Transcription
It is an extraordinary privilege to welcome one of the most influential thinkers in global finance of our age, Mr. Ray Dalio. Mr. Dalio is the founder of Bridgewater Associates, the world's largest hedge fund, which he built from his apartment in 1975 into now a firm managing over $150 billion in assets. He's the author of *Principles*, *The Changing World Order*, and his new book, *How Countries Go Broke*. Works which have shaped how policymakers, investors, and leaders think about risk, human nature, and the rise and fall of nations. Few people combine a historian's depth and investor's precision, a philosopher's curiosity quite like Mr. Dalio. Today, we'll explore the forces reshaping our world from debt and division to technology and meaning and the principles he believes that can guide us through them. But before that, please join me in welcoming Mr. Dalio to the Oxford Union.
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Welcome.
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Thank you so much for coming here. It is a pleasure and a privilege for us to host you. So my first question is, you often said that the key to a meaningful life is understanding your own nature and aligning it with reality. For a generation here, most of us are in our 20s. We're facing a world that [music] feels more uncertain, more competitive, and anxiety-ridden than ever before. If you were 25 again, standing at the beginning of your journey, what would you tell your younger self about what truly matters and how to find the clarity and purpose when everything around you feels so volatile?
First of all, let me, uh, thank you and thank, uh, everyone here for allowing me to, um, be part of today's, um, discussion, particularly in, uh, the last bastion of free speech, as Molan said. But, um, [clears throat] I think you have to understand how reality works, and you have to have principles for dealing with reality that work for you. And I, I think that that's one of the reasons I'm really thrilled to be here because I'm at a stage in my life where it's natural for me to want to pass along what I've learned. And so this is an opportunity. I think there are three stages in life by and large. There's the stage where you're learning and you're dependent on others, and you're approaching the end of that stage, and then you're approaching, then there's the middle stage where you're working, and eventually others become dependent on you, and it's a very, very different stage, and then there's the transition beyond work. And I, and I'm in the transition of beyond work, which is that mentor stage. And so I think that when I look at you, that you have to understand, um, how reality works, really the mechanics of it, not just have expectations of what you want or and so on. And you will not know how reality works until you really are dealing with it in this, in that second stage. And so I think you have to be open to the, the adventure of it all. The adventure of it, it means that there are ups and downs and, uh, things, terrible things that you wish you didn't have, have happened to you, but, uh, but they're reality. And so this idea of, um, my, my principle of pain plus reflection equals progress. That idea of what, um, what, what you can learn from the pain and how you can then improve from that pain and then develop your own principles of how to deal with it to be successful. So you can't just be idealistic. And then this point that you're making, yes, know your nature. Each one of you has a different nature. Some of you are, uh, big-picture thinkers and adventurous and like risk and like the variety, and some, uh, it's the opposite. But know your nature and then do the experimenting as you're going along through life and learn. So in the next phase of your life, in the beginning part of it, I would say be very open-minded. I, I would also say that, um, knowing how to deal with what you don't know is more valuable than anything you know because what you don't know is so much greater than anything you know. And so you come out of here probably thinking you're smart or that you know a lot, and, and I think that that could stand in the way of your open-mindedness. So there are these barriers that, uh, people have, which is the, the closed-mindedness that prevents them from taking in things, or their reactions to pain, or even a very good example is thoughtful disagreement. You know, disagreement itself can be, uh, a source of anger and a source of retribution and so on, rather than a source of curiosity. So I think it's, if you take it as an adventure and you go through it that way, you will experience it, and you'll constantly have that improvement to higher and higher levels to have the life that you want, which you haven't yet discovered.
Thank you. You've written about how great powers rise and fall and how the global order is now entering a new, more fragile phase. So for those of us, as you said, you know, who are trying to make sense of it all and entering the real world, we see wars, debt crises, political polarization. Could you take us through how you see this world order changing right now and what is driving the new era that we're living through?
