Lex Fridman PodcastRay Dalio: Principles, the Economic Machine, AI & the Arc of Life | Lex Fridman Podcast #54
EVERY SPOKEN WORD
150 min read · 30,094 words- 0:00 – 5:33
Radical truth: experimentation over convention
- LFLex Fridman
The following is a conversation with Ray Dalio. He's the founder, co-chairman, and co-chief investment officer of Bridgewater Associates, one of the world's largest and most successful investment firms that is famous for the principles of radical truth and transparency that underlie its culture. Ray is one of the wealthiest people in the world, with ideas that extend far beyond the specifics of how he made that wealth. His ideas that are applicable to everyone are brilliantly summarized in his book, Principles. They are also even further condensed on several other platforms, including YouTube, where, for example, a 30-minute video titled How the Economic Machine Works is one of the best educational videos I personally have ever seen on YouTube. Once again, you may have noticed that the people I've been speaking with are not just computer scientists, but philosophers, mathematicians, writers, psychologists, physicists, economists, investors, and soon, much more. To me, AI is much bigger than deep learning, bigger than computing. It is our civilization's journey into understanding the human mind and creating echoes of it in a machine. That journey includes the mechanisms of our economy, of our politics, and the leaders that shape the future of both. This is the Artificial Intelligence podcast. If you enjoy it, subscribe on YouTube, give it five stars on Apple Podcasts, support it on Patreon, or simply connect with me on Twitter @lexfridman, spelled F-R-I-D-M-A-N. This show is presented by Cash App, the number one finance app in the App Store. I personally use Cash App to send money to friends, but you can also use it to buy, sell, and deposit Bitcoin. Most Bitcoin exchanges take days for a bank transfer to become investable. Through Cash App, it takes seconds. Cash App also has a new investing feature. You can buy fractions of a stock, which to me is a really interesting concept. So you can buy of one dollar's worth, no matter what the stock price is. Brokerage services are provided by Cash App Investing, a subsidiary of Square and member SIPC. I'm excited to be working with Cash App to support one of my favorite organizations that many of you may know and have benefited from called FIRST, best known for their FIRST Robotics and Lego competitions. They educate and inspire hundreds of thousands of students in over 110 countries and have a perfect rating on Charity Navigator, which means the donated money is used to maximum effectiveness. When you get Cash App from the App Store or Google Play and use code LEXPODCAST, you'll get ten dollars, and Cash App will also donate ten dollars to FIRST, which again is an organization that I've personally seen inspire girls and boys to dream of engineering a better world. And now, here's my conversation with Ray Dalio. Truth, or more precisely, an accurate understanding of reality, is the essential foundation of any good outcome. I believe you've said that. Let me ask an absurd-sounding question at the high philosophical level. So what is truth? When you're trying to do something different than everybody else is doing, and perhaps something that has not been done before, how do you accurately analyze the situation? How do you accurately discover the truth, the nature of things?
- RDRay Dalio
Almost the way you're asking the question implies that, um, truth and newness have nothing... are almost at odds.
- LFLex Fridman
Oh.
- RDRay Dalio
And I just want to say that I don't think that that's true, right? So what I mean by truth- eh, truth is, uh, you know, what is the reality? How does the reality work? And so if you're doing something new that has never been done before, which is exciting and I like to do, the way that you would start with that is experimenting on what are the realities and the premises that you're using on that and how to stress test those types of things. I think what you're talking about is instead the fact of how do you deal with something that's never been done before-
- LFLex Fridman
Yeah.
- RDRay Dalio
... and deal with the associated probabilities? And so I, I think in that, don't let something that's never been done before stand in the way of you doing that particular thing. You have a- Because almost the only way that you understand what truth is, is through experimentation. And so when you go out and experiment, you're going to learn a lot more about what truth is. But the essence of what I'm saying is that when you take a look at that, use truth to find out what the realities are as a foundation, do the independent thinking, do the experimentation to find out what's true, and change and keep going after that. So I think that the we- that when you're thinking about it the way you're thinking about it, that almost implies that you're, you're letting people almost say that they're reliant on what's been discovered before to find out what's true, and what's been discovered before is often not true, right?
- LFLex Fridman
Right. Exactly.
- RDRay Dalio
Conventional view of what tr- what is true is very often wrong. It'll go in ups and downs, and, you know, I mean, there are fads and okay, this thing, it goes this way and that way. And so definitions of truths that are conventional are not the thing to go by.
- LFLex Fridman
How do you know the thing that has been done before, that it might succeed?
- 5:33 – 6:40
Dalio’s 5-step process for turning dreams into outcomes
- RDRay Dalio
It's to do whatever homework that you have in order to try to get a foundation, and then to go into worlds of not knowing-And you go into the world of not knowing, but not stupidly, not naively, you know? You go into that world of not knowing, and then you do experimenting, and you learn what truth is and what's possible through that process. I describe it as a five-step process.
- LFLex Fridman
Yes.
- RDRay Dalio
The first step is you go after your goals, the second step is you identify the problems that stand in the way of you getting to your goals, the third step is you diagnose those to get at the root cause of those, then the fourth step is then, now that you know the exact root cause, you get, you design a way to get around those, and then you, um, follow through and do the designs you set out to do, and it's the experimentation. I think that what happens to people mostly is that they try to decide whether they're gonna be successful or not ahead of doing it.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
And they don't know how to do the process well, because the nature of your questions are along those lines, like, "How do you know?"
- LFLex Fridman
Yeah.
- 6:40 – 8:54
The ‘shaper’ archetype: dreamer + realist + rapid learner
- RDRay Dalio
Well, you don't know. But a practical person who is also used to making dreams happen knows how to do that process. I've given personality tests to shapers. So the person, what I mean by a shaper is a person who can take something from visualiz- visualization, they have an audacious goal-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and then they go from visualization to actualization, building it out. That includes, uh, E- uh, Elon Musk. I gave him the personality test.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
I've given it to Bill Gates, and I've given it to many, many, uh, such shapers. And they know that process that I'm talking about. They experience it, which is a process, essentially, of knowing how to go from an audacious goal, but not in a r- ridiculous way, not a, a dream, and then to do that learning along the way that allows them, in a very practical way, to learn very rapidly as they're moving toward that goal.
- LFLex Fridman
So the, the call to adventure, the adventure starts, uh, not trying to analyze the probabilities of the situation, but, uh, using what instinct? How do you dive in? So let's-
- RDRay Dalio
It is-
- LFLex Fridman
... let's talk about it.
- RDRay Dalio
... it, it is, it, it is being a ... it's simultaneously being a dreamer and a realist. It's to know how to do that well. The pull comes from a pull to adventure. For whatever reason, uh, I can't tell you how much of it's genetics and how much it's environment, but there's a early on, it's exciting.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
That notion is exciting.
- LFLex Fridman
Yes.
- RDRay Dalio
Being creative is exciting. And so one feels that. Then one gets in the habit of, of doing that. Okay, how do I know? How do I learn very well? And then, how do I imagine? And then, how do I experiment to go from that imagination? So it's that process that one, uh, one l- and when l- and then one, the more one does it, the one, more, the better one becomes at it.
