Ray Dalio, founder of Bridgewater Associates, released a 30 minute video in 2013, explaining his template of the economy and how central banks and government should manage a deleveraging like the Great Recession and its after-effects.
Ray proposes three simple rules to avoid future crises:
- Don’t let debt grow faster than income (GDP) otherwise it will eventually crush you;
- Don’t let income grow faster than productivity otherwise you will become uncompetitive in international markets; and
- Do all that you can to raise productivity because in the long run that’s what matters most.
What is productivity and how do we measure it?
Productivity is the result of hard work and innovation, both of these factors will increase the level of output (GDP) per unit of input.
We measure productivity by comparing GDP to units of input, either:
- the population of a country;
- the number of hours worked; or
- the number of people employed.
Each will give a different perspective, but there are a few general rules:
- countries with high technology and innovation (e.g. Germany or USA) show high productivity;
- as do resource-rich countries with big extraction industries (like Norway and Australia); and
- countries with low tax regimes (Singapore and Ireland) which attract transient income.
Read more at Labor productivity can be misleading.