Ray Dalio is no stranger to economic crises but he thinks this one could be different.

In a LinkedIn opinion piece, the founder of the world’s largest hedge fund said market moves were common. But this time three things were different.

First, never before in our lifetimes were interest rates so low. Second, never had wealth and political gaps been so high. Finally, never before had the US encountered a rival power in China.

Consequently he anticipates a different outcome to past crises.

As Dalio articulated, economies face a damned if you do, damned if you don’t scenario.

“We are now facing a choice between having more economic growth with more sickness and death or having less of these,” he said.

While he thinks this question is debatable, society first has to settle on three issues:

  1. Luxuries are not as important as basic necessities such as health, education and “basic maintenance”;
  2. It’s “no big deal” to reduce luxury spending; and
  3. If luxury spending shifts to necessity spending, there’ll be enough to cover the necessities.

“If we agree on those things then we should make that our goal and figure out how to best get there,” he said.

 

Re-engineering capitalism

Dalio says we need to consider what level of economic growth we want and what we can pay for.

“We need to think hard about what types of economic growth get what for whom in exchange for the costs of getting it,” he said.

“This could be the economic downturn that leads us to terribly waste money and/or be at each other’s throats unproductively fighting over how to divide the pie.”

According to Dalio, this latest crisis has “created the compelling necessity to look at how capitalism should be reengineered to cost-effectively both increase the size of the pie and divide it well”.

“I dream of a day that we can discuss this well in an open and bipartisan way, and I fear a time that we’ll be at each other’s throats fighting to get what we can,” he said.

“So I believe that now is the time to think hard about how we should be with each other to most appropriately allocate our resources.”

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