Pursuing Truth in the Global Economy

Good evening and welcome to John F Kennedy Jr. forum my name is Sawan Park I am studying economics at university and I am a member of JFK jr. forum committee here at the Institute of Politics before Wiegand, please note the exit gates which are located on both the park side and the JFK Street side. In the event of an emergency, walk to the exit closest to you and meet at JFK Park, also take a moment now to silence your cell phones, you can join the conversation tonight online by tweeting with the hashtag radical transparency which also appears in your program.

Please take your seats now and join me in welcoming our guests Ray Dalio and Larry Summers. I am delighted to Welcome my friend Ray Dalio to the Kennedy School forum, where Gallio has lived an extraordinary life, if there is anyone who represents an American success story born in less than glorious circumstances, employed early in life as a golf caddy, where, among others, he caddied for the Duke of Windsor, Edward the Eighth, and later Richard Nixon, who, he tells me, did not have a particularly distinguished golf game. Ray went to Harvard Business School when he arrived at Harvard Business School he had already been a very successful stock trader the first year. he bought shares and his life was Northeast Airlines, which he blocked because it had a low price and so you could get a lot of shares with the limited amount of money he had, it tripled when it was taken over and Ray got hooked.

Ray went to Harvard Business School Ray founded Bridgewater Associates in a couple of incarnations, the second of which is still alive today. Philosophers say that you can judge the wisdom of Acts by achieving the greatest good for the greatest number of people in the same way that you can judge the success of assets. managers by earning the highest returns on the most money and while there are many successful hedge funds in the world, there is none that has earned as much in total for its investors as Ray dahlias Bridgewater and while ray will talk about the various ways within Virgin water in which there is collaboration and debate within moments anyone who has followed from the outside will know that there would be no rent or water bridge without Ray's leadership and coherent vision, leadership and coherent vision with respect to both the theories and to the understanding of how the market and the

economy

operate with respect to ways of knowing, verifying, verifying and exploring hypotheses and with respect to maintaining a very distinctive culture that puts Premium as Ray sees it in the meritocracy of ideas, The results speak for themselves in the returns that have been obtained. the volume of assets that have been gathered and if you are in the markets, it is not entirely unreasonable to apply a market test and Ray is comfortably in the top tenth of the Forbes 400, if one reads the Forbes 400, his advice is eagerly sought and wisdom. financial and economic issues by policymakers around the world and we are very fortunate to have you with us tonight, so welcome Ray Dalio.

You and I first met about 20 years ago when I was at the Treasury working hard to introduce the indexed bond and you were of the opinion that the indexed bond was a potentially important security whose trading could substantially benefit your company and we had a series of dialogues, let's say vigorous ones, while the usual conversation between someone in the government and someone in the markets takes the form in which the person in the markets is very polite, almost obsequious to the person in the government, and the person in the government is almost very polite and solicitous, when you and I find ourselves using phrases like that's just wrong and that can't be right and Surely there's a better way to think about it than what you just said with a lot of vigor and which was reasonably pleasant to me .

I suppose this might not be a surprise to some of my friends in the audience and was reasonably pleasant to you. and we became friends, but what I realized when reading the manifesto that you published on the Internet a few years ago and then having the opportunity to read your recently published book is that these principles of direct confrontation of ideas were really central to your approach life. and central to the institution that you created at Bridgewater, so perhaps a good way to start would be to leave it open for you to talk for a moment about those principles and your vision and approach.

Well, it's very interesting to me and I think you probably find it interesting that thoughtful disagreement to come to a

truth

and just eliminate it is not a joy for everyone and psychologists look at this because they say that many people come to a conclusion and have an answer. of the amygdala that it is an attack if there is disagreement as if it is not a pleasure to be able to change things and simply try to discover what is true it is not a reflective disagreement it is a pleasure to try to discover what the best answer is is not it a rarity ? that that exists is a rarity anyway I studied I spent more time talking to neuroscientists and psychologists about it Larry said I could take I don't know five to ten minutes to try to describe what this is all about and I'll do that and I have some slides the ones I'll do that with and well, they'll go back there, so I'm just going to quickly follow up on how he made the background sounds so much better, let me just Let's say the only reason I bought the stock at twelve.

I bought the stock as I said it was because I was dumb enough to think it was the only company I had heard of that was selling for less than five dollars a share and I thought I could buy. more shares so if it went up I would make more money, that was with my investment criteria, silly, but I got lucky and then I realized how difficult the game is, but anyway what I want to do is quickly describe what it is this. so yeah, I played the game and then I came out of Harvard Business School and this is what it seemed like to me, okay, so I pursue my audacious goals and then I find my successes and failures, and if you're an individual in the markets or you are a businessman, you have to bet against the consensus and be right because the consensus is built into the price, so if you have to bet against the consensus and be right, and that is difficult, you will fail at a trade show. quantity or if you are an entrepreneur you have to bet against the consensus and be right and then failure becomes one of those learning processes, that is why pain plus reflection equals progress for me, so failure and then what I got used to doing is changing my focus towards failure where failure seemed painful, what I realized is that after a while it became more like a puzzle that would give me a gem and the puzzle was what would I do differently in the future to have a better result and the The jewel was a principle that I would learn to do something better in the future and I learned to write them down and then I communicated with people by writing them down and reflecting on those principles that meant I would change and then change. leads to improvement and then you look for more about the goals of Daesh and it seems to me that it is like this over and over again, so this became this is what life is for me, this is what evolution is for me, evolution of the products of evolution and their Of various nature, you are going after your goals, you are on the path to your goals, you encounter your problems, you cannot tolerate your problems, whatever they are, you have to diagnose them to their root cause, and the root cause may be that you are doing something. wrong or that you have a weakness or that someone else is doing something wrong, has a weakness, so you can't depersonalize it, you have to look at it and then whatever the diagnosis is, you get to the root cause, then you have to have a design to change and solve that root cause and then step number five is to move towards the results, that's what evolution always looks like and if you were to take any blackberry company, they have the goals, they have the problems if they don't.