- LFLex Fridman
Mm-hmm. You mentioned shapers. Elon Musk, Bill Gates. What ... Who are the shapers that you find yourself thinking about when you're constructing these ideas? The ones that define the archetype of a shaper for you?
- 8:54 – 15:09
Traits shapers share: helicoptering, high standards, mission first
- RDRay Dalio
Well, as I say, a shaper, for me, is somebody who comes up with a great visualization, um, usually a really unique visualization, and then, uh, actually builds it out and makes the world different, changes the world in that kind of a way. So when I look at it, Marc Benioff with Salesforce, Chris Anderson with TED, Muhammad Yunus with social enterprise and philanthropy, Geoffrey Canada and Harlem Children's Zone, there are ... Uh, all domains have shapers who have the av- ability to visualize and make extraordinary things happen.
- LFLex Fridman
What are the commonalities between some of them?
- RDRay Dalio
The commonalities are, first of all, the excitement of something new, that call to adventure, and in again, that practicality, the capacity to learn. It ... And the capacity then, um, they're, they're able to g- be, in many ways, full range. That means they're able to go from the big, big picture down to the detail.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
So let's say, for example, uh, Elon Musk. He, he describes, he gets, uh, a lot of money from selling PayPal, his interest in PayPal. He said, "Why isn't anybody going to Mars or w- out into space? What are we gonna do if the planet goes to hell?"
- LFLex Fridman
Right.
- RDRay Dalio
"And how do I, how do we gonna get there? And nobody's paying attention to that." He doesn't know much about it. He, he then reads and learns and so on. Says, "I'm gonna take, um, okay, half of my money, and I'm gonna put it in there, and I'm gonna do this thing." And he learns, blah, blah, blah, blah, blah, and he's got creative. Okay. That's one dimension. And so, he, he, and gave me the, uh, uh, um, keys to his car. This was just early days in T- in Tesla.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
And he then points out the details. "Okay, if you push this button here, it's this," the detail that ... So he's simultaneously talking about the big, th- the big, big, big picture. "Okay, when does humanity, um, going to ab- abandon the planet?" But he will then be able to take it down into the detail so he can go, oh, let's call it helicoptering. He can go up, he can go down, and see things at those types of perspective. Quite a-
- LFLex Fridman
And then you've seen that with the other shapers as well?
- RDRay Dalio
... and that's a common thing, that they can do that. Another important difference that they have in mind is how they deal with people. I mean, meaning, there's nothing more important than achieving the mission. And so-What they have in common is that there's a test that I- I give these personality tests, um, 'cause they're very helpful for understanding people. And so, I gave it to all these, uh, shapers. And one of the things in Workplace Inventory Test is this test and it has a category called Concern For Others. What it r- it- so- they were all having concern for others. This includes Muhammad Yunus who invented microfinance, social enterprise. Impact investing as Muhammad Yunus received the Nobel Peace Prize for this, C- Congressional Medal of Honor. Uh, one of the, um, uh, Fortune determined one of the 10, uh, greatest, um, entrepreneurs of our time.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
He's built all sorts of businesses to give back money in social enterprise. A remarkable man. He has... Nobody that I know, practically, could have more concern for others. Um, he lives a life of a saint. I mean, a very modest lifestyle and he's g- puts all of his money in to try to help others. And he tests low on what's called Concern For Others because what it really... Those- the questions under that are questions about conflict to get at the mission. So they all, Geoffrey Canada who changed Harlem Children's Zone and devel- developed that to take children in Harlem and get them well taken care of, not only just in their education, but their whole lives. Harlem, him also, concern for others. What they mean is that they can, um, see whether tho- individuals are- are performing at a level that a- an extremely high level that's necessary to make those dreams happen. So, when you think of, let's say, Steve Jobs was famous for being, you know, difficult with people and so on, and I didn't know Steve Jobs so I can't speak personally to that, but his comments on if you have A players, and if you have A players...
- LFLex Fridman
Yeah.
- RDRay Dalio
... if you put in B players, pretty soon you'll have C players and so on.
- LFLex Fridman
Yeah.
- RDRay Dalio
That is a common element of them. Holding people to high standards and not letting anybody stand in the way of the- the mission.
- LFLex Fridman
What do you think about that k- kind of idea? Sorry to pause on that for a second. That the A, B, and- and C players, and, uh, the importance of so when you have a mission to really only have A players and be sort of aggressively filtering for that.
- RDRay Dalio
Yes, but I think that there are all different ways of being A players.
- LFLex Fridman
Oh, okay.
- RDRay Dalio
And I think in order to create a great team, you have to appreciate all the differences in ways of being A players, okay?
- LFLex Fridman
Uh-huh, yes.
- RDRay Dalio
That's the first thing. And then you always have to be super excellent, in my opinion, you always have to be really excellent pe- with people to help them understand each oth- themselves, and- and get in sync with them about what's true about them and their circumstances, how they're doing, so that they're having a fabulous personal development experience at the same time as you're dealing with them. So, when I say, um, that there are all different ways, this is one of the then qualities. You- you asked me what are the qualities?
- LFLex Fridman
Yes.
- RDRay Dalio
So one of the third qualities...
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... that I would say is to know how to deal well with your not knowing, and to be able to get the best, uh, expertise so that you're a great orchestrator of different ways, so that the people who are really, really successful, unlike most people believe that they're successful because of what they know, they're, uh, even more successful by being able to effectively learn from others and tapping into the skills of people who see things different from them.
- 15:09 – 20:59
Confidence without closed-mindedness: thoughtful disagreement & idea meritocracy
- LFLex Fridman
Brilliant. So how do you, when that- that personality being, first of all, open to the fact that there's other people see things differently than you, and at the same time have supreme confidence in your vision. Is there, um, just the psychology of that? Do you see a tension there between the confidence and the open-mindedness?
- RDRay Dalio
No, it's funny because I think we grow up thinking that there's a tension there, right?
- LFLex Fridman
Right.
- RDRay Dalio
That there's a confidence, um, and the more confidence that, uh, you have, there's a tension with the open-mindedness and not being sure, okay?
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
Um, confident and accurate are almost negatively cor- correlated in many people.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
They're extremely confident...
- LFLex Fridman
Yeah.
- RDRay Dalio
... and they're often inaccurate. And so I think one of the greatest tragedies of people is not realizing how those things to- go together, because instead it's really that by saying, um, "I know a lot, and how do I know I'm still not wrong? And how do I take that, uh, the best thinking avo- a- available to me, and then raise my probability of learning?" All these people think for themselves, okay? Uh, mean- meaning they're smart.
- LFLex Fridman
Yeah.
- RDRay Dalio
But they take in, like vacuum cleaners, they take in ideas of others, they stress test their ideas with others, they assess what comes back to them in the form of other, uh, uh, thinking, and they also know what they're not good at, and what other people who are good at the things that they're not good at, they know how to get those people and be successful all around, because nobody has enough knowledge in their heads. And that, I think, is one of the great differences. So the reason my company has been successful br- uh, in terms of this, is 'cause of an idea meritocratic decision-making process by which you can get the best ideas. Uh, you know, what's an idea meritocracy? An idea meritocracy is to get the best ideas that are available out there and to work together with other people in the team to achieve that.
