gaps

Lex Fridman (08:20.200)

because, for example,

Ray Dalio (08:22.920)

those who earn a lot of money have that wealth,

Lex Fridman (08:26.480)

they have the power to educate their children

Ray Dalio (08:29.320)

in a way that others don't, and the gaps grow.

Lex Fridman (08:34.860)

And also, the debts grow at that time.

Ray Dalio (08:38.520)

When they go around the world with their competitiveness,

Lex Fridman (08:43.840)

they earn a lot of money.

Lex Fridman (08:46.040)

So for example, the Dutch, the Dutch Empire,

Lex Fridman (08:49.020)

learned how to build ships that would go around the world.

Ray Dalio (08:54.200)

A key ingredient of this improvement in this cycle

Lex Fridman (08:58.000)

is the improvement of education,

Lex Fridman (09:00.560)

and by education I mean the skills that come from education,

Lex Fridman (09:04.280)

but also civility, the ability to deal well together.

Lex Fridman (09:08.680)

So the Dutch invented ships that could go around the world

Lex Fridman (09:12.380)

and they had military power,

Lex Fridman (09:13.720)

but they were also a very inventive society.

Lex Fridman (09:16.400)

25% of the world's new inventions came from the Dutch,

Lex Fridman (09:21.280)

and so as they went around the world,

Lex Fridman (09:23.720)

they also brought their currency,

Lex Fridman (09:26.200)

and they brought their military.

Lex Fridman (09:28.220)

They needed the currency, they paid for things,

Lex Fridman (09:31.640)

and that currency, and then the more that happens,

Lex Fridman (09:34.620)

the more that becomes a reserve currency,

Lex Fridman (09:37.960)

and then they have their military,

Lex Fridman (09:40.140)

so they need their military strength,

Lex Fridman (09:42.000)

and so you see it evolve in all of those ways.

Lex Fridman (09:45.920)

But over a period of time,

Ray Dalio (09:48.880)

as they become more successful and more expensive,

Lex Fridman (09:53.000)

they become more expensive,

Lex Fridman (09:57.240)

and newer countries come along,

Lex Fridman (09:59.900)

like the UK, then learn to build ships from a lot the Dutch

Lex Fridman (10:07.760)

and could do that less expensively,

Lex Fridman (10:10.440)

and also when they become more expensive,

Lex Fridman (10:14.400)

so less competitive,

Lex Fridman (10:16.120)

and also the work ethic begins to change.

Ray Dalio (10:19.080)

They believe that since they're richer,

Lex Fridman (10:20.680)

they can enjoy life more.

Ray Dalio (10:22.640)

They don't have to work quite as hard,

Lex Fridman (10:25.260)

and so you start to see the tilt.

Ray Dalio (10:28.040)

Now you start to see the development of the top,

Lex Fridman (10:31.160)

and when you have a world reserve currency,

Ray Dalio (10:34.360)

that allows you to borrow a lot of money

Lex Fridman (10:37.000)

because those who want to save want to hold your money,

Lex Fridman (10:41.920)

and that means that they'll lend you money,

Lex Fridman (10:44.080)

and so those countries get deeper into debt.

Lex Fridman (10:47.120)

So you see that they gradually lose their competitiveness,

Lex Fridman (10:51.360)

and they get themselves into financial circumstances,

Ray Dalio (10:56.280)

which are not good,

Lex Fridman (10:58.700)

and they have large wealth gaps,

Ray Dalio (11:01.460)

which set the stage for downturns.

Lex Fridman (11:04.640)

And when they have downturns,

Lex Fridman (11:07.560)

the first question is do they have enough money?

Lex Fridman (11:10.120)

And traditionally, money is resources.

Lex Fridman (11:15.640)

So you classically see that the coffers are bare,

Lex Fridman (11:20.000)

that they're spending more money than they are earning,

Lex Fridman (11:25.240)

and they run out of money in the coffers,

Lex Fridman (11:28.920)

and their granaries are empty rather than stocked

Lex Fridman (11:33.180)

so that they give them the buffer.

Lex Fridman (11:35.360)

And as that deteriorates, that worsens conditions.

Lex Fridman (11:40.360)

And if they have a rival power that's also challenging them,

Lex Fridman (11:44.480)

they see greater internal conflict over wealth,

Lex Fridman (11:48.840)

and then they have the problems internally

Lex Fridman (11:52.440)

and the problems externally,

Ray Dalio (11:54.120)

which usually results in an internal war or an external war

Lex Fridman (11:59.480)

that leads to the change to the new world order.

Lex Fridman (12:03.000)

And to you, the Dutch Empire is a good example of that.

Lex Fridman (12:07.740)

The British, what are some of the key examples

Ray Dalio (12:11.140)

that you think about in the book

Lex Fridman (12:13.140)

of this process that followed the big cycle?

Ray Dalio (12:16.280)

Well, the leading reserve currency empires,

Lex Fridman (12:19.160)

but it applies to all the empires,

Ray Dalio (12:22.980)

were the Dutch, the British, the American, and the Chinese.

Lex Fridman (12:28.780)

But you could follow the same pattern.

Ray Dalio (12:32.620)

In the book, it was very important for me

Lex Fridman (12:35.420)

to not just use words and concepts

Ray Dalio (12:39.000)

because that's subjective.

Lex Fridman (12:41.380)

It was very important for me to use actual measurements.

Lex Fridman (12:45.780)

So as you see in the book, you can see every level of this.

Lex Fridman (12:49.460)

You can see where's the education level,

Lex Fridman (12:52.060)

what is the military power, each one of those,

Lex Fridman (12:55.540)

and you could see them back going over the 500 years.

Lex Fridman (12:59.300)

And so you could see the arcs and the composition

Lex Fridman (13:03.380)

of those arcs, and what you see is really,

Ray Dalio (13:07.260)

in most countries and most dynasties, you could see that.

Lex Fridman (13:10.780)

But you also can see through those numbers

Ray Dalio (13:13.540)

the health of those countries.

Lex Fridman (13:15.980)

Today, there are statistics that are in the book

Ray Dalio (13:21.820)

that show what is the level of education,

Lex Fridman (13:25.140)

what is the level of economic output,

Lex Fridman (13:28.260)

what is the level of military strength,

Lex Fridman (13:32.140)

what is the level of a number of different measures

Ray Dalio (13:34.700)

of strength, so that you can then compare that.

Lex Fridman (13:38.020)

And I think that because they're objective measures

Ray Dalio (13:40.580)

of strength that you could see change,

Lex Fridman (13:44.380)

that shows the picture of where we are today.

Lex Fridman (13:48.140)

And I think one of the most important things about the book

Lex Fridman (13:51.640)

is that it allows people to monitor

Lex Fridman (13:54.380)

how those things are transpiring.

Lex Fridman (13:56.680)

I think for policymakers,

Lex Fridman (14:00.700)

are your policymakers doing a good job?

Lex Fridman (14:03.180)

And there's so much subjectivity in that.

Lex Fridman (14:06.340)

But I think it's very simple.

Lex Fridman (14:08.340)

If those lines on the chart are improving,

Ray Dalio (14:10.900)

if your health index is improving,

Lex Fridman (14:13.340)

then you're moving toward a better life.

Lex Fridman (14:17.660)

So that's what the book works like.

Lex Fridman (14:19.340)

Also, it was used to create a model for the future.

Ray Dalio (14:24.100)

In other words, there are cause effect relationships.

Lex Fridman (14:28.180)

Everything that happens has reasons, causes,

Ray Dalio (14:32.060)

that preceded it, that made it happen.

Lex Fridman (14:34.860)

And so by having all those in numbers,

Ray Dalio (14:38.020)

one can see the probabilities of certain things happening.

Lex Fridman (14:42.420)

So that's what you see in the book.

Ray Dalio (14:46.780)

It's not just Ray's interpretation.

Lex Fridman (14:49.940)

I didn't wanna make it Ray's interpretation

Ray Dalio (14:51.900)

because I don't know if I'm right.

Lex Fridman (14:53.860)

Yeah, so one of the fascinating things in the book,

Lex Fridman (14:56.220)

so you have list these 18 measures,

Lex Fridman (14:58.820)

and there's like a little scorecard

Ray Dalio (15:01.460)

for the countries of the world today.

Lex Fridman (15:04.360)

So let's say US, China, and Europe,

Lex Fridman (15:07.760)

and what it was 20 years ago,

Lex Fridman (15:09.980)

and looking at the change from 20 years ago,

Lex Fridman (15:11.980)

and that's another indicator, the change itself,

Lex Fridman (15:14.480)

to see where things are headed.

Ray Dalio (15:17.260)

Maybe can you comment on, from a score perspective,

Lex Fridman (15:21.540)

how is US and China doing?

Lex Fridman (15:24.100)

And in the 18 measures, what are some measures

Lex Fridman (15:26.700)

that stand out to you as particularly important

Lex Fridman (15:29.460)

to think about today for the United States, for China?

Lex Fridman (15:33.400)

Well, there are a number.

Ray Dalio (15:35.740)

Financially, what you see in the United States

Lex Fridman (15:41.060)

is that we're borrowing a lot more money,

Ray Dalio (15:44.800)

creating a lot of debt, and we're printing a lot of money.

Lex Fridman (15:49.800)

And our capacity to do that is very much,

Ray Dalio (15:54.400)

is limited, first of all,

Lex Fridman (15:55.760)

because when there's a sale of a bond,

Ray Dalio (15:59.820)

when the government borrows more than it borrows money,

Lex Fridman (16:04.440)

because it spends more than it takes in,

Ray Dalio (16:08.320)

you have to sell a bond.

Lex Fridman (16:10.300)

And the world right now

Ray Dalio (16:11.760)

has a lot of US dollar denominated bonds,

Lex Fridman (16:14.800)

because as the world's reserve currency,

Ray Dalio (16:17.220)

they sell, sold on them.

Lex Fridman (16:18.920)

And they have very bad returns, negative real returns,

Ray Dalio (16:24.400)

negative real returns significantly, and so on.

Lex Fridman (16:27.720)

So that means that more bonds

Ray Dalio (16:31.600)

has to be sold than are bought.

Lex Fridman (16:36.660)

And that means that the Federal Reserve

Ray Dalio (16:40.600)

is faced with the choice of having to raise

Lex Fridman (16:43.640)

the interest rate to curtail borrowing,

Ray Dalio (16:47.100)

which slows the economy and hurts the markets,

Lex Fridman (16:49.960)

or by filling that difference and producing money,

Ray Dalio (16:55.040)

the debt monetization, which produces an inflation

Lex Fridman (16:59.720)

in goods, services, and financial assets.

Lex Fridman (17:03.440)

So in that regard, that's the United States's position.

Lex Fridman (17:08.880)

In China's case, its balance of payments is better.

Ray Dalio (17:13.880)

China has displaced the United States

Lex Fridman (17:17.580)

as the world's largest trading country.

Ray Dalio (17:20.900)

In other words, more exports to other countries.

Lex Fridman (17:23.580)

And as a result, it's economically competitive,

Lex Fridman (17:28.860)

but it doesn't have the world's reserve currency.

Lex Fridman (17:31.540)

It's a real blessing.

Lex Fridman (17:32.980)

So the United States, it has the world's reserve currency,

Lex Fridman (17:36.780)

but it is risking it because of this imbalance.

Lex Fridman (17:40.300)

So if you look at history,

Lex Fridman (17:42.300)

you see that those go slowly,

Lex Fridman (17:45.380)

but when they go eventually, they go quickly.

Lex Fridman (17:50.140)

So there's a risk of that financially.

Ray Dalio (17:54.820)

Then there's the issue of internal order.

Lex Fridman (17:58.500)

So I'm just giving you the major ones,

Lex Fridman (18:00.260)

but I'll get into some of the other ones too.

Lex Fridman (18:02.720)

Right now, there's a lot of internal conflict

Ray Dalio (18:06.920)

in the United States, which affects

Lex Fridman (18:09.900)

how well it works.

Ray Dalio (18:14.240)

In China, there's less internal conflict

Lex Fridman (18:17.660)

because it's a more autocratic state,

Lex Fridman (18:20.740)

but also they've created this bifurcation

Lex Fridman (18:24.420)

of what is political and what is economic

Ray Dalio (18:29.700)

in terms of producing that prosperity.

Lex Fridman (18:32.040)

So if you stay out of the politics pretty much,

Lex Fridman (18:35.940)

and then you're seeing entrepreneurship,

Lex Fridman (18:39.640)

you're seeing the finances of new businesses and so on.

Lex Fridman (18:44.340)

And so that internal working,

Lex Fridman (18:48.020)

that's subject to different people's interpretations

Ray Dalio (18:51.300)

whether they like it or not,

Lex Fridman (18:52.540)

but the internal conflict in terms of those kinds

Ray Dalio (18:55.660)

of measures is less.

Lex Fridman (18:57.940)

Sorry to pause on that for a second.

Lex Fridman (19:00.160)

So these measures, I guess you don't want

Lex Fridman (19:02.780)

to sort of romanticize any one measure

Ray Dalio (19:06.820)

or something like that, overinterpret any one measure,

Lex Fridman (19:09.980)

but is internal conflict always a bad thing?

Lex Fridman (19:13.940)

Is it a complicated calculation?

