This is a way that we're trying to keep everyone

in touch during school closures.

It's a place for us to answer any questions you have,

talk about how we can just navigate this crisis together.

We have a really exciting guest today, Ray Dalio.

I'll give him a more formal introduction in a little bit.

But before we get into the meat

of that conversation with Ray,

I'll just remind everyone Khan Academy

is a not-for-profit organization.

We exist because of philanthropic donations

from folks like yourself.

And I wanna give a special shoutout to several corporations

who stepped up in the last few weeks to make sure,

Khan Academy was running at a deficit even

before this crisis and our deficit has grown

through the crisis,

and special shoutout to Bank of America,

to Novartis, to Fastly,

to Google.org and AT&T

for helping us respond to this crisis.

But we still need more support,

so if you're in a position to do so,

please think about making a donation to Khan Academy.

But with that, I'd like to introduce our guest

that I'm super excited about.

Ray Dalio has been something a hero of mine

back from my previous career

when I used to be a hedge fund analyst.

For those of you all who don't know Ray,

Ray is the founder of Bridgewater Associates,

which is the largest hedge fund in the world.

And so I think we're gonna have a really interesting

conversation about finance, the economy that we're in,

and a lot of the work that Ray and his wife, Barbara,

are doing around philanthropy to try to help address issues

around education and other things.

And so if anyone has questions,

feel free to come on Facebook and YouTube

on the message boards, we have team members

looking at questions.

Ask questions about the economy,

ask questions about hedge funds,

ask questions about education.

Ray's going to, and myself,

will hopefully be able to address a lot of them.

So, Ray, thank you so much for joining.

- It's always great to be with you.

- And, Ray, maybe a good place to start,

and full disclosure, Ray and Barbara have been

long-time supporters of Khan Academy

and philanthropy in a lot of different dimensions,

so thank you for that.

But when you say "the largest hedge fund in the world",

I think a lot of people have heard of the word

hedge fund, but then they say,

"What is a hedge fund?"

(laughs) So what do you do?

How is that different than other types

of investment vehicles?

- Well, most investment vehicles

go up or down with the markets,

like the stock market goes up,

they make money, stock market goes down,

they lose money.

Some go into bonds and so on.

A hedge fund doesn't have a bias,

so you can make money if it goes down,

you can make money if it goes up.

It just depends on whether you can make money.

So we can invest in all the markets in the world,

and we can do it in a way where if they went down

or went up, you have opportunities to make money.

The only thing that limits us

is our own abilities.

- Yep.

With the explanation I always used to give to folks

when I was an analyst at a hedge fund

is hedge funds have more flexibility

to make more different types of investments.

Now, there's a huge variety of them,

of different strategies.

But to your point, they don't necessarily

just track the market type of thing.

- Yes, and ours,

it's an extension of my own personal passion,

which is to understand how the world works,

economically, every country.

So we're in just about every country,

just about every market,

and so we have to see the world

and try to piece it all together.

So that's my passion.

- And maybe that's a good place to start,

at a very high level,

because even before the COVID crisis started,

this was many months ago,

you have been a very vocal speaker and writer

about wealth inequality.

And when you speak, people are listening

because, obviously, you understand the economy,

you manage a lot of assets.

What's your view on this issue of wealth inequality?

- Well, I think it comes down to values, you know?

I was born in 1949.

In 1945, we began a new world order.

What I mean is we created a new monetary system,

the United States won the war,

and we began an American era.

And at that time,

it was clear what an American dream was.

And so I grew up in a household

where I've got two parents,

my dad was a jazz musician, lower-middle-class family.

But the notion of equal opportunity

through good education, I went to a public school,

and that notion of what was fair,

equal opportunity on a broad-base basis,

was what the American dream was.

I'm not sure that everybody would know

what the American dream is or state it that way,

but in any case,

it's become lost to where it certainly doesn't exist,

in that when we take education, for example,

I looked the conditions

of the different top quintile, top 20%,

next 20%, and I found

that the top 40% of the population

spends on average five times as much money

on their kids' education as the bottom 60%.