- LFLex Fridman
That's an incredible process thing you described in several places to arrive at the- the truth. But, uh, apologize if I'm romanticizing the notion, but let me linger on it. Uh, just having enough self-belief, you don't think there's a self-delusion there that's necessary? Especially in the beginning, you talk about in the journey maybe the trials or the abyss. Do you think...... there is value to d-deluding yourself.
- RDRay Dalio
I think what you're calling delusion is a bad word-
- LFLex Fridman
Yes.
- RDRay Dalio
... for uncertainty, okay? So, I mean, in other words, 'cause we keep going back to the question, how would you know and all of those things.
- LFLex Fridman
Yeah.
- RDRay Dalio
No. I think that delusion is not going to help you, that you have to find out truth, okay? To deal with uncertainty, n- saying, "Listen, I have this dream and I don't know how I'm going to get that dream." I mentioned in my book Principles, and described the process in a more complete way than we're going to be able to go here, but what happens is I say you form your dreams first. And you can't judge whether you're going to achieve those dreams-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... because you haven't learned the things that you're going to learn on the way toward those dreams, okay?
- LFLex Fridman
Right.
- RDRay Dalio
So, if, that isn't delusion. I wouldn't use delusion. I think you're over-emphasizing the importance of knowing whether you're going to succeed or not. Get rid of that, okay?
- LFLex Fridman
(laughs)
- RDRay Dalio
If you can get rid of that-
- LFLex Fridman
Yeah.
- RDRay Dalio
... and say, "Okay, no, I can have that dream," but I'm so realistic in the notion of finding out, I'm curious, I'm a great learner, I'm a great experimenter, along the way, you'll do those experiments which will teach you more truths and more learning about the reality, so that you can get your dreams. Because if you still live in that world of delusion, okay?
- LFLex Fridman
Yeah.
- RDRay Dalio
And you think delusion's helpful. No, the delusion isn't...
- LFLex Fridman
(laughs)
- RDRay Dalio
Don't confuse delusion with not knowing.
- 20:59 – 27:39
The abyss: Dalio’s 1981–82 public mistake and rebuilding through principles
- LFLex Fridman
So your own process, I mean, you've talked about it before, but it would be great if you can describe it because our darkest moments are perhaps the most interesting. So your own in, uh, with the prediction of the, of another depression.
- RDRay Dalio
Economic depression.
- LFLex Fridman
E-con... Yes, I apologize. Economic depression. Can you talk through what you were feeling, thinking, planning-
- RDRay Dalio
Yeah.
- LFLex Fridman
... strategizing at those moments?
- RDRay Dalio
Yeah. That, that was, that was my biggest moment, okay? Building my little company, this is in 1981, '82.
- LFLex Fridman
Yes.
- RDRay Dalio
I had calculated that American banks had given a lot more money to, uh, lent a lot more money to Latin American countries than those countries were gonna pay back and that they would have a debt crisis and that this would send the economy tumbling. And that was an extremely controversial point of view. Um, then it started to happen and it happened and Mexico defaulted in August 1982. I thought that there was going to be a, um, an economic collapse that was going to follow because there was a series of the other countries, it was just playing out as I had imagined. And that, well, couldn't have been more wrong. That was the exact bottom in the stock market because central banks use monetary policy blah, blah, blah, and I couldn't have been more wrong and I was very publicly wrong and, and all of that, and I lost money for me and I lost money for my clients and I was... Uh, I only had a small company then, but I, um, I had to... These were close people, I had to let them go. I was down to me as the, uh, last person. I didn't have... I was so broke I had to borrow $4,000 from my dad to help to pay for my family bills. Very painful. And at the same time, I would say it definitely was-... uh, one of the best things that ever happened to me, maybe the best thing for happen to me, because it changed my approach to decision-making. It's what I'm saying, in, in other words, I kept saying, "Okay, how do I know whether I'm right? How do I know I'm not wrong?" It gave me that. And, uh, and it didn't give up my audaciousness, because, uh, it, it, I was in a position, "What am I gonna do? Am I gonna go down, back, put on a tie, go to Wall Street and be, and just do those things? No, I can't bring myself to do that." So I'm at a juncture, "How do I deal with my risk and how do I deal with that?" And it telled me how to deal with my uncertainties. And that taught me, for example, um, a number of techniques. First, to find the, uh, smartest people I could find who disagreed with me and to have quality disagreement. I learned the art of thoughtful disagreement. I learned how to produce diversification. I learned how to do a number of things. That is what led me to create an idea meritocracy.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
In other words, person by person, I hired them, and I wanted the smartest people who would be independent thinkers, who would disagree with-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... each other and me well, so that we could be independent thinkers to go off to produce those audacious dreams, 'cause you have to be an independent thinker to do that. And to do that not, independently of the consensus, independently of each other, and then work ourselves through that, 'cause who know whether you're gonna have the right answer? And by doing that, then, well, that was the key to our success. And the things that I wanna pass along to people, the reason I'm doing this podcast with you, is, um, you know, I'm 70 years old and that is a magical way of a- achieving success. If you can create an idea meritocracy, it's, it's so much better in terms of achieving success and also quality relationships with people. But that's what that experience gave me.
- LFLex Fridman
So, if we can linger on a little bit longer the idea of an idea meritocracy, it's fascinating, but especially because it seems to be rare, not just in companies but in society. So there is a lot of people on Twitter and public discourse and politics and so on that are really stuck in certain sets of ideas, whatever they are. So when you're confronted with a, with an idea that sa- that's different than your own about a particular topic, what kind of process do you go through mentally? Are you arguing through the idea with the person, sort of present it almost like a debate? Or do you sit on it and consider the world sort of empathetically, if this is true, uh, then what does that world look like, does that world make sense? And so on. So what's the process of considering those conflicting ideas for you?
- RDRay Dalio
I'm gonna answer that question, but after saying first imp- almost implicit in your question is it's not common, okay? What's common produces only common results.
- LFLex Fridman
(laughs)
- RDRay Dalio
Okay? So don't judge-
- LFLex Fridman
Yes. Yes,
- RDRay Dalio
... anything that is good based on whether it's common, 'cause you're, it's only gonna give you common results. If you want unique, you have a unique approach.
- LFLex Fridman
Yes.
- RDRay Dalio
Okay? And so that art of thoughtful disagreement is the, is the capacity to hold two things in your mind at the same time.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
The, "Gee, I think this makes sense," and then saying, "I'm not sure it makes sense." And then try to say, "Why does it make sense?" And then to triangulate with others. So if I'm having a discussion like that and I work myself through, and I'm not sure, um, then, uh, I, I have to do that in a good way. So I always give attention, for example, what, let's start off what does the other person know relative to what I know?