If they don't diagnose it to the root cause and change, they will die and if they do, they will evolve, so it seems that way to me over and over again and I have made terribly painful mistakes, so one of the debts that comes to mind is that. In 1981-82 I thought I did the math and thought that foreign banks couldn't get money back from companies in the countries they ran; They went to a lot of emerging countries that they couldn't pay back and I thought at this point that would cause an economic crisis and in August 1982 Mexico defaulted on their debt and I thought we were headed for a major economic crisis because I hadn't anticipated them defaulting.

Debt. I received a lot of attention. I'm on Wall Street Week, the show at the time, and I was asked to testify before Congress and I thought we were going to have this economic collapse. I couldn't have been more wrong, it was exactly the bottom of the stock market in August 1982 when Mexico defaulted and that was the bottom and it was painfully wrong because I lost money in the markets I had to let people go it came down to me but it changed my attitude about decision making because it changed my notion from thinking I'm right to wondering how I know I'm right gave me a humility that I needed to balance with my boldness made me want to find the smartest people I could find with those who didn't agree agreement to be able to understand their reasoning and their thinking and that's when you're doing your advice, I mean, that's where you come in and you want to get the right answer, it doesn't have to come from you and knowing that made me want to have a culture that is passed down on this slide.

I wanted to have the most independent thinkers who then disagreed with each other to try to find the right answers and then establish their principles and as a result we had our successes and our failures, but learn from those mistakes and realize them. how many failures and mistakes are really the powerful tool to understand, diagnose and find better ways to do something and that led us to stumble and learn and then the exercise that I did was to keep writing down those principles, so okay. What do I mean by having an idea of ​​meritocracy? I just want to make it clear that to have an idea of ​​meritocracy you have to do three things.

Can you do these three things first? You and others have to put your honest thoughts on the table for everyone. Seeing that a lot of people don't speak honestly like you thought when you were talking to me you would say boy that doesn't sound like the smartest idea that's what you were thinking and you can convey that people are tiptoeing around. that or vice versa, so can you talk that way? Can you have and then when you have a disagreement, can you have a thoughtful disagreement where you're curious and you're worried about being wrong? You worry when you're setting up the tip market, right? wrong, am I missing something?

So can you have a thoughtful disagreement and understand the power that what's in your head doesn't exist? There's only a small percentage of what you need to know and therefore be able to assimilate and have that thoughtful disagreement as a power if we could collectively make better decisions and be curious about that, that's a power and then number three, so, Can you have a thoughtful disagreement? Isn't it strange that people don't do that? and then number three is that you have to have protocols to achieve it. I got over their disagreement and got a sense of meritocratic protocols, so that was the important thing for me to build the culture around that and there's another factor.

Can you know what people are like? Do you want to know your weaknesses? Do you want to know people's weaknesses too? like their strengths, it's much more functional that way because if you know someone's weaknesses you know what you can expect from them and together you can overcome their weaknesses, so it was very important. I have a four-minute clip, I don't know if you want me to mention it, but it gives you an idea of ​​how this bullshit narrative meritocracy idea works and then that's basically the end of it. Do you want me to show you?

Okay, okay, here's a four-minute clip that was done, I give a TED talk, it shows a particular tool and we go to a meeting to give them an idea of ​​what this meritocratic idea looks like where everyone can express their opinions. thoughts around your thoughts on the table and then disagree. with them, so here goes the opinions on the topic and how we approach the discussion, the points collector collects these points of view and has a list of a few dozen attributes, so every time someone thinks something about the thought from another person, it is easy for you to convey that evaluation.

They simply write down the attribute and provide a rating from one to ten, for example, when the meeting began, a researcher named Jen rated Mia a three, in other words, bad for not showing a good balance between assertiveness and open-mindedness when she had place the meeting. Jen's assessment, so people added up like this others in the room had very different opinions, that's normal, different people will always have different opinions and who knows who is right, let's look at what people thought about how I was doing, some people thought that I did it well, others badly in eacha.

From these insights we can explore the thinking behind the numbers. This is what Jen and Larry said. Keep in mind that everyone can express their thoughts, including their critical thinking, regardless of their position in the company. Jen, who is 24 and just out of college, can call me CEO of the company, so I'm approaching things terribly. This tool helps people express their opinions and break away from them to see things from a higher level when Jen and others shift their attention from entering their opinions to looking down at the entire screen. Their perspective changes, they see their own opinions as just one among many, and naturally they begin to wonder how I know my opinion is correct.

That shift in perspective from going beyond it and seeing the full range of uses moves the conversation from discussing individual opinions to discovering objective criteria for determining which opinions are best. Behind the point collector is a computer that watches what all these people think, correlates it with how they think and communicates with each of them based on that, then extracts the data from the meetings to create a pointillist painting of what they think. what people are like and how they think and all that, guided by algorithms, knowing what people are like helps match them better with their jobs, for example, a creative thinker who is not trustworthy can be matched with someone who is trustworthy but not creative.