Uh, yeah, I'll give you a little bit of background of, of studying history. And, um, in my case, when I was young, 12 or so, I started, uh, playing around the markets. I didn't know what I was doing, but I took my caddy money and I played around the markets. Um, and then fast forward in, uh, 1971, August 1971, uh, between college and going to graduate school, uh, I was clerking on the floor of the New York Stock Exchange. And on August 15th, 1971, President Nixon on a Sunday night got in, uh, made the announcement that, um, the, the United States was going to default on its obligation to pay gold, give gold for money. And back then, uh, money was, um, uh, gold was money, and, uh, money, like paper currency, was just like checks in a checkbook. And so I thought it was going to be a big crisis. I went on the floor of the stock exchange and, um, I thought it would go down a lot, and I couldn't have been more wrong. It went up a lot, and that was because I didn't ever go through a devaluation before. So I studied history and found out that in March 1933, Roosevelt made the same exact announcement on the radio and did the exact same thing of severing gold and so on. And then I started to understand the mechanics of it. And as a result of that, I got in the habit, because I have to bet on these things, I got in the habit of, um, studying, um, important things that happened before my lifetime. And so, yeah, and I said, if I haven't seen it before, um, let me see if it's happened in history, and I would understand that. And so that led me over the ne, past, uh, few years ago, se, I think it was probably seven years ago, to do a study of the last 500 years of the rises and declines of, uh, countries and reserve currencies, and I found that the same pattern happened over and over again for the same reason. So what I'm watching now is like watching the movie that I've seen many times before. And that's basically everything is driven by five big forces. Um, so, and, and there's a mechanics to each one of those. The five forces are: first, um, there's a, uh, money, credit, debt, uh, economic and market force that has a certain dynamic to it, in a sense. Briefly. Um, um, there's money. Um, then there's credit. Money settles trades. Credit creates buying power. It's like a circulatory system that, um, when credit goes around through the system, it brings resources to, uh, do wonderful things. If it earns money that can pay back that money. If not, there's like debt service payments start to squeeze out spending and so on. And there's a dynamic which maybe we'll get into, but that dynamic is very much having, uh, going on now, and it, uh, is an issue that, uh, plagues our countries. Um, the second influence related to that is the, um, money, uh, wealth gaps, and, uh, internal order and disorder that creates the left and the right. Um, capitalism naturally, um, creates, uh, this creativity, naturally creates bubbles, u, naturally raises, uh, living standards, and naturally creates divisions in wealth because those who have that earn the money create large divisions in wealth. And we're seeing how this is happening now, and the circumstances are very different. And that creates the movement to the left and the right and the great conflicts that reach the point of irreconcilable differences. And so democracy becomes threatened. Plato wrote about this in the Republic and so on. So the second force is this internal, um, wealth and values gaps leading to po, uh, populism of the left and the right. The third is the changing world order, very similar. So in other words, there's who's in control, so that there's a, eventually a fight of who's in control, and those of the winners of the fight then become the winning countries and establish the new world order. And that was happened, of course, in 1944. 1944 is the breakdown of the monetary system. 1945 is the new world order. And we created a, a world order in which there is, um, um, multilateralism, organizations like the United Nations, the World Bank, the World Trade Organization, the World Court, all of those in terms of representatives. And we're seeing the breakdown of those o, organizations, going from a unilateral, um, uh, order to a, um, excuse me, a multilateral order to a, now, uh, power is right and, and pursuing the self-interest. So that's the third force. Fourth force is acts of nature. Uh, throughout history, droughts, floods, and pandemics have killed more people than wars and toppled more waters. And certainly nature and how nature is changing is a big force. And then number five, throughout history, is man's inventiveness of, and particularly of new technologies, and certainly that is a huge force now. So you're seeing these five forces interact and then creating this confluence. So that, I think that over the next 5 years, we're going to be going through the equivalent of a time warp into a new reality that'll be very different.
