Rand, Soros, Munger, Dalio, and The Founding Fathers


Like most people, especially investors, I’ve been wondering about whether there is a philosophical prism through which Donald Trump sees the world other than through deals and negotiations. In business, especially in real estate, there are often objective outcomes to shoot for to know if you are winning, especially if you are aggressive. These include getting the largest loan at the lowest cost with the least amount of recourse and operating constraints. And if recourse is involved then using that to your advantage to get much better terms and to have an ace in the hole if things go south and you want to drive a hard bargain in a workout situation. In terms of equity, it’s getting the most ownership and/or upside participation for the least amount of equity contributed and threshold returns to achieve. And when problems do inevitably arise it means cutting a hard bargain with the lender by threatening bankruptcy or walking away and letting them clean up the mess. These types of outcomes are not for the meek or faint of heart. It requires confidence, bravado, brinksmanship, and loving to negotiate. Donald Trump clearly has sharp elbows and is not afraid to use them when he deems it is to his advantage to do so.

When it comes to social, economic, and global policy formulation, however, things are not always so black and white, particularly in a world that is so interconnected in terms of supply chains, trade and capital flows, and the movement of people whether it be for tourism or for doing business. And there are also military responses to take into consideration as well. This is where being able to identify some core beliefs and a philosophical prism can come in handy to help make some educated guesses about how things may unfold under a Trump presidency. What are the risks and potential rewards? This post won’t delve into those but will solely focus on the philosophical prism through which Trump may see the world.

Ray Dalio vs. Ayn Rand

Ray Dalio, the enormously successful founder of Bridgewater Associates, the world’s largest hedge fund firm, took a stab at this recently with a post about Donald Trump on LinkedIn. This is what he said:

Regarding economics, if you haven’t read Ayn Rand lately, I suggest that you do as her books pretty well capture the mindset. This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power. The shift from the past administration to this administration will probably be even more significant than the 1979-82 shift from the socialists to the capitalists in the UK, US, and Germany when Margaret Thatcher, Ronald Reagan, and Helmut Kohl came to power. To understand that ideological shift you also might read Thatcher’s “The Downing Street Years.” Or, you might reflect on China’s political/economic shift as marked by moving from “protecting the iron rice bowl” to believing that “it’s glorious to be rich.”

Dalio is a deep thinker so when he writes or says something I am all eyes and ears. Clearly, he thinks the election of Donald Trump is a sea change with the potential for having profound effects economically that every investor should take into consideration. With this in mind, I knew I had to brush up on my Ayn Rand and her philosophy of objectivism. Admittedly I only got through about 60% of Atlas Shrugged many years ago and at that time I found myself drawn to her philosophy. On the surface, it’s not hard to feel deep respect for the self-made man whose ingenuity and risk-taking are what leads to monumental change and improvement in the quality of our lives. And, conversely, to feel disdain towards those who want to leech off of these powerful men and force them to redistribute their wealth to create more fairness in society. If only life were that simple.

As time passed and I experienced more of the world, especially in the realm of investing and going through a number of severe financial and economic dislocations like Long-Term Capital blowing up, the Asian Crisis of 1998 and 1999, the S&L debacle, the Tech Wreck, culminating in the NASDAQ dropping by 80%, and the sub-prime disaster, along with reading more of Charlie Munger’s wisdom and George Soros’ philosophy, two obviously very successful investors, and deep thinkers, I came to realize that her philosophy is naive, a complete fantasy, and at its extreme quite dangerous. And to top it off the real world has proven this to be the case. Whenever free market fundamentalism is allowed to have complete dominance over regulatory checks and balances and prudent tax policy, financial crises often ensue.

Charlie Munger

Despite being a Republican, Charlie Munger has seen how the excesses of a casino-type mentality among investors and lenders catalyzed by a lax regulatory environment can wreak havoc on societies and he is very much in favor of a sound regulatory and enforcement regime. This is what Charlie Munger said about Alan Greenspan in this context:

What really enabled Hitler to rise was the Great Depression. You put on top of the Weimar inflation the Great Depression, and people were just so demoralized that they were subject to being snookered by a guttersnipe like Adolf Hitler. So I think this stuff is deadly serious in that these crazy fools should never let people like Alan Greenspan – he’s an amiable man, but he’s an idiot – should not make the head of the Federal Reserve and governor of all banking; somebody whose hero is Ayn Rand, who believed in no government at all.

Those are some pretty strong words from Munger. As I mentioned above, this quotation was in the context of his lamenting that when financial markets are allowed to become casinos due to a lack of regulation and the belief that markets are always efficient and human beings are rational economic actors acting in their self-interest and that this is good for society, terrible consequences can take place. History has proven him to be right in that virtually all of the financial crises that have transpired since 1900 have come from deregulation and a much more permissive and laissez-faire attitude within Congress and President. More on this later.

