Inflation Monkey

An amateur investor trying to understand what happing in environment of Inflationary Pressure (the new Stagflation)

[Niall Ferguson @nfergus]

I highly recommend this thread.

[Vuk Vukovic @wolf_vukovic]

I read @RayDalio's new book, “The Changing World Order”

in which he claims the US “empire” is in its final stages of decline

Interesting, but with all due respect, he’s wrong.

Here’s why 👇 (long thread 🧵 )

[Vuk Vukovic @wolf_vukovic]

@RayDalio 1/
Dalio's theory falls in the typical Malthusian fallacy trap:

it juxtaposes linear resource production with exponential debt creation (private & public sector overleveraging)

and concludes that this cannot last.

Just like it failed to last in the past for other Empires.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 2/
This, btw, is not a new theory.

Many empire-desolation theories claim that Empires reach their zenith when corruption, overleveraging and/or inflation lead to societal decay.

This then sets the stage for decline.

The Empire becomes vulnerable to inside & outside shocks

[Vuk Vukovic @wolf_vukovic]

@RayDalio 3/
However, what such Malthusian fallacy theories neglect is the impact of rapid technological innovation

(of which the US is a world leader)

and entrepreneurial trial and error

(another US stronghold)

which typically create resource abundance.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 4/
Neither of these - tech innovation or trial-&-error -

were present in previous Empires to the extent they are present in modern-day United States

Previous Empires that Dalio analyzes (and many others that he doesn't) all grew mostly on monopoly power and state conquest.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 5/
There's a reason why the US stock mkt has a positive secular trend

Its firms are attracting investors worldwide, more than any other market in history. Why?

Innovation and trial-&-error that create industrial giants

(+monopoly power and political protection every now&then)

[Vuk Vukovic @wolf_vukovic]

@RayDalio 6/
What’s hurting the US today is not its model of capitalism based on debt,

nor its political polarization, class discrimination or inequality.

These were present in several other times in their history.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 7/
What’s hurting it today is a system of corporate political capture,

that's lowering inter-generational mobility, and exacerbating the inequality problem.

But this too happened before at certain points in time.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 8/
It hurt the system, but it did not destroy it.

Why? Because the US is a politically inclusive open-access society,

with strong entrepreneurial dynamism and trial-and-error democracy.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 9/
And that works better than any top-down system that attempts to kick-start economic growth via massive resource redistribution.

It works only until a certain level, after which the lack of inclusiveness and lack of trial&error lead to social decay

[Vuk Vukovic @wolf_vukovic]

@RayDalio 10/
My point is that Dalio, and similar theories, are focusing on the wrong indicators

They are seeing discord and destruction in open democracies

but democracies persist BECAUSE of this discord and instability

[Vuk Vukovic @wolf_vukovic]

@RayDalio 11/
Discord and instability

(like discrimination, inequality, lack of mobility, cronyism, corporate capture)

are all *temporary* errors

which, within open-access societies,

attract innovative solutions to solve them.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 12/
E.g. Climate change is a hot global issue rn

There are so many powerful initiatives + social pressures,

in addition to policies being implemented,

that are determined on solving this issue.

Never underestimate the innovative capacity of open-access orders.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 13/
Top-down, closed-access, centralized systems with bloated bureaucracies,

will *never* provide such solutions.

Why?

because they lack the creative trial-and-error capacity.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 14/
Furthermore,

If corruption, cronyism and having an overleveraged financial sector is a problem for a declining Empire like the US,

then China, suffering from each of these (hint: Evergrande)

will hardly overtake the US as the next globally-dominant “Empire”

[Vuk Vukovic @wolf_vukovic]

@RayDalio 15/
Also, people taking about China seldom understand their drivers - they are not the same as those of the West.

For China, during its 5000 year (!) history

it was always, ALWAYS, about inward perfection.

Inward perfection >> outward conquest.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 16/
As a side note, check out Zheng He's 15th century ship compared to that of Columbus. It was bigger and much more advanced.

Yet China never used that tech capacity for conquest and int’l domination. Like the West has.

It will remain focused more inward than outward.

[Vuk Vukovic @wolf_vukovic]

@RayDalio 17/
We do have a multi-polar world, and Asian countries are finally living up to the standard.

And that's a great thing!

Much better than the Cold War era

Trade with Asian countries made everyone - on aggregate - better off

[Vuk Vukovic @wolf_vukovic]

@RayDalio 18/
It’s not about China overpowering the US to become the next global superpower

It already *is* an economic superpower

There doesn’t have to be only one.

This is not Game of Thrones.