So let's get into these five forces which you describe, which can explain the cycles which describe how world orders change. Um, let's focus first on the money and debt one. Um, you said before that empires fall not because they run out of power, but because they run out of money. You've often warned that the United States, and indeed much of the developed world, has entered the late stage of the debt cycle where nations are spending far more than they're earning. When you look at America's debt trajectory today, about $38 trillion and still counting, do you believe the system can self-correct through productivity and economic growth, or are we heading towards a much more fundamental reset there?
Um, I, um, I'm going to answer the mechanics and then I'll come to the conclusion. Um, I really want you to understand the mechanics, and there are, um, the basics of the mechanics are then when debts rise relative to incomes, uh, particularly now of governments, that debt service payments rise relative to incomes and they squeeze out other spending, and that therefore there are limits to debt growth. And there's one of the limits to that debt growth is also that money is supposed to be both a medium of exchange and a storehold of wealth. What is the storehold of wealth? And when you have a lot of debt, one man's debts are another man's assets. And when you have a lot of debt and they're holding those assets, they may not, um, believe that they're going to be good storeholds of wealth, particularly also when you have clashes, the nature of the dynamic that we're talking about between within countries, the left and the right, or between countries, so that there are sanctionings. In other words, let's say the Chinese, which are a creditor to the United States, might, uh, if they understand history or even what's been happening recently, feel threatened that that bond, that those bonds they hold may not be, uh, produced full value and can be used for sanctioning. So that dynamic of selling of there existing a lot of dollar-denominated debt, or by the way, this is happening in the UK, this is happening in France, this is happening in the same, that creates a, a dynamic which means that they may not want to hold those and they seek other assets such as gold. Gold is the oldest money, and so you see them, um, uh, lessening their ownership of that at the same time as they're acquiring gold, and then you see that dynamic take place where, um, the, the market dynamic and the credit problems developing. So you see, um, that dynamic that then has, um, a problem because, and we could see it here in the UK, with France, US, US, other places. What do you do? Um, so, uh, do you, um, you don't have enough money. So, there are three things to be done. Um, do you raise taxes? If you raise taxes, that's not easy to do. And it also causes rich people to leave their countries and, and move to other places, and you might lose tax revenue. Um, do you cut expenses? How are you going to cut expenses with whose expenses are you going to cut? Most of those are, uh, people who hardly can afford it, and, and how are you going to cut, cut those expenses? Or do you, um, run more deficits? And so you see political changes that are very difficult, like the UK's had four prime ministers in the last five years because everyone comes along with the promise, but that's a difficult set of circumstances. So that's what it looks like in terms of the mechanics. I'm trying to convey the mechanics, not the ideology of the nature of what's going on, right?
So if you were sitting in the Treasury or the Fed today, would you prioritize fiscal restraint or investment in productivity or structural redesign of the monetary system itself? Because clearly, as you're saying, the levels of debt we're seeing are unsustainable at the moment.
