Pod Insights Lex Fridman Podcast #251 – Ray Dalio: Money, Power, and the Collapse of Empires About this episode Ray Dalio is an investor, author, and founder of Bridgewater Associates. Please support this podcast by checking out our sponsors:
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OUTLINE:
Here’s the timestamps for the episode. On some podcast players you should be able to click the timestamp to jump to that time.
(00:00) – Introduction
(08:14) – Money or power
(11:50) – Big Cycle
(31:43) – Collapse of the American Empire
(40:10) – War
(43:18) – Xi Jinping
(49:21) – Importance of freedoms
(55:24) – Democracy’s vulnerability
(58:49) – Communism’s vulnerability
(1:05:50) – Vladimir Putin
(1:09:55) – Understanding China
(1:17:23) – Henry Kissinger
(1:27:44) – Elon Musk and Dogecoin
(1:29:41) – How to take notes
(1:33:24) – Advice for young people
(1:37:30) – Hope for humanity
Transcript 13,829 words · 2 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Lex Fridman? The following is a conversation with Ray Dalio, his second time on the podcast. He is a legendary investor, founder of Bridgewater Associates, author of a book I highly recommend called Principles, and also a new book called Principles for Dealing with a Changing World Order that looks at the geopolitics of today, especially US and China, through the lens of history, providing a fascinating model for the rise and fall of empires that can be applied to the analysis of our world today. And now, a quick few second mention of each sponsor. Check them out in the description. It's the best way to support this podcast. First is Athletic Greens, the all-in-one nutrition drink I drink twice a day.
0:44 Lex Fridman? Second is GiveWell, a directory for best, most effective charities. Third is Magic Spoon, low-carb keto-friendly cereal. Fourth is Blinkist, the app I use to read summaries of books. Fifth is MasterClass, online courses from world-class experts. So the choices, nutritional health, effective charities, delicious cereal, or wisdom. Choose wisely, my friends.
1:14 Lex Fridman? And now, onto the full ad reads. As always, no ads in the middle. I try to make these interesting, but if you skip them, please still check out our sponsors. I enjoy their stuff. Maybe you will too. This show is brought to you by Athletic Greens and its new, renamed AG1 Drink, which is an all-in-one daily drink to support better health and peak performance. It replaced the multivitamin for me and went far beyond that with 75 vitamins and minerals. It's the first thing I drink every day. I actually drink it twice a day now. It forms a basis for all the wild fitness and nutritional dietary kind of things that I do. So sometimes I eat only meat, sometimes I fast for 24 hours, for 30 hours.
1:58 Lex Fridman? All of that, sort of on a daily basis, it's good to make sure that you're getting all your vitamins, you're getting all your minerals, you're getting all your base nutrition taken care of. Plus, the thing tastes delicious, okay? So it's definitely something that is core to a productive day, to a healthy day, to an exciting day for me.
2:20 Lex Fridman? Anyway, they'll give you one month's supply of fish oil, another thing I take every day, when you sign up to athleticgreens.com/lex. That's athleticgreens.com/lex. This show is brought to you by GiveWell. They research charitable organizations and only recommend highest impact, evidence-backed charities. Over 50,000 donors have used GiveWell to donate more than $750 million. I'm a huge fan of basically doing anything and everything optimally in life and making sure that you choose the optimal decisions in an evidence-backed, data-driven way. And philanthropy is no exception to that. That's
3:03 Lex Fridman? what effective altruism is all about. When you donate your valuable money, you do so in an optimal way to ensure that it has the highest possible impact. Once again, that's what effective altruism is, and that's what GiveWell is all about. You can go to givewell.org, pick Podcast, and select Lex Fridman Podcast to check out. Make sure they know that you heard about GiveWell from the Lex Fridman Podcast. This episode is also brought to you by Magic Spoon, low-carb keto-friendly cereal, and also it happens to be a longtime sponsor of the podcast and one of my favorite sponsors. An incredible invention of science, if I may say so. It has zero grams of sugar, 13
3:45 Lex Fridman? to 14 grams of protein, only four net grams of carbs, and 140 calories in each serving. You can build your own box or get a variety pack with available flavors, including just a million of delicious flavors from fruity and frosty, peanut butter and blueberry and cinnamon and so on. But the favorite and the flavor of champions, my friends, is cocoa. It reminds me of childhood. It reminds me of happiness. Some of my best and darkest moments of like, high school or over cereal mostly has to do with the fact that it is deeply responsible to be eating unhealthy cereal when I'm cutting immense amounts of weight during wrestling season. That's my memory. It was both happiness and guilt.
4:30 Lex Fridman? Well, now you can have happiness without the guilt. That's uh, Magic Spoon has a 100% happiness guarantee. So if you don't like it, they refund it. Go to magic spoon.com/lex, use code Lex at checkout to save $5 off your order. That's magic spoon.com/lex and use code Lex.
4:51 Lex Fridman? This show is also brought to you by Blinkist, my favorite app for learning new things. Blinkist takes the key ideas from thousands of nonfiction books and condenses them down into just 15 minutes that you can read or listen to. I can recommend an endless list of nonfiction books on there. From Sapiens to Marcus Aurelius's Meditations to Beginning of an Infinity by David Doach. The Snowden book is on there. It just goes on and on. I use it in three ways. One, to review books I've already read, because these are just the world's greatest summaries of books. Two, to help select which books I want to read in full next.
5:31 Lex Fridman? And three, just getting a sense of a book, a great summary of a book, a key ideas in that book, in case I never get a chance to read it. But it can still, when people are talking about it, be sort of part of the conversation and understand what they're saying. Because honestly, Blinkist just captures the deep ideas in the books extremely well. Go to blinkist.com/lex to start your free seven day trial and get 25% off of a Blinkist Premium Membership. That's blinkist.com/lex, spelled B-L-I-N-K-I-S-T, blinkist.com/lex. This show is also brought to you by MasterClass.
6:10 Lex Fridman? $180 a year gets you an all access pass to watch courses from the best people in the world in their respective disciplines. This list is frankly ridiculous. It includes Chris Hadfield, who by the way, I definitely should probably talk to, but this, this course by him is just Chris at his best. Then Neil deGrasse Tyson, Will Wright, Carlos Santana, one of my favorite guitarists, Garry Kasparov, obviously one of my favorite chess players, Daniel Negrono for poker, Neil Gaiman, Martin Scorsese, Tony Hogg, Jane Goodall, just keeps going on and on. It's an incredible list. If you want to learn about something,
6:51 Lex Fridman? you should learn from the best people in the world that do that thing. Also, let me just say, now that I mentioned Martin Scorsese, how much I love him as a director. He has created so many masterpieces in film. And it kind of makes me sad because the amazing stuff going on with Netflix now makes me wonder if we'll ever have that sort of era of film where the best was created within those hour and a half, two hours, three hour segment. Whether everything now that's great is going to have to be a series. But anyway, whatever the future holds, the past is certainly beautiful, thanks to people like Martin Scorsese. And you can learn all about it with MasterClass.
7:34 Lex Fridman? This holiday, give one annual membership and get one free. They have a big deal for you. If you go to masterclass.com/lex. That's masterclass.com/lex for the amazing holiday deal. Terms apply. This is the Lex Fridman Podcast, and here is my conversation with Ray Dalio.
8:14 Lex Fridman? When you look at the history of the world, as you have done in your new book, Principles of Dealing with the Changing World Order, what is more important, more impactful, money or power?
8:26 Speaker 01 They go hand in hand. They support each other and they compete with each other. Those who have money have power, a certain type of power. That power has to do with all that they can buy, but it also has the ability to influence those with political power.
8:47 Speaker 01 So, um, and, and so you see this throughout history, this symbiotic relationship. You know, um, for example, between, um, the royal families, the nobility and the church. So you see that group of people supporting each other in various ways. And then wrestling around with each other for the money and power among that group. So the dynamic that's quite classic is you could look at the parties in power.