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
So i- i- if a person has a higher expertise or things, I'm much more inclined to ask questions. I'm always asking questions. If you wanna learn, you're asking questions, you're not arguing, okay? You're taking in, you're assessing when it comes into you. Does that make sense? Are you learning something? Are you getting epiphanies? And so on. And I try to then do that. If, uh, if the conversation, um, i- as we're trying to decide what is true and we're trying to do that together and we see truth different, then I might even call in, uh, another really smart, capable person and try to say, "What is true and how do we explore that together?" And you go through that same thing. So I would, I said, uh, I, I describe it as having open-mindedness and assertiveness at the same time.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
That you can simultaneously be open-minded and take in with that curiosity and then also be assertive and say, "But that doesn't make sense. Why would this be the case?" And you do that back and forth.
- 27:39 – 33:06
Economic machine basics: credit as fuel—and as a recurring risk
- LFLex Fridman
And when you're doing that kind of back and forth on the topic like the economy, which you, you have, to me, perhaps I'm naive, but it seems both incredible and incredibly complex, the economy, the, uh, trading, the transactions, that these transactions between two individuals somehow add up to this giant mechanism. You've put out a 30-minute video, you have a lot of incredible videos online that people should definitely watch, uh, on, on YouTube, but you've put out this 30-minute video titled How the Economic Machine Works that is probably one of the best, if not the best video I've seen on the internet (laughs) in terms of educational videos. So people should definitely watch it, especially because it's not that, um, the individual components of the video are somehow revolutionary, but the simplicity and the clarity of the different components just makes you... There's a few light bulb moments there about what, how the economy works as a machine. So as you described, there's three main forces that drive the economy, productivity growth, short-term debt cycle, long-term debt cycle. The, the former, productivity growth, is how valuable things be-... how much value, uh, people create, valuable things people create. The latter is, uh, people borrowing from the, their future selves, to hopefully create those valuable things faster. So, this is an incredible system to me, maybe we can linger on it a little bit. But you've also said what most p- people think about as money is actually credit. Total amount of credit in the US is $50 trillion, total amount of money is $3 trillion. That's just crazy to me. Maybe, maybe I'm silly, maybe you can educate me, but that seems crazy. It gives me just pause that human civilization has been able to create a system that has so much credit. So, w- that- that's a long way to ask, um, do you think credit is (laughs) good or bad for society? That system of, that's so fundamentally based on credit.
- RDRay Dalio
I think credit is great, even though people o- often overdo it. Credit is that somebody has earned money.
- LFLex Fridman
Yeah.
- RDRay Dalio
And, uh, y- you know, and what happens is they lend it to somebody else who's got better ideas, and they cut a deal, and then that person with the better ideas is gonna pay it back. And if it works well, it helps resource allocations go well, providing people l- like the entrepreneurs and all of those, they need capital. They don't have capital themselves, and so somebody's gonna give them capital and they'll give them credit and along those lines. Then what happens is it's not managed well in a variety of ways. So I did another book on principles, Principles of Big Debt Crises, that go into that. And it's free, by the way. I m- put it free online, um, on-
- LFLex Fridman
Ah, nice.
- RDRay Dalio
... as a PDF. Uh, so if you go online and you look, uh, Principles for Big Debt Crises is under my name. You can download it in a PDF or you can buy a print book of it. And it goes through that particular process. And so you always have it overdone in always the same way. Everything, by the way, almost everything happens over and over again for the same reasons, okay? So these debt crises all happen over and over again for the same reasons. They get it overdone. The, in the book, it explains how you identify whether it's overdone or not. They get it overdone, and then you go through the process of making the adjustments according that, and then, and it explains how they can use the levers and so on. If you didn't have credit, then you would be sort of, everybody'd sort of be stuck. So, um, credit, uh, uh, uh, i- is a good thing, but it can easily be overdone. So now we get into the que- what is money? What is credit?
- LFLex Fridman
Yeah.
- RDRay Dalio
Okay? You get into money and credit. So if you're holding credit and you think that's worthwhile, keep in mind that the central bank, let's say it can print the money. What does that prom- They, you, you have an IOU, and the IOU says you're gonna get a certain number of dollars, let's say, or, uh, yen or euros, and that is what the IOU is. And so the question is, will you get that money and w- and what will it be worth?
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
And then also you have a gov, a, a government which is a participant in that process-
- LFLex Fridman
Right.
- RDRay Dalio
... 'cause they want, they are on the hook. They owe money. And then will they print the money to make it easy for everybody to pay? So you have to pay attention to those two. I would suggest, like you, you recommend to other people, just take that 30 minutes and it, and it, and it comes across pretty clearly. But the m- my conclusion is that of course you want it, and even if you understand, um, it and the cycles well, you can benefit from those cycles rather than to be hurt by those cycles. Because I don't know, uh, the way the cycle works is somebody gets over-indebted, they have to sell an asset, okay, then I don't know may- That's when assets become cheaper. How do you acquire the asset? It's a whole process.
- LFLex Fridman
So again, maybe a- anoth- another dumb question, but, uh-
- RDRay Dalio
There are no such things as dumb questions to me.
- 33:06 – 37:12
What money is: medium of exchange, store of wealth, and the fragility of trust
- LFLex Fridman
Oh, there you go. But what is money? (laughs) So you've mentioned, y- you know, credit and money. It, uh... Another thing that if I just zoom out from an alien perspective and look at human civilization, it's incredible that we've created a thing that's not, that only works because currency because we all agree it has value. So, uh, uh, I guess my question is, how do you think about money as this emergent phenomenon, and what do you think is the future of money? You've commented on Bitcoin, other forms. What do you think is, uh, its history and future? How do you think about money?
- RDRay Dalio
There are two things that money is for. It's a medium of exchange, and it's a storehold of wealth.
- LFLex Fridman
Yes.
- RDRay Dalio
That's, that, that... So money, you know, the... So you could say something's a medium of exchange, and then you could say, is it a storehold of wealth, okay? So those, the... And money is that vehicle that is those things, and can be used to pay off your debt. So when you have a debt and you provide it, it pays off your debt. So that, that's that process. Um-
- LFLex Fridman
And it's, uh, um, s- uh, I apologize to interrupt, but it only can be a medium of exchange or a store of wealth when everybody recognizes it to be of value.
- RDRay Dalio
That's right.
- LFLex Fridman
Right.
- RDRay Dalio
And so you see in the history and you, around the world and you go to places. Um, I was in, um, an island in the Pacific in which they had, as money, these big stones. And literally, they were taking a boat-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... this, this, this big carved stone, and they were taking it from one of the islands to the other, and it sank. The, the, the-... piece of this big stone piece of money that they had, and it went to the bottom, and they still perceived it as having value. So that e- it was, even though it was in the bottom, and it's this big hunk of rock, the fact that somebody owned it, they would say, "Oh, I'll, I'll own it for this and that." I've seen, uh, beads in different places, shells converted to this in mediums of exchange, and when we look at what we've got, you're exactly right. It is the notion that if I give it to you, I can then take it and I can buy something with it, and that's... So, it's a matter of perception, okay. And then we go through then the history of money, and the vulnerabilities of money. And what we have is, um, there's, through history, there's been two types of money. Those that are claims on something of value.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
Uh, like the connection of, to gold or something.
- LFLex Fridman
That's right.
