Wall Street on Dalio: “Reforming capitalism sounds like the beginning of socialism”

Ray Dalio was the latest billionaire to call for higher taxes on the rich to help amend the widening income gap in the U.S. But unlike Warren Buffett and Bill Gates before him, each of whom has made similar remarks over the years, Dalio extended his opinions to take on capitalism, noting that it “isn’t working well for most Americans” and needs to be reformed. His comments have sparked much debate, including among those who share his profession.

"I think the American dream is lost," Dalio, founder of hedge fund giant Bridgewater Associates, said in an interview on 60 Minutes following the publication of an essay on LinkedIn. While pointing out what he sees as the pitfalls of capitalism in its current form in the U.S. – the self-reinforcing income/education/wealth/opportunity gap and its social and political impact – Dalio appeared careful to note that capitalism needs to be fixed, not thrown out. He was apparently less than convincing in some people’s eyes.

“Reforming capitalism sounds like the beginning of socialism,” said Alexander Fleiss, CEO of Rebellion Research, a New York hedge fund and robo adviser. “Lots of guilty billionaires around to push it.”

Dalio continued to beat the drum on Monday in an effort to clarify his position. “I’m capitalist — I’m a professional capitalist,” he said during a heated discussion on CNBC on Monday. “The system has worked for me. I didn’t have anything, and then I got something through the capitalist system.”

This is where some people who work in investment management take umbrage with Dalio, who is reportedly worth $17 billion. “He just comes across as hypocritical. Even if it were today, would he be saying these things if he were in his 20s, 30s or 40s?” said one 38-year-old hedge fund trader who asked for anonymity. “I wonder what people who worked their [tail] off to get a job at Bridgewater really think” about the comments.

The trader pointed to Bridgewater’s notorious turnover rate, which is said to be around 25% for employees within the first 18 months on the job. While Bridgewater continues to churn out steady returns, traders have seen a massive uptick in pink slips over the last year due to automation and recent market volatility.   

“Ray Dalio has no special skill when it comes to sociology or politics; he is skilled at hiring smart quants and paying the most for them,” Fleiss said.

A managing director at a tier-one bank in New York said Dalio’s comments were met more with a “yawn” than any real vitriol, though he questioned whether Dalio recognized that he would set off more of a political firestorm than an economic one. “None of the ideas are all that new. What I don’t think he realizes is it’ll be used as more fodder for the left.” Dalio has mostly steered clear of talking politics, though he has spoken previously about the dangers of populism – on both sides of the aisle – along with drier analysis on how new administrations and policies could affect markets.

He was more direct this time around. "If I was the president of the United States, what I would do is recognize that this is a national emergency,” Dalio said on 60 Minutes about the need for economic change. President Trump declared a national emergency in February over the border in Mexico in an effort to access federal funding for a border wall. “Just look at Dalio’s first bullet point” on how to reform capitalism, the MD said. It reads: “Leadership from the top.”

“There need to be powerful forces from the top of the country that proclaim the income/wealth/opportunity gap to be a national emergency and take on the responsibility for reengineering the system so that it works better,” Dalio wrote. It seems rather clear that he doesn’t feel the necessary leadership is currently in place.

A sell-side economist who has followed Dalio for the last two decades believes he is taking Trump to task, but not with any political agenda. “He’s looking at this from a macro economic perspective,” the economist said. “It’s like an equation to him. I genuinely don’t think he cares who fixes the problem."

One Dalio line seems to highlight a centrist viewpoint. “The problem is that capitalists typically don’t know how to divide the pie well and socialists typically don’t know how to grow it well,” he wrote. His plan requires bipartisan cooperation and public/private collaboration. Those are optimistic yet extremely lofty goals considering the current political climate – and his opinion of the far left and far right.

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