9:24 Speaker 01 Back in, you know, the 16th, 17th centuries, you would look at, uh, royal families, nobles, and, um, and the church, if you're in Europe. And then you would look at, um, agricultural land. And there was a certain dynamic. And that varies over time. It changes. Um, as those people get thrown out and technology changes. So when we evolved, when the society evolved, so that it would produce goods and services. And you have something like the industrial revolution, the first industrial revolution.
10:05 Speaker 01 You have machines and you have the talent of people that are off the farms. Um, and then you have a struggling for power. Um, you see that power mix change. And so we don't see that same power mix anymore, but you still see the same dynamic. You see those with money, um, dealing with those who have, uh, political power around those assets that are considered most valuable to particularly the productive assets that produce money.
10:41 Lex Fridman? And political power is usually centered around nation-state? So the major locusts of power is the nations?
10:49 Speaker 01 Yes, in 1668, after 30 years of war, there was the development of nation-states. Before then, we had, it was really the development of countries as we know it, that there were borders and that within those borders, those who had control got to control it. And there would not to be intrusions in those borders. And that's how we established the nation-state. And then, of course, within each country, there is levels. There is a central level.
11:31 Speaker 01 And then there is a typically a province or state level down below. And then there's a municipal level. So they each have different levels of power. And it's the coordination of those that determines how the country is run.
11:51 Lex Fridman? You write that the, quote, "archetypal big cycle governs the rising and declining empires and influences everything about them, including their currencies and markets." The most important three cycles are the ones you mentioned in the introduction. The long-term debt and capital market cycle, the internal order and disorder cycle, and the external order and disorder cycle. Can you describe this big cycle?
12:20 Speaker 01 There are two orders. There is an order, by order, I mean a system, how the system works. So there's an internal order.
12:33 Speaker 01 That is the internal governance system and it's usually set out in a constitution or some agreements. And then there's the world order, how the world system. So for example, in 1945, at the end of a war, which is basically a fight for determining the world order, the winners of the fight got together and created the world system as we now know it. Forty-four, they created the Bretton Woods monetary system that determined the money, pretty much. And because the United States won and had 80% of the world's money, gold was money
13:17 Speaker 01 then, and had 80% of the world's gold, and it was half the world economy and it was the great military power. The order was built around an American world order so that the United Nations was in New York, the World Bank and the IMF were in Washington, and they built that new order. So classically, you have a war to determine whose rules we're following, and then you have the new order being constructed. After that, there is usually period of extended peace and prosperity. Peace suits prosperity. And so there's not, and the reason you have the peace is because no one wants to fight
14:01 Speaker 01 with the dominant power. You know you're gonna lose, you've surrendered, there's been the surrendering. They carve up the world, they say what it's gonna look like, who's gonna control what. And then you come into that period of peace and then prosperity where then there's a working together. Usually, at that point, you've wiped out a lot of the debt, you've wiped out a lot of the issues, the class warfare and so on. And then there's good working together. So those great periods, such as the Industrial Revolution in the late 1800s, or what we've
14:46 Speaker 01 experienced in the post-World War II period are peaceful and prosperous periods, led largely by the dominant world power. Over a period of time, since really fifteen hundred, and maybe before, but really fifteen hundred, when the Dutch invented capitalism, and what I mean by that, they invented the first capital markets, the first stocks and the first stock market, that since then, capitalism has been an effective tool for building wealth because it got resources into the hands of inventive people. That's when we move from agriculture to the importance
15:29 Speaker 01 of inventiveness of people. They got resources, and then they built that prosperity. In that process of doing that, they create wealth gaps naturally. Those who make a lot of money make a lot more than those that don't. And it also produces opportunity gaps because, for example, those who earn a lot of money have that wealth. They have the power to educate their children in a way that others don't, and the gaps grow. And also, the
16:08 Speaker 01 debts grow at that time. When they go around the world with their competitiveness, they earn a lot of money. So, for example, the Dutch, the Dutch Empire, learned how to build ships that would go around the world. A key ingredient of this improvement in this cycle is the improvement of education. And by education, I mean the skills that come from education, but also civility, the ability to deal well together. So, the Dutch invented ships that could go around the world, and they had military power, but they were also a very inventive society. Twenty-five percent of the world's new inventions came from the
16:52 Speaker 01 Dutch. And so, as they went around the world, they also brought their currency. And they brought their military. They needed their the currency, they paid for things um and that currency. And then the more that happens, the more that becomes a reserve currency. And then they have their military, so they need their military strength. And so you see it evolve in all of those ways. But over a period of time, um as they become more successful and more expensive, um they be- yeah, they become more expensive. Um then a- and newer countries come along like um the UK.
17:34 Speaker 01 Um then um be learn to build ships from a lot the Dutch and could do that less expensively. And also when they become more expensive, so less competitive. And also the work ethic begins to change. They believe that since they're richer, they can enjoy life more. They don't have to work quite as hard. And so you start to see the tilt. Now you start to see the development of the top. And when you have a world reserve currency, that allows you to borrow a lot of money. Because those who want to save uh want to hold your money. And that means that they'll lend you money. And so those countries get deeper into debt.
18:19 Speaker 01 So you see that they gradually lose their competitiveness. And they um and they get themselves into financial circumstances which are not good. Um and they have large wealth gaps, um which set the stage for downturns. And when they have downturns, um the first question is, do they have enough money? And traditionally, you know, uh money is is resources. Um so you classically see that the coffers are bare. That they're spending more money than they're than they are earning. And they run out of money in the coffers.
19:00 Speaker 01 And their granaries are empty rather than stocked, so that they give them the buffer. And as that deteriorates, that that worsens c- conditions. And if they have a rival power that's also challenging them, they see greater internal conflict over wealth.
19:20 Speaker 01 And then they have the problems internally and the problems externally, which usually results in an internal war or an external war that leads to the change in the, to the New World Order.
19:36 Lex Fridman? And to you, the Dutch Empire is a good example that the British, what are some of the key examples that you think about in the book of this process that followed the big cycle?
19:48 Speaker 01 Well, the leading reserve currency empires, but it applies to all the empires,
19:55 Speaker 01 were the, the Dutch, the British, the American and the Chinese. But you could follow the same pattern. In the book, it was very important for me to not just use words and concepts because that's subjective. It was very important for me to use actual measurements. So as you see in the book, you can see every level of this. You can see where's the education level? What is the military power? Each one of those, and you could see them back going over the 500 years. And so you can see the arcs and the composition of those arcs.
20:36 Speaker 01 And what you see is really in most countries and most dynasties, you can see that. But you also can see through those numbers, the health of those countries. Today, there are, there are statistics that you could, that are in the book that show what is the level of education? What is the level of economic output? What is the level of military strength? What is the level of a number of different measures of strength? So that you can then compare that. And I think that because there are objective measures of strength that you could see change, that shows the picture of where we are today.
21:20 Speaker 01 And I think one of the most important things about the book. Is that it allows people to monitor how those things are transpiring. I think for policymakers, um, you know, are your policymakers doing a good job? And there's so much subjectivity in that. But I think it's very simple. If those lines on the chart are improving, if your health index is improving, then you're moving toward a better life. So that's what the book works like. Also, it was used to create a model for the future. In other words, there are cause-effect relationships.
22:00 Speaker 01 Everything that happens has reasons, causes that preceded it, that made it happen. And so by having all those in numbers, one can see the probabilities of certain things happening. So, um, that's what, that's what you see in, in the book. It's not just, you know, raise interpretation. I didn't want to make it raise interpretation because I don't know if I'm right.
22:25 Lex Fridman? Yeah, so one of the fascinating things in the book, you have list these 18 measures. And there's like a little scorecard for the countries of the world today. So let's say US, China and Europe. And what it was 20 years ago and looking at the change from 20 years ago. And that's another indicator to change itself to see where things are headed. Maybe can you comment on, uh, from a score perspective? How is US and China doing? And in the 18 measures, what are some measures that stand out to you? It's particularly important to think about today for the United States, for China.