I, I, I think the most important thing that, uh, we could have is a, is a strong middle. So I'm going to deal with the politics and then, because the politics are going to also influence the economics. I think that, uh, two things you need is that you need a strong middle, uh, because both sides will fight each other and, and probably, um, get to the point where they're irreconcilable differences and they can't resolve that, and difficult things will happen. And so, and, and then, but it needs to be strong because there needs to be important, difficult things done in order to achieve, um, a better situation. And I think, um, when, when I'm looking at that, it really comes from a little bit of everything. In other words, a little bit of taxes, but understanding the mechanics of taxes. Basically, if you, for example, if you raise taxes by 4% across the board, and let's not get into the particulars of that t, that tax, right? Let's say if you had a 4% increase in taxes, 4% decrease in spending, you, uh, would reduce the budget deficit, um, because you'd also have lower interest payments that would otherwise exist, and you could approach something like a 3% of GDP, uh, budget deficit. That would mean that it would approach sustaining it. And I think in terms of those, it's very important, uh, to make sure that whatever changes you have are not very disruptive to the dynamic. For example, one of the challenges is that, um, uh, wealth has become so much bigger than money. People don't pay attention to this. Wealth is not money. Okay. Wealth is, um, is it's valued at, uh, something. Somebody starts a stock startup and they, um, have a unicorn, and so, um, they sell a little bit of shares, um, and raise a little bit of money, but they value it at a billion dollars, and then they're a billionaire, and then the, the world accounts for billions. There's roughly 850% of wealth relative to money. But wealth isn't worth anything unless you can convert it to money to spend it. And so if you start taxing it, there's an issue of, you know, uh, how much will that do and will that pop the but, bubble? I think that there are certain things that could be done, like perhaps, um, for example, taxing unrealized capital gains. I think a lot of people are making a lot of money in unrealized capital gains of some amount. Um, off the top of my head, let's say 5% of the capital gains probably could be ma, ma, uh, managed without popping the bubble. So anyway, I think that, and, and it has to be done in a bipartisan way. In other words, I would, I would like a, you know, bipartisan commission to deal with the mechanics and achieve that. I don't think these things are going to happen.
I just want everyone to know, 850% as you said of wealth relative to the money system. That is an insane number. Um, let's talk about what you said about the bipartisanship there. You said that the greatest threat to America isn't China, isn't the debt, it's Americans fighting within with each other. So, when you look at the level of political polarization that we see today, not just between just the parties, but between worldviews, between ideologies, what stage of the cycle do you think we're in? Is America and the West still capable of reform through dialogue? Or are you entering the kind of irreconcilable division that history shows can lead to revolution or even civil conflict?
Uh, we, if you extrapolate these dynamics and you look at these dynamics, these problems are very difficult, uh, to resolve. And right now, we're, uh, in a situation where they're very difficult, and the economies are okay. Now, if you can imagine a downturn, um, and not only what that would mean financially, but also in terms of creating conflicts. My main point that you're referring to is that, uh, countries have to be strong. Um, what will matter more, uh, than China's threat to other countries or other countries' threats to China is how strong and healthy the, the own countries are. And there are really only three things you need to do. If you look studying this history over 500 years, I see that three or four things you need to do. First, um, you need to educate your young people well, not only in terms of being capable, but also being civil with each other. If you have capable, civil people come out to a society where they can be productive, um, and the society works well, um, that's a big part of the battle. Then there's finances. Um, earn more than you spend. This is a good rule for you all as individuals. It's a good rule for a country. Have earn more than you spend and have more assets than you have liabilities, build that up over a period of time so that you're financially able to withstand, uh, troubles. And number three, don't get into a war, either an internal war or an external war. If you can do those things, you can have a prosperous, self-reinforcing, uh, environment. And, um, I think it's the challenges that we're facing are the ability to do that. I, I'm, I'm shocked that education of, of, of most people, you know, there should be a level bene, below which, um, nobody should go, not only in education, but, um, in also, uh, civility, um, all, all those basics. Um, to give you an idea now of the differences, the differences are much more important to pay attention than the averages. But, um, uh, we have, uh, in the United States, 60% of the population has below a sixth-grade reading level. Um, and a lot of these people are having a problem in being productive, and then you have the nature of the dynamic that we have. So anyway, I think that, you know, if, if, if you could achieve those things, which has to be done, I think in a, you know, a strong middle, or a bipartisan type of way, in terms of doing the right things, um, then, um, there could be, uh, important advantages. We do have, uh, AI and, um, technologies that all through history create both bubbles and they create great advances. So the productivity impact, but that's exacerbating the differences in, in wealth and opportunities. And so attention has to be given to how that's going to end up being a positive force for the whole.