What people are like also allows us to decide what responsibilities to give them and weigh our decisions based on the people's merits, we call it their credibility. Here's an example of a vote we took where most people felt one way, but when we weighed people's opinions. points of view on the basis of their merits, the response was completely different, this process allows us to make decisions not based on democracy or autocracy, but on algorithms that take into consideration the credibility of people, the main challenge of this And I think the main challenge that most people face is what I call usage.

I think there's basically use in everyone, which is the intelligent, thoughtful you and the emotional you, and when you come into this and say we're going to have a disagreement, what would happen? you would like to know what I think you would like to know what I think of you you would like to express your thoughts to me what you would like to know your weakness is intellectually of course you would like to know what people think of you because you can handle it yes of course you would be interested in knowing your weaknesses, but emotionally that becomes a challenge for many people, so there is a struggle between the two uses and how to overcome it, and that is the exercise, and if I want to see what it is that has made Bridgewater successful during that period of time.

You know it's the ability to do that and have that thoughtful disagreement that is culture in a nutshell, so you put a lot of emphasis on this idea of ​​something. people within Bridgewater or consider him more credible than other people and that when you're figuring out what to do you give more weight to the people who are more credible, but how do you decide who is more credible? I mean, I somehow get the feeling that you probably have above-average credibility within the Bridgewater culture and that some of the other high-level people probably do too if I'm a young person who just arrived and I think you guys are confused about a lot of things. of things or maybe I express my views in a different way than other people because of my gender or because of my culture or because of something how do you know how I have a chance to get high credibility?

Isn't there some risk of that? It is believable that this rating of people for credibility, with the best of intentions, slides into rating people for conformity, which is perhaps somewhat less attractive, it is much radically better than the normal way of doing it because in the normal way to do it. what happens is people don't even talk about it so it's much more evidence based and it's much more inclusive so let's say you're in a room and the way it is and you're in a room and you're getting opinions that come to you, if you're smart, you're thinking about what each person's credibility is in your mind and you're weighing those things, let's say if you just have a medical condition and it's best to go to a doctor.

The way is triangulation by three credible people, you go to the three doctors and if you can get them to triangulate and they were all willing to discuss among themselves to get the right answer, but also when triangulating they think that that is the right answer, that It's a great way. to move forward and if you have disagreements, an open and thoughtful disagreement will bring up the issues that need to be examined and then you will examine those things and then if they are still in disagreement, the way you will make your decisions. It's still going to be a decision weighted by credibility, okay that doctor sounds better or worse than the other one, now imagine it's evidence-based and it gets very open-ended, so okay, so look at that, how would you decide?

Now we're dealing with Okay, you believe in a bill for how to structure something, a marketplace of suggestions, and someone else has other credibility about it. We would say that the way you can do that is, to some extent, first of all, put together what everyone thinks are the belief skills and take that into account. consideration because it's almost a boat or an assessment done by more credible people and you could also make it evidence based if you wanted to say ok let's do a test and let's say it's a math test and you would say how good are you at math.

You could do testing and find out how good the key is, that you want it to be evidence-based and you want it to be open so now you do it so that everyone can understand how you would do it so that when I'm describing go further if you're a partner to do this with me and we said how we would do it in an evidence-based way to get to that, so that that way we don't have any autocratic decisions. -Decision making or democratic decision making, autocratic decision making doesn't make sense because if I'm sitting there unilaterally thinking that I'm the right person because I'm the guy asking if that's not the best thing to do.

I want to know. the smartest people I have that if they don't agree with me I don't feel comfortable in the future I have to figure it out or if I say democrat like everyone has the same say well that's also pretty silly because not everyone is equally capable so yeah you and I would say, what are the fair ways we can get credibility, even if it's imperfect, it's radically better than what's happening, I mean, everything behind the scenes is not being made clear, so maybe it would help people to understand this better and maybe do it in a little more operational sense, wait, let me ask the question this way, so let's take something that is quite routine that we do here at the Kennedy School and that we all at every university have a committee of admissions and the admissions committee admits students and they read a lot of applications and they look at people's grades and they look at their scores and they read their reference letters and then they fall asleep and you know, the people on the committee who are more oriented math tends to like applicants who I have done the most math in their life and people who have done social causes tend to like people who have done social causes and somehow work to reach a certain consensus by talking, but no one really carries It counts for a lot, aha.

I think it would probably be an honest assessment if you were, so you know it's probably going to be a long way before we have point matrices for every faculty member as we go about our days, but if you were us and you wanted to improve our decision . -do a process along the lines of your principles, I just think it will help people understand your principles if you talk a little about what you would do. I mean, you had a chance to meet the dean here before if you were giving him advice on how to do it.

We run our student selection processes or our faculty selection processes, whichever is better, how would you approach that? I think the first thing is in any decision. I think people focus too much on the decision and not enough on the criteria for making the decision, so the first thing I would do is say how do we determine our criteria to make the best possible decision, given that we are trying to design something, such Maybe it's some diversity in the student body, what are we trying to do? Engineer for and how we can collectively move beyond that decision.

Any of the decisions to say what the best criteria are for making those decisions. That would be step number one. How do we test those criteria? With those criteria we have achieved that goal, so let me apply it. let me find out which are your most successful students based on the criteria that we want to have as a final result and let me take those criteria and look at them objectively, it would mean taking it into consideration, you could have a bias in a subject and I could have a bias in a sub, those biases exist So how would we do that?