23:05 Speaker 01 Well, there are a number. Financially, um, what you see in the United States is that, um,
23:15 Speaker 01 We're borrowing a lot more money, creating a lot of debt, and we're printing a lot of money. And our capacity to do that is very much is limited, first of all, because when you, when there's a sale of a bond, when the government borrows more than it borrows money because it spends more than it takes in, you have to sell a bond. And the world right now has a lot of US-dollar-denominated bonds because as the world's reserve currency, they sell, sold on them. And they have very bad returns, negative real returns, negative real returns significantly, and so on.
23:59 Speaker 01 So that means that more bonds has to be sold than are bought. And that means that the Federal Reserve has, is faced with the choice of having to raise the interest rate to curtail borrowing, which slows the economy and hurts the markets, or by filling that difference and producing money, the debt monetization, which produces an inflation in goods, services, and financial assets. So in that regard, that's our, the United States' position.
24:40 Speaker 01 In China's case, its balance of payments is better. China has displaced the United States as the world's largest trading country. In other words, more exports to other countries. And as a result, it's economically competitive, but it doesn't have the world's reserve currency. It's a real blessing. So the United States, it has the world's reserve currency, but it is risking it because of this imbalance. So if you look at history, you see that those go slowly. But when they go, eventually, they go quickly. So there's a risk of, of, of that financially.
25:26 Speaker 01 Then there's the issue of internal order. So I'm just giving you the major ones, but I'll get into some of the other ones, too. Right now, there's a lot of internal conflict in the United States, which affects its how well it works. In China, there's less internal conflict because it's a more autocratic state, but also they've created this bifurcation of what is political and what is economic in terms of producing that prosperity. So if you stay out of the politics, pretty much, and then you're seeing entrepreneurship,
26:11 Speaker 01 you're seeing the finances of new businesses and so on. And so that internal working, you know, that's subject to different people's interpretations, whether they like it or not, but the internal conflict in terms of those kinds of measures is is less.
26:29 Lex Fridman? Sorry to pause on that for a second. So these measures, I guess you don't want to sort of romanticize any one measure or something like that, overinterpret any one measure, but is internal conflict always a bad thing? Is some, is this a, is it a complicated calculation? Or do you kind of, the way we think about these measures that you've presented, we should be thinking like, the higher, the better, the lower, worse, or I mean, of course, depending on the.
27:00 Speaker 01 Well, in many cases, the conflict that produces the revolution, produces revolutionary changes that lead to resolutions that, and lead to new starts. And so their short term, a short term civil war is a hellacious experience. And at the same time, it can be the transition to a new beginning. Also, there are different types of conflict. Competition, which makes things, makes everything better, is is a productive conflict, whereas
27:45 Speaker 01 destructive conflicts are not good over the short term.
27:52 Speaker 01 So, you know, that's how those go.
27:55 Lex Fridman? So, within each measure, the story is complicated.
28:00 Speaker 01 Yeah, but my measures are sort of clear, meaning how much political conflict, how much social conflict. In other words, you can measure conflict, you can measure fighting, you can measure crime rates, you can measure lots of different ways of conflict. So, the measures are a composite of different types of internal conflict.
28:27 Lex Fridman? What are some other interesting measures? Maybe if you can also mention, like, for me in particular, interest is education and innovation.
28:35 Speaker 01 Yes. The classic cycle, the most important leading indicator, is the quality of education. Most importantly, broad-based education drawn as a, from the largest population, because you can never tell who the talent is going to be, so where are they going to come from? So, for example, if you look at the Chinese dynasties, the great Chinese dynasties, and the Confucian approach, it was meritocratic of, everybody could sit for exams and so on, broad base of drawing in the populations. And you see that if you go across societies, because that draws on the largest number
29:19 Speaker 01 of population to get education. And it also, that creates a reality and a perception that the system is fair, equal opportunity, not just one of privilege. And that helps to create social stability. But education is not just education in understanding facts and so on, it is education in civility of how to behave together. And so, if they're smart, they understand how to be productive, because they work well together and they're productive. And then that leads to the next stage. You could
30:02 Speaker 01 See in the lines in the charts, we I plotted these so that you could see in a typical cycle, you could see that education is the long leading indicator. And then you could see, as you mentioned, that you what you see is inventiveness and technology measures then follow. And you see then also competitiveness and world markets follows. For example, in the early stages of a cycle, the industries that they go into tend to be very basic industry because they have cheap labor, something like textiles and simple manufactured goods and so on.
30:43 Speaker 01 But as the education rises, then they move up the value chain to tech, greater technologies and so on, which raises incomes and raises productivity. So, yes, those and, and as you say, there are 18 different measures like that. But education and then civility and the inventiveness. So you see it reflected in in who's inventing what. And that corresponds then who's trading with who's a big trading country? And where's the value of economic output? And what are per capita incomes? They all follow those arcs.
31:23 Lex Fridman? Yeah, like you said, the fascinating thing about your book. So there's philosophy, there's wisdom, but there's plots.
31:30 Speaker 01 Yeah, you could see it.
31:33 Lex Fridman? So it's not just your opinion. It's kind of like you can interpret in any way you like, but you're just giving a lot of of your own insights along with the numbers.
31:44 Lex Fridman? If you were to look at the American nation, the American empire, and the trajectories looking into the future, given these measures.
31:54 Lex Fridman? What is the trajectory that leads to the collapse of the American empire? Based on these measures? What are the concerning indicators? And if those break down further, what does that look like?
32:07 Speaker 01 Well, all of those indicators are concerning. Maybe, except for one, which is technology, the technology niche. Although even in that area, the United States is improving at a slower rate than is China for various advantages that they have there. They put out about eight times as many computer engineers, they have free data and so on. But if you look at them, so the financial is a concern. The internal order disorder is a concern.
32:50 Speaker 01 Then if you look at education levels, the United States is in many ways is losing its educational advantage. If you were to look at, compare it with China. If you take general public education in the United States, it's deteriorated tremendously, even in comparison to developed countries. There are scores, PISA scores and so on, and it's, you know, something like 38th in the world or something, and that was a big plunge, average public education. If you look at the best universities in the world, the United States is unique in having the best universities in the world.
33:30 Speaker 01 So there are these privileged spots that are, you know, excellent, uniquely excellent. So when you look at the comparison, education in China is improving rapidly and it, and the quantity is a quantity of educated people in the areas that they're moving in are, is is greater and the resources that they're putting behind it is greater. And so you see the results are greater. But it's sort of along the lines that I'm dealing with. If you were to follow through in terms of.
34:10 Speaker 01 Actual productions, I think you know in terms of technologies. There are some areas that the United States is in a lead at the moment. There's some areas that China's in a lead, but China's gaining very quickly. When I first went to China, 1984, I would bring $10 calculators and I gave them away as gifts to high ranking people and they thought they were miracle devices. Right now, in terms of areas like quantum computing and AI and, you know, many areas, you have a race going on.
34:52 Speaker 01 And so if you take the trajectory of the competitiveness, not just look at the current level, you have a situation where they're improving at a much faster rate. This is all good for the world if the world can get along.
35:08 Speaker 01 And the main thing I think is, in just in, how do you have a healthy world and how do you have a strong economy and how do you have a strong situation is be strong. The United States is, war is with itself. That's the main war. You know, it's very simple in history.
35:31 Speaker 01 Be financially sound, earn more than you spend, and be strong in these ways and pretty much everything will take care of itself.
35:45 Lex Fridman? But you make it sound simple, of course, because there's a momentum when things degrade, when the education system degrades, when you start borrowing, when, I mean, all of these indicators, once, once they start going down, it's a, there's a momentum to it, right? So it's hard to reverse it.
36:02 Speaker 01 Right, and there are circumstances that you're then in. For example, indebtedness, you know, it's politically
36:12 Speaker 01 Desirable for those in to borrow money and spend because their constituencies only look at what they get. And when they get a lot, they don't pay attention to the balance sheet and how much debt is on the books. So it's always better to borrow, spend, and then leave the cleanup to the next guy. And so you inherit a lot. You inherit it as a new president enters in or new legislators. They have a lot of debt. They have a broken down infrastructure. They don't have enough money to fix that.