- RDRay Dalio
Um, that, that would be. And, or, they just are money without any connection, which, and then we have a system now, which is a fiat monetary system. So that's what money is. Then it will last as long as it's kept of value and it works that way. So let's say central banks, when they get in the position of, like, they owe a lot of money, like we have the, in the case, it's increasingly the case, and they also then are a bind, and they have the printing press to print the money and get out of that, and you have a lot of people who might be in that position. Then you can print it, and then it could be devalued-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... in there. And so history has shown, forget about today, history has shown that no currency, um, has la- ha- every currency has either ended as being a currency, been, or devalued as a currency over periods of time, long periods of time. So it evolves and it changes, but everybody needs that medium ex- of exchange, and everybody needs that store hold of wealth, so it keeps changing what is money over a period of time.
- 37:12 – 41:00
Bitcoin, stablecoins, and government power: what could replace fiat?
- LFLex Fridman
But so much is being digitized today, and there's these ideas that are based on the blockchain of Bitcoin and so on. So if all currencies, like all empires, come to an end, what do you think will, um, do you think something like Bitcoin might emerge as, as a common store of value, uh, store of wealth, and a medium of exchange?
- RDRay Dalio
The problem with Bitcoin is that a- it's not a, an effective medium of exchange. Like, it's not easy for me to go in there and buy things with it. And then it's not an effective store hold of value because it has a volatility that's based on speculation and the like. So you, y- it's not a very effective saving. That's very different from, um, Facebook's pro- of a stable value currency, which would be effective as both a medium of exchange and a store hold of wealth, because if you were to hold it, and then it, the way it's linked to, number of things that it's linked to, would mean that it could be a very effective store hold of wealth. And then you have a digital currency that could be a very effective medium of exchange and store hold of wealth.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
That, so, in my opinion, some digital currencies are likely to s- succeed more or less based on that ability to do it. Then the question is, what happens?
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
Okay, what happens is, do central banks allow that to happen? I really do believe it's possible to get a better form of money that central banks don't control, okay? A better f- force of money that p- central banks don't control. But then, um, th- that's not yet happened, and we also have to, and so they've got to go through that evolutionary process. In order to go through that evolutionary process, first of all, governments have got to allow that to happen, which is to some extent a threat to them in terms of their power, and, and that's an issue. And, and then you have to also build the confidence in all of the components of it to say, "Okay, that's going to be effective because I won't get, uh, in, I won't have problems owning it." So I think that digital currencies have a, um, have some element of potential, but there's a lot of hurdles that are going to have to be gotten over. I think that it'll be a very long time, possibly never, but anyway, a very long time before we have that, let's say, get into a position that would be, uh, in a, uh, effective means relative to gold, let's say. If you were to think of that.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
Because gold has a track record, you know, of thousands of years-
- LFLex Fridman
(laughs) Right.
- RDRay Dalio
... and uni- all across countries.
- LFLex Fridman
Yeah.
- RDRay Dalio
It has its mobility. It has the ability to put it down. It has certain abilities. It's got disadvantages relative to digital currencies, but, but central banks will hold it, like their central banks that worry, uh, about others, you know, the other countries' central banks might worry about whether the US dollar is gonna print or not and that.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
And so the thing they're gonna go to is not gonna be the digital currency. The thing they're gonna go to is, is gold-
- LFLex Fridman
Gold.
- RDRay Dalio
... or something else, some other currency. They gotta pick it. And so I think it's a long way to go.
- LFLex Fridman
But you think it's possible that one day we don't even have a central bank because of the, uh, a, a currency that doesn't, that's, uh, cannot be controlled by the central bank is the primary currency? Or does that seem-
- RDRay Dalio
Um-
- LFLex Fridman
... very unlikely?
- RDRay Dalio
I- uh, uh, um, it would be v- very remote possibility-
- LFLex Fridman
(laughs)
- RDRay Dalio
... or very long in the future.
- 41:00 – 46:23
Awe, stability, and studying ‘surprises’: why history rhymes
- LFLex Fridman
Got it. Again, maybe a dumb question, but romanticized one. When you sit back and you look, you describe these transactions between individuals.... somehow creating, uh, short-term debt cycles, long-term debt cycles, this productivity growth. Does it amaze you that this whole thing j- works? That, that there's however many million, uh, hundreds of millions of people in the United States, globally over seven billion people, that this thing between individual transactions, it just, it works?
- RDRay Dalio
Yeah.
- LFLex Fridman
(laughs)
- RDRay Dalio
It, it, it amazes me. I, like I go b- uh, uh, I go back and forth between being in it, and then I think, like, "How did a credit card r- How does that really possible?"
- LFLex Fridman
(laughs)
- RDRay Dalio
I'm still using... I look up credit card, I put it on. The guy doesn't know me.
- LFLex Fridman
Yeah.
- RDRay Dalio
I- i- i- It signs-
- LFLex Fridman
It's all strangers.
- RDRay Dalio
O- o- okay, we're making the digital entries. Is that really secure enough and that, that kind of thing? And then it goes back and it goes this and it clears and it all happens. And it, what I marvel at that and those types of things, is because of the f- the capacity of the human mind to create abstractions that are true.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
You know, it's imagination and then the ability to go from one level, and then if these things are true, then you go to the next level. And if those things are true, then you go to the next level. And all those miracles that we almost become common, it's like when I'm flying in a plane.
- LFLex Fridman
Right.
- RDRay Dalio
(laughs) Or when I'm looking at all of the things that happen. When I get communications in the middle of, I don't know, Africa-
- LFLex Fridman
Yeah.
- RDRay Dalio
... or Antarctica, and we're communicating in the ways wh- where I see the face on my iPad of somebody-
- LFLex Fridman
Yeah.
- RDRay Dalio
... my grandkid in, uh, some place else, and I look at this and I say, "Wow." Yes.
- LFLex Fridman
(laughs)
- RDRay Dalio
It, it, it, it all amazes me.
- LFLex Fridman
So while being amazing, do you have a sense, the principles you described, that the whole thing is stable somehow also? Or is this, are we just lucky? (laughs) So the, the principles that you described, are those describing a system that's, is stable, robust, and will remain so? Or is it a lucky accident of our early history?
- RDRay Dalio
My area of expertise is economics and markets, so I get down to like a real nitty-gritty.
- LFLex Fridman
Yes.
- RDRay Dalio
I can't tell you whether the plane is going to fall out of the sky-
- LFLex Fridman
Yes.
- RDRay Dalio
... because of its particular fundamentals. I don't know enough about that, but it happens over and over again-
- LFLex Fridman
(laughs)
- RDRay Dalio
... and so on. It gives me faith, okay?
- LFLex Fridman
Yeah.
- RDRay Dalio
So without me knowing it. In the markets, in the economy, I know those things clo- well enough, in a sense, to say, uh, that by and large, um, that structure is right, what we're seeing is right. Now, whether there are disruptions and it has effects that can come, not because that structure is right, and I believe it's right, but whether it can be, um, hurt by, let's say, connectivity or journal entries. They could take from, all the money away from you through your digital entries.
- 46:23 – 51:31
AI in decision-making: when to trust it—and when not to
- LFLex Fridman
Just not to you. Let me talk about, uh, if we could, about AI a little bit. So you've, uh, at Bridgewater Associates, uh, managed about $160 billion in assets. And our artificial intelligence systems algorithms are pretty good with data. What role in the future do you see AI play in analysis and decision-making in this kind of data rich and impactful, uh, area of, uh, investment?