Speaking on that, in order to understand a bip, better have a bipartisan policy on how to deal with internal conflict, I want to get your, um, your sense on what is the underpinnings for this. Is it, you know, you've written that economic inequality often precedes social unrest? So do you see the, the divisions of today as primarily ideological, or as an inevitable outcome of decades of unequal opportunity, globalization, or how much of that is even polarization, structural, you know, driven by the incentives of media companies or social media platforms which benefit from this outrage?
Well, I, I, I think that there is social media, and it, um, it has, um, it has benefits, but it also exacerbates things. But I don't think, I, I think this story that I've watched happen over and over again is primarily, uh, visceral and understandable. And so when there are difficult times and there are very large, uh, wealth and values differences, there are going to be conflicts. And, uh, so Plato wrote about it in the Republic, so about the nature of d, so this has happened over and over again. It's not just a function of social media, it's the nature of the circumstances. I know that if I was growing up in some of the areas, my, my, my wife works particularly to help what are called disengaged and disconnected students in Connecticut. We live in the state of Connecticut. State of Connecticut has the, um, either the highest or the second highest per capita income on average. Um, but 22% of the high school students have either dropped out of high school or are failing classes with absentee rates of greater than 25%. And the NA, because of the wealth gaps, is so large. And, um, and then in their neighborhoods, there are, uh, gangs, drugs, shootings, um, and that's the nature of it. There's not an acceptable bottom. I know if I had to raise my children in those circumstances, I'd be a revolutionary. So it's, it's both understandable and I think very visceral.
So, just a bit more on the internal conflict. If we bring the lens a little closer to home to the United Kingdom, we're seeing sluggish growth, persistent inflationary pressures, deep political fragmentation after years of shocks. So from your perspective, where is Britain in its own cycle? And do you see the UK as a model of resilience after crisis, or as a country which is still searching for a new economic and a new political equilibrium?
It, it, it mechanistically faces the same dilemma. Right? So, let's look at the, the three things I said. Can you acceptably raise taxes? That's a very difficult thing to do. Can you cut expenditures? That's a very difficult thing to do. Okay. Can you continue to fund it with debt? That's a very difficult thing to do. And so, I, it seems to me that it's this, not an easy thing. And then there's always the new, uh, politician who comes along and says, I'm going to save you in this new way, and that's why you've had four prime ministers in the last five years. Right. Right.
Let's move on to external conflicts. So you've described the story of our time as the classic one of a rising power challenging an existing power, and that's China and the United States today. History tells us that this transition is rarely peaceful. So when you look at the tensions over Taiwan, over technology, over trade, do you think this competition is being managed wisely, or do you think both sides are already trapped in this confrontational logic?
I think that, um, the Chinese, um, and West quite often, uh, think very differently. So, uh, I've been going to China, uh, since, uh, 1984. They didn't have any money. I went for curiosity. I fell in love with the people, and I was able to help them in development and in, in some ways.
You've often said that you see China not as a rising power, but a returning one.