Lex Fridman (19:18.280)

Or do you kind of, the way we think

Ray Dalio (19:19.740)

about these measures that you've presented,

Lex Fridman (19:21.420)

we should be thinking like the higher, the better,

Ray Dalio (19:24.900)

the lower, the worse, I mean, of course,

Lex Fridman (19:27.100)

depending on the measure.

Ray Dalio (19:27.940)

Well, in many cases, the conflict that produces

Lex Fridman (19:32.140)

the revolution produces revolutionary changes

Ray Dalio (19:37.020)

that lead to resolutions and lead to new starts.

Lex Fridman (19:44.580)

And so a short term civil war is a hellacious experience.

Lex Fridman (19:52.900)

And at the same time, it can be the transition

Lex Fridman (19:57.660)

to a new beginning.

Ray Dalio (19:58.940)

Also, there are different types of conflict.

Lex Fridman (1:00:02.780)

he would respect the democracy and he's very popular.

Ray Dalio (1:00:07.860)

He's won democratic elections

Lex Fridman (1:00:10.180)

because he's been a strong leader

Lex Fridman (1:00:11.980)

and he's brought peace and stability

Lex Fridman (1:00:16.140)

to Russia after the breakup of the Soviet Union.

Lex Fridman (1:00:21.780)

And he's a strong leader in pursuit of the country's interest

Lex Fridman (1:00:31.340)

in a way where Russia is not a significant economic power

Lex Fridman (1:00:41.380)

but it is a significant military power.

Lex Fridman (1:00:43.820)

So the issues, and then there's a strong alliance

Ray Dalio (1:00:48.820)

between Russia and China now.

Lex Fridman (1:00:51.900)

So that's kind of the lay of the land.

Lex Fridman (1:00:55.620)

And then there are sensitivities.

Lex Fridman (1:00:58.060)

The Ukraine issue is a sensitivity

Ray Dalio (1:01:02.580)

because of there are a lot of Russians

Lex Fridman (1:01:05.900)

who live in the Ukraine

Lex Fridman (1:01:07.700)

and there's also the issue of NATO on their border.

Lex Fridman (1:01:11.580)

So there are those kinds of things

Lex Fridman (1:01:13.540)

and he has military power

Lex Fridman (1:01:14.980)

and he has a strong alliance with China.

Lex Fridman (1:01:18.900)

And I guess that's my best summary

Lex Fridman (1:01:21.700)

of what his position is.

Ray Dalio (1:01:24.140)

He's a strong leader, popular.

Lex Fridman (1:01:30.500)

These are not subjective interpretations.

Ray Dalio (1:01:33.340)

These are objective interpretations.

Lex Fridman (1:01:35.900)

Yeah, it's interesting just in this conversation,

Ray Dalio (1:01:38.940)

you're not sort of doing the usual criticism

Lex Fridman (1:01:43.940)

of any one particular system.

Ray Dalio (1:01:45.500)

You're looking at these systems

Lex Fridman (1:01:46.740)

from the perspective of history.

Ray Dalio (1:01:48.700)

You're just describing how they work.

Lex Fridman (1:01:50.900)

It's often times when you talk about what Russia is today

Ray Dalio (1:01:54.340)

or what the Soviet Union was or what China is today

Lex Fridman (1:01:57.340)

is you start to criticize.

Ray Dalio (1:01:58.820)

Well, they do this kind of censorship

Lex Fridman (1:02:01.180)

or they do this kind of,

Ray Dalio (1:02:02.540)

they limit freedoms in this kind of way.

Lex Fridman (1:02:05.060)

But you're just kind of describing this

Ray Dalio (1:02:07.060)

as a nation with ideas, what they think is right.

Lex Fridman (1:02:11.300)

This is how they hope to get it to work.

Ray Dalio (1:02:13.300)

This is why it's working.

Lex Fridman (1:02:14.580)

This is what's not working.

Ray Dalio (1:02:16.300)

Here's metrics that show that it's not working.

Lex Fridman (1:02:19.380)

I think that's a refreshing way to think about it.

Ray Dalio (1:02:21.740)

It's easy though, I mean, you got some criticism

Lex Fridman (1:02:25.500)

saying that I think China is a strict parent.

Ray Dalio (1:02:30.580)

Some people criticize these countries for doing,

Lex Fridman (1:02:33.140)

for violating human rights.

Ray Dalio (1:02:35.980)

I suppose there's some people that criticize the United States

Lex Fridman (1:02:39.580)

for violating human rights.

Lex Fridman (1:02:41.100)

But what are your thoughts on the world stage today

Lex Fridman (1:02:48.180)

about some of the behaviors it has governed

Ray Dalio (1:02:51.740)

in terms of respecting the rights,

Lex Fridman (1:02:53.340)

the basic rights of human beings?

Ray Dalio (1:02:55.380)

You described accurately how I just tried to look at this

Lex Fridman (1:03:00.380)

and how I just tried to look at things in a non,

Ray Dalio (1:03:05.820)

I don't want to impute my values on anybody.

Lex Fridman (1:03:12.180)

I mean, there are intolerable things.

Lex Fridman (1:03:14.060)

So I'm not saying there aren't intolerable things.

Lex Fridman (1:03:16.820)

But one of the great things of being an American here

Ray Dalio (1:03:20.380)

is that I grew up with all different nationalities,

Lex Fridman (1:03:23.900)

having all different points of view

Lex Fridman (1:03:26.100)

and all different religions

Lex Fridman (1:03:27.740)

and all different ways of operating.

Lex Fridman (1:03:30.500)

And I've come to treasure the fact that that is,

Lex Fridman (1:03:35.900)

what's their business is their business.

Lex Fridman (1:03:37.980)

And then the question is, where do you cross the line

Lex Fridman (1:03:41.180)

under what circumstances

Ray Dalio (1:03:42.980)

that others have got to do it my way.

Lex Fridman (1:03:45.740)

And then when you do it internationally,

Ray Dalio (1:03:49.100)

the issue of what is a sovereign state,

Lex Fridman (1:03:52.900)

which as I say in the piece of Westphalia

Lex Fridman (1:03:56.020)

and you have borders and then when do you cross the line

Lex Fridman (1:04:00.060)

that my way of doing things

Ray Dalio (1:04:02.700)

has got to be their way of doing things

Lex Fridman (1:04:04.460)

or what are the various rights.

Lex Fridman (1:04:06.340)

And so that's a very delicate question

Lex Fridman (1:04:09.500)

or a very difficult question.

Lex Fridman (1:04:11.980)

And we all have responsibilities to different parties

Lex Fridman (1:04:16.220)

and we all have different levels of knowledge

Ray Dalio (1:04:18.940)

about those particular things.

Lex Fridman (1:04:21.180)

So for example, as an international investor,

Ray Dalio (1:04:25.580)

I have a responsibility to my investors.

Lex Fridman (1:04:29.220)

Those who run companies have a responsibility to theirs

Ray Dalio (1:04:33.060)

of how do they run that.

Lex Fridman (1:04:34.540)

So if you're taking Nike or Snickers and so on

Lex Fridman (1:04:39.820)

and Americans can decide

Lex Fridman (1:04:41.500)

whether they wanna buy Chinese products

Ray Dalio (1:04:44.380)

or not buy Chinese products,

Lex Fridman (1:04:46.220)

we are all faced with those types of choices.

Lex Fridman (1:04:49.420)

So you have what do you wanna do in your constituency

Lex Fridman (1:04:52.380)

and you have your choices.

Lex Fridman (1:04:53.660)

And then beyond that, in many cases,

Lex Fridman (1:04:56.300)

the issues are quite complex,

Ray Dalio (1:04:58.060)

like there are geopolitical questions that enter into it.

Lex Fridman (1:05:02.300)

So, and then I believe that if you disconnected,

Ray Dalio (1:05:08.700)

if all those entities like myself,

Lex Fridman (1:05:13.060)

the businesses doing business with China disconnected,

Ray Dalio (1:05:17.820)

I think that that would be disastrous,

Lex Fridman (1:05:20.420)

economically disastrous.

Lex Fridman (1:05:22.340)

And it would also be reduce the understanding

Lex Fridman (1:05:27.540)

that comes from working together that helps to reduce wars.

Lex Fridman (1:05:31.460)

And so these are all complicated.

Lex Fridman (1:05:33.740)

So what we do is, and who makes it my opinion

Lex Fridman (1:05:38.700)

matters the most?

Lex Fridman (1:05:39.620)

Why should it be my opinion that matters the most

Lex Fridman (1:05:41.740)

in making that decision?

Lex Fridman (1:05:43.220)

So I largely look at the government guidance

Ray Dalio (1:05:46.740)

that I get not only from my own government,

Lex Fridman (1:05:49.300)

but from the other governments and I follow the rules.

Ray Dalio (1:05:52.220)

I'm in 40, we invest in 40 countries.

Lex Fridman (1:05:55.380)

And we wanna do that in the best way

Ray Dalio (1:05:57.580)

to provide the diversified portfolio.

Lex Fridman (1:05:59.980)

And we sort of need that.

Ray Dalio (1:06:01.780)

Every one of those countries has similar complexities.

Lex Fridman (1:06:06.380)

There are always one issue or another,

Lex Fridman (1:06:08.780)

and there's only so much that we really understand

Lex Fridman (1:06:12.420)

about all of those issues.

Lex Fridman (1:06:13.700)

So we rely largely on the guidance that we get.

Lex Fridman (1:06:17.020)

Yeah, you have to empathize and show respect

Ray Dalio (1:06:19.460)

to the culture of the place, the way things are done.

Lex Fridman (1:06:23.260)

You don't necessarily,

Ray Dalio (1:06:26.740)

the way you heal relationships between nations

Lex Fridman (1:06:30.180)

is like you said, you work together.

Lex Fridman (1:06:32.980)

And that requires kind of to listen

Lex Fridman (1:06:38.380)

maybe more than you talk.

Lex Fridman (1:06:40.220)

And I think people in the public sphere

Lex Fridman (1:06:44.140)

talk a lot about China without really listening,

Ray Dalio (1:06:46.580)

without understanding much about China,

Lex Fridman (1:06:48.300)

though one of the things that makes me really sad

Ray Dalio (1:06:50.380)

because I know how to speak Russian

Lex Fridman (1:06:53.700)

and I know how much is lost in translation.

Ray Dalio (1:06:57.620)

It makes me sad that I'll never really get to know

Lex Fridman (1:07:00.220)

the Chinese culture because like,

Ray Dalio (1:07:02.940)

I'll never really get to know the language,

Lex Fridman (1:07:04.740)

the literature, just talk to regular people.

Ray Dalio (1:07:08.020)

It's not just the government or officials or scientists,

Lex Fridman (1:07:10.580)

just regular folks, get the culture.

Ray Dalio (1:07:12.780)

I think if you don't understand the culture,

Lex Fridman (1:07:14.980)

just the basics of the human nature,

Lex Fridman (1:07:18.740)

what people love about their country,

Lex Fridman (1:07:21.860)

about their family or the kind of hopes they have,

Lex Fridman (1:07:25.340)

what kind of values they have,

Lex Fridman (1:07:26.540)

without that you're not gonna be able to

Ray Dalio (1:07:30.740)

fully connect with them.

Lex Fridman (1:07:34.060)

And you have to do that first

Ray Dalio (1:07:35.940)

to have a chance of building a good world.

Lex Fridman (1:07:37.940)

I couldn't agree with you more.

Ray Dalio (1:07:39.100)

I was very lucky because as I say,

Lex Fridman (1:07:41.780)

since 1984, so for more than half of my life,

Ray Dalio (1:07:47.820)

I've been going there and the common people

Lex Fridman (1:07:51.020)

and all sorts of people, and I've got to meet them.

Ray Dalio (1:07:53.820)

I don't speak the language,

Lex Fridman (1:07:56.220)

but a combination of through translators

Ray Dalio (1:07:59.820)

or them speaking English and being in situations.

Lex Fridman (1:08:02.940)

I had my son go to school, a local school,

Lex Fridman (1:08:07.380)

and we developed those kinds of understandings.

Lex Fridman (1:08:10.780)

I think that, but the not wanting

Ray Dalio (1:08:16.500)

to know the other perspective

Lex Fridman (1:08:20.020)

is the thing that's most scary.

Ray Dalio (1:08:22.060)

Like I'm right now in the middle

Lex Fridman (1:08:24.220)

and all I want to try to do

Ray Dalio (1:08:27.820)

is to help mutual understanding.

Lex Fridman (1:08:31.740)

You're right, if there were questions probing me,

Lex Fridman (1:08:34.700)

asking me, what is it?

Lex Fridman (1:08:36.780)

I'm not on one side or another.

Ray Dalio (1:08:39.420)

I don't want to be on one side or another.

Lex Fridman (1:08:41.860)

I believe that each has their right within there

Ray Dalio (1:08:44.620)

to approach their different culture in their own way.

Lex Fridman (1:08:46.980)

So many ways you gave an example.

Ray Dalio (1:08:50.220)

If they're not doing harm to others, I mean,

Lex Fridman (1:08:54.740)

but that issue of trying to understand

Ray Dalio (1:09:01.340)

is so much better.

Lex Fridman (1:09:03.220)

That doesn't mean agree with.

