Ray Dalio Says Populism May Be a Bigger Deal Than Monetary and Fiscal PolicyBy
Populism is at highest level since the late 1930s, he says
Debuts Developed World Populism Index to show historical trend
Billionaire Ray Dalio, further assessing the impact of President Donald Trump’s surprise election, warned that global populism will be an economic force more powerful than monetary and fiscal policies over the next year.
In an 81-page paper published Wednesday that details the history of populists in 10 countries from Franklin Roosevelt to Hugo Chavez, Dalio analyzed the phenomenon in an effort to make sense of today’s current political environment.
“We believe that populism’s role in shaping economic conditions will probably be more powerful than classic monetary and fiscal policies,” Dalio and three Bridgewater Associates colleagues wrote in a “Daily Observations” report obtained by Bloomberg. “We will learn a lot more over the next year or so as those populists now in office will signal how classically populist they will be and a number of elections will determine how many more populists enter office.”
Populism today is at its highest level since the late 1930s, said Dalio, 67. In the paper, Dalio debuts the Developed World Populism Index which he says he created to measure global populism. It’s a weighted index of the share of votes received by anti-establishment parties or candidates in national elections for major developed countries since 1900.
The report includes an analysis of 14 populist leaders from the past, without detailing those currently in office “because the stories of ones in power or possibly coming to power are still being written,” Dalio said.
The report was written with Bridgewater’s Steven Kryger, Jason Rogers and Gardner Davis. It concludes that, in monitoring the early stages of a populist regime, “the most important thing to watch is how conflict is handled -- whether the opposing forces can coexist to make progress or whether they increasingly ‘go to war’ to block and hurt each other and cause gridlock.”
Bridgewater notes that populism is commonly brought about by gaps in wealth and opportunity, as well as xenophobia and frustration with government inefficiencies. Those factors lead to the emergence of a strong leader to serve the common man, as well as protectionism, nationalism, militarism, conflict and greater attempts to influence and control the media.
Populism has been a key focus of Dalio’s in recent months, as it’s emerged in countries including the U.S., U.K., Italy and the Philippines. In mid-January at the World Economic Forum in Davos, he said that the rise of populism threatens multinational corporations and is the biggest force in the world today.
On the U.S., Dalio said today that “while we consider Donald Trump to be a populist, we have more questions than answers about him and are using these other cases to assess him against by seeing if he follows a more archetypical path or if he deviates from it significantly."
Dalio, who was initially bullish on Trump’s ability to stimulate the economy, changed his view in late January, saying that he was becoming more concerned that the damaging effects of his policies could overwhelm the benefits of a pro-business agenda.
He soured on the leader after Trump banned visitors from several mostly Muslim countries and proposed border taxes on Mexican goods. Trump’s “America First” policy, his executive order on immigration and bent toward U.S. trade protectionism are reminiscent of the policies of populist governments in the 1930s, Dalio and co-chief investment officer Bob Prince told clients at the time.
In December, as stocks surged on the back of Trump’s win, Dalio had said that the Trump era could “ignite animal spirits” and attract productive capital. Trump’s cabinet appointees are “bold and hell-bent on playing hardball” to effect major changes in economics and foreign policy, and their leader “doesn’t mind getting banged around or banging others around,” he said.
Bridgewater, based in Westport, Connecticut, oversees about $160 billion in assets. It returned 1.2 percent in its Pure Alpha II fund through February, after rising 2.4 percent last year.
Dalio started the company in 1975, initially as an investment-research firm focusing on risk management and macroeconomic data. It later began managing money for pension plans, using investment formulas he developed over the past four decades to make calls on currencies, commodities, stocks and bonds.
Dalio, who’s worth an estimated $14 billion, cites Roosevelt’s 1936 speech before the Democratic National Convention in which the president described a state of growing inequality where the “savings of the average family, the capital of the small business man, the investments set aside for old age” were used as “tools which the new economic royalty used to dig itself in.”
— With assistance by Katherine Burton, and Saijel Kishan