So let's take those rules, turn those rules into algorithms or whatever, they're just that computer that describes things and we go back and say and say is how good do we like that and what principles would we have then? We will write it. Okay, we mutually agree that it is a methodology that we think is better and that is also subject to testing. The Board of Governors can look into that. X Y Z can examine that. and say, okay, that's great, now it's much more evidence-based, so you go ahead and apply those criteria; in many cases you can apply them with algorithms and then the judgment that comes into play if you apply it with them with the judgment that goes into it, then you say, Can I take that judgment and write it down in a log and even think about how can I turn it into criteria? clear to be able to refine it and make it transparent?

So if you're doing it and it's radically transparent so that everyone can see and the board can see and everyone can see, okay, that's going to make it better, so that kind of decision making becomes much more of a meritocratic idea, it will mean what are you good at if you have an idea like mathematics and we are going to have someone who is going to study mathematics or whatever is relevant, so how does your voice help to make a better evaluation in terms of that process? This is what it would look like, would you too?

It was Jack and I, if the answer is yes, I sympathize with your point of view, but if you read, I don't care what I say absent, you are not if you read Henry Kissinger's memoirs and talk about when they opened. to China, I don't remember exactly what the formulation was, but there was a set of words that we and the Chinese agreed on regarding Taiwan and the reason why it was a very important thing was that we were able to open up and have relations with China. and the essence of the way the agreement was reached, I remember, was that those words were interpreted differently in English and in Chinese and we believed we had made our deal and they believed they had made their deal and so both sides were kind of happy and they could shake hands and someone could have said, you know, this is ambiguous and try to resolve the ambiguity, but if they had done that there wouldn't have been an agreement and as I move forward in my life there are many agreements. that are achieved and a lot of times when people figure out cooperating together precisely by having something that is a little bit ambiguous that both sides can be happy about, but it's not actually said clearly, do you think that's a good thing?

To what extent is the effort of your process to purge that kind of confusion so that you can have really clear thinking? So I think when I hear that, first of all I want to say that nothing is one hundred percent should be one hundred percent and you just laid out a good principle that I might agree with, in other words, that sometimes it's more practical, it might writing it down as a principle, sometimes it's more practical for us to take our highest level of common interest to have us have a conversation without agreeing on everything and allowing a certain amount of ambiguity to facilitate moving forward, that's the principle I'm hearing people say. to Larry Summers and I could accept that all principles have to be practical, all principles in the end have to be work, so I will repeat that no principle clarity to the extent possible is something desirable, however, some things are more important than others and having that conversation means that sometimes it may not be clear and adding ambiguity can facilitate a conversation that allows you to move forward and that is a good thing, that is the Larry Summers principle that I would accept and therefore it would be clear about that principle, but clearly there will be some compensation, even if you accept my principle too strongly, you are going to be kind.

For example, you know one of the things that seemed to happen is that I have a feeling that if I worked at Bridgewater I would have an idea of ​​what my credibility was and I might be using ahat that could make me feel bad. a little demoralized if my credibility was, you know, only 15%. I think the who-who credibility of the guy down the hall, so how do you offset the fact that there could be higher morale if everyone felt that way? like they are valued and considered credible versus the fact that some people are probably more credible than others.

I think you're trying to take it to such an extreme or to such perfection that it's not practical and it's the nature of anything else it's like if you write a law, there's ambiguity in the law and then when the law is written we have case studies that , over a period of time, they refine that law over a period of time and become bigger and bigger. clarity and I think it's very similar to that, if you have principles and you can start to get that clarity and then you work on it, it's like this thing of not having laws or or or or the other things, so now don't compare it to perfection because it doesn't exist. perfection, but Karen, look today, do we know that as Americans?

We have common principles that unite us. Do we individually know what our principles are? Can each of you write down what your principles are? If you take one group and take another group. Do we know what principles unite us? We know? What principles divide us? Do we have ways to have thoughtful disagreements so that we can move past our disagreements and move forward? Okay, we don't have those things. I don't think we have them. Alright? So now if you are comparing it. perfection, that's not something that can be compared, even if the question is: are you better in an open and demonstrated way at being clear about your principles what you agree on and having thoughtful disagreements and overcoming them?

That's the right question, so let me change it in a few minutes. We're going to open this up to questions, but let me shift gears, if I can, from the principles of running an organization to current events in the

economy

and markets, and maybe there's a question here that will bridge the two. topics. you have emphasized the meritocracy of ideas the power of correctness of arguments careful and extensive reflection based on evidence as preeminent values ​​many people would say that government by tweet is something like the opposite of all that and it is actually very dangerous precisely because it does not embody those values ​​and basically maximizes, in your phrase, the amygdala instead of minimizing it, but since we inaugurated the current regime, which many people in the United States would say is much more government through tweets, the markets They have increased the feeling of the economy by 25%. better than 15 months ago.

I dare say that no White House functions much like the meritocracy of ideas that is Bridgewater's internal culture, but there would be plenty of evidence that would lead many people to conclude that this one has. been further from those ideals than most, it's not a major issue for policymaking, how does it square with the superficially good results in terms of markets that we've seen, maybe they reflect a little bit well, so I think there's two parts in the The first part is the management, as you describe it through tweets and that mechanism, and then there is the behavior in the markets and how they relate to each other, which I think is probably not related to each other. a lot and what I mean by this is that I will take them individually.

