The Head Of the World's Richest Hedge Fund Explains Why Democrats Are Right About the Economy

The Head Of the World's Richest Hedge Fund Explains Why Democrats Are Right About the Economy

Ray Dalio, founder of Bridgewater Associates, has created a short video that explains the economy. If you haven’t brushed up on macroeconomics in a while, or have been watching Fox News a lot, it’s definitely worth a look.


Of particular importance is the section around 18 minutes in when Dalio discusses the effects of austerity. Counterintuitively, he notes, austerity actually increases debt burdens by lowering income. As I’ve noted before, this is the reason why sequestration in the U.S. will actually increase the deficit, not decrease it. By stunting economic growth and preventing people from getting back to work, policies that dramatically decrease discretionary spending create the need for more spending on automatic stabilizers (e.g. food stamps) and reduce revenues.

Dalio argues for a “beautiful deleveraging,” or reducing debts through a combination of redistribution, reduced spending, debt restructuring, and printing money. The only thing I would add to the video is that there is no reason for corporations, individuals, and governments to all pay down their debts at the same time. Since the government can take on debt at rock-bottom interest rates during the recovery, it makes sense for the government to spend money on unemployment and make-work programs which will allow the private sector to deleverage and then begin consuming and investing again. Then, when revenues are up and the economy is chugging along, the federal deficit will decrease.

This is what would have happened during the late 90s and early 2000s, except that Bush came in and cut taxes and started two trillion-dollar wars. Oh well.


How much do you trust the information in this article?

Sean McElwee

Sean McElwee is a Research Associate at Demos.

MORE FROM

This child kept HIV in remission for 8 years without drugs. Here’s what that really means.

More than eight years after his initial treatment, the child is still in remission.

Driver charged with human trafficking after 30-40 people found locked in fatally hot tractor-trailer

The charge against James Matthew Bradley, the alleged driver of the vehicle, could carry a punishment as severe as the death penalty.

Charlie Gard’s parents end legal fight to continue treatment for terminally ill son

The parents have withdrawn their request for Charlie to receive treatment in the U.S.

10th person dies after 38 found locked in sweltering tractor-trailer outside Texas Walmart

8 were found dead at the scene; 2 more died after being rushed to the hospital in critical or serious condition.

Dozens killed in deadly car bomb attack in Kabul

The Taliban has claimed responsibility for the deadly attack.

‘Hot Mic’ podcast: Democratic brand, WH Communications Director, Jared Kushner to be questioned

Here are the important stories to know for Monday, July 24

This child kept HIV in remission for 8 years without drugs. Here’s what that really means.

More than eight years after his initial treatment, the child is still in remission.

Driver charged with human trafficking after 30-40 people found locked in fatally hot tractor-trailer

The charge against James Matthew Bradley, the alleged driver of the vehicle, could carry a punishment as severe as the death penalty.

Charlie Gard’s parents end legal fight to continue treatment for terminally ill son

The parents have withdrawn their request for Charlie to receive treatment in the U.S.

10th person dies after 38 found locked in sweltering tractor-trailer outside Texas Walmart

8 were found dead at the scene; 2 more died after being rushed to the hospital in critical or serious condition.

Dozens killed in deadly car bomb attack in Kabul

The Taliban has claimed responsibility for the deadly attack.

‘Hot Mic’ podcast: Democratic brand, WH Communications Director, Jared Kushner to be questioned

Here are the important stories to know for Monday, July 24