Ray Dalio (1:09:05.260)

If you are wanting to out clever

Lex Fridman (1:09:11.020)

and out compete somebody,

Ray Dalio (1:09:12.940)

it still pays to understand what they're thinking.

Lex Fridman (1:09:16.980)

So to achieve understanding of what they're thinking,

Ray Dalio (1:09:20.460)

even if you want to go to war with them,

Lex Fridman (1:09:22.180)

that understanding is the best thing to have.

Lex Fridman (1:09:25.260)

What we have now is a situation

Lex Fridman (1:09:28.100)

in which there's an enemy mentality.

Lex Fridman (1:09:31.580)

And that means that anything that serves,

Lex Fridman (1:09:35.420)

seems to be like understanding or conveying understanding,

Ray Dalio (1:09:39.740)

seems to mistakenly create the notion

Lex Fridman (1:09:42.540)

of I'm on their side in a war.

Lex Fridman (1:09:45.340)

And that's kind of a dangerous thing

Lex Fridman (1:09:47.700)

because there's a momentum here to fight.

Ray Dalio (1:09:51.900)

Henry Kissinger praises your new book

Lex Fridman (1:09:54.620)

and you thank him in it in the dedication.

Lex Fridman (1:09:57.620)

What's your relationship like with him?

Lex Fridman (1:09:59.660)

What makes him interesting?

Lex Fridman (1:10:01.540)

Maybe what makes him controversial?

Lex Fridman (1:10:03.220)

What makes him such a central figure in history?

Ray Dalio (1:10:05.740)

First, most importantly, he's unique about seeing things

Lex Fridman (1:10:10.140)

through all the others eyes.

Lex Fridman (1:10:14.660)

So if you were, it's like there's a chess game.

Lex Fridman (1:10:18.020)

I mean, I think geopolitics is like a chess game,

Lex Fridman (1:10:22.900)

but with multiple chess players playing the same game.

Lex Fridman (1:10:26.620)

So imagine there are six people around

Ray Dalio (1:10:30.060)

playing the chess game and he could sit in each seat

Lex Fridman (1:10:34.700)

and he could know how they see it, okay?

Lex Fridman (1:10:38.500)

And see it in a calm way of how they see it.

Lex Fridman (1:10:42.300)

He's unique in that way.

Ray Dalio (1:10:43.740)

He's 98 years old and he's equally able to do that.

Lex Fridman (1:10:48.060)

And he has a background in which he's a historian.

Lex Fridman (1:10:52.500)

So he really understands history super terrifically.

Lex Fridman (1:10:58.860)

He doesn't understand economic history as much.

Lex Fridman (1:11:02.100)

So that's why to some extent we enjoy having a conversation

Lex Fridman (1:11:06.340)

because he's interested in the economic piece he doesn't know

Lex Fridman (1:11:10.260)

and I'm so interested in the geopolitical piece

Lex Fridman (1:11:13.540)

that I don't know as well.

Lex Fridman (1:11:15.060)

But anyway, he's able to do that,

Lex Fridman (1:11:16.940)

but not only a historian, but a practitioner.

Lex Fridman (1:11:21.500)

So when you go from an academic to a practitioner

Lex Fridman (1:11:27.780)

who has that talent to see things through others eyes

Ray Dalio (1:11:31.860)

in an objective way and to be strategic

Lex Fridman (1:11:35.220)

rather than just tactical, that's a very special person

Lex Fridman (1:11:38.940)

and that's why Henry is, to me, a very special person.

Lex Fridman (1:11:43.020)

Yeah, he's lived a fascinating life.

Ray Dalio (1:11:45.380)

Just all of the world events he's been involved in

Lex Fridman (1:11:49.820)

is fascinating and like you said,

Ray Dalio (1:11:51.780)

that's such an interesting skill to have

Lex Fridman (1:11:54.460)

to consider what are the concerns, the hope, the dreams,

Ray Dalio (1:11:57.260)

the fears of all the people at the table.

Lex Fridman (1:11:59.540)

What are they thinking?

Ray Dalio (1:12:01.240)

I find that people don't, once again, don't do that enough

Lex Fridman (1:12:05.660)

when it's the obvious thing you should be doing,

Ray Dalio (1:12:07.660)

whether it's business deals or political negotiation

Lex Fridman (1:12:13.180)

or geopolitical negotiation.

Ray Dalio (1:12:15.380)

I'm often surprised, again, sorry to go to the Russian thing

Lex Fridman (1:12:18.060)

because I hear Putin talk in Russian

Lex Fridman (1:12:23.860)

and you start to infer certain intentions,

Lex Fridman (1:12:26.260)

like not the trivial stuff, like the human being.

Lex Fridman (1:12:30.140)

What is that human being hoping for himself,

Lex Fridman (1:12:33.020)

for his country, for his close inner circle,

Ray Dalio (1:12:36.100)

for the bigger, and I just see that

Lex Fridman (1:12:39.460)

that's often just lost in translation.

Ray Dalio (1:12:41.460)

I just see American leaders talking to Putin

Lex Fridman (1:12:45.460)

and it's just not, there's not a connection.

Ray Dalio (1:12:48.820)

Absolutely, I know exactly what you're talking about.

Lex Fridman (1:12:53.580)

It has never failed that in my listening to a conversation

Ray Dalio (1:12:58.580)

or even reading a speech and you see then it reported,

Lex Fridman (1:13:05.620)

inevitably, the reporter picks some headline characterization

Ray Dalio (1:13:10.620)

that has very little to do with what was really happening

Lex Fridman (1:13:16.380)

but might be a headline grabber

Ray Dalio (1:13:19.100)

that's at some kind of distortion

Lex Fridman (1:13:20.980)

and there's a lack of understanding

Ray Dalio (1:13:22.860)

of really what's going on.

Lex Fridman (1:13:25.180)

If it's okay, let me ask you a couple questions

Ray Dalio (1:13:27.540)

about cryptocurrency.

Lex Fridman (1:13:29.900)

You've had a few opinions about Bitcoin over the years.

Lex Fridman (1:13:32.700)

What are your thoughts about Bitcoin today,

Lex Fridman (1:13:34.900)

its role in the global financial system

Lex Fridman (1:13:38.380)

and just in human society in general?

Lex Fridman (1:13:41.420)

Well, the evolution of Bitcoin over the years

Ray Dalio (1:13:44.340)

is one of the things that has influenced changes in my view.

Lex Fridman (1:13:51.660)

It has proven itself something like 10, 11 years ago.

Ray Dalio (1:13:57.460)

Imagine the programming of this and you throw it out

Lex Fridman (1:14:01.260)

and that's the idea.

Ray Dalio (1:14:02.800)

It has not been hacked.

Lex Fridman (1:14:04.820)

It has operated, it has built,

Ray Dalio (1:14:09.660)

it has come an amazing way over that 11 years

Lex Fridman (1:14:14.380)

to be maybe probably the most excited topic

Ray Dalio (1:14:19.860)

among a lot of people and has been used

Lex Fridman (1:14:23.700)

and is now has obtained the status of having imputed value.

Ray Dalio (1:14:28.700)

At the same time, it is one of those assets

Lex Fridman (1:14:32.880)

that is an alternative money.

Ray Dalio (1:14:35.080)

I think we're entering an era

Lex Fridman (1:14:37.640)

where there's going to be a competition of monies.

Ray Dalio (1:14:43.440)

Because of the printing of fiat money

Lex Fridman (1:14:47.480)

and the depreciated value,

Ray Dalio (1:14:50.560)

there will be a competition of monies

Lex Fridman (1:14:54.040)

and Bitcoin is part of that competition.

Lex Fridman (1:14:57.520)

But there'll be many monies, not just crypto monies,

Lex Fridman (1:15:00.880)

but there'll be central bank crypto monies,

Lex Fridman (1:15:04.560)

but there'll be different kinds of monies.

Lex Fridman (1:15:08.240)

And even monies are things that you buy and sell.

Ray Dalio (1:15:12.760)

NFTs can become a type of money.

Lex Fridman (1:15:16.720)

You own it and it's an investment

Lex Fridman (1:15:18.360)

and you could say I'd rather own it than own Bitcoin.

Lex Fridman (1:15:22.560)

Has Ray Dalio bought any NFTs?

Ray Dalio (1:15:25.240)

Not yet.

Lex Fridman (1:15:26.080)

But only just because I definitely want to buy NFTs

Ray Dalio (1:15:35.040)

to just experience them.

Lex Fridman (1:15:36.920)

Like I think I should produce one and I should.

Ray Dalio (1:15:40.680)

I should have asked that.

Lex Fridman (1:15:41.520)

Have you minted an NFT?

Ray Dalio (1:15:43.800)

You probably should just to know what it's like.

Lex Fridman (1:15:45.720)

Yeah, that's right.

Ray Dalio (1:15:46.600)

This stuff is happening.

Lex Fridman (1:15:48.200)

This stuff is real and how it operates.

Lex Fridman (1:15:51.920)

But like all new real things, some are gonna go

Lex Fridman (1:15:57.320)

and some are gonna, it's like in the internet

Ray Dalio (1:16:00.100)

in the year 2000, pets.com could have been a great,

Lex Fridman (1:16:05.320)

but maybe pets.com doesn't make it and who knows.

Ray Dalio (1:16:08.280)

That's the beauty of the competitive system

Lex Fridman (1:16:10.960)

that it'll evolve and some things will be treasured

Lex Fridman (1:16:13.280)

and some things will be trashed.

Lex Fridman (1:16:17.520)

But when I look at it, I think we are in an environment

Lex Fridman (1:16:21.780)

of what is an alternative money?

Lex Fridman (1:16:23.840)

A money has two purposes, a medium of exchange

Lex Fridman (1:16:27.000)

and a storehold of wealth.

Lex Fridman (1:16:29.160)

And we are looking for, and it's portable.

Lex Fridman (1:16:33.720)

And it's best if it's recognized in other countries.

Lex Fridman (1:16:39.080)

So gold is one of those.

Lex Fridman (1:16:41.840)

So I look at it as an alternative gold,

Lex Fridman (1:16:46.560)

but I look at a number of things as alternative gold.

Lex Fridman (1:16:49.640)

And I think that, and gold is still my favorite

Lex Fridman (1:16:54.840)

because of certain qualities.

Ray Dalio (1:16:56.920)

For example, you can't trace it.

Lex Fridman (1:16:59.520)

In Bitcoin, you can trace who owns it,

Ray Dalio (1:17:02.400)

where it's going and so on.

Lex Fridman (1:17:04.080)

Governments can't have that ability to trace it and so on.

Ray Dalio (1:17:07.460)

A gold piece of coin, it's not connected.

Lex Fridman (1:17:10.800)

I think not connected has benefits,

Ray Dalio (1:17:13.000)

particularly in a world where maybe connections

Lex Fridman (1:17:16.280)

can be more risky.

Lex Fridman (1:17:17.660)

And then also gold has been for many thousands of years

Lex Fridman (1:17:25.100)

universally recognized as a source of money.

Lex Fridman (1:17:28.420)

And central banks, it's the third largest source of money

Lex Fridman (1:17:33.380)

in central bank reserves.

Lex Fridman (1:17:35.500)

And I don't think Bitcoin is going to serve

Lex Fridman (1:17:38.360)

those types of purposes and so on.

Lex Fridman (1:17:40.420)

So for various reasons, I prefer gold to the other,

Lex Fridman (1:17:44.060)

but it's a little bit part of my mix.

Lex Fridman (1:17:46.940)

But then you look at it, it hit, I think 69,000 this year

Lex Fridman (1:17:50.420)

is the high Bitcoin hit.

Lex Fridman (1:17:52.780)

Do you think it's possible, you mentioned gold,

Lex Fridman (1:17:55.640)

do you think it's possible it reaches very high numbers,

Lex Fridman (1:17:59.260)

like one million that some people talk about?

Lex Fridman (1:18:02.380)

I don't think that's possible because the way I look at it

Ray Dalio (1:18:06.020)

is there's a certain amount of it.

Lex Fridman (1:18:11.020)

A certain amount of it, and there's a certain amount of gold.

Ray Dalio (1:18:18.060)

I'll use gold as a benchmark.

Lex Fridman (1:18:21.340)

The amount of it is worth about $1 trillion.

Ray Dalio (1:18:26.780)

Total crypto is about 2.2 trillion.

Lex Fridman (1:18:29.740)

But let's say Bitcoin, it's $1 trillion.

Ray Dalio (1:18:33.700)

If you take the amount of money that is in gold

Lex Fridman (1:18:37.740)

that is not used for jewelry purposes

Lex Fridman (1:18:42.380)

and not used by central banks,

Lex Fridman (1:18:45.020)

and I assume Bitcoin won't be used for jewelry purposes

Ray Dalio (1:18:48.380)

or central bank purposes,

Lex Fridman (1:18:51.260)

that amount in gold is about $5 trillion.

Lex Fridman (1:18:55.120)

So right now, if you were to have a portfolio

Lex Fridman (1:18:59.160)

that has gold and crypto, gold and Bitcoin,

Ray Dalio (1:19:03.980)

it's worth about 20% of the value of gold.

Lex Fridman (1:19:07.540)

Do I think it's going to be worth more than gold

Lex Fridman (1:19:12.580)

in terms of that mix?