Um, so I think, like, if, if I was to give you a sense of China, um, things I would say to know about is, uh, internationally, know about the tribute system. Know about, um, and I'll touch on these. Know about the tribute system. Know about Confucianism. Know about the hundred years of humiliation. Okay. And so what I'm, because this affects, if there was one word I would say related to China, it would be harmony. How do you have a system of, of harmony? The tribute system is basically, it, it was described to me by leaders and historians, um, uh, I won't name names, but, um, that basically, um, the, uh, they treat China's leaders through history, treat it as, um, a family that they control. So, um, uh, the word, um, country in China and Chinese is two characters, state family, and they control that, and it is from top down rather than bottom up. So they would, they emphasized to me that, um, where the country, United States, and the West largely is a country of individualists and individualism, in which the individual would be paramount, um, theirs is more top down. So now, when we go to, um, history and you look at, uh, the tribute system, the tribute system is simply meant, to me, that they're like Confucianism. There's that, there's a hierarchy, and every, and power determines the hierarchy, and you know where you are in the hierarchy, and there's a way that the more powerful should deal with the less powerful as a family, and other family. It's up to them to run their family the way that they want to run their family. So, it's not to control that other family. It's to deal with it like their neighbors in a way where there's trade and, and so on, with an, with a sense of order, and, and if you're more powerful, then there's a good way to treat the less powerful, and vice versa. And that's how the system works. The hundred years of humiliation, which basically went from 1848 to 1949, in a sense, was the loss of power and what they view, and justifiably, as the foreign powers coming in, and then the arc of creating the improvements. So that there is a, uh, inclination there to be able to follow these arcs. They, these arcs, um, you could see them transpire back to the origination of a united China in 221 BC. You can see these cycles go on that were the same sort of cycle. Um, and I think that that's the nature of what'll happen. So when we're dealing with the questions that you raise about, um, are we going to have a fight over Taiwan? There's no doubt, um, in their mind, um, and there's, it's been st, said for, uh, since the end of World War II that Taiwan is part of China, and there's a one-China policy, and, um, and that won't be denied, and so on. Now, I, I don't think that that issue is going to be, it's an evolutionary issue. I think at this moment, I don't think that that's going to be it. And both of these societies are going to evolve on their own, and they'll have interactions. We are in a new world in which they realize there are different types of wars going on. There's a trade war, there's a technology war, there's a financial war, there's all of that. And any, uh, vulnerabilities or dependencies that the other has, uh, that they have with each other are viewed as opportunities to exert leverage on them. So we're coming into a world of greater self-sufficiency out of their needs for that. And so that's what you're seeing. I think that that's going to be pretty much the, the characterization, uh, for the foreseeable future. In other words, a sort of that, u, independent self-sufficiency, um, not, not, uh, not war, other than these other wars. And then we'll see how those two great powers and, and the world as a whole competes in those other wars. Um, one thing I want to touch on, you know, after all your years of engaging with China's leaders, you learned a lot about how China is. What do you think the West still misunderstands about China and how they operate?
I think that, like human nature, there's a tendency to look at others, um, through your own eyes, as thinking that they might be like you. And, um, this, uh, Chinese leader gave the example of, um, the western, uh, through history, the western, uh, evolution and what he would call a Mediterranean, uh, evolution. And, um, you know, um, we didn't have, um, the boundaries and the, um, all through time, um, it really wasn't until after the, uh, 30 Years' War in the mid-17th century that the idea of creating a boundary, countries, that nations as we know it, um, existed, so that you wouldn't cross, um, boundaries. And so that the way it existed would pretty much almost the law of the jungle. You had families which were royalties, then, um, you know, constantly, u, it would be power, and you would take that. And so that idea of fighting and so on is, um, something different. I think that it's perceived, um, a more commonly that the, um, you know, the Chinese are, um, you know, it's looked at in, in this way. Certainly, there's a struggle for power, and certainly, um, it's ultimately at the end of the day, you know, how powerful are both entities. But the notion of being able to work toward a common peace, and that, I think that there's, um, a great deal of misunderstanding, a great deal of, uh, suspicion, and it's not entirely unwarranted. Um, there's the nature of the prisoner's dilemma. You know, the prisoner's dilemma means, um, um, two entities. They can either cooperate, um, or they could kill each other. And they're not sure what the other is going to do. What should they do? They should kill the other. And so then, because that's the only way they could be secure. And so there's a, that dynamic that is going on in, in there that, you know, almost has a life of its own. But it's certainly the case that by and large, it, uh, that Chinese perspective is not well understood.
Let's talk about financial architecture there. So the dollar still remains the world's reserve currency. Yeah, we're seeing moves towards de-dollarization. The Chinese renminbi, you know, they're taking trade as well. Breaks currency talk. Alternative payment systems we're seeing emerge as well. So, do you see the dominance of the dollar eroding meaningfully in the next decade? And what would that mean for global stability?
I think that all fiat currencies are in trouble.
And why is that?