- RDRay Dalio
I'm going to answer that not only in investment, but I give a more-
- LFLex Fridman
Generally.
- RDRay Dalio
... all-encompassing rule, uh, for AI. As I think you know, for the last 25 years, uh, we have taken our thinking and put them in algorithms, and so we make decisions that c- the computer, um, takes those-... criteria algorithms, and they put them, uh, they're in there and it takes data, and they operate as an independent decision maker par- in parallel with our decision-making. So for me, it's like there's a chess game playing, um, and I'm a person, uh, with my chess game, and I'm saying, "It made that move, and I'm making the move, and how do I compare those two moves?"
- LFLex Fridman
Yes.
- RDRay Dalio
So, we've done a lot. But let me give you an, a rule. If the future can be different from the past, and you don't have deep understanding, you should not rely on AI.
- LFLex Fridman
(sighs)
- RDRay Dalio
Okay? Those two things.
- LFLex Fridman
Deep understanding of...
- RDRay Dalio
The cause-effect relationships that are leading you to place that bet, in anything. Okay? E- anything important. Let's say if it was do surgeries, and you would say, "How do I do surgeries?" I think it's totally fine to watch all the doctors do the surgeries. You can put it on, uh, uh, take a, um, a digital camera and do that, convert that into AI algorithms that go to re- robots-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and have them do surgeries, and I'd be comfortable with that. Because if it'll do the, if it keeps doing the same thing over and over again, and you have enough of that, that would be fine, even though you may not understand the algorithms, because you're, if the thing's happening over and over again, and you're not asking... The future would be the same.
- LFLex Fridman
Yes.
- RDRay Dalio
That appendicitis, or whatever it is, will be handled the same way, the surgery, that's fine. However, what happens with AI is, for the most part, is it takes a lot of data and it, um, with a high enough sample size-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and then it puts together its own algorithms. Okay, there are two ways you can come up with algorithms. You can either take your thinking-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and express them in algorithms, or you can say, "Let," put the data in and say, "What is the algorithm?"
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
When you... That's machine learning.
- LFLex Fridman
Yeah.
- RDRay Dalio
And when you have machine learning, um, it'll give you equations which quite often are not understandable.
- LFLex Fridman
Yes.
- RDRay Dalio
If you were try to say, "Okay, now describe what it's telling you," it's very difficult to describe, and so they can escape understanding. And so, it's very good for doing those things that could be done over and over again if you're watching and you're not taking that. But if the future is different from the past, and you have that, then you're, uh, uh, uh... If the future's different from the past and you don't have deep understanding, you're gonna get in trouble. And so, that's the, uh, main thing. As far as AI is concerned, AI, uh, and, uh, let's say computer replications of thinking in varied ways, I think it's particularly good for processing.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
Uh, uh, but, but the, the notion of what you want to do is better, most of the time, determined by the human mind, the, what are the principles? Like, okay, how should I raise my children?
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
It's gonna be a long time before AI, you're going to say, "Uh, it has a good enough judgment to do that." Who should I marry?
- LFLex Fridman
Yeah.
- RDRay Dalio
Uh, all of those things. Maybe you can get the computer to help you. But if you just took data and did machine learning, it's not gonna find it. If you were to then take one of my criteria for, um, any of those questions, and then say, put them into an algorithm, you'd be a lot better off than if you took AI to do it. But by and large, the mind should be do- used for inventing and those creative things, um, and then the computer should be used for processing, 'cause it could process a lot more information a lot faster, a lot more accurately, and a lot less emotionally. So, any th- notion of thinking in the form of processing-type thinking-
- 51:31 – 58:55
Turning principles into algorithms: personal decision systems and ‘intelligence’ tools
- LFLex Fridman
Mm-hmm. You know, the process of reducing your understanding down to principles is kind of like the process the, uh, the first one you mentioned, e- type of AI algorithm, where you're encoding your expertise. You're trying to program, write a program, the human is trying to write a program. How do you think that's attainable? The process of reducing principles to a computer program. Or when you s- when you say, when you write about and when you think about principles, is there still a human element that's not reducible to an algorithm?
- RDRay Dalio
My experience has been that almost all things, including those things that I thought were pretty much impossible to express, I've been able to express in algorithms-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... but that doesn't constitute all things.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
So, you can c- you can, whoo, you can express far more than you can imagine you'll be able to express. So I use the example of, okay, it's not, how do you raise your children?
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
Okay? You will be able to take it, one, piece by piece. Okay, how, h- wh- at what age, what school? And the way to do that, that with my experience, is to, uh, take that, and when you're in the moment of making a decision, or just past making a decision, to take the time and to write down your criteria for making that decision in words. Okay? That, that way you'll get your pri- your principles down on paper. I created an app, um, online called, it's right now just on, uh, the iPhone, it'll be on, on Android-
- LFLex Fridman
Yeah, I tried it, I tried getting it on Android. Come on, now.
- RDRay Dalio
And now, it, it'll be-
- LFLex Fridman
Let's get it on Android.
- RDRay Dalio
... it'll be, it'll, in a few months, it'll be on Android.
- LFLex Fridman
Awesome.
- RDRay Dalio
But it has an app in there-... that helps people write down their own principles.
- LFLex Fridman
Yes.
- RDRay Dalio
'Cause this is very powerful. So when you're in that moment where you've just, you're thinking about it and you're thinking your criteria for, you know, choosing the school for your child, or whatever that might be, and you write down your criteria, or whatever they are, those principles, you write down and you, you, that will f- at that moment, make you articulate your principles in a very valuable way. And if you have, the way that we operate, that you have easy access so then the next time that comes along you can go to that, or you can show those principles to others to see if they're the right principles, you will get a clarity of that principle that's really invaluable in words, and that'll help you a lot. Then, but then you start to think, "How do I express that in data?" And it'll shock you about how you can do that. You'll, you'll form an equation that will show the relationship between these particular parts and then the, essentially the variables that are going to go into that particular equation, and you will be able to do that. And you take that little piece and you put it i- into the computer.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
And then take the next little piece and you put that into the computer. And before you know it, you will have a decision-making system that's of the sort that I'm describing.
- LFLex Fridman
So the, you're almost making an argument against a, uh, uh, an earlier statement you've made. You're convincing me, at first you said there's no way a computer could raise a child, essentially. Uh, but now you've described, making me think of it, if you have that kind of idea, uh, meritocracy, you have this rigorous approach that Bridgewater takes with investment, and apply it to raising a child, it feels like, through the process you just described, we could, as a society, arrive at a set of principles for raising a child, and encode it into a computer.
- RDRay Dalio
That originality will not come from machine learning.
- LFLex Fridman
The first time you do... so that, the original, yes.
- RDRay Dalio
That's what I'm referring to.
- LFLex Fridman
But eventually, as we together develop it, and then we can automate it. So the-
- RDRay Dalio
That's why I'm saying the processing-
- LFLex Fridman
Yes.
- RDRay Dalio
... can be done by the computer. So we're saying the same thing.