Lex Fridman (1:19:14.220)

I don't think it'll be worth more than gold.

Lex Fridman (1:19:16.900)

But let's say it became worth as much as gold.

Lex Fridman (1:19:21.340)

I don't believe it will be.

Ray Dalio (1:19:22.740)

I think that 20% sounds kind of about right.

Lex Fridman (1:19:25.660)

I really don't know what the right answer is.

Lex Fridman (1:19:29.100)

And then there's the question of what is all of that pool

Lex Fridman (1:19:32.780)

of money that let's say gold and gold equivalents

Lex Fridman (1:19:36.220)

relative to everything else?

Lex Fridman (1:19:37.600)

Does it go from, let's call it

Lex Fridman (1:19:41.940)

six, seven, eight trillion to 16 trillion?

Lex Fridman (1:19:44.740)

Maybe it could double.

Ray Dalio (1:19:46.140)

It depends what it is in the world environment.

Lex Fridman (1:19:48.740)

But basically, if you use gold as a measure,

Ray Dalio (1:19:54.220)

it just makes no sense

Lex Fridman (1:19:56.260)

that it's going to be used that much more.

Lex Fridman (1:20:00.440)

Am I sure about that?

Lex Fridman (1:20:01.760)

I'm not sure about anything.

Lex Fridman (1:20:03.340)

But logically, it seems to me that there's a limitation

Lex Fridman (1:20:07.900)

on its price in relationship to other things

Ray Dalio (1:20:11.300)

that are like it.

Lex Fridman (1:20:13.340)

Let me ask for your deep financial analysis

Ray Dalio (1:20:15.820)

on a very important issue.

Lex Fridman (1:20:17.500)

I just talked a couple days ago with Elon Musk.

Ray Dalio (1:20:20.380)

He wants to put a literal Dogecoin on the moon.

Lex Fridman (1:20:23.700)

What are your thoughts about Dogecoin?

Lex Fridman (1:20:27.000)

And do you think it'll be the official currency?

Lex Fridman (1:20:30.940)

How many be reserve currency on the moon and on Mars?

Ray Dalio (1:20:35.140)

My reaction is that's cute.

Lex Fridman (1:20:37.540)

I remember Elon when he first got,

Ray Dalio (1:20:40.300)

he first got his money from PayPal.

Lex Fridman (1:20:42.520)

I think he said to me it was,

Ray Dalio (1:20:45.460)

he got $180 million, $90 million.

Lex Fridman (1:20:48.140)

He decided to say, why aren't we going to outer space?

Lex Fridman (1:20:52.460)

And he wanted to take a spaceship that would be modified

Lex Fridman (1:20:57.460)

using Russian technology to put a plant

Lex Fridman (1:21:05.820)

and a watering can on the moon or on Mars, I think it was.

Lex Fridman (1:21:14.780)

And he said, first life on Mars,

Ray Dalio (1:21:17.660)

or first life on that as an inspiring notion.

Lex Fridman (1:21:23.820)

And so then there's always what's behind it.

Ray Dalio (1:21:27.300)

I have a lot of respect for Elon's ability

Lex Fridman (1:21:31.380)

to do other things behind it.

Lex Fridman (1:21:34.220)

And so I would take that as symbolic

Lex Fridman (1:21:38.020)

and I'd be asking him what's behind it, what's next.

Lex Fridman (1:21:41.420)

And I'm also just on the topic of Dogecoin and memecoin

Lex Fridman (1:21:44.820)

and there's some aspect of humor and lightheartedness

Ray Dalio (1:21:48.420)

that's really interesting about the way we communicate,

Lex Fridman (1:21:52.380)

what ideas become viral,

Lex Fridman (1:21:54.100)

how to captivate people with ideas.

Lex Fridman (1:21:57.940)

There's something about taking things too seriously

Ray Dalio (1:22:00.060)

that somehow slows it all down and it's interesting.

Lex Fridman (1:22:02.820)

You're right.

Ray Dalio (1:22:03.700)

That's part of human nature somehow.

Lex Fridman (1:22:05.300)

So like humor is part of this whole thing.

Ray Dalio (1:22:09.900)

You've talked about the importance of writing ideas down

Lex Fridman (1:22:14.340)

and you have a fascinating.

Ray Dalio (1:22:15.660)

Principles in particular.

Lex Fridman (1:22:17.260)

Principles.

Lex Fridman (1:22:18.340)

And you have this really nice thing in your book

Lex Fridman (1:22:20.920)

where you actually, I mean there's such a brilliant way.

Ray Dalio (1:22:26.140)

You have such a brilliant way of highlighting

Lex Fridman (1:22:28.980)

which parts are extra important and you make them bold.

Ray Dalio (1:22:33.500)

That's a brilliant idea.

Lex Fridman (1:22:34.700)

But let me just ask the high level question

Lex Fridman (1:22:36.380)

of what's a good system for taking notes?

Lex Fridman (1:22:42.060)

Well, I find that almost everything happens

Ray Dalio (1:22:45.560)

over and over again.

Lex Fridman (1:22:46.800)

And we're in the blizzard of these things happening.

Lex Fridman (1:22:52.400)

And what I found is that if I'm making a decision

Lex Fridman (1:22:58.280)

that after I make the decision usually

Ray Dalio (1:23:02.160)

or write at the time,

Lex Fridman (1:23:03.600)

if I pause and reflect and I write my principle down,

Ray Dalio (1:23:08.840)

in other words, principle is sort of a recipe,

Lex Fridman (1:23:12.300)

what would I use to, how would I make that decision?

Lex Fridman (1:23:16.560)

And what are the criteria around it?

Lex Fridman (1:23:18.560)

I find that I make it much more clear, it becomes clearer

Lex Fridman (1:23:23.200)

and it applies to the next thing that comes along,

Lex Fridman (1:23:26.480)

it'll be that way.

Ray Dalio (1:23:28.040)

Because everything happens over and over and over again

Lex Fridman (1:23:30.880)

and I think people make the mistake

Ray Dalio (1:23:33.200)

of looking at just the one like it's the first one.

Lex Fridman (1:23:37.080)

I don't know, they have the first problem of this sort

Ray Dalio (1:23:40.120)

or the first child or whatever it is.

Lex Fridman (1:23:42.160)

And this has been happening plenty of times.

Lex Fridman (1:23:44.680)

And so if you have the principles,

Lex Fridman (1:23:46.600)

I found that that helped me think more clearly about it

Lex Fridman (1:23:50.640)

and it helped me communicate better, like why.

Lex Fridman (1:23:54.400)

And so over the years, over the last 30 years or so,

Ray Dalio (1:23:58.900)

that's what I've done.

Lex Fridman (1:24:00.140)

I did it originally to communicate very well

Ray Dalio (1:24:02.740)

with the people I work with.

Lex Fridman (1:24:04.880)

I set up my company and it was very important

Ray Dalio (1:24:07.880)

to have good communication.

Lex Fridman (1:24:09.040)

And then we could debate the principles

Lex Fridman (1:24:11.520)

and so that's the process.

Lex Fridman (1:24:14.000)

I urge people to do that.

Ray Dalio (1:24:16.680)

There are many excellent decision makers

Lex Fridman (1:24:20.080)

and I just wish that they wrote down their principles.

Ray Dalio (1:24:23.460)

When this set, so for example,

Lex Fridman (1:24:27.580)

we talk about Henry Kissinger and his new book

Ray Dalio (1:24:30.580)

is gonna come out with a book on leadership.

Lex Fridman (1:24:33.840)

And don't just describe the leaders,

Ray Dalio (1:24:37.000)

describe then what about them were the essential elements

Lex Fridman (1:24:41.140)

to make a good leader under what circumstances.

Lex Fridman (1:24:44.440)

And so if we think about that,

Lex Fridman (1:24:47.000)

then also then you begin to think in a principled way.

Lex Fridman (1:24:51.720)

And then when you start to think in a principled way,

Lex Fridman (1:24:55.200)

life becomes, it's so much easier to make decisions

Lex Fridman (1:24:58.760)

and it's so much less confusing

Lex Fridman (1:25:01.040)

because it's like coming up on a species

Lex Fridman (1:25:04.120)

and you say, okay, well, what species is it?

Lex Fridman (1:25:08.020)

Not just another, it's a thing.

Ray Dalio (1:25:10.600)

No, what species is it

Lex Fridman (1:25:12.360)

and how do I deal with that species effectively?

Lex Fridman (1:25:15.880)

And so that's what that is.

Lex Fridman (1:25:17.800)

And so I encourage people to write it down.

Ray Dalio (1:25:20.300)

I wish anybody who's successful wrote down their principles

Lex Fridman (1:25:24.240)

or their recipes for making those types of decisions.

Lex Fridman (1:25:27.440)

So the events of interest here happens

Lex Fridman (1:25:30.720)

over and over and over in similar ways.

Ray Dalio (1:25:33.520)

As you're looking for the patterns

Lex Fridman (1:25:34.920)

and you're defining the process,

Ray Dalio (1:25:37.640)

that's right to respond to those patterns

Lex Fridman (1:25:40.400)

and you call that the principles

Lex Fridman (1:25:42.920)

and that allows you to deal with the future effectively.

Lex Fridman (1:25:46.480)

So like that codifies the lessons from the past

Ray Dalio (1:25:49.800)

to be able to deal with the future.

Lex Fridman (1:25:52.900)

What advice do you have for young folks today?

Ray Dalio (1:25:55.520)

In high school, in college, thinking about how to live,

Lex Fridman (1:26:00.260)

have a career they can be proud of

Lex Fridman (1:26:02.480)

or maybe have a life they can be proud of?

Lex Fridman (1:26:05.320)

Know yourself, follow your passion,

Ray Dalio (1:26:09.320)

make your work and passion the same thing

Lex Fridman (1:26:12.640)

while considering the money part

Ray Dalio (1:26:15.280)

because money will get you freedom and choice

Lex Fridman (1:26:18.400)

and be able to bank that.

Lex Fridman (1:26:19.480)

But if you know yourself, feel the pull

Lex Fridman (1:26:27.120)

and pursue that passion.

Lex Fridman (1:26:29.880)

And along those lines, by the way,

Lex Fridman (1:26:32.000)

I found that using personality profile tests

Ray Dalio (1:26:36.720)

has been very helpful.

Lex Fridman (1:26:38.180)

I've used those for about 25 years

Ray Dalio (1:26:40.560)

for people to help to understand themselves

Lex Fridman (1:26:42.940)

and understand each other.

Lex Fridman (1:26:43.920)

So I created a free one that is called Principles You.

Lex Fridman (1:26:49.180)

It's online.

Ray Dalio (1:26:51.220)

It's had remarkable, loving people who've taken it,

Lex Fridman (1:26:57.360)

learn about themselves,

Lex Fridman (1:26:58.440)

but also you can put in somebody else

Lex Fridman (1:27:01.240)

and it'll tell you about your relationship with them.

Ray Dalio (1:27:04.120)

That's like 30 minutes is a quick discovery,

Lex Fridman (1:27:06.820)

but the main thing is to understand on your journey,

Ray Dalio (1:27:10.760)

your hero's journey that you will have mistakes

Lex Fridman (1:27:17.160)

and you will have weaknesses

Lex Fridman (1:27:19.320)

and to understand those, not fight those

Lex Fridman (1:27:25.120)

because by understanding mistakes,

Ray Dalio (1:27:28.560)

you will learn not to make mistakes again.

Lex Fridman (1:27:31.080)

I have a principle which is pain plus reflection

Ray Dalio (1:27:35.400)

equals progress.

Lex Fridman (1:27:37.320)

And so that reflection is important to know yourself,

Ray Dalio (1:27:41.240)

know your pulls, know your weaknesses.

Lex Fridman (1:27:44.360)

And when you also know your weaknesses

Lex Fridman (1:27:46.920)

and the strengths of other people,

Lex Fridman (1:27:48.940)

there are people who have strengths where you're weak

Lex Fridman (1:27:52.480)

and you have strengths where they're weak.

Lex Fridman (1:27:54.440)

And to be able to work well together

Ray Dalio (1:27:57.240)

is the most effective way of achieving success.

Lex Fridman (1:28:02.440)

So yeah, it's that journey.

Lex Fridman (1:28:05.000)

And there's a life arc and there's a journey

Lex Fridman (1:28:08.320)

and you wanna make it the best that you can make it.

Lex Fridman (1:28:11.360)

And it's like a video game.

Lex Fridman (1:28:15.280)

It has the challenges and the obstacles

Lex Fridman (1:28:19.500)

and the learning experiences and the temptations

Lex Fridman (1:28:22.920)

and all of that.

Lex Fridman (1:28:24.040)

And the maximizing learning to go where you wanna go

Lex Fridman (1:28:28.180)

to achieve the life you want is the most important.

Ray Dalio (1:28:31.560)

That's kind of maybe a long winded way of saying it,

Lex Fridman (1:28:34.320)

but to learn, I think I'll try to say it simply.

Ray Dalio (1:28:39.400)

There's a five step process.

Lex Fridman (1:28:41.360)

Step one is know your goals, know what you're going after.