And, and, um, because all fiat currencies are debt. Debt is money, and money is debt. What I mean is, what is debt? Debt is a promise to receive somebody else's money. If you devalue money, you devalue debt. And when you hold money, you hold it in the form of a debt instrument. So debt is money. And there's, um, there's too much debt, and there's, and it's increasing. So you're going to devalue money and debt and so on. And I think quite like the '70s or quite like the '30s, you see them going down in response to each other. And we think, um, that we, we don't realize that, uh, gold is money, for example. Okay. Gold is now the second largest money held by central banks, and gold has been money for a long time. But what is money? What is your storehold of wealth? Can be exchanged between other countries so that you can, um, have those exchanges in wars as well as in, uh, peace times. Okay. There, there isn't a big choice, you know, it's, it's hardly. So when we look at that, and, um, so, um, I think that also now you're seeing changes in, um, the main thing is the question of what is money? Okay. And my main answer is related to the fact that it's a problem of fiat currencies. Of course, there is an evolution. Um, throughout history, the those who did the most trade, um, had the most reserve currency, the inclination, because it was those who wanted to do the trade that would save, save in that currency. Um, now China is doing more, counts for more world trade than others, and we're starting to see them build and transact in their currency. And we're also seeing that the clearing system, which was, um, uh, operating with largely, uh, an American dominance, is now operating in and breaking down. So these things are changing. But I think the real question is, you know, what is the money that is a storehold of wealth and can operate by money like you can, uh, give it to the other, and there's also this issue of, u, being safe against confiscation, which, um, is a problem of the debt, and, and that's why, uh, you're seeing some of these shifts to gold.
Let's shift to technology. You've called tech the most powerful force shaping the future, one that multiplies everything for better or for worse. We're now entering an age of quantum leaps in AI and biotechnology. So, how do you see these innovations transforming the way societies function? And what kind of world do you think we'll be living in 10 years from now?
Um, every revolution has created winners and losers. So also, what parallels do you see between today's AI transformation and the Industrial Revolution, and what lessons does that leave for policymakers to learn how to manage the social upheaval which we'll see coming up ahead?
Uh, it's all the same, but faster and bigger. So when you ask the Industrial Revolution, the Industrial Revolution, well, you can go back in time, you know, there was the agricultural age, and, um, and then the, um, um, and we, and, you know, power and the Dark Ages, and not going very well. The invention of the, um, printing press, and then the recognition of inventiveness of people to be able to create machines and so on, that was able to then create wealth. And so you had wealth and creativity. And so if we take this whole evolution, um, we are, um, this is, um, this is an industrial revolution. You remember in the second industrial revolution, we had, uh, that led, led to the Gilded Age, which led to, um, the robber barons, because the rich were then considered robber barons, and then we had the Panic of 1907, then you had the formation of the Federal Reserve, which was the ability to print money, and then we had, um, um, the next great bust and so on, in, in that environment. That kind of dynamic, um, I think is, um, certainly happening now, but at a much more accelerated pace. So, um, as I said, capitalism and inventiveness, um, work hand in hand to create these miracles, and the miracle of all thought, all thinking, artificial intelligence is something that, um, affects everything and has a great power. Um, but it'll also produce, and is producing, enormous wealth and opportunities differences that exacerbate some of these challenges. I would say, uh, I've had a lot of exposure with artificial intelligence, bec, and I, so I'll give you my take on it. Um, I, um, I did, artificial intelligence began in 1956. That was the first time it was used, and it's taken very, for, um, forms. What I would do, and I would recommend everybody do, um, is when I would make a decision, I would think about my criteria for making those decisions, and I would write them down. Those became my principles. Okay, if the thing came along again, how would I deal with that? And then I took those rules and I put them into computer language, and then I was able to backtest how they would have performed before, and then I was being able to build decision-making systems. So I, it was like building a computer chess game that would play in according to the rules