36:52 Speaker 01 And so that's the lay of the land that the prior generations put you in. And there you are. And so that's right. It's difficult because when you start to think, okay, what's healthy? Well, spend, earn more than you spend. Well, that's not so easy. Because, you know, what does that mean? Go earn more? I mean, okay, that's not so easy. Spend less? That isn't going to work. So now what do you do? Okay, you have this debt that you then monetize. And that's why it's classic. So yes, that's why these cycles occur because what has created before, what happened before
37:33 Speaker 01 created the lay of the land that is then increasingly difficult to deal with.
37:38 Lex Fridman? So what can great leaders do in this moment? I mean, maybe, my sense is leadership is crucial here. So for example, to do very large projects and invest in the education system, that sort of try to fix the fundamentals. Or maybe invest more and more into the innovation and the development of new technologies and so on. It feels like that just doesn't happen organically. So you have to have strong leaders that.
38:11 Lex Fridman? Convince the populace of the importance of these ideas.
38:15 Speaker 01 Well, I completely agree with your list. What we have is a situation where everybody has their opinions and they have to sort of get them exactly right. And they all fight with each other about whether their opinions. So the most important thing is that we are become bipartisan so that we don't. And we get over our differences. I would have a bipartisan cabinet. I would draw upon both members of both parties, the moderates, who are going to be able to work together. So as then we have one country.
38:56 Speaker 01 And then we deal with those in a means that works for the majority of the people in the middle rather than the polarity. I think our greatest risk is in not being able to do that. So I would say that's a paramount importance. Because we have the resources, you know, wealth, real wealth and, and science and everything has never been better than it is. But the notion is that it has to work for the majority of people. And we have to keep it being productive. So that, that group has got to calmly and knowledgeably work together so that they increase the size of the pie
39:41 Speaker 01 and they create broad based prosperity. So that is a paramount importance. Whatever they do, if they do it that way, I can say I'm happy about because that other alternative is the really scary alternative.
40:00 Lex Fridman? The, the scary alternative. The different ways it has evolved throughout history. Some of it has led to wars.
40:11 Lex Fridman? What are the future trajectories that lead to a potential war with China? Cold war or hot war? Is this something you think about? Is this something you're worried about?
40:22 Speaker 01 Yeah, I'd like to talk about both wars. So the war with China, as I say, there are five kinds of wars. There's a trade war, technology war, geopolitical influence war, capital war, and military war. As far as military war goes, I only, I think it's only a Taiwan issue. But that's a big issue. And we could talk about that for a minute. But those others, they'll be rough competitions. And we'll have that type of evolution over a period of time. That's what that war looks like. Taiwan has been, for a long time,
41:07 Speaker 01 a sovereignty issue to China. And it has its roots in what's called the 100 years of humiliation. From the 1840s to 1949, foreign powers came in, took advantage of China. They had the Opium Wars and such times. And that represented the 100 years of humiliation. And Taiwan represents is their sovereignty and their important thing. And 50 years ago, starting 50 years ago, there was an agreement that there is one China,
41:50 Speaker 01 and Taiwan is part of China, and that there would be peaceful reunification. The peaceful reunification hasn't happened. And in their view, that's a very big issue. And so it's a big contentious issue. And that could produce a military war.
42:13 Speaker 01 Could produce a military accident, could produce, it's a very tense situation. And if we had a military war, God help us because of the capacity in all different new ways to inflict harm on each other. But anyway, that's, that's that. If you don't have that military war, you'll have the competition between those other kinds of wars and whoever is strongest in those areas will win.
42:42 Lex Fridman? Where do you put cyber war within the five?
42:46 Speaker 01 Well, cyber war is a military war. I'm assuming the type of cyber war that you're you're referring to is that which it's used to inflict pain on the other party through cyber. So cyber wars, you'll see cyber war, you could see space war, you can see drone warfare, new types of warfare, not just the traditional and nuclear type of warfare, but you could see any of the above.
43:16 Lex Fridman? What are the defining characteristics? What are the interesting things about Xi Jinping, the president of China, as a leader on the world stage?
43:27 Speaker 01 His father was a early leader. He was himself, in the Cultural Revolution at times, treated brutally. And during that period of time, it was very, very difficult. And he came up, you know, through the ranks and is a very intelligent man. When he first came to power, they, as you know, they have two five-year terms and we're now coming to the end of the second of those five-year terms.
44:08 Speaker 01 When he first came to power, he felt that there should be a lot of reform and reform meant moving to much more of a market and open economy. When that happened. In him coming in, I had some contact with economic policymakers, but and the circumstances then were that five major banks lent to state owned enterprises and local governments with implied government guarantees. And so there was not control of that and the and the movement to a more of a market economy. And the development of markets was a primary and also the dealing with the corruption issue.
44:52 Speaker 01 There was a lot of corruption prior to that, and that was viewed as an existential threat to the system. So that became the primary objective. And then as time progressed over those 10 years, there was a a lot of changing in the world finance, their financial circumstances, opening many, many other markets. They particularly getting money to small and medium sized enterprises and developing a lending system and then establishing controls on it. So right now, there's a vibrant capital markets.
45:36 Speaker 01 You can raise capital, you can be an entrepreneur, you can become a billionaire in the capital markets, and they developed the markets to be the second largest capital markets. At the same time, they had to deal with their rising debt issue, which they began to deal with really about four years ago, when the second term began. And the and then Liu Ha became the vice premier responsible for that and to deal with those issues.
46:18 Speaker 01 So you see right now that what's happening is the dealing with the real estate bubble. There was a development in real estate, a bubble, which produced a lot of unproductive lending. And she Xi Jinping said, um, you know, um, houses are meant to live in, not to speculate on. And so that was wasteful. So they established what they call three red lines, which are financial ratios that the property developers had to live within. And that is then causing the adjustments that are going on now, which in my view are very healthy because um, whenever there's bankruptcies and so on, the most in the public
47:03 Speaker 01 think, okay, that's a problem. It's in many cases really a cleaning up of bad debts and bad practices. And so um, that's what's going on. So that's, let's say economically. At the same time, there is the changing relationships, the changing world order, the changing relationships with the United States and other countries, which is becoming um, much less cooperative and much more warlike, much more confrontational. Um, those two things, the the domestic debt problem and the domestic has led to um, what's called core, what they call core leadership,
47:45 Speaker 01 which means um, a leadership more around him that um, is less um, challenging. Um, because they believe in history that during very difficult times, um, a more centrally controlled decision-making process lends itself better than to a more fragmented political contentious project. And that's basically what's um, going on now.
48:11 Lex Fridman? You you said it very eloquently, but you mean the leadership is surrounded by yes men and there's a lot of centralized control.
48:22 Speaker 01 That characterization.
48:24 Speaker 01 Is view is much more black and white than it really is.
48:29 Lex Fridman? But it leans towards that direction.
48:32 Speaker 01 There like, for example, of the standing members of the Politburo, four are more aligned, three are less so. You have to understand that it's kind of a collective leadership at the top. And then, of course, there's just jockeying for power, you know, in a highly political sense at the top. But no one leader can be successful against the all those powers at the top. So it's very politically negotiating. It's, you know, it's very much more like if you put in the United States, the Democrats and the Republicans, and they had to be in the same government and they work it out. It's kind of something like that.
49:17 Speaker 01 And then, so that's that struggle, but it's an internal struggle.
49:21 Lex Fridman? Where do you put the importance of some of these ideas at the founding of the United States? When then, now we're talking about that at the context of China, the freedom of speech, freedoms. What China is doing with the central management of a lot of things, it's enabling a lot of growth, but it's also limiting people on the very basic level in terms of freedom, the kind of freedom that I think can lead to entrepreneurship, to starting new businesses, to having big dreams and chasing those dreams and then creating totally new things in whatever the space, maybe in technology, in business and whatever. How important is that as a metric for society?