Ray Dalio (1:28:48.400)

You could have almost anything you want,

Lex Fridman (1:28:50.280)

but you can't have everything you want.

Lex Fridman (1:28:52.400)

And so you have to prioritize and you move in that direction.

Lex Fridman (1:28:56.120)

On the way to your goals,

Ray Dalio (1:28:57.360)

you're going to encounter your problems and your obstacles.

Lex Fridman (1:29:01.100)

So step two is understanding your problems

Lex Fridman (1:29:05.680)

and your obstacles, identify them.

Lex Fridman (1:29:07.720)

Step three is to diagnose them

Ray Dalio (1:29:10.740)

to get at the root cause of the problem.

Lex Fridman (1:29:13.900)

And that could be many root causes,

Lex Fridman (1:29:16.560)

but it could also be your weaknesses or weaknesses of others,

Lex Fridman (1:29:19.720)

but you have to be objective about them.

Ray Dalio (1:29:22.160)

Once you diagnose them, then you go to step four,

Lex Fridman (1:29:26.080)

which is to design a way to get around them.

Lex Fridman (1:29:29.200)

And then after you have that design,

Lex Fridman (1:29:33.940)

you implement that design.

Lex Fridman (1:29:35.720)

So you have to follow through and do it.

Lex Fridman (1:29:38.200)

And you do that, and that will then produce its new results,

Ray Dalio (1:29:42.920)

which should be better results.

Lex Fridman (1:29:44.780)

I call this kind of a looping process.

Ray Dalio (1:29:47.680)

It's the evolutionary looping process.

Lex Fridman (1:29:50.240)

And you just keep doing that

Lex Fridman (1:29:53.380)

and you learn over a period of time

Lex Fridman (1:29:55.140)

and you move in the direction that you want.

Ray Dalio (1:29:57.660)

Last question, and you only have one minute to answer.

Lex Fridman (1:30:02.680)

You dedicate the book, quote,

Ray Dalio (1:30:05.040)

"'To my grandchildren and those of their generation

Lex Fridman (1:30:08.660)

"'who will be participants

Ray Dalio (1:30:09.840)

"'in the continuation of this story.

Lex Fridman (1:30:12.880)

"'May the force of evolution be with you.'"

Lex Fridman (1:30:15.760)

So let me ask, where's this force of evolution

Lex Fridman (1:30:18.480)

taking human civilization?

Lex Fridman (1:30:20.520)

And what in this story that evolution is writing

Lex Fridman (1:30:24.720)

gives you hope?

Ray Dalio (1:30:26.560)

Evolution is a direction toward improvement.

Lex Fridman (1:30:32.000)

And the greatest force is man's capacity to adapt and invent.

Lex Fridman (1:30:40.280)

And so you see in the charts in the book,

Lex Fridman (1:30:42.960)

you see that this upward movement, life expectancy,

Ray Dalio (1:30:51.160)

health, all the things that we think are better,

Lex Fridman (1:30:55.200)

you see there's a chart

Lex Fridman (1:30:57.120)

and it shows that over a period of time

Lex Fridman (1:30:59.280)

and you barely see the downturns

Ray Dalio (1:31:02.960)

from depressions and wars in that.

Lex Fridman (1:31:05.980)

That is the greatest power.

Ray Dalio (1:31:08.080)

Man's ability to invent and adapt is evolution

Lex Fridman (1:31:13.280)

and that's the greatest power

Lex Fridman (1:31:15.400)

and that is what gives me justifiable hope.

Lex Fridman (1:31:20.040)

And a continuation of that, like we mentioned with Elon,

Ray Dalio (1:31:23.160)

maybe we'll become a multi planetary species.

Lex Fridman (1:31:25.720)

So not only will we keep creating amazing things

Ray Dalio (1:31:28.600)

here on Earth, we'll keep expanding out into the cosmos.

Lex Fridman (1:31:31.840)

My time horizon isn't gonna have me analyzing that yet,

Lex Fridman (1:31:36.600)

but I hope so and I agree that that would be

Lex Fridman (1:31:41.720)

in the next.

Lex Fridman (1:31:42.560)

So I'm not gonna ask you

Lex Fridman (1:31:43.400)

for the best financial system on Mars.

Ray Dalio (1:31:46.160)

I think we'll focus on Earth for now.

Lex Fridman (1:31:47.960)

Ray, thank you so much for your brilliance,

Ray Dalio (1:31:49.720)

for the books you've written,

Lex Fridman (1:31:51.240)

for the works you've done,

Ray Dalio (1:31:52.160)

for the inspiration of millions.

Lex Fridman (1:31:54.560)

And thank you for spending your valuable time

Ray Dalio (1:31:57.360)

here with me today.

Lex Fridman (1:31:58.440)

Thank you.

Ray Dalio (1:31:59.960)

Thanks for listening to this conversation with Ray Dalio.

Lex Fridman (1:32:02.720)

To support this podcast,

Ray Dalio (1:32:04.120)

please check out our sponsors in the description.

Lex Fridman (1:32:06.880)

And now, let me leave you with some words

Ray Dalio (1:32:08.960)

from Ray Dalio himself.

Lex Fridman (1:32:11.360)

Every time you confront something painful,

Ray Dalio (1:32:13.960)

you are at a potentially important juncture in your life.

Lex Fridman (1:32:17.160)

You have the opportunity to choose healthy

Lex Fridman (1:32:19.320)

and painful truth or unhealthy but comfortable delusion.

Lex Fridman (1:32:24.320)

Thank you for listening and hope to see you next time.

Ray Dalio (20:03.780)

Competition, which makes things, makes everything better,

Lex Fridman (20:08.980)

is a productive conflict, whereas destructive conflicts

Ray Dalio (20:16.000)

are not good over the short time.

Lex Fridman (20:20.940)

So that's how those go.

Lex Fridman (20:23.620)

So within each measure, the story is complicated.

Lex Fridman (20:29.180)

Yeah, but my measures are sort of clear,

Ray Dalio (20:32.300)

meaning how much political conflict,

Lex Fridman (20:35.180)

how much social conflict.

Ray Dalio (20:38.780)

In other words, you can measure conflict,

Lex Fridman (20:40.620)

you can measure fighting, you can measure crime rates,

Ray Dalio (20:44.220)

you can measure lots of different ways of conflict.

Lex Fridman (20:49.640)

So the measures are a composite of different types

Ray Dalio (20:53.420)

of internal conflict.

Lex Fridman (20:55.620)

What are some other interesting measures,

Ray Dalio (20:57.860)

maybe if you can also mention that,

Lex Fridman (20:59.940)

for me in particular, interest is education and innovation.

Ray Dalio (21:03.300)

Yes, the classic cycle, the most important leading indicator

Lex Fridman (21:08.740)

is the quality of education.

Ray Dalio (21:11.220)

Most importantly, broad based education

Lex Fridman (21:16.060)

drawn from the largest population

Ray Dalio (21:18.860)

because you can never tell who the talent is going to be.

Lex Fridman (21:23.060)

So where are they gonna come from?

Lex Fridman (21:25.100)

So for example, if you look at the Chinese dynasties,

Lex Fridman (21:28.180)

the great Chinese dynasties and the Confucian approach,

Ray Dalio (21:33.220)

it was meritocratic of everybody could sit for exams

Lex Fridman (21:38.580)

and so on broad base of drawing in the populations.

Lex Fridman (21:41.580)

And you see that if you go across societies

Lex Fridman (21:45.140)

because that draws on the largest number of population

Ray Dalio (21:49.060)

to get education.

Lex Fridman (21:50.980)

And it also, that creates a reality and a perception

Ray Dalio (21:58.260)

that the system is fair, equal opportunity,

Lex Fridman (22:01.300)

not just one of privilege.

Lex Fridman (22:03.020)

And that helps to create social stability.

Lex Fridman (22:06.340)

But education is not just education in understanding facts

Lex Fridman (22:13.820)

and so on, it is education in civility

Lex Fridman (22:17.780)

of how to behave together.

Lex Fridman (22:19.260)

And so if they're smart,

Lex Fridman (22:21.260)

they understand how to be productive

Ray Dalio (22:23.940)

because they work well together and they're productive.

Lex Fridman (22:27.340)

And then that leads to the next stage.

Ray Dalio (22:30.060)

You could see in the lines in the charts, I plotted these

Lex Fridman (22:35.100)

so that you could see in a typical cycle,

Ray Dalio (22:37.700)

you could see that education is the long leading indicator.

Lex Fridman (22:42.300)

And then you could see, as you mentioned,

Ray Dalio (22:45.380)

that what you see is inventiveness and technology measures

Lex Fridman (22:49.700)

then follow and you see then also competitiveness

Lex Fridman (22:54.180)

and world markets follows.

Lex Fridman (22:55.940)

For example, in the early stages of a cycle,

Ray Dalio (22:59.140)

the industries that they go into tend to be very basic

Lex Fridman (23:04.180)

industry because they have cheap labor,

Ray Dalio (23:06.220)

something like textiles and simple manufactured goods

Lex Fridman (23:10.460)

and so on.

Lex Fridman (23:11.340)

But as the education rises,

Lex Fridman (23:13.540)

then they move up the value chain to greater technologies

Lex Fridman (23:19.100)

and so on, which raises incomes and raises productivity.

Lex Fridman (23:23.180)

So yes, those and as you say,

Ray Dalio (23:25.940)

there are 18 different measures like that,

Lex Fridman (23:28.300)

but education and then civility and the inventiveness.

Lex Fridman (23:32.740)

So you see it reflected in who's inventing what.

Lex Fridman (23:38.060)

And that corresponds then who's trading with,

Ray Dalio (23:41.780)

who's a big trading country

Lex Fridman (23:43.620)

and where's the value of economic output

Lex Fridman (23:46.180)

and what are per capita incomes.

Lex Fridman (23:47.740)

They all follow those arcs.

Ray Dalio (23:51.100)

Yeah, like you said, the fascinating thing about your book,

Lex Fridman (23:53.740)

so there's philosophy, there's wisdom, but there's plots.

Ray Dalio (23:58.620)

Yeah, you can see it.

Lex Fridman (24:01.020)

So it's not just your opinion.

Ray Dalio (24:02.340)

It's kind of like you can interpret it in any way you like,

Lex Fridman (24:06.300)

but you're just giving a lot of your own insights

Ray Dalio (24:09.580)

along with the numbers.

Lex Fridman (24:12.020)

If you were to look at the American nation,

Ray Dalio (24:15.580)

the American empire and the trajectories

Lex Fridman (24:18.420)

looking into the future given these measures,

Lex Fridman (24:22.620)

what is the trajectory that leads to the collapse

Lex Fridman (24:25.940)

of the American empire based on these measures?

Lex Fridman (24:28.860)

What are the concerning indicators

Lex Fridman (24:30.540)

and if those break down further, what does that look like?

Ray Dalio (24:34.460)

Well, all of those indicators are concerning,

Lex Fridman (24:41.460)

maybe except for one, which is technology,

Ray Dalio (24:47.100)

the technology niche, although even in that area,

Lex Fridman (24:51.100)

the United States is improving at a slower rate

Ray Dalio (24:56.100)

than is China for various advantages that they have there.

Lex Fridman (25:00.580)

They put out about eight times as many computer engineers

Ray Dalio (25:03.900)

they have free data and so on, but if you look at them,

Lex Fridman (25:08.420)

so the financial is a concern.

Ray Dalio (25:12.180)

The internal order, disorder is a concern.

Lex Fridman (25:17.620)

Then if you look at education levels,

Ray Dalio (25:20.340)

the United States is in many ways

Lex Fridman (25:23.580)

is losing its educational advantage.

Ray Dalio (25:27.060)

If you were to look at, compare it with China,

Lex Fridman (25:30.060)

if you take general public education in the United States,

Ray Dalio (25:34.500)

it's deteriorated tremendously

Lex Fridman (25:37.420)

even in comparison to developed countries.

Ray Dalio (25:40.300)

There are scores, PISA scores and so on,

Lex Fridman (25:42.460)

and it's something like 38th in the world or something

Lex Fridman (25:45.420)

and that was a big plunge, average public education.

Lex Fridman (25:48.980)

If you look at the best universities in the world,

Ray Dalio (25:52.420)

the United States is unique

Lex Fridman (25:54.140)

in having the best universities in the world,

Lex Fridman (25:56.420)

so there are these privileged universities

Lex Fridman (25:58.740)

in the world, so there are these privileged spots

Ray Dalio (26:02.340)

that are, you know, excellent, uniquely excellent.

Lex Fridman (26:06.380)

So when you look at the comparison,

Ray Dalio (26:09.180)

education in China is improving rapidly

Lex Fridman (26:13.660)

and the quantity is a quantity of educated people

Ray Dalio (26:19.100)

in the areas that they're moving in is greater

Lex Fridman (26:23.500)

and the resources that they're putting behind it is greater

Lex Fridman (26:27.140)

and so you see the results are greater,

Lex Fridman (26:30.460)

but it's sort of along the lines that I'm dealing with.

Ray Dalio (26:34.420)

If you were to follow through

Lex Fridman (26:36.500)

in terms of actual productions,

Ray Dalio (26:40.300)

I think you know in terms of technologies,

Lex Fridman (26:44.980)

there are some areas that the United States is in a lead

Ray Dalio (26:48.940)

at the moment, there's some areas that China's in a lead,

Lex Fridman (26:51.820)

but China's gaining very quickly.