Markets go up and down based on the cash flows you will get. Each purchase is a lump sum payment for a future cash flow and if that cash changes. In flow, you change tax rates, for example, and change regulations, etc., and therefore a stock will give you more cash flow which will be worth more, so changing taxes doesn't even have to be if it is good or good for the country. Not at all, isn't that a question we're really addressing here? We're addressing whether that present value of those future cash flows increases if you change the tax rate and reduce regulations, let's say, and then you can go out and you can make more profits and that higher profit has a present value if the interest rate does not increase, so the present value of that doesn't increase, that's worth more and not to be confused with tweets or anything else, so that's the first one. period, that's why you can also have a lot of politics or someone not liking something and you could have a stock market and today the behavior of the stock market also reflects less of the economy in general and I also say that there are two economies, there is an economy. of the upper economy and then there is the lower majority of people and there are two different things, so don't get confused even thinking about an economy, but those stocks in terms of present value then go up because they make sense because getting more money in terms of the question of whether tweeting as a presidency is a good or bad thing.

Well, I think the issue really is the main one. I'm not going to judge if it's a good or bad thing. Because what I'm going to do is pass on your application, I'm going to give you my opinion on whether it's a good thing or a bad thing. I think the basic problem is that we don't put in the effort to try to say what is good behavior and what is bad. behavior, so I think as a general rule for people, whenever someone has a disagreement with something about something, whatever it is, they should go above themselves and say how we should be with each other, what kind of disagreement we should have and what our motives are. rules for disagreement to resolve that disagreement, then you can go back to the disagreement and if I apply those ground rules, I'm sure President Trump thinks that's a great thing, someone else thinks that's a terrible thing, but where is there no solution? ?

Based on some of the things you said, could we maybe? I don't know, here it would be going above the top senior leaders. Leaders should not make far-reaching pronouncements about direction without deliberating about them collectively with a group of others who have expertise in the matter. sphere where statements are made, would that be a higher level principle that you would be willing to accept? Let me put it this way. You just gave me a principle that you think is valuable and I might think that principle is valuable or I don't think that principle is valuable. It's a good exercise that we do and say you and I think that principle is valuable okay, we both agree.

I agree on that, yes, okay, okay, in other words, I think there is a reflective disagreement and that exercise is a general principle that I have that does not make it a law, does not make it something, so the question that we are dealing with the reality of our circumstances is what you might think, something he might say, this is a means for me effectively. communicate directly to the American population things that I think haven't been filtered by the media or he might have a different point of view and we'd like to hear what that point of view is, okay, so if you don't have that thoughtful disagreement and that expression then you are not so you are not having that reflective disagreement with a relevant participant so what we are doing is that you and I are establishing principles without that person having a participation in that debate in which one must participate and that It would be my aspiration.

I don't want to have a footprint if I'm sitting there with someone else and you comment on how you run the Harvard presidency or something and you and I have a disagreement and you're not part of that disagreement and we don't think through it. What do I get out of that? Where is it taking us? Where we have? We have gossip. We have all those things. Do you become productive? No, I'm saying the usual. What you should. I think what he should do and what he should do is go on a stage or go into an environment and have that thoughtful disagreement so that becomes clear and then films.

What I find is that when I'm here that's what's hard for me. your kind of existential stance on these things I mean, I get it, I guess I'm not sure I understand it, but I think what you're basically saying is that you're prepared to engage in the reason to be with anyone about anything and come to an understanding. judgment. but if you are not, if they are not part of the debate about reason, you are not prepared to make judgments about them and what they are doing, if the position that you are taking, yes, it is very difficult that without listening there is not much. more productive, on the other hand, on the other hand, if we have actors acting like presidents of the United States and they want companies to run universities and they are not prepared to interact with experts, they simply are not and the experts take the position that they really do not I can. have an opinion unless I am committed, so no one who has experience can have an opinion because they are not committed, it seems like you are giving a lot of license to people who are prepared to act on values ​​that are most likely very different from the that you share, yes, then I say, well, what is the system, how does the system work and then you can have this or that debate without the person participating in that debate being what you are saying and then you can have an election and then we have decision making, so I guess our system when I literally look at what's happening there, I generally find a dysfunction, not what I watch is TV and I see everyone throwing out all these ideas and gossiping. and chatting and I'm looking at the productivity that that has in terms of even figuring out how we get to what's right, at least in an illegal sense, there's a process, but what we have is this gossip and they're and we don't have any resolution and that It's a common dilemma, so yes, I can have opinions, but also while I'm forming that particular opinion, I'm trying to understand what's true, okay, and if so, I say what I'm having trouble with, let me, let me To put it very lightly, we all have opinions, let me say it, let me say it more clearly because you and I have been on several different panels and discussions over time and stuff, this is what I find troubling and maybe you can clarify me.

No one I know is more committed than you to placing much emphasis on the meritocracy of ideas, and no president or administration seems less committed to the processes around rationality, debate, and the emergence of

truth

and all that is then the current and yet it seems very difficult to get you to say anything that is skeptical or critical, that's what I'm finding. Oh, that's what's hard for me to follow and let me be clear about this so that you feel really good about running Harvard as the president of Harvard and the notion of being in that particular position and having conversations. with people who will say I think you did a terrible job that you have there were many uh there were you failed this way and that way and so on first of all I don't know what it's like to be in your place as president of Harvard, I can imagine it, but I'm a humble man who knows how difficult it is to find a comfortable and secure opinion on markets and other things, so I don't know what it's really like to be in your shoes and then I get involved in that conversation and make an ignorant judgment about it.