Ayn Rand – Rex Reed – George Soros

I decided to do a little research on Ayn Rand to see if there were interviews I could find to brush up more on her philosophy. She was very averse to doing interviews so there are not that many out there. While there is one from 1959 with Mike Wallace that goes into a fair amount of detail, I thought I would do a little more research via www.newspaperarchive.com to see if there was something I could find that really got to the heart of her philosophy. I found an interview she had done with Rex Reed in 1973 that was carried out to discuss the opening of a play she had written that was first performed in 1935 but she was so upset by how it was done that she was determined to do it her own way.

In the interview Reed can’t help but ask her about her philosophy and the few things she does discuss regarding her philosophy is quite revealing and, admittedly, a bit disturbing from my perspective. And while there are many people who do not like the politics and social policies of George Soros, there is no denying he is one of the great investors of our time and he credits his success to his philosophy of Reflexivity which is diametrically opposed to Rand’s Objectivism. I will discuss some of the key differences shortly.

Let’s start with a brief background on Rand and her philosophy from this excerpt of the interview:

Rand and her philosophyOn the surface, I’m ok with her describing the ideal society as she does above. I do take issue with her, however, when she says that “The moral obligation of each man is to live his own life guided by reason.” That is where it gets very dicey for me because we are not rational, thinking, reasoning human beings through and through. We are emotional, scared, flawed, and subject to terrible blind spots that can result in sub-optimal decisions. As my father-in-law likes to say, “there is the Is World and there is the Should World.” She is clearly focused on the “Should World” as the following excerpt conveys.

As my father-in-law likes to say, “there is the Is World and there is the Should World.”Click To Tweet

Rand ideal society

Ayn Rand vs Our Founding Fathers

She says the motive in her writing “has always been the presentation of the ideal man.” From my perspective, however, there is no chance a society can be crafted upon ideals that are not in the realm of reality. This is why I think the Constitution is so brilliant and the philosophy behind it from the Founding Fathers. I wrote a blog about Alexander Hamilton and this is what he says that flies completely in the face of Ayn Rand’s Objectivism. This is what I wrote:

For example, Hamilton asks why is government necessary in the first place? A logical question. His response is human nature centric when he says in Federalist Paper #15:

Because the passions of men will not conform to the dictates of reason and justice, without constraint.

So there you have it. We are emotional, passionate creatures that often focus on our self-interest and don’t have the discipline to create restraints to subordinate our desires and needs to the greater good of our higher selves or society. Much the same can be said about investors who are often driven by fear and greed to buy and sell at the worst times.

When reading The Federalist Papers it makes me scornfully laugh at those who subscribe to the economic theory that investors are rational economic beings. This can be the case at times, but overall there are too many contrary examples for me to take rational economics seriously.

Rand believes in minimal government because the ideal man is guided by reason. In Hamilton’s opinion, man is too passionate a creature to be guided by reason all of the time. And it’s this recognition that has made George Soros so successful. He doesn’t work for the ideal man and try to build a utopian society around something that cannot be done. Rather, he recognizes the inherent flaws in human nature and tries to compensate for it and to capitalize on it when it comes to investing. This is what he has written about his theory of reflexivity:

I can state the core idea in two relatively simple propositions. One is that in situations that have thinking participants, the participants’ view of the world is always partial and distorted. That is the principle of fallibility. The other is that these distorted views can influence the situation to which they relate because false views lead to inappropriate actions. That is the principle of reflexivity. For instance, treating drug addicts as criminals creates criminal behavior. It misconstrues the problem and interferes with the proper treatment of addicts. As another example, declaring that government is bad tends to make for bad government.

Recognizing reflexivity has been sacrificed to the vain pursuit of certainty in human affairs, most notably in economics, and yet, uncertainty is the key feature of human affairs. Economic theory is built on the concept of equilibrium, and that concept is in direct contradiction with the concept of reflexivity.

Soros goes into his philosophy in more depth but this captures the essence of it and is the antithesis of Ayn Rand’s Objectivism. And when Soros’ experience and philosophy are combined with that of Munger and the philosophical underpinnings of the Founding Fathers along with the fact that during the three times there has been a unified Republican government since 1900 a banking crisis has unfolded, does not make me very sympathetic to Ayn Rand adherents. For you history buffs, these were the Panic of 1907, the Great Depression, and the 2007-8 financial meltdown (Technically the Republicans lost control in 2008 but the meltdown was already well under way by then). The DotCom Collapse took place with a Democratic president and Republican-controlled Congress. To be fair, however, the collapse of the S&Ls took place with a Republican president and Democratic Congress, although the economic costs were not as high as the other three but it was still very harmful.