50:05 Speaker 01 Well, they have a view, which is the idea of a dialectic, which means that two things are at, that everything comes with pros and cons, and two opposites exist. And you want the benefits of those two opposites. And how do you deal with the benefits of those two opposites?
50:25 Lex Fridman? Right.
50:26 Speaker 01 So it, let's say, you want the capital markets because it gets money into the hands of the entrepreneur. Who are motivated, they build fortunes and that drives an economy to do very well. And at the same time, um, it produces uh the other problems, the wealth gaps, the other problems, then the debt cycle that we're talking about and so on. And Deng Xiaoping, you know, how do you reconcile communism and um the market economy and the capital markets? And he famously said, um, and if it doesn't matter if it's a white cat or a black cat, just as long as it catches mice.
51:08 Speaker 01 In other words, if it if it works in making the country richer, then that becomes the objective and then they move that along. So there are these conflicts. Um, and um, uh, one of the leaders uh described it to me as follows because it's Confucian and it goes back over a period of time. There's a hierarchy and it's an extension of uh the family, he described it. And he said, the United States is a country of individuals and individualism. Um, and that is its vibrancy that um we see.
51:46 Speaker 01 Uh, the individual rights to speak up, the individual um um protection of the individual, individual property rights and all of those things is of paramount importance. And we build our organization. That's why democracy is from the bottom up or even a company will get together and will be partners to proper prosper together. That is the American approach. Um, he was describing that in China, it's an extension of the Confucian family essentially. And so it's almost like um, um, you know, there's a hierarchy. And so what they think about is the common good, uh, not the individualism.
52:30 Speaker 01 Uh, so for example, if they want a high speed rail to go from one place to another and that's best in the common good, then the individual protections that would stand in the way of doing that would be of Secondary concern. So that notion of controlling, so it, it, for example, um, the, what, what they're doing with, uh, video games. Um, they, um, control, uh, what type of video games and how many hours a day kids can be on video games, um, uh, operating in that way because they believe that that's good for the society and that's very controlling.
53:12 Speaker 01 In the United States, I, I think probably most parents would say, leave it to me and it's, it's a matter between me and my kids. The same thing has to do with data. In other words, in the United States, who controls the data? Um, does the company control the data? Do you individually control the data? And so the inclination would be to figure that out, but nobody would say that the government is going to control the data because of our inclination of really anti-government control. In China, it would be that the government will control the data because that's going to be best for the society and it depends who you trust, but that's.
53:53 Speaker 01 So that difference in philosophy is very much at the, um, you know, at the heart of that. As far as, um, your question in terms of effectiveness, it really is, uh, in China's case, it's how you balance the things, right? So what they're attempting to do is to create a lot of freedom and creativity um, in areas that are not, uh, political, let's say, um, and, um, and so you see on a lot of entrepreneurship, you see a lot of product development, you see a lot of creativity um, happening in that way. So the stereotype that you don't see creativity happening
54:36 Speaker 01 is, is an old stereotype, whereas a lot of creativity certainly happening. And the system can work well if they can achieve that kind of balance. It's proven to have worked well since I started going there in 1984. Per capita income, real per capita income is increased by. Twenty-six times, the longevity rate is increased by ten years. The poverty rate has fallen from eighty-eight percent to less than one percent in terms of, you know, basics like starvation and things. And if you read history, Plato's Republic, you know, he talks about the cycles, democracy,
55:17 Speaker 01 you know, and autocratic and the benevolent despot and all of that. Each has their own vulnerability. The vulnerability of democracy, which has been a remarkable, remarkable system, and I don't have to extol the benefits of it, but the vulnerability of it has always been the internal conflict that produces itself as anarchy. In World War II, four democracies chose to be autocracies because there was internal
55:56 Speaker 01 disorder and there was the belief, will somebody bring about order and get control of the situation? You know, that was in Germany, Italy, Japan, and Spain. They were parliamentary dictator systems that turned themselves over to that. So both systems have vulnerabilities. I think the main thing that we need to think about is those vulnerabilities. Democracy is an amazing system because it, the adherence to the rules and the system and the checks and balances is quite amazing, and it gives it a flexibility to change without
56:41 Speaker 01 civil wars. But there has to be the respect of the rules. And when you see something like they will not accept elections, or they will not accept rules, and history has shown, when the causes that people are behind are more important to them than the system, the system is in jeopardy. So we have a situation that's very much like that in terms of, let's say, the 2024 elections. I believe that there's a very high chance that neither side will accept losing.
57:22 Speaker 01 For example, and so we we have that kind of a situation. So one would hope that one could rise above the disagreements and rely on the system for resolving disagreements. Because if if that doesn't happen, then we have our own chaos.
57:45 Lex Fridman? So the kind of the trend that started in 2020, the or I mean, I mean, I suppose it's been there, it's been growing. One representation of this internal disorder has been the growing trend of being skeptical about the results of the election.
58:01 Speaker 01 Well, it started before that. There was the emergence of populism where before President Trump was elected. He was basically elected as a populist because there was a large percentage of the population that felt that the system didn't work for them. And he tapped into that. And he was largely elected as a populist leader, first populist leader in a developed country. And so populism began that then. And that was a battle of one group against the other group. And so since then, it's been like that and it continued to grow.
58:50 Lex Fridman? You've mentioned the vulnerability of democracy, the internal disorder is the vulnerability of democracy. What's the vulnerability of a system like China? Maybe one way to say is put China aside and look at history, look at Soviet Union. What's the vulnerability of a communist type system?
59:11 Speaker 01 Well, I'll call it both communist and autocratic.
59:17 Lex Fridman? Sure.
59:18 Speaker 01 Depending on how much autocracy is that it lacks flexibility. It it lacks the ability, so but I should deal with them differently. In other words, there's the economic system. The economic system threatens motivation and productivity. So communism or socialism has to be done in a way where you can threaten productivity. Capitalism has, and what I mean by that, I mean free markets and capital markets.
59:56 Speaker 01 I've been an effective way of allocating resources and also creating the the incentives and the resources, providing the resources for the inventiveness of new ideas. And so if I compare that, what the Chinese have done to a large extent is to recognize that and amay to move, that's why the seeming dialectic or the conflict between those two things exist. But anyway, that's it as far as an autocratic system. Rather than one man, one vote from the population up.
1:00:36 Speaker 01 The risks of the autocratic system is that there's enough discontent that arises that the system doesn't have the flexibility and that rather than bending, it breaks. That's that's the big risk. The notion of trying to control a population if there's that rather than giving it the flexibility. So that's the that would be the big risk of the autocratic system.
1:01:08 Lex Fridman? What's the human, because you mentioned like the top gets bigger with empires and you you start to get things for granted. Is some of this just human nature? So the concern with with China, with autocratic nations, the concern with the the Third Reich, the Soviet Union, was that?
1:01:33 Lex Fridman? Fundamentally, at the individual level, the humans involved at the top, they start becoming, they're starting to lose touch with the reality in a way that no longer makes them, I guess that's the representation, the flexibility that you're referring to.
1:01:49 Speaker 01 Well, I mean, in a democracy, you could change, you can go as far left or as far right, you can change the leaders easily, and so the people don't become, you know, they pretty much only have themselves to blame. You know, and one of the problems of that is they may not choose the best leaders, but they, they have that flexibility, so vote and you get what you wanted. In the case of the autocratic, let's say, leaders, and then the movement from democracies to autocracies, what you see normally, that movement, is that one of the systems is, is not working.
1:02:32 Speaker 01 Let's say the democracy is not effectively, everybody's arguing with each other and nobody's getting anything done. And, you know, like Mussolini, the trains are not running on time. And that would be the example, geez, this place has gotten chaotic, will somebody get into control? And then they, then you get the autocratic, and then he's autocratic enough to boss people around, and, and then you follow those kinds of orders. And it's like maybe a CEO in a powerful company ordering around, and that could work well or it could work badly. You know, most companies are run as, like autocracies, in a sense.
1:03:15 Speaker 01 You know, there's the hierarchy and the command economy and that kind of thing. And that can work well or not, but then, quite often, when you get the populist autocratic, their personality is something that they want to fight, and they become more nationalistic.