I'd rather be in the don't know category, but I would say yeah, let's get up on stage, Larry, have a conversation and work on it. until now, if you don't want to go up on stage and do that, I think it was one of the great tragedies that you didn't, okay, I think you should have stood on this stage and said for our Harvard. here they ask me the questions and they probe me and they have a debate so you can find out what is true and what it is like that is much more productive in that sense I think there are so many ignorant judgments about what it is like to be in someone's shoes and I think that is something dangerous, so I hesitate to form opinions on such things, yes, from a different point of view, it is not the idea of ​​the meritocratic way in which I am operating well, but I would say in terms of that thing, you also fell short on In terms of operating, standing up to it and being a meritocratic idea, that's what I would think would be the best path, okay, I'm going to resist the temptation to defend myself. that one and I ask you a different question, after which there are four microphones, so people want to ask questions, they should go to the microphones, so there are probably quite a few economics or finance professors in the room. professors in the room or economics and finance students whose mother or whose great-aunt or whose cousin or something observed that there was a lot of turmoil in the market in the last two or three weeks and who called them and told them that there was all this turmoil in the market looks really scary what you should do what answer they should have obviously depends on your great aunt's precise circumstances, but in general what advice should people have given to someone who said you're a professor of economics and finance, you're supposed to know about these things, what's going on and what I should do regarding the pretty dramatic events in the markets over the past few weeks.

Well, I'm going to answer the question on two levels, one. it's just a superficial thing real quick and then you start explaining a little bit what's going on in the first one: you can't possibly be successful that way if you're going to freak out and whatever.your name or grandmother, whatever your name is and you're going to have the stock market fall by you want to buy. I mean still, but anyway it's best not to play, it's okay, because they are professionals against you. The best thing you can do is know how to have a balanced portfolio and I could explain to you how to have a balanced portfolio because you're not.

If you are going to win that game, the biggest mistake of the individual investor is to think that that market that did well is a good market and rather a more expensive market, in that market that did badly it is a worse market and I do not want participate in it. than a cheaper market and you can't make that set Jen apart, so please don't call me, so just don't do it. That would be my first advice to her. Can I just say? Can I just say that none of you paid anything for that advice? but based on my knowledge of these things, that was very valuable advice that if you can discipline yourself and your family members to follow for years to come, it will be worth a lot of money to you.

Well, having said that having our we now, on behalf of everyone in the room, I commit. Don't do anything stupid in the markets based on the analysis you provide us of what is happening. Okay, what's happening in the last few weeks, so we won't act on it. So feel free to give us your best analysis. Well, yes, that's what I did. I made a 30 minute video called how the economic machine works and it just describes in a nutshell a template for that, but I just want to give you a brief overview because there is a template and then things are seen in context.

Over a long period of time we raise our standard of living through productivity, which actually comes from learning how to do things better so that the per capita result is raw. The increases that determine our economy are basically two cycles, the most important thing is that we have two main cycles. we have a short-term debt cycle which is also called the business cycle, recessions, expansions, etc., and then we have a longer-term debt cycle which I won't get into right now. Well, to explain the short-term economic cycle. The cycle we are in is like when you are in a recession and you stimulate through monetary and fiscal policy, it is as if a car traveling at 70 miles per hour accelerates but the capacity to produce grows at a slower rate, so You think of it as like a car in front of you that's driving 50 miles per hour, but your car is going 70 miles per hour and as you get closer to your limitations of that 50 miles per hour, you're now going 70 and you get to have to get to 50 you have to do it, you have to brake well and that becomes part of the cycle when you are at the end of the cycle, in other words, when the economy is booming and growing at a faster rate. rate when there is a limited amount of capacity, what happens is that for various reasons there has been a lot of stimulus to accelerate gas as we are in that particular part of the cycle and the markets go up and down more due to changes in rates of interest because as I said before what happens is an investment it is a lump sum payment for a future cash flow and the discount rate the interest rate that we use to calculate the present value that affects all prices of the assets, so when you're in a position where there's your lag cycle and you're having the stimulus that happens in that stimulus and then there's a higher risk of that discount rate going up, in other words, rates interest rates rise, which happened then, that affects all asset prices and therefore all asset prices react to that. and that's basically what happened, what we have is a lot of cash on the sidelines because the central banks have bought fifteen trillion dollars in financial assets on their balance sheets, so we have a lot of liquidity, here come the companies they have a lot of quality.

Now you will fall into one of two categories: either you have a lot of access to money and you have a lot of money or you can borrow a lot of money, it is very, very easy or not, there is a large majority of Unfortunately, the population does not have access to any of that, It's most people, but in any case, when we talk about markets there is a lot of liquidity and you will get cash in addition to cash, companies can borrow cash. they have cash where the cash comes from and so on, so they buy it and then we're in that part of the cycle where we have both that discount rate but also all that cash available that can then go buy it, so what you see is you see the market sell-off because the interest rate changes, then you see people with a lot of cash, companies, companies buying back their shares, companies merging, individuals who have cash, they get in there and that's what we're seeing, okay?

Then the forum organizers will chide me for finding you so interesting that I've been asking questions for longer than I should have, but there's still some time for questions from the floor. We have the basic rules that question. People asking questions should introduce themselves and say that the questions are short and end with a question mark. I think I have a lot to come. My name is Ned Shale and I am a joint student at the School of Business and the Kennedy School recognizing the merits of this idea. meritocracy. I see how it works very well in a kind of organization where everyone is really convinced about it, in this kind of fits with the conversation you were having a moment ago.

I wanted to go into government right after graduating and that's an order that's a device where this probably won't be well received or implemented, so I'm wondering if you have any practical advice for people like me on how to take advantage of some of the benefits of this theory or form of organization in an organization that would be very resistant to it. I think any group of people, and that includes your family, that includes your friends, that includes the group of people that you're working with together, can still decide if they want to operate that way or how they'll want to operate together so that you still I could say that we have an agreement by which we will be radically truthful and transparent with each other.