- LFLex Fridman
Yeah.
- RDRay Dalio
We're not inconsistent.
- LFLex Fridman
Got it.
- RDRay Dalio
We're saying the same thing, that the processing of that information and those algorithms can be done by the computer in a very, very effective way. You don't need to sit there and process and try to weigh all those things in your equation and all those things.
- 58:55 – 1:04:31
Emotions vs logic: aligning the ‘two yous’ through reflection and meditation
- LFLex Fridman
So th- what's your intuition, if we look at future societies, do you think we'll be able to, uh, reduce a lot of the, the details of our lives down to principles that would be further and further automated?
- RDRay Dalio
I think the real question hinges on people's emotional emotions and irrational behaviors. I think that there's subliminal things that we want.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
Okay? And then there's cerebral, uh, you know, conscious logic.
- LFLex Fridman
Yes.
- RDRay Dalio
Oh, and the two often are at odds. So, uh, there's almost, like, two yous in you, right?
- LFLex Fridman
Yeah.
- RDRay Dalio
And, um, so let's say, what do you want? And, um, eh, uh, your mind'll answer one thing, your emotions'll answer something else. So when I think about it, I think emotions are-... I want inspiration, I want love is a good thing-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... being able to have a good impact. But it is in the reconciliation of your subliminal wants and your intellectual wants, so that you really say they're aligned.
- LFLex Fridman
Yes.
- RDRay Dalio
And so to do that in a way to get what you want, so irrationality is a bad thing if it, if it means that it doesn't make sense in getting you what you want. But you better decide which you you're satisfying. Is it the lower level you, emotional/subliminal one, or is it the other? But if you can align them, so what I find is that by going from my, your, you experience the decision, do this thing, subliminally-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and that's the thing I want, it comes to the surface.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
I find that if I can align that with what my logical me wants, and does, do the debel- double-check between them, and I get the same sort of thing, that that helps me a lot. I find, for example, meditation is one of the things that helps to achieve that alignment. It's fantastic for achieving that alignment.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
And often then, I also wanna not just do it in my head, I wanna say, "Does that make sense?" Help y- y- and so I do it with other people-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and I say, "Okay, well, let's say I want this thing," and whatever, "does that make sense?" And when you do that kind of triangulation, your two yous, and you do that with also the other way, then, um, you certainly wanna be rational, right? But rationality has to be defined by those things.
- LFLex Fridman
And then you discover sort of new ideas that, uh, that drive your future. So it's always, you're always at the edge of the set of principles you've developed. You're doing new things always.
- RDRay Dalio
Right.
- LFLex Fridman
So that's where the intellect is needed. <|agent|><|en|>
- RDRay Dalio
Well, and the inspiration.
- LFLex Fridman
(laughs)
- RDRay Dalio
The inspiration is needed to do that, right? Like what are you doing it for?
- LFLex Fridman
So what is that thing-
- RDRay Dalio
It's the excitement-
- LFLex Fridman
What is that thing? What, what's there?
- RDRay Dalio
... the adventure, the curiosity, the hunger.
- 1:04:31 – 1:07:27
Automation as an economic emergency: inequality, jobs, and the American dream
- LFLex Fridman
So let me ask you about automation. The, that's been a, a part of public discourse recently. What's your view on the impact of automation, of whether we're talking about AI or more basic forms of automation on the economy in the short term and the long term? Do you have concerns about it as some do, or do you think it's overblown?
- RDRay Dalio
It's not overblown. I mean, it's a, it's a giant thing. It'll come at us in a very big way and, um, in the future, we're, we're right at the edge of even really accelerating it. It's had a big impact, and it will have a big impact. And it's a two-edged sword because, um, it'll have, uh, tremendous benefits, and at the same time, it has profound benefits in employment and distributions of wealth, because I, the way I, I think, think about it is there are certain things human beings can do, and over time, we've, uh, evolved to go to almost higher and higher levels-
- LFLex Fridman
(laughs)
- RDRay Dalio
... and now we're almost like we're at this level, you know? It used to be your labor-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and you would then do your labor and okay, we can get past the labor. We got tractors and things, and you go up, up, up, up, up, and we're up over here and, and, uh, to the point in our minds where, okay, um, anything...... related to mental processing, the computer can probably do better, and we can find that. And so other than almost inventing, um, you're at a point where, um, the com- the machines and the automation will probably do it better. And- and that's accelerating, and that's a force, and that's a force for the good, and at the same time, it, what it does is it displaces people in terms of employment and changes, and it produces wealth gaps and all of that. So, I think the real issue is that that has to be viewed as, um, a national emergency. In other words, I think the wealth, the wealth gap, the in- the income gap, the opportunity gap, all of those things, that force is creating the problems that we're having today. A lot of the problems, the- the great polarity, the disenfranchised, e- dis- fe- not equal, not anything approaching equality of education. All of these problems, a lot of problems are coming as a result of that. And so, there n- n- it needs to be viewed really as an emergency situation in which there's a good work, good plan, um, worked out for how to deal with that effectively, so that, um, it's dealt with effectively. So, because it- it's- it's- it- it- you know, it's good for the average, it's good for the impact, but it's not good for everyone and it creates that polarity, so it's gotta be dealt with.
- 1:07:27 – 1:14:01
UBI debate: prioritize early opportunity, then design incentives carefully
- LFLex Fridman
Yeah, and you've talked about the American dream and that that's something that all people should have an opportunity for, and that we need to reform capitalism to give that opportunity for everyone. Let me ask on, uh, on, uh, one of the ideas in terms of safety nets that support that kind of opportunity. There's been a lot of discussion of universal basic income amongst people, so there's Andrew Yang who's running on that as- he's a political candidate running for president on the idea of the universal basic income. What do you think about that? Giving $1,000 or some amount of money to everybody as a way to give them the- the padding, the freedom to sort of take leaps, to take the call for adventure, to take the crazy, uh, pursuits?
- RDRay Dalio
Before I get right into the- my thoughts on universal basic income, I wanna start with the- the notion that opportunity, education, development, creating equality so that you- people say there's equal opportunity-
- LFLex Fridman
Okay.
- RDRay Dalio
... and- a- a- and- and- is the most important thing, and then to find out what is the amount? How are you going to provide that? What- where- what- how does it- how do you get the money into a public school system? How do you get the teaching? How do you- what do you ... The fleshing out that plan to create equal opportunity i- in all of its various forms is the most pressing thing to do, and so I'm, you know, that is that. It-
- LFLex Fridman
The opportunity, the most important one, you're kind of implying is the earlier the better, sort of, like, opportunity, so education. So, in the early development of a human being is when you should have the equal opportunities, that's the most important?
