THE RULE OF THE ADAMS
THE RULE OF THE ADAMS
We want to be very careful in how we address today’s subject. It’s not that we’re concerned that we’ll be misconstrued or taken out of context. We will be blunt enough that there will be no mistake what we mean, regardless of the context. Rather, we worry that we’ll be stepping on our own toes, undermining the longer essay (among other things) we are currently writing that addresses many of the same concerns.
But then, what’re we gonna do? News is news. And this bit of it is both troubling and telling.
Yesterday, Ray Dalio, the hedge-fund guru from Bridgewater Associates, appeared on CNBC’s Squawkbox and embarrassed the hell out of himself. In his interview, Dalio did two things, neither of which is necessarily “news” – in that close observers knew them both beforehand – but both of which serve as timely reminders of the types of roadblocks that advocates for free and fair capital markets face in their pursuit.
First, watch this clip. That’s Dalio trying his damnedest not to concede the point that his Chinese masters are monsters. Asked about the CCP’s habit of “disappearing” those individuals who become problematic, Dalio hems and haws, feigns ignorance, and then finally asserts that the CCP is just behaving like “strict parents.” Maybe it’s just us, but growing up in the Midwest, among traditionalist religious types, we’ve known quite a few strict parents. We don’t recall any of them abducting their own children, torturing them, and holding them hostage for years on end. But again, maybe that’s just us.
Or…maybe…Ray Dalio is himself a moral monster. Maybe he doesn’t care about what the CCP does to the Chinese people or to the companies that get too big for their britches or to the Uighurs and Tibetans or to anyone and anything else who gets in the way of its total control. Maybe that’s all just “noise’ to Dalio who is able to shut that noise out, as long as he’s making money and is able, in his own mind at least, to vindicate his theories about Chinese ascent and American collapse.
Second, watch this clip. The latter half of it is Dalio explaining how successful China is as well as his theory of common prosperity. China is gonna be soooo productive, he tells us. And American Progressives are further Left than the Chinese. And this “transfer of wealth” is inevitable – and, of course, will be good for us. He knows the Chinese leaders. He knows how they think. And he knows that they’re doing all the things necessary to promote productivity and common prosperity.
Now, it may seem silly for us – two guys in their basements, in their jammies – to say that the billionaire hedge fund guy doesn’t know his head from his backside when it comes to capitalism (or a market economy, if you prefer), but this billionaire hedge fund guy doesn’t know his head from his backside when it comes to capitalism. And herein lie several of the problems that most keenly and ominously threaten American prosperity. The financialization of everything, the ruling class's obsession with “business” over “markets,” the loss of common beliefs and values, and the slow but steady erosion of our ability to govern ourselves are all contributing factors to the American “decline” Dalio rightly sees but horribly misidentifies.
Here’s the deal in about as simple terms as we can state it: what we today call democracy and what we today call capitalism are, and always have been, integrally linked. One cannot survive long without the other. Moreover, neither can survive for long absent a set of core common values and virtues.
Together, these two notions comprise what we have termed “the rule of the Adams.” This “rule” is derived from the work of the “godfather of capitalism,” Adam Smith, primarily in his Theory of Moral Sentiments; and the work of one of the Founding Fathers of American democracy, John Adams, primarily in his letters.
We’ll spare you (for now, at least) the long and detailed explanations of the moral and ethical theories embraced by both men and the details of their other common beliefs. For our purposes today, it should suffice to say that both were men of the Enlightenment-era who, nevertheless, embraced pre-Enlightenment views about virtue and morality, and both were men who argued (presciently, in our estimation) that the arrangements they supported were compatible only with the practice of those virtues. Or, as John Adams famously put it: “Our Constitution was made only for a moral and religious People. It is wholly inadequate to the government of any other.”
The implications of all of this are manifold and touch many (if not all) aspects of contemporary public life. Today, however, we will note only one implication, the fact that Dalio (and Fink and now Vanguard, sadly) is playing with fire in China. Not only does the People’s Republic of China NOT have a market economy that can be trusted in any real sense, it doesn’t even have the framework to build one. As long as the nation is governed by fear and oppression and top-down coercion, its capital markets are entirely and inevitably rigged. They are thoroughly corrupted both by a lack of individual liberty and choice and by a moral scheme that is incompatible with the encouragement and formation of enlightened self-interest (or self-interest rightly understood, to borrow a phrase from Tocqueville).
In other words, when Dalio and Fink and the rest are “investing” in China, they are not investing in the country or the people or even the businesses of China. They are investing in relationships with government officials. They are not trying to expand and advance a market system but are, rather, trying to game the existing, corrupt system via connections to the “right” people. They may be successful in this effort, at least in the short term, but that doesn’t mean that they are doing anything beneficial for anyone other than themselves and their “network” of “partners.” As the old adage puts it, they are not bringing American market values to China but bringing Chinese values to American markets.
In the long-term, all of this will come to nothing but tears. Top-down, network-based arrangements only survive as long as the network remains on top and is thus capable of forcing ideas, schemes, and behaviors down onto others. And those arrangements do not – indeed, CANnot – persist forever in a society governed by the arbitrary whims of a handful of neo-fascists. The rule of law is no match, in other words, for the rule of Xi. Dalio could, in theory, ask Jack Ma to explain this to him – but he’d have to find him first.
There is, as we said, much, much more to this story. But these are the fundamentals of Ray Dalio’s part in it. He’s an amoral ignoramus who will, in time, get burned badly by his arrogance. We will take no pleasure whatsoever in his misery when that happens, largely because what will happen to him is happening to all of us to some extent.