1:03:38 Speaker 01 And they tend to become more militaristic. And human nature at that stage lends itself to fighting. There's an arc here that when we think it's we think of a country. And we say we and we think of a country. It's not true. It's not like that. There are individuals who change. One generation dies and another generation comes along. And one of those arcs is that the ones who have been through war don't want to go to war. And are more happily, you know, willing to abide by whatever the rules are.
1:04:19 Speaker 01 As you get farther along into that cycle and you get a new generation and they forget about wars and the horrors of wars. Then they then they want to fight. And so you're seeing right now the emergent of fight for right. And what that means is you see it internally. Fight, where are you and fight for that thing? And they mean fight. And then into externally, fight. Are you going to be the strong one who will fight and win? And that develops on both sides. This fight and win. And they side is cheering each other on into a war.
1:05:02 Speaker 01 But that's comes by those who really have not experienced war because it comes in their part of their lifetime.
1:05:10 Lex Fridman? Humans are fascinating.
1:05:12 Speaker 01 Humans are fascinating. And by the way, human nature has not changed over the thousands of years. So it's the it's so interesting because like in doing this study and it comes across in the study. It's like watching the same movie over and over again. You you know, you see the arc and you see it happen over and over again. The only things that seem to change are the clothes people wear and the technologies they use.
1:05:41 Lex Fridman? Yeah, and then somebody probably would disagree with you about the clothes. Maybe there's also cycles within fashions. Maybe we're not even creative there. What do you make of Russia and Vladimir Putin? What do you think about Putin as a leader, as a human being on this world stage, within the context of the cycles of empires that you think about?
1:06:05 Speaker 01 Well, Putin came to power at the failure of Russia's last order. So there was, there was the end of communism. And there was the development of the market economy, the collapse of the Soviet Union. And at that time, he was appointed by Yeltsin, who was an alcoholic and had problems managing and was put into power. And the conditions in the Russia were, there was anarchy. There was no money. It was, it had the classic end of cycle ingredients. It was broke. It was people were fighting with each other.
1:06:50 Speaker 01 It was in the anarchy. And that's when he came to power. And there were not institutions. The whole thing had collapsed. And it was not effective Ministry of Education, Ministry of anything. And so the idea was that they needed 25 years of stability and they needed a democracy and they needed the improvement of capital markets. So he's been in that position as a, as, I guess I would call him a semi-autocratic leader in that, from all indications,
1:07:35 Speaker 01 he would respect the democracy and he's very popular. He's won democratic elections because he's been a strong leader and he's brought peace and stability to the Soviet, to Russia after the breakup of the Soviet Union. And
1:07:56 Speaker 01 He's a strong leader in pursuit of the country's interests in a way where Russia is not a significant economic power, but it is a significant military power. So the issues, and then there's a strong alliance between Russia and China now. So that's kind of the lay of the land. And then there are sensitivities. The Ukraine issue is a sensitivity because of, there are a lot of Russians who live in
1:08:39 Speaker 01 the Ukraine, and there's also the issue of NATO on their border. So there are those kinds of things, and he has military power, and he has a strong alliance with China. And I guess that's my best summary of what his position is. Strong leader, popular. These are not subjective interpretations, these are objective interpretations.
1:09:09 Lex Fridman? Yeah, it's interesting, just in this conversation, you're not sort of doing the usual criticism of any one particular system. You're looking at these systems from the perspective of history. You're just describing how they work. It's often times when you talk about what Russia is today, or what the Soviet Union was, or what China is today, is you start to criticize, well, they do this kind of censorship, or they do this kind of, they limit freedoms in this kind of way. But you're just kind of describing this as a nation with ideas, what they think is right. This is how they hope to get it to work. This is why it's working. This is what's not working. Here's metrics that show that it's not working.
1:09:53 Lex Fridman? I think that's a refreshing way to think about it. It's easy, though, I mean, you got some criticism saying that I think China's a strict parent. You know, some people criticize these countries for doing, for violating human rights. I suppose there's some people that criticize the United States for violating human rights. But what are your thoughts on the world stage today?
1:10:23 Lex Fridman? About some of the behaviors it is governed in terms of respecting the rights, the basic rights of human beings.
1:10:30 Speaker 01 You described accurately how I just try to look at things in a non, I don't want to impute my values
1:10:40 Lex Fridman? Yes.
1:10:41 Speaker 01 on anybody. I mean, there are intolerable things, so I'm not saying there aren't intolerable things. But one of the great things of being an American here is that I grew up with all different nationalities, having all different points of view and all different religions and all different ways of operating. And I've come to treasure the fact that that is, you know, what's their business is their business. And then the question is, where do you cross the line? Under what circumstances? That others have got to do it my way. And then when you do it internationally, the issue of what is a sovereign state, you know, which,
1:11:25 Speaker 01 as I say in the piece of Westphalia, and you have borders, and then when do you cross the line? That my way of doing things has got to be their way of doing things, or what are the various rights? And so that's a very delicate question, or a very difficult question. And we all have responsibilities to different parties, and we all have different levels of knowledge about those particular things. So, for example, as an international investor, I have a responsibility to my investors. Those who run companies have a responsibility to theirs of how do they run that?
1:12:06 Speaker 01 So if you're taking Nike or Sinkers and so on, and Americans can decide whether they want to buy Chinese products or not buy Chinese products, we are all faced with those types of choices. So you have what do you want to do in your constituency, and you have your choices. And then beyond that, in many cases, the issues are quite complex, like there are geopolitical questions that enter into it. So, and then I believe that if you disconnect it, if all those...
1:12:42 Speaker 01 If entities like myself, the businesses, doing business with China disconnected, I think that that would be disastrous, economically disastrous. And it would also be reduce the understanding that comes from working together that helps to reduce wars. And so these are all complicated. So what we do is, and who makes it my opinion matters the most? Why should it be my opinion that matters the most in making that decision? So I largely look at the government guidance that I get not only from my own government, but from the other governments and I follow the rules. I'm in forty, we invest in forty countries.
1:13:27 Speaker 01 And we want to do that in the best way to provide the diversified portfolio. And we sort of need that. Every one of those countries has similar complexities. There are always one issue or another and there's only so much that we really understand about all of those issues. So we rely largely on the guidance that we get.
1:13:49 Lex Fridman? Yeah, you have to empathize and show respect to the culture of the place, the way things are done. You don't necessarily, the way you heal relationships between nations is like you said, you work together. And that requires kind of to listen maybe more than you talk. And I think people in the public sphere talk a lot about China without really listening, without understanding much about China without. One of the things that makes me really sad because I know how to speak Russian and I can, I know how much is lost in translation. It makes me sad that I'll never really get to know the Chinese culture because like
1:14:34 Lex Fridman? I'll never really get to know the language, the literature, the, just talk to regular people. It's not just the government or officials or scientists, just regular folks get the culture. I think if you don't understand the culture, just the basics of the human nature, what people love about their country, about their family, what the kind of hopes they have, you know, what kind of values they have without that, you're not going to be able to.
1:15:02 Lex Fridman? Fully connect with them and you have to do that first to have a chance of building a good world.
1:15:09 Speaker 01 I couldn't agree with you more. I was very lucky because, as I say, you know, since 1984, so for more than half of my life, I've been going there and I and the common people and all sorts of people and I've got to meet them. I don't speak the language, but it combination of through translators or them speaking English and being in situations. I had my son go to school, a local school, and we we developed those kinds of understandings. I think that, but the not wanting to know the other perspective is the thing that's most scary.
1:15:53 Lex Fridman? Yeah.