Ray Dalio (26:54.900)

When I first went to China, 1984,

Lex Fridman (26:58.140)

I would bring $10 calculators

Lex Fridman (27:01.100)

and I gave them away as gifts to high ranking people

Lex Fridman (27:05.020)

and they thought they were miracle devices.

Ray Dalio (27:08.700)

Right now, in terms of areas like quantum computing

Lex Fridman (27:13.260)

and AI and you know, many areas,

Ray Dalio (27:18.180)

you have a race going on

Lex Fridman (27:20.420)

and so if you take the trajectory of the competitiveness,

Ray Dalio (27:24.780)

not just look at the current level,

Lex Fridman (27:26.900)

you have a situation where they're improving

Ray Dalio (27:29.300)

at a much faster rate.

Lex Fridman (27:31.180)

This is all good for the world if the world can get along.

Lex Fridman (27:36.660)

And the main thing I think is,

Lex Fridman (27:43.100)

how do you have a healthy world

Lex Fridman (27:44.340)

and how do you have a strong economy

Lex Fridman (27:45.900)

and how do you have a strong situation is be strong.

Ray Dalio (27:49.860)

The United States is war is with itself.

Lex Fridman (27:53.540)

That's the main war.

Ray Dalio (27:55.340)

You know, it's very simple in history.

Lex Fridman (27:59.500)

Be financially sound, earn more than you spend

Lex Fridman (28:04.660)

and be strong in these ways

Lex Fridman (28:08.140)

and pretty much everything will take care of itself.

Lex Fridman (28:13.220)

But you make it sound simple of course

Lex Fridman (28:15.140)

because there's a momentum when things degrade,

Ray Dalio (28:17.940)

when the education system degrades,

Lex Fridman (28:19.620)

when you start borrowing,

Ray Dalio (28:21.700)

when I mean, all of these indicators,

Lex Fridman (28:24.100)

once they're going down, there's a momentum to it, right?

Lex Fridman (28:28.380)

So it's hard to reverse it.

Lex Fridman (28:30.140)

Right and there are circumstances that you're then in.

Ray Dalio (28:33.620)

For example, indebtedness.

Lex Fridman (28:36.940)

You know, it's politically desirable

Ray Dalio (28:41.100)

for those to borrow money and spend

Lex Fridman (28:44.700)

because their constituencies only look at what they get

Lex Fridman (28:49.260)

and when they get a lot, they don't pay attention

Lex Fridman (28:51.900)

to the balance sheet and how much debt is on the books.

Lex Fridman (28:55.140)

So it's always better to borrow, spend

Lex Fridman (28:58.620)

and then leave the cleanup to the next guy.

Lex Fridman (29:01.820)

And so you inherit a lot.

Lex Fridman (29:04.780)

You inherit it as a new president enters in

Ray Dalio (29:09.420)

or new legislators, they have a lot of debt,

Lex Fridman (29:13.340)

they have a broken down infrastructure,

Ray Dalio (29:16.260)

they don't have enough money to fix that.

Lex Fridman (29:19.860)

And so that's the lay of the land

Ray Dalio (29:22.420)

that the prior generations put you in

Lex Fridman (29:26.780)

and there you are.

Lex Fridman (29:28.300)

And so that's right.

Lex Fridman (29:30.700)

It's difficult because when you start to think,

Lex Fridman (29:33.020)

okay, what's healthy?

Lex Fridman (29:34.540)

Well, earn more than you spend.

Ray Dalio (29:37.060)

Well, that's not so easy

Lex Fridman (29:38.820)

because you know, what does that mean?

Lex Fridman (29:41.180)

Go earn more?

Lex Fridman (29:42.620)

I mean, okay, that's not so easy.

Lex Fridman (29:44.980)

Spend less?

Lex Fridman (29:47.220)

That isn't gonna work.

Lex Fridman (29:49.020)

So now what do you do?

Lex Fridman (29:50.620)

Okay, you have this debt that you then monetize

Lex Fridman (29:54.180)

and that's why it's classic.

Lex Fridman (29:55.660)

So yes, that's why these cycles occur

Ray Dalio (29:57.740)

because what has created before,

Lex Fridman (30:00.740)

what happened before created the lay of the land

Ray Dalio (30:03.380)

that is then increasingly difficult to deal with.

Lex Fridman (30:06.420)

So what can great leaders do in this moment?

Ray Dalio (30:08.700)

I mean, maybe my sense is leadership is crucial here.

Lex Fridman (30:13.500)

So for example, to do very large projects

Lex Fridman (30:16.180)

and invest in the education system

Lex Fridman (30:18.260)

that sort of try to fix the fundamentals

Ray Dalio (30:21.900)

or maybe invest more and more into the innovation

Lex Fridman (30:25.900)

and the development of new technologies and so on.

Ray Dalio (30:29.500)

It feels like that just doesn't happen organically.

Lex Fridman (30:33.900)

So you have to have strong leaders

Ray Dalio (30:37.660)

that convince the populace

Lex Fridman (30:41.060)

of the importance of these ideas.

Ray Dalio (30:43.660)

Well, I completely agree with your list.

Lex Fridman (30:46.620)

What we have is a situation

Ray Dalio (30:48.300)

where everybody has their opinions

Lex Fridman (30:52.260)

and they have to sort of get them exactly right

Lex Fridman (30:54.780)

and they all fight with each other

Lex Fridman (30:56.660)

about whether their opinions.

Lex Fridman (30:58.300)

So the most important thing is that we become bipartisan

Lex Fridman (31:03.500)

so that we don't and we get over our differences.

Ray Dalio (31:07.020)

I would have a bipartisan cabinet.

Lex Fridman (31:10.260)

I would draw upon both members of both parties,

Ray Dalio (31:15.820)

the moderates who are going to be able to work together.

Lex Fridman (31:20.460)

So as then we have one country

Lex Fridman (31:24.340)

and then we deal with those in a means

Lex Fridman (31:27.820)

that works for the majority of the people in the middle

Ray Dalio (31:30.740)

rather than the polarity.

Lex Fridman (31:32.460)

I think our greatest risk is in not being able to do that.

Lex Fridman (31:37.460)

So I would say that's a paramount importance

Lex Fridman (31:41.700)

because we have the resources,

Ray Dalio (31:45.860)

wealth, real wealth and science

Lex Fridman (31:48.860)

and everything has never been better than it is.

Lex Fridman (31:51.900)

But the notion is that it has to work

Lex Fridman (31:54.100)

for the majority of people

Lex Fridman (31:56.180)

and we have to keep it being productive.

Lex Fridman (31:59.820)

So that group has got to calmly and knowledgeably

Ray Dalio (32:04.820)

work together so that they increase the size of the pie

Lex Fridman (32:09.780)

and they create broad based prosperity.

Lex Fridman (32:12.660)

So that is a paramount importance.

Lex Fridman (32:15.660)

Whatever they do, if they do it that way,

Ray Dalio (32:18.900)

I can say I'm happy about

Lex Fridman (32:20.980)

because that other alternative

Ray Dalio (32:23.340)

is the really scary alternative.

Lex Fridman (32:28.420)

The scary alternative,

Ray Dalio (32:31.500)

the different ways it has evolved throughout history,

Lex Fridman (32:35.860)

some of it has led to wars.

Lex Fridman (32:39.420)

What are the future trajectories

Lex Fridman (32:41.740)

that lead to a potential war with China?

Lex Fridman (32:44.420)

Cold war or hot war?

Lex Fridman (32:46.980)

Is this something you think about?

Lex Fridman (32:48.260)

Is this something you're worried about?

Lex Fridman (32:50.260)

Yeah, I'd like to talk about both wars.

Lex Fridman (32:52.380)

So the war with China, as I say,

Lex Fridman (32:54.940)

there are five kinds of wars.

Ray Dalio (32:56.860)

There's a trade war, technology war, geopolitical influence

Lex Fridman (33:02.420)

war, capital war, and military war.

Ray Dalio (33:08.780)

As far as military war goes,

Lex Fridman (33:10.700)

I think it's only a Taiwan issue, but that's a big issue.

Lex Fridman (33:16.500)

And we could talk about that for a minute,

Lex Fridman (33:18.740)

but those others, they'll be rough competitions

Lex Fridman (33:22.940)

and we'll have that type of evolution over a period of time.

Lex Fridman (33:27.620)

That's what that war looks like.

Ray Dalio (33:30.420)

Taiwan has been, for a long time,

Lex Fridman (33:35.940)

a sovereignty issue to China.

Lex Fridman (33:40.540)

And it has its roots

Lex Fridman (33:42.900)

in what's called the 100 years of humiliation.

Ray Dalio (33:47.140)

From the 1840s to 1949, foreign powers came in,

Lex Fridman (33:52.140)

took advantage of China, they had the opium wars

Lex Fridman (33:56.140)

and such times, and that represented

Lex Fridman (34:00.660)

the 100 years of humiliation.

Lex Fridman (34:03.060)

And Taiwan represents their sovereignty

Lex Fridman (34:09.140)

and their important thing.

Lex Fridman (34:11.020)

And 50 years ago, starting 50 years ago,

Lex Fridman (34:14.620)

there was an agreement that there is one China

Lex Fridman (34:18.420)

and Taiwan is part of China.

Lex Fridman (34:21.580)

And that there would be peaceful reunification.

Ray Dalio (34:26.980)

The peaceful reunification hasn't happened.

Lex Fridman (34:31.460)

And in their view, that's a very big issue.

Lex Fridman (34:34.940)

And so it's a big contentious issue.

Lex Fridman (34:37.540)

And that could produce a military war,

Ray Dalio (34:41.820)

could produce a military accident,

Lex Fridman (34:43.540)

could produce, it's a very tense situation.

Lex Fridman (34:46.020)

And if we had a military war, God help us

Lex Fridman (34:49.820)

because of the capacity in all different new ways

Ray Dalio (34:53.660)

to inflict harm on each other.

Lex Fridman (34:56.380)

But anyway, that's that.

Ray Dalio (34:58.700)

If you don't have that military war,

Lex Fridman (35:01.700)

you'll have the competition between those other kinds of wars

Lex Fridman (35:06.340)

and whoever is strongest in those areas will win.

Lex Fridman (35:11.380)

Where do you put cyber war within the five?

Ray Dalio (35:14.660)

Well, cyber war is a military war.

Lex Fridman (35:17.380)

I'm assuming the type of cyber war that you're referring to

Ray Dalio (35:22.020)

is that which is used to inflict pain

Lex Fridman (35:24.580)

on the other party through cyber.

Lex Fridman (35:26.780)

So cyber wars, you'll see cyber war.

Lex Fridman (35:29.700)

You could see space war.

Ray Dalio (35:31.900)

You can see drone warfare.

Lex Fridman (35:35.900)

New types of warfare, not just the traditional

Lex Fridman (35:40.500)

and nuclear type of warfare.

Lex Fridman (35:42.680)

But you could see any of the above.

Lex Fridman (35:44.380)

What are the defining characteristics?

Lex Fridman (35:48.860)

What are the interesting things about Xi Jinping,

Lex Fridman (35:51.700)

the president of China, as a leader on the world stage?

Lex Fridman (35:55.900)

His father was a early leader.

Ray Dalio (36:01.660)

He was himself in the Cultural Revolution in times,

Lex Fridman (36:09.380)

treated brutally.

Lex Fridman (36:12.260)

And during that period of time, it was very, very difficult.

Lex Fridman (36:17.820)

And he came up through the ranks

Lex Fridman (36:21.500)

and he's a very intelligent man.

Lex Fridman (36:26.540)

When he first came to power,

Ray Dalio (36:29.300)

as you know, they have two five year terms,

Lex Fridman (36:32.140)

and we're now coming to the end

Ray Dalio (36:34.620)

of the second of those five year terms.

Lex Fridman (36:36.740)

When he first came to power,

Ray Dalio (36:38.980)

he felt that there should be a lot of reform.

Lex Fridman (36:42.860)

And reform meant moving to much more

Ray Dalio (36:46.540)

of a market and open economy.

Lex Fridman (36:49.380)

When that happened, him coming in,

Ray Dalio (36:53.140)

I had some contact with economic policymakers,

Lex Fridman (36:56.940)

but in the circumstances then,

Ray Dalio (36:59.340)

were that five major banks lent to state owned enterprises

Lex Fridman (37:03.860)

and local governments with implied government guarantees.

Lex Fridman (37:07.820)

And so there was not control of that

Lex Fridman (37:10.100)

and the movement to aim more of a market economy.

Lex Fridman (37:14.100)

And the development of markets was a primary

Lex Fridman (37:17.780)

and also the dealing with the corruption issue.

Ray Dalio (37:20.900)

There was a lot of corruption prior to that,

Lex Fridman (37:24.140)

and that was viewed as an existential threat to the system.

Lex Fridman (37:28.500)

So that became the primary objective.

Lex Fridman (37:31.620)

And then as time progressed over those 10 years,

Ray Dalio (37:36.620)

there was a lot of changing in the world,

Lex Fridman (37:42.020)

their financial circumstances,

Ray Dalio (37:43.820)

opening many, many other markets.

