Ray Dalio

Ray Dalio: Productivity and Structural Reform

This is brand new from Ray Dalio and Bridgewater (starts around page 179/180 enjoy_

Ray Dalio: Productivity and Structural Reform: Why Countries Succeed & Fail, and What Should Be Done So Failing Countries Succeed

Below, we share our study on productivity. In it, we have built an economic health index. That index shows how 20 major countries are doing as measured by 19 economic health indicators, and it shows how each of these indictors predicted real GDP over the next 10 years. As we will show, these predictions have been highly reliable. Because the connections between causes and effects are made clear, this economic health index also provides a formula for success, in much the same way as a doctor looking at your genetics, blood tests and regimes for exercise and eating should be able to tell you something about your health prospects and tell you what you should change to be healthy; however, our economic health index is much more reliable than the doctor’s health index.

Ray Dalio: Our Template

To review, in our template (“How the Economic Machine Works” on www.economicprinciples.org), I describe the three main forces that drive most economic activity: 1) productivity/income growth, 2) the short-term debt cycle and 3) the long-term debt cycle. As explained, while debt cycles can create spending deviations from income over the short term, over the long term spending will converge with income, and income will be dependent on one’s productivity.380 Since the dynamics of debt cycles were previously examined, I won’t reiterate them here. The purpose of this study is to examine the determinants of productivity growth. They are the determinants of a country’s long-term health.

This study is presented in two parts. In Part 1, “The Formula For Economic Success,” I show how indicators of countries’ productivity and indebtedness would have predicted their subsequent 10-year growth rates going back 65 years. I show economic health indicators that can be used to both predict and shape the long-term economic health of countries. I especially focus on the determinants of productivity. By knowing the linkages between a) indicators of productivity such as the costs of educated people, the amount of bureaucracy in the government, the amount of corruption in the system, how much people value working relative to enjoying life, etc., and b) the subsequent 10-year economic outcomes, policy makers can decide how to change these determinants to affect long-term outcomes. In Part 2, “The Rises and Declines of Economies Over the Last 500 Years”, I will look at how different countries’ shares of the world economy have changed over the last 500 years and why these changes have occurred.

Ray Dalio – Part 1: The Formula for Economic Success

What determines which countries prosper and which countries don’t? What determines different countries’ future growth rates? For our investment purposes we look at relationships between causes and effects that we hope will be useful to others in answering these questions.

While many people have provided opinions about why countries succeed and fail economically, they have not shown linkages between causes and effects. As a result, their opinions can be misleading. Often, even commonly agreed-upon indicators of what is good for an economy have not been properly analyzed and correlated with subsequent results. For example, everyone knows that having a more educated population is better than having a less educated population, so naturally we hear that improving education is important to improving productivity. However, indicators of the cost-effectiveness of education are lacking and correlations of the factors with subsequent growth don’t exist, at least to my knowledge. That is dangerous. For example, if policy makers simply educate people without considering the costs and paybacks of that education, they will waste resources and make their economies less productive even though we will become more educated people. To make matters worse, the views of those who influence polices typically reflect their ideological inclinations (e.g., being politically left or right) which divides people. For this reason, I believe that objective good indicators that are correlated with subsequent results are needed so that the facts speak for themselves and help people reach agreement about what should be done. That is what I believe I provide here. The economic health indicators that I will show would have predicted the subsequent 10-year real growth of the 20 countries shown over the last 65 years within 2% of the realized growth about 80% of the time and within 1% half of the time, with the average miss around 1%.

Ray Dalio: Productivity and Structural Reform

See full Ray Dalio: Productivity and Structural Reform in PDF format here.

Comment (1)

  • dave

    I like ray, Like that he puts it out there. But the issues I have with him is that he fundamentally is flawed. The fed reserve is not government. The fed is not and has not and will not work in the best interest of the USA govt or the people of the USA. His wonderfully produced video makes this painfully clear when he describes the fed.
    “How the Economic Machine Works” on http://www.economicprinciples.org Also take note of how he describes lenders and how they lend money he says credit is created- its not its debt all money is fiat or created from debt- money is not debt free.

    When you look at it that way, the actual way it is its a shame he doesn’t want to come out with the truth. Therefore everything he writes is flawed and should be ignored.

    October 20, 2014 at 9:43 pm

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