The Widening Gap between the Haves and Have-Nots

Its no secret that there's a widening gap between the Haves and the Have-Nots. We won't spend any time asserting this or proving it. It's simply the result of a trend that reflects similar cycles in history. A good source of understanding the specifics, particularly the historical precedents going back centuries is the prolific writings of hedge fund king Ray Dalio.

Mr. Dalio was the founder and head of Bridgewater Associates, one of the largest hedge fund operations as well as one of if not the most successful. He recently completed years-long transition of leadership of the firm and has completed that process, completing the selling of his interests and therefore any official connection to Bridgewater. 

Information about the firm and about Mr. Dalio is readily available from the usual sources. We bring him up now because in this transitional period, he has been publishing lots about his approach to investing. Apparently his thoughts evolved with a deep knowledge of world history and cycles that one finds in leafing though centuries of available records. The key here is "world." So when Dalio assets something, he's not talking - as many contemporaries do - of the stock market of the United States from the 1920's to the present. He's talking about financial assets for sure, but he also opines about economic cycles combined with the cultural and social changes that accompany them. 

If you've read some of his stuff, you have some idea of this cycle thing. Or perhaps you have some knowledge apart from Dalio's writing about cycles. One our long-time sources of economic and financial analysis has offered thoughts on cycles, and indeed uses his knowledge here to help understand what is happening now. 

Now, these cycle folks are not the same as those who cite historical references. Looking back at history isn't a bad idea, but it's not the same as interpreting events with a knowledge of long-term - as in centuries-long - cycles of event. 

If you've read these posts over time, and more recently, you may remember our referencing The Fourth Turning from time to time. It's a perfect example of seeing what's happening now from the perspective of these long-term cycles.

OK. Enough of the cycle background. The point here is that the widening gap between the Haves and Have-Nots isn't some newfangled thing that's descended on us from the gods of chaos and disruption. It's a virtually inevitable result of the long-term economic cycles that have had their way with us for centuries. We just happen to have landed on the latest iteration.

Why is this important to understand? It's simple. When we look back at instances of this phenomenon, we can see what this widening ultimately led to. It's not particularly appealing. If consistent with previous cycles, we'll be looking at increasing social disruption, economic crises, financial market volatility that will ultimately cause some to lose a good chunk of the value of their investment assets.

All that will be enough to deal with for most of us. But there's more. There's war.

Indeed, Dalio has asserted, now for a number of years, that our current era would seem most similar to the 1930s. And those of us who have at least the vaguest knowledge of history will immediately know that the 30's brought the Great Depression and ultimately World War II. And these two were the highlights. Much more churned throughout society in many if not most countries around the world. The rise of Fascism would be one major development. Think Hitler, Mussolini, Franco - and some other characters who emulated these. 

And let's not forget Communism. It didn't begin in the 1930s. But it certainly picked up a lot of momentum when much of the world was reeling from the Great Depression. 

In the case of the U.S., the gap between the Haves and the Have-Nots played right into the chaos that threatened to allow some form of Communism to replace the Republic that began in 1776 and more or less prospered ever since.

Of course, there were and are always Haves and Have-Nots in this world. But we're talking about these two categories being so separate, so stark, that talk of civil war or revolution bubbles up from the trenches between the two.

We bring all this up now because all the chatter out there continues - as always - to focus on the economy, the financial markets, and on politics. These of course all comprise the general categories within which the Have and Have-Not thing will play out. It would serve us well to keep this in mind and to keep our distance from the daily headlines and stories that ultimately distract us from what is arguably the most important story.

As for how to prepare ourselves, to defend ourselves from the potential of much more dramatic distruption and chaos, well, we've addressed this over time. For now, we just need carve out some mental and emotional space to absorb just how serious this gap between Have and Have-Not divide is, even as it continues to widen.