1:15:54 Speaker 01 Like, I'm right now in the middle and and all I want to try to do is to help mutual understanding. You're right, if there were questions probing me, asking me, what is it? I'm not on one side or another. I don't want to be on one side or another. I believe that each has their right within there to approach their different culture in their own way. So many ways, you gave an example. If they're not doing harm to others. I mean, so but that issue of trying to understand is so much better. That doesn't
1:16:35 Speaker 01 mean agree with. If you are wanting to out clever and out compete somebody, it still pays to understand what they're thinking. So to achieve understanding of what they're thinking, even if you want to go to war with them, that understanding is the best thing to have. What we have now is a situation in which there's an enemy mentality. And that means that anything that serves the seems to be like understanding or conveying understanding seems to mistakenly create the notion of I'm on their side in a war.
1:17:17 Speaker 01 And that's kind of a dangerous thing because there's a momentum here to fight.
1:17:23 Lex Fridman? Henry Kissinger praises your new book and you thank him in it, in the dedication. What's your relationship like with him? What makes him interesting? Maybe what makes him controversial? What makes him such a central figure in history?
1:17:37 Speaker 01 First, most importantly, he's unique about seeing things through all the others' eyes. So if you were, it's like there's a chess game. I mean, I think geopolitics is like a chess game, but with multiple chess players playing the same game.
1:17:58 Lex Fridman? Yes.
1:17:58 Speaker 01 So imagine there are six people around playing the chess game and he could sit in each seat and he could know how they see it. Okay. And see it in a calm way of how they see it. He's unique in that way. He's 98 years old and he's equally able to do that. And he has a background that, in which he's a historian. So he really understands history super terrifically. He doesn't understand economic history as much. So that's why, to some extent, we enjoy having a conversation because he's interested in the economic piece he doesn't know.
1:18:42 Speaker 01 And I'm so interested in the geopolitical piece that I don't know as well. But anyway, he's able to do that. But not only a historian, but a practitioner. So when you go from an academic to a practitioner who has that talent to see things through others' eyes in an objective way and to be strategic rather than just tactical, that's a very special person. And that's why Henry is, to me, a very special person.
1:19:15 Lex Fridman? Yeah, he's lived a fascinating life. Just all, all of the world events he's been involved in is fascinating. And like you said, that's such an interesting skill to have, to consider what are the concerns, the hope, the dreams, the fears of all the people at the table? What are they thinking? I find that people don't, once again, don't do that enough when it's the obvious thing you should be doing, whether it's business deals or political negotiation or geopolitical negotiation. I'm often surprised again, sorry to go to the Russian thing, because I hear Putin talk in Russian and you start to infer certain intentions, like not the trivial stuff, like
1:20:00 Lex Fridman? the human being. What is that human being hoping for himself, for his country, for his close in a circle, for the bigger? And I just see that that's often just lost in translation. I just see like American leaders talking to Putin and it's just not, there's not a connection.
1:20:20 Speaker 01 Absolutely. I know exactly what you're talking about. It has never failed that in my listening to a conversation or even reading a speech and you see then it reported, inevitably the reporter picks some headline characterization that has very little to do with what was really happening, but might be a headline grabber that's at some kind of distortion and there's a lack of understanding of really what's going on.
1:20:56 Lex Fridman? If it's okay, let me ask you a couple of questions about cryptocurrency. You've had a few opinions about Bitcoin over the years. What are your thoughts about Bitcoin today? Its role in the global financial system and just in human society in general?
1:21:12 Speaker 01 Well, the evolution of Bitcoin over the years is one of the things that has influenced changes in my view. It has proven itself. Something like ten, eleven years ago, imagine the programming of this and here's you throw it out and that's the idea. It has not been hacked. It has operated, it is built, it has come an amazing way over that eleven years to be maybe, probably the most excited
1:21:50 Speaker 01 topic among a lot of people and has been used and is now has obtained, you know, the status of having imputed value. At the same time, it is one of those assets that is an alternative money. I think we're entering an era where there's going to be a competition of monies because of the printing of fiat money and the depreciated value. There will be a competition of monies and Bitcoin is part of that competition, but there'll be
1:22:32 Speaker 01 many monies, not just crypto monies, but there'll be central bank crypto monies, but there'll be different kinds of monies. And even monies are things that you buy and sell. NFTs can become a money, a type of money. You own it and it's an investment and you could say I'd rather own it than own Bitcoin.
1:22:56 Lex Fridman? Has Ray Dalio bought any NFTs?
1:22:59 Speaker 01 Not yet.
1:22:59 Lex Fridman? Okay.
1:23:01 Speaker 01 But only, only just because like I definitely want to buy NFTs to just experience them. You know, like I think, think I should produce one.
1:23:11 Lex Fridman? Yeah.
1:23:11 Speaker 01 And I should.
1:23:12 Lex Fridman? I should have asked that. Have you made, have you minted an NFT? You probably should just to know what it's like.
1:23:17 Speaker 01 Yeah, that's right. This stuff is happening.
1:23:19 Lex Fridman? Yeah.
1:23:20 Speaker 01 This stuff is real. Okay. And how it operates. But like all new, real things.
1:23:27 Speaker 01 Some are gonna go and some gonna, you know, it's like in the internet in the year 2000. You know, pets.com could have been a great, but maybe pets.com doesn't make it and who knows? That's the beauty of a competitive system that'll evolve and some things will be treasured and some things will be trashed. So, um, but when I look at it, um, I think we are in an environment of, you know, what is an alternative money? A money has two purposes, a medium of exchange and a store hold of wealth. Um, and we are looking for, um, and it's portable. And you can, and it's best if it's recognized in other countries.
1:24:11 Speaker 01 So, gold is one of those. So I look at it as an alternative gold, but I look at a number of things as an alternative gold. And I think that, and I think, and gold is still my favorite because of certain qualities. For example, um, you can't trace it. In Bitcoin, you can trace who owns it, where it's going and so on. Governments can't have that ability to trace it and so on. A gold piece of coin, it's, it's not connected. I think not connected has benefits, particularly in a world where maybe connections can be more risky.
1:24:50 Speaker 01 So, um, and then also gold has been, um, for many thousands of years universally recognized as a source of money and central banks. It's the third largest, uh, source of money in central bank reserves. And I don't think Bitcoin is going to serve those types of purposes and so on. So for various reasons, I prefer gold to the other, but it's a little bit part of my mix.
1:25:18 Lex Fridman? But then you look at it, it hit, I think 69,000 this year is the high Bitcoin hit. Do you think it's possible, you mentioned gold, do you think it's possible it reaches very high numbers like 1 million that some people talk about?
1:25:34 Speaker 01 I don't, I don't think that's possible because the way I look at it is.
1:25:40 Speaker 01 There's a certain amount of, um, certain amount of it. And there's a certain amount of gold, I'll use gold as a benchmark. The amount of it is worth about fi- uh, uh, about one trillion dollars. Total crypto is about 2.2 trillion. But let's say Bitcoin, uh, it's one trillion dollars. If you take the amount of money that is in, um, gold, that is not used for jewelry purposes and not used by central banks, and I assume Bitcoin won't be used for jewelry
1:26:19 Speaker 01 purposes or central bank purposes, um, that amount in gold is about five trillion dollars. So right now, if you were to have a portfolio that has, um, gold and crypto, um, gold and Bitcoin, it's worth about 20% of the value of gold. Do I think it's going to be, uh, worth more than gold, uh, in terms of that mix? I don't think it'll be worth more than gold. But let's say it became worth as, as much as gold. I don't believe it will be. I think that 20% sounds kind of about right. I really don't know that, what the right answer is.
1:27:00 Speaker 01 Um, and then there's the question of what is all of that pool of money that, let's say gold and gold equivalents relative to everything else? Does it go from, you know, let's call it six, seven, eight trillion to 16 trillion? Maybe it could double. It depends what it is in the world environment. But basically, if you use gold as a measure, I, um, there's no, it just makes no sense that it's going to be used, um, that much more. Am I sure about that? I'm not sure about anything. But logically, it seems to me, um, that there's a limitation on its price in relationship to other things that are like it.
1:27:44 Lex Fridman? Uh, let me ask for your deep financial analysis on a very important issue. Uh, I've just talked a couple of days ago to Elon Musk. He wants to put a literal Dogecoin on the moon. Uh, what are your thoughts about Dogecoin? And do you think it'll be the official currency? Maybe reserve currency on the moon and on Mars?