Since Ray Dalio was the one that stimulated this blog post by suggesting investors read Ayn Rand to get a better handle on Trump’s philosophy, I thought I would end with tapping into a portion of Dalio’s philosophy. Given that he is one of the most successful investors of all time and has thought deeply about how the economy works and how human beings should interact with each other to get the best performance out of them individually and collectively, his philosophy should be given serious consideration. Like Ayn Rand, Dalio believes that human beings work like machines. Unlike Rand, however, he recognizes that they can get in their own way and produce sub-optimal results. This is how Dalio’s philosophy is summarized in a recent Wall Street Journal article discussing how Bridgewater is working on automating its management processes and personnel decisions by essentially mapping Dalio’s brain and his core principles so that it takes the human element out of it. It’s definitely far-out, futuristic thinking and planning but this is how Dalio has always been. This is what I found to be most relevant in the article with regard to Ayn Rand:

Mr. Dalio also believes humans work like machines, a word that appears 84 times in the Principles. The problem, he has often said, is that people are prevented from achieving their best performance by emotional interference. It is something he thinks can be overcome through systematic practice.

That applies to managing, too. Successful managers “design a ‘machine’ consisting of the right people doing the right things to get what they want,” he wrote in the Principles.

Regardless of what I believe, I would take Ray Dalio’s advice and learn more about Ayn Rand to help decide whether Donald Trump is guided by her philosophy of Objectivism to a meaningful degree. His seeming Bromance with Vladimir Putin would suggest he likes very strong leaders who don’t care about what others think and surround themselves with others who are strong and successful as well but they are clearly in charge. When it comes to the Chinese leadership, however, he seems to have disdain for them as political operatives who made their way to the top of a statist, bureaucratic system. They are not real businessmen or strong leaders with firm control and surrounded by other strong people. Unfortunately, he seems to want to be best friends with a country that is much smaller and weaker economically and be confrontational with one that is much larger and a growing economic and military power with whom we have deep economic ties.

May we live in interesting times.

Over to You:

Whose advice would you take?


6 comments on “Rand, Soros, Munger, Dalio, and The Founding Fathers
  1. Doug says:

    We are most certainly living in interesting times. I’ve been following your blog for a while but haven’t commented before. Like your other posts I really enjoyed this one and appreciated you breaking down possible context’s from which the President elect may view the world and the different characters you chose. I’ve read books by all of them and similar to yourself hold their views in high regard. I think it’s too early to tell how things will go and your post helped me understand what some Americans are so afraid of and the potential consequences.

    • Gary Carmell says:

      Thank you for sharing your thoughts and your kind words. I’m glad you got out of it what you did as that was exactly my intention. No one really knows how Trump will operate or perform but since Ray Dalio is such a brilliant person and investor I thought I would leverage off some of his thoughts and the possible implications.

  2. chris says:

    The one thing that is constant is change. We are experiencing a period of seismic change which is unfolding before our eyes. We need to start keeping score at those youth soccer matches and begin to acknowledge accomplishment, not just participation. One should never confuse activity with productivity and I believe that we are embarking on a path that will reward the productive. Lets hope that a different perspective will result in alternative outcomes, unlike that last 20 years in government. A fresh set of eyes might be just the tonic needed to inject some common sense back into our leaders.

    • Gary Carmell says:

      Well said and so true. I am definitely in the camp that common sense, which Trump clearly has along with those he has nominated for his cabinet, wins out in the end. This will be a fascinating four years and quite a grand experiment. I am cautiously optimistic but feel it is my job to point out some of the risks that may be out there. Doing so helps forces me to try to view things in a more balanced perspective and to take as much emotion out of the equation as I can.

  3. Arnie kimeldorf says:

    Thanks Gary to including my name and wisdom with some of the top thinkers in economics philosophy, great detailed and interesting blog. Good luck

  4. Dean Johnson says:

    I enjoyed the Fountainhead more than Atlas Shrugged. The main character is inspired by Frank Lloyd Wright. Ayn Rand emmigrated from Russia and lived through the revolution. Her philosophy from my perspective is a rejection of communism. I don’t see anything in common with Trump. He’s a corrupt person, anti-hero. The protagonist in the Fountainhead sacrifices everything for what he believes in which is averse to corruption. Her ideas are extreme but I do believe innovation is a product of ideas and vision relentlessly pursued by rugged individuals and should not be discouraged by government. Liberty in this country has produced the likes of Edison, Ford, Gates, Jobs, and many, many more.

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