Charlie Rose Talks to Bridgewater's Ray Dalio
Your animated film, How the Economic Machine Works, has 750,000 hits on YouTube. Explain what it’s about and what compelled you to make it.
It’s a 30-minute description of how I believe the economy works like a machine, a very simple explanation. I’m a global macroeconomic investor, so it’s from a very practical perspective. I’m 64 years old. I’ve reflected back on what I’ve learned, and I felt it was important to get it out there. Many economists … they’re not living in the world of markets every day. They’re not putting money on the line. So they don’t have to engage in the kind of hardheaded analysis you do because you are managing $150 billion.
You went to Washington and Europe in 2007 to warn of a crisis ahead. What kind of reception did you get?
Well, during bubbles, people do not believe that busts are going to come. And there wasn’t an understanding of the fact that the debt growth was unsustainably fast. So it was disbelief that I ran into. The challenge was to get them to look at [the situation] literally: Can you sustain that kind of growth? And that was a problem.
And how does the economic picture in the U.S. look to you now?
The U.S. economy is in the middle of a short-term debt cycle. It’s in one of those periods when we would think of them as fairly boring years. If I said to you, “What were 2004 to 2006 like?” You don’t remember. They don’t stick out. They didn’t have tight monetary policies. They didn’t have loose monetary policies. Now, short-term interest-rate return is about 1 percent. The expected return on bonds is about 3 percent. Equities at about 4 percent. It’s in the middle of a business cycle within a very long-term debt cycle. The high level of the debt cycle means it has a sensitivity to interest rates. A tightening that’s too fast would cause the economy to go into a difficult situation. That’s where the U.S. is.
Some have compared Bridgewater Associates’ culture to that of a cult. How do you respond to that?
What we do is step back and get to the fundamentals of how people think differently. What people are good or bad at. What they’re like. It’s like an investment. You take a little bit of time to get at that, but it pays over and over again. Imagine a company in which everything is taped for everybody to listen to. That’s our company. Every meeting that anybody has is taped. So everybody sees everybody making mistakes and struggling. That radical transparency is radically productive. It’s like going into an intellectual Navy SEALs. And the key question is, “Can you get over your ego barrier?” There’s an idea of meritocracy. Anybody can ask questions. It’s the opposite of a cult.
The president has been talking a lot about income inequality. What’s your take?
I think it’s mostly a function of technology. Higher productivity means you don’t need people the same way you did before. And it will be a much bigger issue going forward. Then globalization plays a big role because of the competition. The problems happening in emerging countries right now are causing their exchange rates to go down, which is going to make competition even greater. People—from a business point of view—are machines that do things. And now they can not only physically but intellectually be replicated with technologies, and that has an effect on the demand for labor.
When does emerging-market growth bounce back?
Both income and spending will go down. It’s always a classic cycle. Investors go in. They get excited about an investment. And it does great for a decade. But all that money that went in was a capital flow that made them dependent on that money. Then it twitches, produces bad returns, and the cycle works in reverse.