Lex Fridman (37:46.940)

They particularly getting money

Ray Dalio (37:48.460)

to small and medium sized enterprises

Lex Fridman (37:51.180)

and developing a lending system

Lex Fridman (37:52.940)

and then establishing controls on it.

Lex Fridman (37:55.340)

So right now there's a vibrant capital markets.

Ray Dalio (38:00.340)

You can raise capital, you can be an entrepreneur,

Lex Fridman (38:03.340)

you can become a billionaire in the capital markets.

Lex Fridman (38:07.860)

And they developed the markets

Lex Fridman (38:09.180)

to be the second largest capital markets.

Ray Dalio (38:11.900)

At the same time, they had to deal

Lex Fridman (38:15.700)

with their rising debt issue,

Ray Dalio (38:18.540)

which they began to deal with really about four years ago,

Lex Fridman (38:24.060)

when the second largest capital markets

Ray Dalio (38:27.740)

were about four years ago, when the second term began.

Lex Fridman (38:33.460)

And then Lu He became the vice premier

Ray Dalio (38:41.740)

responsible for that and to deal with those issues.

Lex Fridman (38:46.340)

So you see right now that what's happening

Ray Dalio (38:49.860)

is the dealing with the real estate bubble.

Lex Fridman (38:53.140)

There was a development in real estate, a bubble,

Ray Dalio (38:55.980)

which produced a lot of unproductive lending.

Lex Fridman (38:59.980)

And Xi Jinping said, houses are meant to live in,

Ray Dalio (39:06.500)

not to speculate on.

Lex Fridman (39:08.260)

And so that was wasteful.

Lex Fridman (39:09.860)

So they established what they call three red lines,

Lex Fridman (39:12.900)

which are financial ratios,

Ray Dalio (39:14.900)

that the property developers had to live within.

Lex Fridman (39:18.380)

And that is then causing the adjustments

Ray Dalio (39:21.820)

that are going on now, which in my view are very healthy

Lex Fridman (39:25.260)

because whenever there's bankruptcies

Lex Fridman (39:28.980)

and so on, most in the public think, okay, that's a problem.

Lex Fridman (39:33.140)

It's in many cases really a cleaning up of bad debts

Lex Fridman (39:36.300)

and bad practices.

Lex Fridman (39:37.420)

And so that's what's going on.

Lex Fridman (39:40.060)

So that's, let's say economically.

Lex Fridman (39:42.620)

At the same time, there is the changing relationships,

Ray Dalio (39:48.220)

the changing world order, the changing relationships

Lex Fridman (39:51.500)

with the United States and other countries,

Ray Dalio (39:54.140)

which is becoming much less cooperative

Lex Fridman (39:57.940)

and much more warlike, much more confrontational.

Ray Dalio (40:02.660)

Those two things, the domestic debt problem

Lex Fridman (40:06.780)

and the domestic, has led to what's called core,

Lex Fridman (40:11.140)

what they call core leadership,

Lex Fridman (40:13.140)

which means a leadership more around him

Ray Dalio (40:17.180)

that is less challenging

Lex Fridman (40:21.180)

because they believe in history

Ray Dalio (40:23.380)

that during very difficult times,

Lex Fridman (40:26.300)

a more centrally controlled decision making process

Ray Dalio (40:29.820)

lends itself better than to a more fragmented

Lex Fridman (40:32.740)

political contentious project.

Lex Fridman (40:35.020)

And that's basically what's going on now.

Lex Fridman (40:39.820)

You said it very eloquently,

Lex Fridman (40:42.060)

but you mean the leadership is surrounded by yes men

Lex Fridman (40:46.580)

and there's a lot of centralized control.

Ray Dalio (40:50.100)

That characterization is much more black and white

Lex Fridman (40:55.420)

than it really is.

Lex Fridman (40:57.620)

But it leans towards that direction.

Lex Fridman (41:00.340)

Like for example, of the standing members

Ray Dalio (41:02.300)

of the Politburo, four are more allotted,

Lex Fridman (41:07.100)

three are less so.

Ray Dalio (41:09.460)

You have to understand that it's kind of

Lex Fridman (41:11.540)

a collective leadership at the top.

Lex Fridman (41:14.580)

And then of course, there's just jockeying for power

Lex Fridman (41:18.580)

in a highly political sense at the top.

Lex Fridman (41:22.580)

But no one leader can be successful

Lex Fridman (41:25.980)

against all those powers at the top.

Lex Fridman (41:30.180)

So it's very politically negotiating.

Lex Fridman (41:32.900)

It's very much more like if you put in the United States

Ray Dalio (41:37.540)

the Democrats and the Republicans

Lex Fridman (41:39.500)

and they had to be in the same government

Lex Fridman (41:41.340)

and they work it out.

Lex Fridman (41:43.060)

It's kind of something like that.

Lex Fridman (41:45.140)

And so that's that struggle, but it's an internal struggle.

Lex Fridman (41:49.740)

Where do you put the importance of some of these ideas

Ray Dalio (41:53.020)

at the founding of the United States

Lex Fridman (41:55.260)

when now we're talking about that at the context of China,

Lex Fridman (41:59.340)

the freedom of speech, freedoms?

Lex Fridman (42:02.460)

What China is doing with the central management

Ray Dalio (42:04.600)

of a lot of things, it's enabling a lot of growth,

Lex Fridman (42:08.500)

but it's also limiting people on the very basic level

Ray Dalio (42:12.860)

in terms of freedom.

Lex Fridman (42:13.900)

The kind of freedom that I think can lead

Ray Dalio (42:17.260)

to entrepreneurship, to starting new businesses,

Lex Fridman (42:19.740)

to having big dreams and chasing those dreams

Lex Fridman (42:21.940)

and then creating totally new things in whatever the space,

Lex Fridman (42:25.080)

maybe in technology, in business and whatever.

Lex Fridman (42:30.340)

How important is that as a metric for society?

Lex Fridman (42:33.420)

Well, they have a view, which is the idea of a dialectic,

Ray Dalio (42:38.060)

which means that two things are at obvious,

Lex Fridman (42:41.360)

that everything comes with pros and cons

Lex Fridman (42:43.620)

and two opposites exist.

Lex Fridman (42:46.540)

And you want the benefits of those two opposites

Lex Fridman (42:50.100)

and how do you deal with the benefits of those two opposites?

Lex Fridman (42:54.020)

So let's say you want the capital markets

Ray Dalio (42:57.380)

because it gets money into the hands of the entrepreneurs

Lex Fridman (43:02.020)

who are motivated, they build fortunes,

Lex Fridman (43:04.420)

and that drives an economy to do very well.

Lex Fridman (43:07.820)

And at the same time, it produces the other problems,

Ray Dalio (43:12.740)

the wealth gaps, the other problems,

Lex Fridman (43:15.460)

the debt cycle that we're talking about and so on.

Lex Fridman (43:18.420)

And Deng Xiaoping, how do you reconcile communism

Lex Fridman (43:23.320)

and the market economy and the capital markets?

Lex Fridman (43:27.540)

And he famously said,

Lex Fridman (43:32.180)

it doesn't matter if it's a white cat or a black cat,

Ray Dalio (43:34.360)

just as long as it catches mice.

Lex Fridman (43:36.340)

In other words, if it works in making the country richer,

Ray Dalio (43:40.620)

then that becomes the objective

Lex Fridman (43:42.280)

and then they move that along.

Lex Fridman (43:43.620)

So there are these conflicts.

Lex Fridman (43:46.500)

And one of the leaders described it to me as follows,

Ray Dalio (43:51.400)

because it's confusion and it goes back

Lex Fridman (43:53.940)

over a period of time.

Ray Dalio (43:55.660)

There's a hierarchy and it's an extension of the family,

Lex Fridman (44:00.020)

he described it.

Lex Fridman (44:01.280)

And he said, the United States is a country of individuals

Lex Fridman (44:06.600)

and individualism, and that is its vibrancy

Ray Dalio (44:11.600)

that we see the individual rights to speak up,

Lex Fridman (44:17.640)

the individual protection of the individual,

Ray Dalio (44:22.440)

individual property rights and all of those things

Lex Fridman (44:25.540)

is of paramount importance.

Lex Fridman (44:28.280)

And we build our organization.

Lex Fridman (44:29.920)

That's why democracy is from the bottom up

Ray Dalio (44:32.080)

or even a company, we'll get together

Lex Fridman (44:34.280)

and we'll be partners to prosper together.

Ray Dalio (44:37.480)

That is the American approach.

Lex Fridman (44:39.460)

He was describing that in China,

Ray Dalio (44:43.380)

it's an extension of the Confucian family, essentially.

Lex Fridman (44:47.860)

And so it's almost like there's a hierarchy.

Lex Fridman (44:52.380)

And so what they think about is the common good,

Lex Fridman (44:57.040)

not the individualism.

Lex Fridman (44:59.420)

So for example, if they want a high speed rail

Lex Fridman (45:02.100)

to go from one place to another,

Lex Fridman (45:04.100)

and that's best in the common good,

Lex Fridman (45:06.720)

then the individual protections

Ray Dalio (45:08.820)

that would stand in the way of doing that

Lex Fridman (45:11.300)

would be of secondary concern.

Lex Fridman (45:13.660)

So that notion of controlling.

Lex Fridman (45:17.220)

So for example, what they're doing with video games,

Ray Dalio (45:24.180)

they control what type of video games

Lex Fridman (45:28.240)

and how many hours a day kids can be on video games

Ray Dalio (45:33.900)

operating in that way,

Lex Fridman (45:35.660)

because they believe that that's good for the society

Lex Fridman (45:38.980)

and that's very controlling.

Lex Fridman (45:40.780)

In the United States,

Ray Dalio (45:42.220)

I think probably most parents would say, leave it to me.

Lex Fridman (45:45.100)

And it's a matter between me and my kids.

Ray Dalio (45:48.340)

The same thing has to do with data.

Lex Fridman (45:50.660)

In other words, in the United States,

Lex Fridman (45:52.840)

who controls the data?

Lex Fridman (45:55.220)

Does the company control the data?

Lex Fridman (45:57.340)

Do you individually control the data?

Lex Fridman (46:00.020)

And so the inclination would be to figure that out,

Lex Fridman (46:03.580)

but nobody would say that the government

Lex Fridman (46:05.640)

is going to control the data

Ray Dalio (46:07.460)

because of our inclination of really anti government control.

Lex Fridman (46:11.780)

In China, it would be that the government

Ray Dalio (46:14.180)

will control the data

Lex Fridman (46:15.860)

because that's going to be best for the society.

Lex Fridman (46:18.900)

And it depends who you trust.

Lex Fridman (46:20.340)

But that's, so that difference in philosophy

Ray Dalio (46:24.700)

is very much at the heart of that.

Lex Fridman (46:28.660)

As far as your question in terms of effectiveness,

Ray Dalio (46:33.100)

it really is, in China's case,

Lex Fridman (46:35.940)

it's how you balance the things, right?

Lex Fridman (46:38.140)

So what they're attempting to do

Lex Fridman (46:40.020)

is to create a lot of freedom and creativity

Ray Dalio (46:44.680)

in areas that are not political, let's say.

Lex Fridman (46:50.260)

And so you see a lot of entrepreneurship,

Ray Dalio (46:53.860)

you see a lot of product development,

Lex Fridman (46:55.940)

you see a lot of creativity happening in that way.

Lex Fridman (47:00.620)

So the stereotype that you don't see creativity happening

Lex Fridman (47:04.900)

is an old stereotype,

Ray Dalio (47:06.740)

whereas a lot of creativity is certainly happening.

Lex Fridman (47:09.220)

And the system can work well

Ray Dalio (47:10.900)

if they can achieve that kind of balance.

Lex Fridman (47:13.260)

It's proven to have worked well.

Ray Dalio (47:15.060)

Since I started going there in 1984,

Lex Fridman (47:18.300)

per capita income, real per capita income,

Ray Dalio (47:21.100)

has increased by 26 times.

Lex Fridman (47:24.160)

The longevity rate has increased by 10 years.

Ray Dalio (47:28.940)

The poverty rate has fallen from 88% to less than 1%

Lex Fridman (47:33.260)

in terms of basics like starvation and things.

Lex Fridman (47:37.380)

And if you read history, Plato's Republic,

Lex Fridman (47:41.740)

he talks about the cycles, democracy and autocratic

Lex Fridman (47:46.380)

and the benevolent despot and all of that,

Lex Fridman (47:50.140)

each has their own vulnerability.

Ray Dalio (47:53.340)

The vulnerability of democracy,

Lex Fridman (47:55.660)

which has been a remarkable, remarkable system

Lex Fridman (47:58.780)

and I don't have to extol the benefits of it,

Lex Fridman (48:02.980)

but the vulnerability of it has always been

Ray Dalio (48:07.980)

the internal conflict that produces itself as anarchy.

Lex Fridman (48:13.900)

In World War II, four democracies

Ray Dalio (48:18.620)

chose to be autocracies

Lex Fridman (48:22.980)

because there was internal disorder

Lex Fridman (48:25.980)

and there was the belief, will somebody bring about order

Lex Fridman (48:30.220)

and get control of the situation?

Ray Dalio (48:32.660)

That was in Germany, Italy, Japan and Spain.