Do we have a pact where we can have a thoughtful disagreement that I will appreciate and analyze in the book? I present a lot of protocols of things. do to facilitate a quality disagreement and then it happened so do we agree that we want to have an idea meritocratic way to overcome some protocols could be if we have a disagreement what can you do is say if we mutually agree on a mediator, you could have a friend and you might say, "Okay, how do we have that mediation and stuff to get over our disagreement?" or we can help those three people do it so that there is always a way to operate that way, your biggest barrier.

You may not have the entire organization, but you can operate that way. The really biggest barrier is that for you. Ok, can you still do that? Do you still want to put your honest thoughts on the table and put the other person first? do that do you still value disagreement so you can get the best answer those are the fundamental questions and any group of people can decide how they want to address those questions. I'm just curious to ask, you know, let me ask that. ask what do you think you'd like to have an idea of ​​meritocratic decision making where you can put your honest thoughts on the table and other people put their honest thoughts on the table well yeah raise your hand I'm curious okay no, because it's too scary.

I don't know how honest this crowd is, right? What about that radical truthfulness and transparency to be transparent so people can see things firsthand? Yes, okay, you will have to make these decisions and then come up with ideas in meritocratic ways. that you can overcome your discipline, whether you're in a marriage or a friendship or something you'd better have agreed on ways to overcome your disagreement. Ideally, Lee's idea is meritocratic, so wherever you go you'll have those questions. I think you're being here today my name is you posted one first a year. I'm PA kids. I am also one of three Dahlia Fellows at Ice Center.

Thank you for her generosity and I have read the principles of her books. Watch the YouTube videos and read his interview. one who did one of the interviews you mentioned about a framework of economics that is the sum of all transactions and how Bridgewater believes that framework predicted the 2008 financial crisis, so can you talk a little bit about the framework and its application to predict the financial crisis? and perhaps at a higher level the role of financial institutions is to include hydrophones to prevent or contribute to the financial crisis. Thanks, well, the first ones are easier; the second sounds like an embellishment for a big thesis or something.

I don't know if I could answer that quickly, I'm saying the traditional notion of economics where there are supply and demand curves and that way it doesn't make much sense to me, that what really happens is that the price is always the total quantity of expense divided by the total. quantity of items sold and if you can understand if you look at the participants in any market and say how much they will spend and understand their motivations for spending and add that up and then look at the quantity sold of anything. We could use wheat as an example.

How many bushels of wheat are sold and what is the total expense? Then you will always get the price. It's not theoretical, it's literally what the price is, so today we can go from being at a very granular level. practical level of knowing what the circumstances of each person or each entity is each group, who the buyers and sellers are and adding up you know what their motivations are for trying to get to that and the idea that there is an aggregate economy in tron ​​​which is more eliminated, so when the financial crisis came, when we anticipated the financial crisis, yes, we anticipated the financial crisis in 2007, about the financial crisis as we go, we said by entity who was going, how much do they need to borrow , how much would be lent. by which entities and I discovered that there was not enough money to lend and then when that meant there would not be enough money to lend, labor debt problems, that would mean credit spreads and things were changing them with the price adjustment. -market accounting and so on, that meant that the balance sheets would adjust and so you can imagine it, so think of it as a Rube Goldberg model.

I don't know if you know that was a term that you and I would know because the way we were at an age where we do it, but you think that one thing leads to another in that mechanical way, so it's those transactions that you can make At a granular level that's the answer to the first part of your question, the answer to The second part of your question is that I think the role of institutions and hedge funds or whatever in terms of their impact on the markets is a good thing. I think the efficiency of any market is important.

In other words, knowing if something is going up or down and placing a bet, etc., is like the transparency of knowing statistics. I think in the long run it's a good thing, but the real problem is that sometimes people go. crazy and then they can do crazy things and I think to the extent that rewards are provided to people I think it helps them, but the real problem with the financial crisis is not being responsible in terms of debt and a certain particular dynamic and then, In my opinion, central banks look at growth and inflation instead of looking at credit growth;

In other words, credit growth is controlling credit growth and, if there is a lot of credit growth, to buy financial assets, debt growth to buy financial assets. It doesn't affect growth or directly influence inflation, but it can create debt that may not be able to be paid, so if you look at our financial crisis of 2007 and 2008 or almost any financial crisis, Japan's great failures in 1989 and 90 in terms that the problem was not inflation or growth, but the use of leverage to make financial processes produce a lot of credit growth debt that could not be paid and those become the lessons I believe more of the story.

It's not about those financial transactions for intermediaries, a financial intermediary there will be some people who will provide capital and if you do it over the long term to provide capital efficiently, it will provide opportunities to those people who have better things to do. with the money that the people who have that capital and that's a fantastic thing, it's great, you don't want to get hurt, you don't want to have the inefficiency, you can have someone who does it, a group of people who will join in or maybe then do something messy, but really in the end everyone who sells or buys in the market has to do the opposite, so if you sell short as an example and that contributes to the amount of sales, then he will be abuyer. smarter than you and then you have to buy that position back so that's not as problematic for me in terms of efficiency as the other things I'm talking about in terms of irresponsibility in the mountain of following the monetary policies that I'm going to answer a couple more questions.

Yes, hello, my name is Luke Haney. I am a final year student at university. I read principles this summer while drinking a beer in the UK and it was wonderful, as was the beer. My question for you is: you? I believe that today's university campuses are conducive to merio kradic decision-making and debate. I am not an expert in speaking about all university campuses as a whole, but my general impression is that I am deeply disappointed by the fact of bringing In the midst of much controversy, being able to disobey reflexively, without idea, without ideological barriers, so, as general notion, I would say that, you know, I would be disappointed, but I'm not an expert on welcome to college campuses, but I would do it.

