A wealth tax “crosses the line and is unnecessary,” according to Ray Dalio.
Elizabeth Warren, Bernie Sanders and other Democrats have proposed a 2% annual tax on wealth over $50 million, rising to 3% for wealth over $1 billion.
Dalio’s wealth is estimated to be $20.3 billion. Their proposal would cost him $598 million in the first year and would cut his wealth in half in 23 years. Those taxes would be in addition to any capital gains or income taxes he has already paid.
Dalio is the co-chief investment officer of Connecticut-based Bridgewater Associates, the world’s largest hedge fund, which he founded in 1975. He spoke on May 11 at the Wall Street Journal’s “Festival of Everything.” He was interviewed by Rachel Feintzeig, the WSJ’s work and life columnist.
He said we are already in the process of taxing wealth through inheritance and property taxes. A wealth tax would hurt capital flows and its objectives can be achieved in other ways.
“The gap in opportunity is what matters,” Dalio said. He endorsed the Biden administration’s plan with respect to its initiatives in education and early childhood development.
The future of artificial intelligence
Dalio was asked a series of questions about how artificial intelligence will impact the labor force and productivity.
He called automation the “big question of our times.” Capitalism and our system of profits and losses allocates resources, he said, but imperfectly. Automation can increase productivity, but it has implications for jobs and employment. Dalio said this is a government policy question. Companies will adapt and use technology to improve productivity, and the government needs to decide how to allocate the “pie” of wealth that corporations create.
Those questions are not answered individually, he said. It needs a policy response, which has yet to be initiated.
In his own business, he is excited about leveraging people to make them more productive. Bridgewater uses technology to put its employees’ thinking into an equation. It collects data to create an understanding that leads to better decisions. Dalio compared this to creating a computerized chess game that plays alongside a human.
“It is enabling, not replacing,” he said.
That is different from robotic technologies that replace people. We are a long way from replicating subjective and qualitative decisions, he said, like those needed to effectively raise children.
Just like using an iPhone, the use of technology comes at the expense of a loss of intimacy. But, he said, “the net is worth it.” Any technology can be used badly, he said, and artificial intelligence is no different.
Technology will not replace humans in matters of touch and interaction for a long time. Artificial intelligence is only at the level of a five-year old, according to Dalio.
Enforcing Bridgewater’s culture
Like most hedge funds, much about Bridgewater is secretive, including its investing methodology, which is said to be known by only a handful of its employees. Dalio was asked about his firm’s use of technology to maintain the culture and principles that he has laid out for the organization.
Bridgewater uses two pieces of internal technology, “pulse” and “dot collector,” that collect expressions of what people think. He said that goal would be impossible to achieve without technology, and those two applications bring him and his team closer to understanding the goings-on within his company.
Dot collector assembles employees’ thoughts. It collects, stores and analyzes information, Dalio said, in order to provide real-time coaching and 360-degree performance reviews.
Pulse takes the temperature of how people think about issues. Dalio said the goal is to understand who is a having tough time with communication or with other issues. “No company has tried that hard or achieved that level of transparency,” he said. It’s not perfect, though, he acknowledged.
Bridgewater is known for its disciplined adherence to its culture, which Dalio said is based on the principles of a meritocracy that fosters meaningful work and relationships, and radical truth and transparency.
Feintzeig asked Dalio about reporting in the WSJ that said Bridgewater uses “overseers” to enforce that culture.
“You have a problem with your reporting,” he said. “Bridgewater does not have overseers to enforce our culture. You’ve never been in my company.”
Other thoughts on the economy
Dalio said he has spoken to the Biden administration on issues related to developing programs to “reduce disparities and increase productivity,” but he declined to say who he has spoken to or what those programs were.
He believes a priority of our economic policy should be to maintain the value of the dollar. He expressed concern over whether there will be sufficient demand to sell the bonds needed to finance our deficit. “That raises inflation and dollar risks,” he said.
Unemployment payments have been greater than workers’ earnings in some cases, causing those beneficiaries to avoid looking for a job. Dalio said that policy should not be rolled back,” but instead allowed to expire. But this is not a big issue and is overshadowed by his concerns over our fiscal stability.
The issue is “the amount of money we put into the system,” he said, in reference to federal relief programs that “will create giant stimulation with an inflationary impact. We will see a big impact in inflation. It will be difficult to sell bonds and will require more buying by the Fed.”
The U.S. is facing two possible outcomes from its debt bubble, according to Dalio. We will default or the dollar will lose value, and the latter is the exigent threat.
He said that cryptocurrencies as a store of wealth is “very interesting, but no government wants an alternative currency.”
The trading platform Robinhood has had a positive effect on investing, according to Dalio, by making information more readily available and helping small investors learn about the markets.
On a philosophical level, he said, “Life is a journey of finding places and an organization that you want to be with.”
Robert Huebscher is the founder and CEO of Advisor Perspectives.
Read more articles by Robert Huebscher
A wealth tax “crosses the line and is unnecessary,” according to Ray Dalio.