And so through intimate contact, and so on,

we can see that there is not just a wealth gap,

there's an opportunity gap

and a productivity gap that's a problem.

And it's a problem in terms of its outcomes,

the wealth difference.

But it's also a structural problem

in that all the people can't be,

have an equal shot at being productive.

And when you see some of the conditions,

kids who are living in neighborhoods

of poverty and go to school to get food

because they don't have enough at home,

and the services, something's wrong.

So I wrote a piece that's on LinkedIn,

which is Why and How Capitalism Needs to be Reformed,

because I believe that,

first of all, if you don't have a situation

where people have opportunity,

you're not only tapping, failing to tap

all the potential that exists,

which is uneconomic,

but you're also threatening the existence

of the system, and I think that's coming to home

very clearly with this downturn in the economy

and the virus.

- And to be clear, I'm looking at some of your blog,

you wrote Why and How Capitalism Needs to be Reformed,

the data is very clear, that's not under debate,

that inequality has gotten worse

over the last several decades.

You have charts like, you look at per capita GDP,

and for the bottom 60% of earners,

it's grown much slower than per capita GDP,

and for the top 40%, it's grown much faster.

And that leads to what you just talked about,

people at the upper quartiles

are able to spend more on their children's education,

so that kind of becomes a self-perpetuating thing.

Why do you think this has been the case?

What are the structural elements that have caused this?

And in your opinion, what needs to change?

- Yeah, great question,

because I don't think it's anybody's evilness,

at least not many people's evilness,

it is structural.

So, for example, the profit-making system

is a system in which it's a very effective resource

allocation because if what you are putting out

is worth more than what it costs you to make it,

you grow and you get capital that's invested in it,

and it grows that way.

But it's not effective in a number of ways.

The profit-making system, for example,

is not effective in creating educational resources well.

And so that large gap becomes a self-reinforcing gap,

particularly in this age

when there's a change in the economic rewards

for production workers, the average worker.

There's a hollowing out there.

And so profit margins increase,

and then, as you point out, it becomes self-perpetuating

because those who earn more money

take care of their children differently,

so it creates an opportunity gap.

They spend money on different things,

and so resources of the country go into those things.

And then naturally in a desire

to produce most cost effectively,

they go internationally

and find the most cost-effective ways of operating,

which has narrowed the wealth gap

between countries, but widened it within countries.

And then, also, we have a monetary policy

with the Federal Reserve

that buys financial assets.

In other words, the central bank,

the way it has been operating

when you hit zero interest rates

is to print money and then buy financial assets

which helps those who own financial assets

more than those who don't.

So the profit-making system and the capitalist system

in which you can invest in profitable enterprises

is good, generally speaking, as a resource allocation

but far from perfect.

So we just have to see those outcomes,

and you would say, "Are we producing

"a broad-based opportunity?"

And so it can't do everything.

So think about, let's say, a school system,

a budget for a school system,

it's budget based.

In other words, they don't have capital,

but yet, think about the economic impact simply

of educating children well.

So the point is that it's by and large

a pretty good system,

but it's not delivering the results

that I think we want.

And so my concern is that if it's not engineered correctly

to achieve that,

it can become less productive.

So from an engineering point of view,

you have to engineer it to increase the size of the pie,

which means increase people's productivity,

because you only get to consume what is produced.

So to raise living standards,

you have to increase productivity and, at the same time,

so you have to increase the size of the pie,

you also have to divide the pie well,

and it's gonna require a better engineering system.

And that is gonna have to be done, I think,

in a bipartisan way.

I'm really worried about the battle between the sides

causing more problems.

Because history has shown that this is a period

very much like the 1930s,

and when you have wealth problems and wealth gaps

and difficult times,

there tends to be a fight over how to divide the pie.

- And so I'm hearing, just to paraphrase what you said,

several levers that might have maybe gotten us here,

and once again, it's not anyone's negative intent,