A Waste of Talent: Profiting from the Sidelines

I fell into a rabbit hole of Ray Dalio lectures, based on a friend referencing his latest book. That book outlines the factors/cycles that lead to the rise and fall of global empires and, predictably, doesn’t predict good things for the US.

Dalio is clearly a brilliant systems thinker, able to process vast amounts of information, see the patterns, and understand the consequences of the resulting interactions. He’s used that capacity to build the world’s largest hedge fund. So–while I don’t think amassing wealth is a meaningful or ethical use of talent–I’m not taking anything away from his brilliance.

Part of that rabbit hole was watching this interview between Dalio and the head of Sequoia Capital, widely regarded as one of the best venture capital funds in the world.

At minute 51, Dalio is asked a question along the lines of ‘what can we do about the decline, if anything?’ and this is where the limits of macro analysis really manifest.

Dalio’s answer is, basically, stay out of debt, be civil and work together, and avoid catastrophic wars. Sure, yes. But how?

The paths to each of those things are the aggregations of individual decision-making. So to effect any change, you have to intervene and alter individual decision-making. You can, of course, provide structural/systemic incentives. But you also have to account for tribalism, identity, dogma, ideology, emotion, etc. I.e., everything that (i) isn’t rational but (ii) are none-the-less the dominant reasons individuals make decisions.

That’s really, really hard. And it’s where the naivete–or limited utility–of macro models and analysis is really exposed.

Seeing the train building steam to run off a cliff is one thing. The leadership+skill to muster the resources, incentives, emotional frames, ideology, social ties, plans, coordination, cohesion, stamina, etc. to do something about is something else entirely. It’s hard enough at an organizational level, much less national or global.

Climate change is perhaps the ultimate example. The macro data and trends have been clear for decades. But no progress is being made because the issue has been converted to ideology, tribalism, and religion. You can’t fight any of those with macro analysis. You can, however, see what’s going to happen and align your finances to benefit, which is effectively what Dalio et. al. do for a living. Dalio effectively states as much when he says he’s a mechanic, not an ideologue.

Macro analysis from the sidelines also allows you to isolate from the desperate ethical questions around the forces–like exploitation and oppression–that underpin and facilitate those patterns. You’re immunized against having to witness the individual, lived experience of the underclass.

When your primary actors are empires, you get to ignore the humans.

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