Lex Fridman (48:38.040)

They were parliamentary systems

Ray Dalio (48:41.180)

that turned themselves over to that.

Lex Fridman (48:43.840)

So both systems have vulnerabilities.

Ray Dalio (48:49.460)

I think the main thing that we need to think about

Lex Fridman (48:53.300)

is those vulnerabilities.

Ray Dalio (48:54.820)

Democracy is an amazing system

Lex Fridman (48:58.340)

because the adherence to the rules and the system

Lex Fridman (49:03.500)

and the checks and balances is quite amazing

Lex Fridman (49:06.860)

and it gives it a flexibility to change without civil wars.

Lex Fridman (49:12.460)

But there has to be the respect of the rules.

Lex Fridman (49:15.060)

And when you see something like

Ray Dalio (49:18.060)

they will not accept elections

Lex Fridman (49:22.500)

or they will not accept rules, history has shown,

Ray Dalio (49:27.020)

when the causes that people are behind

Lex Fridman (49:29.660)

are more important to them than the system,

Ray Dalio (49:32.340)

the system is in jeopardy.

Lex Fridman (49:34.420)

So we have a situation that's very much like that

Ray Dalio (49:38.260)

in terms of, let's say, the 2024 elections.

Lex Fridman (49:42.500)

I believe that there's a very high chance

Ray Dalio (49:46.740)

that neither side will accept losing, for example.

Lex Fridman (49:51.740)

And so we have that kind of a situation.

Lex Fridman (49:56.260)

So one would hope that one could rise above

Lex Fridman (50:00.140)

the disagreements and rely on the system

Ray Dalio (50:04.740)

for resolving disagreements.

Lex Fridman (50:06.900)

Because if that doesn't happen, then we have our own chaos.

Lex Fridman (50:13.300)

So the kind of the trend that started in 2020,

Lex Fridman (50:16.780)

or I mean, I suppose it's been there,

Ray Dalio (50:19.860)

it's been growing.

Lex Fridman (50:22.060)

One representation of this internal disorder

Ray Dalio (50:24.280)

has been the growing trend of being skeptical

Lex Fridman (50:27.460)

about the results of the election.

Ray Dalio (50:29.700)

Well, it started before that.

Lex Fridman (50:31.680)

There was the emergence of population

Ray Dalio (50:35.140)

before President Trump was elected.

Lex Fridman (50:40.000)

He was basically elected as a populist

Ray Dalio (50:43.340)

because there was a large percentage of the population

Lex Fridman (50:46.840)

that felt that the system didn't work for them.

Lex Fridman (50:50.700)

And he tapped into that.

Lex Fridman (50:52.660)

And he was largely elected as a populist leader,

Ray Dalio (50:56.100)

first populist leader in a developed country.

Lex Fridman (51:00.620)

And so populism began then.

Lex Fridman (51:04.260)

And that was a battle of one group against the other group.

Lex Fridman (51:08.460)

And so since then, it's been like that

Lex Fridman (51:12.140)

and it continued to grow.

Lex Fridman (51:17.940)

You've mentioned the vulnerability of democracy,

Ray Dalio (51:23.020)

that internal disorder is the vulnerability of democracy.

Lex Fridman (51:26.620)

What's the vulnerability of a system like China?

Ray Dalio (51:29.460)

Maybe one way to say is put China aside

Lex Fridman (51:32.460)

and look at history, look at Soviet Union.

Lex Fridman (51:34.980)

What's the vulnerability of a communist type system?

Lex Fridman (51:39.880)

Well, I'll call it both communist and autocratic,

Ray Dalio (51:46.500)

depending on how much autocracy,

Lex Fridman (51:48.940)

is that it lacks flexibility.

Ray Dalio (51:52.540)

It lacks the ability,

Lex Fridman (51:57.140)

but I should deal with them differently.

Ray Dalio (51:59.580)

In other words, there's the economic system.

Lex Fridman (52:02.180)

The economic system threatens motivation and productivity.

Lex Fridman (52:07.180)

So communism or socialism has to be done in a way

Lex Fridman (52:12.460)

where you can threaten productivity.

Ray Dalio (52:16.940)

Capitalism has, and what I mean by that,

Lex Fridman (52:20.420)

I mean free markets and capital markets

Ray Dalio (52:24.620)

have been an effective way of allocating resources

Lex Fridman (52:28.380)

and also creating the incentives and the resources,

Ray Dalio (52:33.380)

providing the resources for the inventiveness of new ideas.

Lex Fridman (52:37.620)

And so if I compare that, what the Chinese have done

Ray Dalio (52:42.500)

to a large extent is to recognize that

Lex Fridman (52:45.540)

and have made a move.

Ray Dalio (52:47.220)

That's why the seeming dialectic or the conflict

Lex Fridman (52:52.140)

between those two things exists.

Lex Fridman (52:53.740)

But anyway, that's it.

Lex Fridman (52:55.580)

As far as an autocratic system,

Ray Dalio (52:57.860)

rather than one man, one vote from the population up,

Lex Fridman (53:04.300)

the risks of the autocratic system

Ray Dalio (53:07.340)

is that there's enough discontent that arises

Lex Fridman (53:12.260)

that the system doesn't have the flexibility

Lex Fridman (53:16.600)

and that rather than bending, it breaks.

Lex Fridman (53:21.480)

That's the big risk.

Ray Dalio (53:24.180)

The notion of trying to control a population

Lex Fridman (53:28.220)

if there's that, rather than giving it the flexibility.

Lex Fridman (53:32.380)

So that would be the big risk of the autocratic system.

Lex Fridman (53:36.180)

What's the human, because you mentioned

Ray Dalio (53:39.260)

like the top gets bigger with the empires

Lex Fridman (53:42.460)

and you start to get things for granted.

Lex Fridman (53:45.780)

Is some of this just human nature?

Lex Fridman (53:48.340)

So the concern with China, with autocratic nations,

Ray Dalio (53:53.340)

the concern with the Third Reich, the Soviet Union,

Lex Fridman (53:59.940)

was that fundamentally at the individual level,

Ray Dalio (54:03.580)

the humans involved at the top,

Lex Fridman (54:06.460)

they start becoming, they're starting to lose touch

Ray Dalio (54:09.600)

with reality in a way that no longer makes them.

Lex Fridman (54:13.460)

I guess that's the representation,

Ray Dalio (54:14.900)

the flexibility that you're referring to.

Lex Fridman (54:16.980)

Well, I mean, in a democracy, you could change.

Ray Dalio (54:21.180)

You can go as far left or as far right.

Lex Fridman (54:23.580)

You can change the leaders easily.

Lex Fridman (54:25.780)

And so the people don't become,

Lex Fridman (54:28.900)

they pretty much only have themselves to blame.

Lex Fridman (54:32.860)

And one of the problems of that

Lex Fridman (54:35.680)

is they may not choose the best leaders,

Lex Fridman (54:39.300)

but they have that flexibility.

Lex Fridman (54:42.340)

So vote and you get what you wanted.

Ray Dalio (54:46.180)

In the case of the autocratic, let's say leaders,

Lex Fridman (54:49.040)

and then the movement from democracies to autocracies,

Lex Fridman (54:54.040)

what you see normally that movement

Lex Fridman (54:57.420)

is that one of the systems is not working.

Ray Dalio (55:00.560)

Let's say the democracy is not effectively,

Lex Fridman (55:02.940)

everybody's arguing with each other

Lex Fridman (55:04.500)

and nobody's getting anything done.

Lex Fridman (55:06.620)

You know, like Mussolini,

Ray Dalio (55:08.180)

the trains are not running on time.

Lex Fridman (55:10.340)

And that would be the example,

Ray Dalio (55:12.240)

geez, this place has gotten chaotic.

Lex Fridman (55:14.540)

Will somebody get to control?

Lex Fridman (55:16.700)

And then you get the autocratic

Lex Fridman (55:20.520)

and then he's autocratic enough to boss people around.

Lex Fridman (55:24.780)

And then you follow those kinds of orders.

Lex Fridman (55:29.060)

And it's like maybe a CEO in a powerful company

Ray Dalio (55:32.700)

going around and that could work well

Lex Fridman (55:34.620)

or it could work badly.

Ray Dalio (55:36.380)

Most companies are run as like autocracies in a sense.

Lex Fridman (55:41.380)

You know, there's the hierarchy and the command economy

Lex Fridman (55:44.980)

and that kind of thing.

Lex Fridman (55:46.660)

And that can work well or not.

Lex Fridman (55:51.660)

But then quite often when you get the populist autocratic,

Lex Fridman (55:56.660)

their personality is something that they want to fight

Lex Fridman (56:01.220)

and they become more nationalistic

Lex Fridman (56:04.740)

and they tend to become more militaristic.

Lex Fridman (56:07.700)

And human nature at that stage lends itself to fighting.

Lex Fridman (56:13.180)

There's an arc here that when we think of a country

Lex Fridman (56:18.740)

and we say we, and we think of a country,

Lex Fridman (56:22.220)

it's not true, it's not like that.

Ray Dalio (56:24.660)

There are individuals who change.

Lex Fridman (56:26.940)

One generation dies and another generation comes along.

Lex Fridman (56:30.940)

And one of those arcs is that the one generation

Lex Fridman (56:35.940)

of the ones who have been through war

Ray Dalio (56:39.860)

don't wanna go to war and are more happily willing

Lex Fridman (56:44.260)

to abide by whatever the rules are.

Ray Dalio (56:47.980)

As you get farther along into that cycle

Lex Fridman (56:50.940)

and you get a new generation and they forget about wars

Lex Fridman (56:53.940)

and the horrors of wars, then they want to fight.

Lex Fridman (56:59.580)

And so you're seeing right now the emerging

Ray Dalio (57:02.820)

of fight for right and what that means

Lex Fridman (57:06.420)

is you see it internally, fight where are you

Lex Fridman (57:10.700)

and fight for that thing and they mean fight.

Lex Fridman (57:14.860)

And then externally, fight, are you going to be

Lex Fridman (57:19.340)

the strong one who will fight and win?

Lex Fridman (57:21.860)

And that develops on both sides, this fight and win

Lex Fridman (57:26.060)

and each side is cheering each other on into a war.

Lex Fridman (57:30.300)

But that comes by those who really have not experienced war

Ray Dalio (57:34.700)

because it comes in their part of their lifetime.

Lex Fridman (57:38.740)

Humans are fascinating.

Ray Dalio (57:40.660)

Humans are fascinating.

Lex Fridman (57:41.940)

And by the way, human nature has not changed

Ray Dalio (57:45.700)

over the thousands of years.

Lex Fridman (57:48.260)

So it's so interesting because like in doing this study

Lex Fridman (57:51.980)

and it comes across in the study,

Lex Fridman (57:54.060)

it's like watching the same movie over and over again.

Ray Dalio (57:56.700)

You know, you see the arc and you see it happen

Lex Fridman (58:01.100)

over and over again.

Ray Dalio (58:02.580)

The only things that seem to change are the clothes

Lex Fridman (58:05.300)

people wear and the technologies they use.

Ray Dalio (58:07.660)

Yeah, and then somebody probably would disagree

Lex Fridman (58:12.900)

with you about the clothes.

Ray Dalio (58:13.740)

Maybe there's also cycles within fashions.

Lex Fridman (58:16.300)

Maybe we're not even creative there.

Lex Fridman (58:18.580)

What do you make of Russia and Vladimir Putin?

Lex Fridman (58:23.580)

What do you think about Putin as a leader,

Ray Dalio (58:26.420)

as a human being on this world stage within the context

Lex Fridman (58:30.460)

of the cycles of empires that you think about?

Ray Dalio (58:33.900)

Well, Putin came to power at the failure

Lex Fridman (58:38.420)

of Russia's last order.

Lex Fridman (58:41.220)

So there was the end of communism

Lex Fridman (58:45.260)

and there was the development of the market economy,

Ray Dalio (58:47.980)

the collapse of the Soviet Union.

Lex Fridman (58:50.140)

And at that time, he was appointed by Yeltsin

Ray Dalio (58:57.420)

who was an alcoholic and had problems managing

Lex Fridman (59:03.220)

and was put into power.

Lex Fridman (59:05.260)

And the conditions in the Russia were,

Lex Fridman (59:08.740)

there was anarchy, there was no money.

Ray Dalio (59:12.580)

It had the classic end of cycle ingredients.

Lex Fridman (59:15.540)

It was broke.

Ray Dalio (59:16.660)

It was people were fighting with each other.

Lex Fridman (59:18.700)

It was in the anarchy.

Lex Fridman (59:20.180)

And that's when he came to power.

Lex Fridman (59:23.180)

And there were not institutions.

Ray Dalio (59:27.620)

The whole thing had collapsed

Lex Fridman (59:29.180)

and it was not effective ministry of education,

Ray Dalio (59:31.980)

ministry of anything.

Lex Fridman (59:34.180)

And so the idea was that they needed 25 years of stability

Lex Fridman (59:41.220)

and they needed a democracy

Lex Fridman (59:43.740)

and they needed the improvement of capital markets.

Lex Fridman (59:47.580)

So he's been in that position as I guess I would call him

Lex Fridman (59:56.820)

a semi autocratic leader in that from all indications,