Hedge fund moguls: Inequality threatening the U.S. economy
GREENWICH — Ray Dalio and Paul Tudor Jones are two of the world’s wealthiest people, with an estimated net worth totaling more than $20 billion. They are also a duo who say that American capitalism is unsustainable without major changes.
In a “fireside chat” Tuesday that led off the second annual Greenwich Economic Forum conference, the hedge fund moguls and longtime friends assessed the risks of the country’s gaping economic inequality and called for greater privatesector involvement and more political collaboration to tackle the disparities. Held at the Delamar hotel, the alternativeinvestmentsfocused gathering is bringing together about 400 professionals across industries, including Gov. Ned Lamont.
“The reason the system is broken is because it’s not an equalopportunity system,” said Dalio, a Greenwich resident and founder of Westportbased Bridgewater Associates, the world’s largest hedge fund by assets under management. “There are justifiable complaints about the failure of that system to produce education. It needs to be reformed in a way that works better.”
Jones, founder of the Stamfordbased Tudor Investment Corp., said he sees income inequality as the product of longbuilding changes.
“There’s $2 trillion of corporate profits,” Jones said. “Fifty years ago, a trillion of that would have gone to employees, the 90 million American workers, it would have gone to communities, it would have gone to saving the planet. It would have gone to customers. Now it goes to, increasingly, the 1 percent.
“It wasn’t by design and it wasn’t because good people did bad things. It was unfortunately just a natural, unchecked movement because of the fact that we, as a culture, thought that business is where you make your company and that’s all that you do,” he said.
The wealth disparities have intensified as many investors have reaped robust returns in recent years.
“The low interest rate policy that we’re pursuing is creating an excess, and the excess is in our public deficits,” Jones said. “At the current pace, in less than 10 years, we will have exceeded that threshold where Greece has issues. I just look at the fiscalmonetary mix — it’s the most stimulative that I think I’ve ever seen, economically adjusted. It’s no wonder the stock market is at new highs.”
Dalio concurred that the “world is awash with money.” Amid an absence of effective monetary policy, however, he said the abundance is not producing widespread gains.
“Those who have money have a lot of money in credit, and it doesn’t trickle down,” he said. “It’s not going to trickle down because we also have a system where at the lower ends — the balance sheets, the income statements, the nature of lending — is not the same. So, it doesn’t trickle down and as a result we have a large wealth gap.”
The duo also assessed the potential impact of the 2020 election, which Jones predicted would “be more meaningful than any one in my lifetime.”
“Who the next president is also going to have a huge impact on the economy, the stock market — particularly in asset pricing,” Jones added.
Similarly, Dalio foresaw potentially sweeping changes.
“What would be the impact of, let’s say, a Democratic (victory in next year’s) election and how taxes will change as a result of that?” he said. “Corporate taxes and so on will be unwound, and that will be an issue in pricing of the markets and so on. But there’s a large wealth gap that’s not being dealt with.”
Reducing the wealth chasms in the U.S. would take more than another polling cycle, they agreed.
Dalio cited the impact of increased investments in education. Earlier this year, he and his wife, Barbara, announced a $100 million commitment to help advance the education and career development of students in disadvantaged communities in the state.
“How is it economically sensible to not spend the money to get kids through high school, those disadvantaged and disengaged kids?” Dalio said. “It’s such a pleasure to do it with the governor and state of Connecticut, to be able to costeffectively get kids through high school. It’s cheap to do that.”
Among his recommendations, Jones said executives and shareholders would have to question how businesses operate.
“Hopefully, organically, we can make everyone think whether I’m a shareholder or I sit on a board, I have an employee who’s not making a living wage, and yet we’re paying ourselves dividends, we’re engaging in share buybacks, etc.,” Jones said. “Just remember those 6 million employees who are not making a living wage are being subsidized by all of those in this room. It’s actually a tax on the rest of society to have a worker that works for your company that doesn’t make a living wage.”
Dalio and Jones did not say whether they would support higher taxes on their individual incomes or their businesses to help reduce income inequality.
Before Dalio and Jones went on, Lamont gave a brief speech assessing the state’s economic prospects.
“We had a contraction of the financialservices business and what used to be the enormous UBS building (in downtown Stamford) was empty, and there was a lot of ‘Woe is us,’” said Lamont, a Democrat and a longtime Greenwich resident. “Well, let me tell you what was once the largest trading floor in the world, the UBS trading floor, will soon be the largest digital production studio in the world with WWE. I’ve just got to remind people every day not to be scared of change, but to embrace change and talk about what we’re doing. … The wind is to our back in Stamford.”
Other speakers scheduled for Tuesday included Steve Case, chairman and CEO of investment firm Revolution and cofounder of AOL; David Rubenstein, cofounder of private equity giant The Carlyle Group; Afsaneh Mashayekhi Beschloss, founder of investment firm RockCreek; Byron Allen, chairman and CEO of Entertainment Studios; and Marc Lasry, cofounder of Manhattanbased investment firm Avenue Capital Group.
The event continues Wednesday, opening with another “fireside chat” as Gillian Tett, chairman of the editorial board and editoratlarge of the U.S. Financial Times, interviews Mohamed ElErian, senior adviser with Gramercy Funds Management.