1:28:07 Speaker 01 My reaction is, that's cute. I remember Elon, when he first got, he first got his money from PayPal. I think he said to me, it was, he got $180 million, $90 million. He decided to say, why aren't we going to outer space? And he wanted to take a spaceship that would be modified using Russian technology to put a, a plant and a watering can on the moon.
1:28:43 Speaker 01 Or on Mars, I think it was. And, and he said, first life on Mars, or first line on that. As an inspiring notion. And so then there's always what's behind it. I have a lot of respect for Elon's ability to do other things behind it. And so I would take that as symbolic and I'd be asking him, what's behind it? What's, what's next?
1:29:13 Lex Fridman? And I'm also just on the topic of Doge coin and meme coin. And there's some aspect of humor and lightheartedness. That's, that's really interesting about the way we communicate what ideas become viral, how to captivate people with ideas. There's something about taking things too seriously that somehow slows it all down. And it's interesting.
1:29:34 Speaker 01 You're right.
1:29:35 Lex Fridman? That's part of human nature somehow. So like humor is part of this whole thing.
1:29:41 Lex Fridman? You've talked about the importance of writing ideas down. And you have.
1:29:47 Speaker 01 Principles in particular.
1:29:49 Lex Fridman? Principles. And you have this really nice thing in your, in your book where you actually, I think there's such a brilliant way.
1:29:58 Lex Fridman? You have such a brilliant way of highlighting which parts are extra important and you make them bold. That's a brilliant idea. Let me just ask the high level question of what's a good system for?
1:30:12 Lex Fridman? Taking notes.
1:30:14 Speaker 01 Well, I find that almost everything happens over and over again.
1:30:20 Speaker 01 And we're in the blizzard of these things happening. And what I found is that if I'm making a decision
1:30:30 Speaker 01 that after I make the decision usually, or right at the time, if I pause and reflect and I write my principle down, in other words, principle is sort of a recipe. What would I use to, how would I make that decision? And what are the criteria around it? I find that I make it much more clear. It becomes clearer and it applies to the next thing that comes along. It'll be that way because everything happens over and over and over again. And I think people make the mistake of looking at just the one like it's the first one. They have, I don't know, they have the first problem of this sort of the first child or whatever it is.
1:31:14 Speaker 01 And this has been happening plenty of times. And so if you have the principles, I found that that helped me think more clearly about it. And it helped me communicate better, like why? And so over the years, over the last 30 years or so, that's what I've done. I did it originally to communicate very well with the people I work with. You know, I set up my company and it was very important to have good communication. And then we could debate the principles. And so that's the process. I urge people to do that. There are many excellent decision makers. And I just wish that they wrote down their principles when this sets.
1:31:57 Speaker 01 So for example, we're talking about Henry Kissinger. And his new book is going to come out with a book on leadership. And don't just describe the leaders.
1:32:09 Speaker 01 Describe then what about them were the essential elements to make a good leader? Under what circumstances? And so if we think about that, then also then you begin to think in a principled way. And then when you start to think in a principled way, life becomes, it's so much easier to make decisions and it's so much less confusing because it's like coming up on a species. And you say, okay, well, what species is it? Not just another, it's a thing. No, what species is it? And how do I deal with that species effectively? And, and so that's what that is. And so I encourage people to write it down.
1:32:52 Speaker 01 I wish anybody who's successful wrote down their principles or their recipes for making those types of decisions.
1:32:59 Lex Fridman? So the events of interest here happens over and over and over in similar ways. And so you're looking for the patterns and you're defining the process. That's right to respond to those patterns and you call that the principles. And that allows you to deal with the future effectively. So like that codifies the lessons from the past to be able to deal with the future. What advice do you have for young folks today? In high school, in college, thinking about how to live, have a career they can be proud of, or maybe have a life they can be proud of?
1:33:37 Speaker 01 Know yourself, follow your passion, make your work and passion the same thing while considering the money part, because money will get you freedom and choice and be able to make that. But if you know yourself, feel the pull and pursue that passion. And along those lines, by the way, I found that using personality profile tests has been very helpful. I've used those for about 25 years for people to help to understand themselves and understand each other. So I created a free one that is called Principles U.
1:34:21 Speaker 01 It's online. It's had remarkable.
1:34:27 Speaker 01 Loving people who've taken it, learn about themselves, but also you can put in somebody else and it'll tell you about your relationship with them. That's like thirty minutes is a quick discovery, but the main thing is to understand on your journey, your hero's journey, when you're, that you will have mistakes and you will have weaknesses and to understand those, not fight those, because by understanding mistakes, you will learn not to make mistakes again. I have a principle, which is pain plus reflection equals progress.
1:35:09 Speaker 01 And so that reflection is important to know yourself, know your pulls, know your weaknesses. And when you also know your weaknesses and the strengths of other people, there are people who have strengths where you're weak and you have strengths where they're weak. And to be able to work well together is the most effective way of achieving success. So yeah, it's that journey and there's a life arc and there's a journey and you want to make it the best that you can make it. And it has, it's like a video game, you know, it has the challenges and the obstacles
1:35:51 Speaker 01 and the learning experiences and the temptations and all of that. And the maximizing learning to go where you want to go to achieve the life you want is the most important. That's kind of maybe a long-winded way of saying it, but to learn, I think I'll try to say it simply, there's a five-step process. Step one is know your goals, know what you're going after. You could have almost anything you want, but you can't have everything you want. And so you have to prioritize and you move in that direction. On the way to your goals, you're going to encounter your problems and your obstacles.
1:36:33 Speaker 01 So identifying, no, step two is understanding your problems and your obstacles. Identify them. Step three is to diagnose them to get at the root cause of the problem. And that could be many root causes, but it could also be your weaknesses or weaknesses of others, but you have to be objective about them. Once you diagnose them, then you go to step four, which is to design a way to get around them. And then, after you have that design, you implement that design. So you have to follow through and do it. And you do that, and that will then produce its new results, which should be better results.
1:37:16 Speaker 01 I have, I call this kind of the looping process. It's the evolutionary looping process. And you do, you just keep doing that and you learn over a period of time and you move in the direction that you want.
1:37:29 Lex Fridman? Last question, and you only have one minute to answer it. You dedicate the book, quote, "to my grandchildren and those of their generation who will be participants in the continuation of this story. May the force of evolution be with you." So let me ask, where's this force of evolution taking human civilization? And what in this story that evolution is writing gives you hope?
1:37:58 Speaker 01 Evolution is a direction toward improvement. And the greatest force is man's capacity to adapt and invent. And so you see in the charts in the book, you see that this upward movement, life expectancy, health, all the things that we think are better. You see the, there's a chart and it shows that over a period of time and you barely see the downturns from depressions and wars in that. That is the greatest power.
1:38:40 Speaker 01 Man's ability to invent and adapt is evolution. And that's the greatest power. And that is what gives me justifiable hope.
1:38:52 Lex Fridman? And a continuation of that, like we mentioned with Elon, maybe we'll become a multi-planetary species. So not only will we keep creating amazing things here on Earth, we'll keep expanding out into the cosmos.
1:39:03 Speaker 01 My time horizon isn't, doesn't have me analyzing that yet, but I, I, I hope so. And I agree that that would be the natural.
1:39:14 Lex Fridman? So I'm not going to ask you for the best financial system on Mars. I think we'll focus on Earth for now, right? Thank you so much for your brilliance, for the, for the books you've written, for the works you've done, for the inspiration from of millions. So, and thank you for spending your valuable time here with me today.
1:39:30 Speaker 01 Thank you.
1:39:31 Lex Fridman? Thanks for listening to this conversation with Ray Dalio. To support this podcast, please check out our sponsors in the description. And now let me leave you with some words from Ray Dalio himself. Every time you confront something painful, you are at a potentially important juncture in your life. You have the opportunity to choose healthy and painful truth, or unhealthy but comfortable delusion. Thank you for listening and hope to see you next time.
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