I think that's what it's all about and it's about this, generally speaking, my impressions would be disappointing. I would sympathize with your response. Hello, my name is Andrew Kingsbury. I'm an extension school student working for a startup called Quibble, our CEO. I actually worked at Bridgewater, but my question is where would you set the percentage, in percentage terms, of the recession potential in the United States and we took a fairly large European short position, so specifically in the United States, yes, let me comment that any position that is a good example of what is reported in the media or whatever can be easily misinterpreted and I think if you accepted that, I won't comment on our positions, but I'm just saying don't read, don't read anything about it because the problem is that don't be fooled by it, but I would say that the probability of a recession before the next election is the presidential election.

I think it's very low in terms of "I don't think we're going to have a recession at any point; I think we're not even in a bubble stage yet, I think "We're in a pre-bubble stage that could go into a bubble due to this, which could then be followed by a bus phase and therefore in that last phase of the cycle it would be my assumption and I would say that the probability of a recession in parts in the next presidential election would be relatively high, what would I say? I don't know, seventy percent or something like that, 70 percent, although we're not in a bubble yet, so it's two and a half years and a 70 percent chance. that within two and a half years we will reach the bubble through the bubble until the burst, and I can't say if the odds are 70-60 in favor, what would normally be done would be about what before it hits the financial markets .

It's about after it hits the financial markets, it's about 14 months and it varies in terms of that because that produces the contraction and that notion, so I start working from there and I think my own notion is "we." We're in the late stages, but not in that bubble stage, so I'm not. I can't be precise, but I would say there's a good chance we'll have a recession by then, and I don't want to. to say that I am afraid of a recession and I am afraid of a recession mainly because these two economies exist; in other words, I did an article that's on our website or on LinkedIn that divides the economy into two economies, the top forty. percent, the bottom sixty percent, what are most of those like? you have an economic recession, you have conflicts, you have arguments, you have emotional problems, so I would say that's why I'm more worried about an economic recession and I think monetary policy should be more asymmetrical because I think you know, okay, let's say we had a two and a half percent inflation rate or a three percent inflation rate, okay, that's not the best.

I mean, you don't want to have a bubble and it's going to burst, but you shouldn't have one and that's not the case. I'm not going to cry about it, that won't be the issue, so I think there is a symmetrical symmetry and I think also the ice symmetry has to do with monetary policy, how much you can reduce interest rates, how effective it is QE on the next dose and that kind of thing is something that worries me, okay, let me, I'll take these two questions and I'll let you answer them as well for both of us together and then we'll adjourn, my name is slugs in life, I am a graduate student. here at the Kennedy School my first question is: if you look back in history, what we were witnessing now is what was seen in the 1930s and we all know how it ended, what do you think we should do now to avoid the same destination? and the second question for the client, okay, let me take it because otherwise I won't do a good job remembering it and answering it, so if I understand the problem that the 1930 lessons had to do with this lectures on the element of wealth and the tensions and then the issue of conflict and then you have the conflict and then the foreign enemy and all these kinds of things.

I think what you have to look at now is how conflict is handled if you look back to the 1930s and again there is an article on LinkedIn that you can read that as populism and it describes those cases when conflicts became so dysfunctional that they affected the efficiency effect of countries because populism was very popular because the left and the right have more conflicts and someone wants to put order in what is chaos because democracy chose to be autocratic, it chose to be dictatorships to soften the circumstances, so the question I think of Those lessons are to be careful with that and, in fact, I appreciate the art of thoughtful disagreement and how we can overcome it.

I think if we know what the principles are that unite us and how we operate, that would be the question: how we handle conflict, that will be our most important question. How do we handle conflicts now? They are the most important question and that will come down to individual decisions etc. My name is Jing Chou. I am a future student at the Harvard Kennedy School. My question is the one you mentioned in your book in 2007. Before the financial crisis you had already realized that it was their problem and you talked to the media at home, but unfortunately they didn't take it seriously, so now I chose the third phase of your life.

Have you ever sought to establish a term first or agonize over everything? organization that can carry out its business, companies like Bridgewater, means that the government can do a poor job in the future. I think only government leaders and people in positions choose the inputs they want to operate and I think that's the thing to do when Larry is in government and we talk about things and some people want to talk and some people don't and that's their prerogative, so there's no way to force them, there's no way if they want to, I want to help everyone succeed to the extent that I can. or whatever you understand, I want to convey whatever my best thought is for you to consider and it may be right or wrong, but I want to convey it if it's welcome, people will accept it and I don't want to force it.

I don't blame anyone for that and therefore I don't think I can create an organization that will make it work. Let me make three final remarks. One, as you saw, Ray and I have enjoyed active conversations and vigorous debates for many years. Sometimes we have different points of view on events. and I have a common suggestion that Ray has never accepted, which is that we reduce the matter to a bet and bet, for example, one basis point of my net worth versus one basis point of his and Ray has consistently rejected suggestions in that spirit. I will do the advertising part of the Bridgewater Quiet product that has a certain amount of commentary from Rey and his colleagues on a variety of economic and financial issues if some of you are looking for commentary that is analytically sophisticated but accessible without substantial training in economics. and finances there is no better place to turn.

I am lucky to have access to a lot of comments that I can read and I always read the comment bridge and that is a tribute to Rey and the organization that he has built and Finally, let me ask everyone to join me to thank Rey for the gift he has given us by writing his analysis and the special gift he has given us by his candor and open discussion here tonight. Thanks Ray Dahlia makkya Larry.