- RDRay Dalio
Right. In the first phase of your life which goes from birth until you're on your own and you're an adult and you're now out there-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and you deal with early childhood development, okay, and you take the brain and you say, "What's important?" The childcare, okay, like, the, uh, it- it makes a world of difference, for example, if you have good parents who are trying to think about in- instilling the stability in a non-traumatic environment to provide them. So I would say the good guidance that normally comes from parents and the good education that they're receiving i- uh, um, are, you know, the most important things in that person's development. The ability to be able to be prepared to go out there and then to go into a market that's an equal opportunity job market, to be able to then go into that kind of market is a system that creates not only fairness, anything else is not fair, and then in addition to that, it also is a more effective economic system because the consequences of not doing that o- to a society are devastating. If you look at what the ou- difference in outcomes for, uh, somebody who completes high school or doesn't complete high school or does, uh, each one of those sta- changes-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and you look at what that means in terms of their costs to society, not only themselves, but their cost and incarceration costs and then a- and crimes and all of those things, it's economically better for the society and it's fairer if they can compl- if they can get those particular things. Once they have those things, then you move on to other things. But yes, from birth all the way through that process, anything less than that is, um, bad, is a tragedy and s- and so on. So, that's what I'm, that's, yeah, those are the things that I'm estima- and I'm, so my, uh, my, what I would want above all else is to provide that. So s- with that in mind, now we'll talk about universal basic income.
- LFLex Fridman
(laughs) Start with that-
- RDRay Dalio
Okay.
- LFLex Fridman
... and now we can talk about UBI, right?
- RDRay Dalio
Well, right, because you have to have that.
- LFLex Fridman
Yes.
- RDRay Dalio
Now, the question is what's the best way to provide that, okay?
- LFLex Fridman
Yes.
- RDRay Dalio
So, when I look at UBI, I really think is what is going to happen with that $1,000?... okay? And will that $1,000 come from another program? Does that come from an early childhood developmental program? Who are you giving the $1,000 to and what will they do for that $1,000?
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
I mean, like, my m- reaction would be, I think it's a great thing that everybody should have almost $1,000 in their bank and so on, but when do they get to make decisions or who's the parent? A lot of ti- times you can give $1,000 to somebody and it could have a negative result. It can have, you know, they can use that money detrimentally, not just productively. And if that money's coming away from some of those other things that are gonna produce the things I want-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... and you're shifted to, um, let's say, to come in and give a check, doesn't mean its outcomes are going to be good in providing those things that I think are so fundamental, important. If it was just everybody can have $1,000 and use it, so when the time comes-
- LFLex Fridman
Use it well, right. (laughs)
- RDRay Dalio
... and use it well, that would be really, really good because e- oh, it's almost like everybody... You'd wish everybody could have $1,000 worth of wiggle room-
- LFLex Fridman
Yeah.
- RDRay Dalio
... in their lives, okay? And I, I, I think that would be great. I, I love that. But we... I wanna make sure that these other things that are taken care of. So if it comes out of that budget, and, um, you know, I don't want it to come out of that budget that's going to be doing those things.
- LFLex Fridman
(laughs) .
- RDRay Dalio
And I, uh, you know, so-
- LFLex Fridman
Yeah.
- RDRay Dalio
... you have to figure it out.
- 1:14:01 – 1:28:00
Money, happiness, and the arc of life: meaning through evolution and contribution
- LFLex Fridman
Well put. You're, if I may say so, one of the richest people in the world, so you're a good person to ask. Does money buy happiness?
- RDRay Dalio
No. It's been shown that, um, between... Um, once you get over a basic level of income so that you can take care of the pain, then, you know, you can... health and whatever, there's no correlation between the level of happiness that one has and the level of money that one has. The, the, that w- thing that has the highest correlation is quality relationships with others, community. If you look at surveys of these things across all surveys in all societies, it's a s- if, um, a, um, sense of community and per- interpersonal relationships. That is not in any way correlated with money. You can go down to native tribes and, you know, very poor places or you can go in all different communities and so they have the opportunity to have that. I'm very lucky in that I started with nothing, so I had the full range.
- LFLex Fridman
(laughs) .
- RDRay Dalio
I can tell you, I, I, you know, by not having money but, bu- b- and then having quite a lot of money and I, you know, I did that in the right order. Okay?
- LFLex Fridman
So you started from nothing in Long Island?
- RDRay Dalio
Yep. And my dad was a jazz musician, but I, I, but I-
- LFLex Fridman
Yeah.
- RDRay Dalio
... had all really that I needed because I had two parents who loved me and c- took good care of me and I went to a public school that was a good public school and basically, you know, that you, you don't need much more than that in order to... That's the equal opportunity part. Anyway, what I'm saying is, know I experienced the range and s- and there are many studies on the answer to your question. No, money does not bring happiness. It bring... Money gives you an ability to make choices.
- LFLex Fridman
Does it get in the way, in any way, of forming those deep, meaningful relationships?
- RDRay Dalio
It can. There are lots of ways that it makes negative... That's one of them. It could stand in the way of that, yes. Okay? But I could almost list the ways (laughs) that it could stand... it could be a problem.
- LFLex Fridman
Yeah. What does it buy? So if you can elaborate, you mentioned f- uh, a bit of freedom.
- RDRay Dalio
At the most fundamental level, doesn't take a whole lot but it de- takes enough that, um, you can take care of your- yourself and your family to be able to learn, do the basics of... ha- have the relationships, have health care, the basics of those types of things, you know, you can cover the basics. And then to have maybe enough security, but maybe not too much security?
- LFLex Fridman
(laughs) That's right, yeah.
- RDRay Dalio
That y- that you, um, uh, uh, uh, essentially are okay. Okay? That is, that's really good.
- LFLex Fridman
Yeah.
- RDRay Dalio
And you don't... That's what a l- that's what money will get you.
- LFLex Fridman
And everything else is, uh... could go either way.
- RDRay Dalio
Well-
- LFLex Fridman
There's no correlation with-
- RDRay Dalio
No, there's more.
- LFLex Fridman
There's more.
- RDRay Dalio
Okay? Then beyond that, what it then starts to do... That's the most important thing.
- LFLex Fridman
Yes.
- RDRay Dalio
But beyond that, what it stents to, uh, wants to do is to help to make your dreams happen in various ways.
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
Okay? So for example, now I th- I, uh, you know, like in my case, it's a... Those dreams might not be just my own dreams, they're, they're impact on others' dreams. Okay? So uh, um, my own dreams might be, um, I don't know, I can pass along these... at my stage in life, I could pass along these principles to you and I can give those things or I can, um, do whatever it... I, I can go on an adventure, I can, uh, start a business, I can do those other things, be produc- I can self-actualize-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... in ways that might be not possible otherwise.And so, that's, that's my own belief. And then in adu- and I can also help others. I mean, this is, you know, to the extent when you get older, and with time, and whatever very ... you start to feel connected, spiritual, spirituality, that's what I'm referring to. You can start to have an effect on others that's beneficial and so on. Gives you the ability. I could tell you that, um, pe- people who are very wealthy, who have that, uh, feel that they don't have enough money. Bill Gates-
- LFLex Fridman
Mm-hmm.
- RDRay Dalio
... will feel almost broke because relative to the things he'd like to accomplish, uh, th- through the Gates Foundation and things like that, you know, oh, my God, he doesn't have enough money to accomplish the things he wishes for. But those things are not ... you know, they're not the most fundamental things. So, I think that people sometimes think money has value. Money doesn't have value. The money is, like you say, just a medium of exchange at a store, although-
Episode duration: 1:30:20
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