Ray Dalio discusses depression economics and what to expect

Ray Dalio, "Global Macro Investor", philanthropist and founder of the world's largest hedge fund, understands deeply the inner workings of the world economy. In this 52-minute interview with Corey Hajim and Chris Anderson of TED, he mentions the following:

1. The world is going through a massive stress test, akin to the 1930s, when there would be widespread economic collapse, money printing and subsequent restructuring. Wealth will be redistributed but the levers of power will decide how it would be (within nations and internationally). This will cause a lot of friction, even wars.
2. Even today, there is demonisation of "others" even if they are being helpful. For example, while China is helping many countries, anyone holding such views can be ostracised in the US.
3. It is an opportunity to reform capitalism to create more equal opportunities, greater harmony, more innovation and more productivity via universal education.
4. Companies that win will be those that provide basic needs and those that are adaptive and creative. Algorithmic thinking, especially in investment, will give way to more human interventions and creative input.
5. For the individual investor, he calls for humility and diversification, and not to try to time the market. Cash, he stresses, is not good investment.

View here (TED, April 9, 2020)

Shockwave: Adam Tooze on the pandemic’s consequences for the world economy

This lengthy essay begins by painting the economic background of this crisis, covering the weaknesses of the globalised system and its over-dependence on government stimulus post-2008. There were detractors though. ‘True conservatives, as distinct from those merely wedded to the religion of the stock market, welcomed the prospect of a shakeout. It was time for a purge, time to slim down the businesses that had gorged on too much cheap funding, time for a return to discipline." However, as we know, it was not to be.

When Covid-19 hit, the three main economic blocs responded, strapped to the underpinnings of their own socio-economic systems. Many East Asian countries, notably China, South Korea, Hong Kong, Taiwan and Singapore, employed ‘the hammer and the dance’ by hitting the virus hard and fast. Europe ended up in an uncoordinated and dispiriting stalemate. ‘From the point of view of the wider world, what matters is that Europe does not unleash a sovereign debt crisis.’ In the US, ‘more than the flame-out of Trump, is the gulf between the competence of the American government machine in managing global finance and the Punch and Judy show of its politics. That tension has been more and more glaring since at least the 1990s, but the virus has exposed it as never before.’

‘If you swiftly declare an emergency and are prepared to interrupt business as usual, both the medical and economic costs of confronting the virus appear more reasonable, and the conventional priorities of modern politics remain basically in place... As the Europeans and Americans have discovered, once you lose control all the options are bad: shut down the economy for an unforeseeable duration, or hundreds of thousands die.’

Tooze concludes that ‘for those of us in Europe and America these questions [about opening up] are premature. The worst is just beginning.’

Read here (London Review of Books, April 3, 2020)

The new astrology: By fetishising mathematical models, economists turned economics into a highly paid pseudoscience

‘Nonetheless, surveys indicate that economists see their discipline as ‘the most scientific of the social sciences’. What is the basis of this collective faith, shared by universities, presidents and billionaires? Shouldn’t successful and powerful people be the first to spot the exaggerated worth of a discipline, and the least likely to pay for it?

‘In the hypothetical worlds of rational markets, where much of economic theory is set, perhaps. But real-world history tells a different story, of mathematical models masquerading as science and a public eager to buy them, mistaking elegant equations for empirical accuracy.’

[Note: This is an old article published April 4, 2016. We should read this in the context of the epidemiological modelling being used now to forecast Covid-19.]

Read here (Aeon, April 4, 2016)