that I, um, created and so on. And I would play the chess game, and when things came at us, uh, uh, you know, we'd each make our moves, and we would reconcile those moves. And now, um, the power to be able to do that, uh, is great. I believe that it has to be done as a, uh, a partnership, um, that, um, you can't go to the AI and say, what do I do? What do I do? And be, um, stupid and follow. You have to, it, the future lies in, at least the immediate future, at least until we get at least AGI or something, the, the, uh, the future lies in brilliant people working with brilliant AI, and also working with also, um, programming experts to create decision-making systems, because the ideas of that you're going to wrestle around with everything in your head and juggle it and make winning decisions is obsolete. You need a partner, an AI partner, to be able to operate that way. And so, I, I'm very excited. Like for me, uh, you know, it's like fast forward, I'm accelerating, and I think it's very exciting. I think everybody needs to be accelerating that way. Um, so I think that's where it's going to look, uh, go. However, it is dealing with it is connected to a bubble. Um, you know, um, I could digress into a description of what the '20s, late '20s were like, but it looked much more like a miracle, the technological miracle, than this looks like a technological miracle in various ways. Um, so, but it's, you're g, creating that acceleration, which is creating these enormous wealth gap differences, which is also creating these, uh, bubble and financial problems that is accelerating at a rate that, um, is, is very risky, very dangerous. And so I think, you know, like, what, what, in a sense, what is it for, um, you know, harmony and getting along, and, and you look at the wonderful traditions that have existed here for long, long times. That's can still be quality of life. Don't threaten those things. I'm worried about that.
So, you spent a lifetime studying how the world works from markets, empires, technology, systems, but as you said, a big part of your work has also been about how we work, the inner playbook for surviving uncertainty and change. So, I want to turn to that just before we shift to audience question and answers, to some of the principles that have guided your own life. Um, in your book, *Principles*, you've written, and you said this as well, that pain plus reflection equals progress. So, how did that principle shape the way that you built Bridgewater? And for a generation that feels so overwhelmed by uncertainty, from career pressure to politics, how should we approach failure or setbacks in a way that leads to growth and not cynicism?
Curiosity. Um, one of the tricks of life is that the first-order consequences are often the opposite of the second-order consequences. In other words, what's, what's pleasurable, uh, can get you in more trouble, can be more harmful. What's painful can be better for you. You know, uh, the food that's easy, that's tasty, the, um, not exercising, all of these things. Second-order consequences. It's like the marshmallow test. You know, a kid, you offer a child, um, would you rather have one mar, uh, one marshmallow an hour, or two in 20 minutes? Almost that's the test of how whether they'll be successful in life if they choose two in 20 minutes, in terms of the second-order consequences. So when you think of, um, uh, pain, what you do with that pain is really important. There's something to cause the pain. So if you can calm yourself down and think about, what does that tell me about reality and how I should deal about reality? Okay, it's like arguing. Do you get angry? So do you have curiosity to learn about, um, how reality works? In the beginning, I said, learn about how reality works and how to deal with it. So if you can calm that down to recognize that there is a conscious, logical mind, and that there's a subliminal, emotional mind, and that your subliminal, emotional mind probably controls you more than your conscious mind, you just may not be aware of it. And so if you can understand that, I found that meditation helps me a lot. I was lucky enough in an, you know, um, 1969, um, so a long time ago, I started, I learned to meditate. The Beatles went to India, and I got exposure to it, and I went, and I learned to meditate, transcendental meditation. I, I find that that helps different SC. So I would recommend it. It would be, it's the greatest gift that I can give anybody. But if you can align your subliminal with your conscious and reflect, reflect on how reality works, also in understanding your nature and what you want to achieve, and you go through this arc in life, and you realize where you are in your arc in life, those things will serve, serve you well.
Mr. Dalio, thank you so much. It's been an honor and a privilege for us to welcome you to the Oxford Union. Thank you so much for coming. Please everyone.
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