Opening the Window of Thought Series IV: Reflections on Ray Dalio''s Latest Book “How Countries Go Broke" Zhu Gang Mr. Ray Dalio is one of the most esteemed top thinkers in the world today whom I deeply admire. Recently, I received a letter from Mr. Dalio, in which he mentioned his latest work, "How Countries Go Broke," and invited me to share my thoughts on it. I have since carefully read his book and found it profoundly insightful. The book is impeccably structured and logically rigorous. It outlines the trajectory of small (short) and large (long) debt cycles based on historical case studies from various countries. Additionally, the analogies of blood flow, plaque, heart, and brain in the book are very vivid. According to the symptoms, the United States is currently in the late stage of a large debt cycle, which is a dangerous and critical period from a long-term perspective. The tipping point is not far off, and if no measures are taken to curb the current rate of government debt expansion, the U.S. will soon fall into a debt death spiral. In his earlier work, "Principles for Navigating Big Debt Crises," Mr. Dalio proposed a beautiful deleveraging strategy to address large debt crises. This strategy, akin to a surgical solution, is ingenious but still has some side effects. In "How Countries Go Broke," he introduces a new strategy: 3% + three major levers, which involve increasing taxes, reducing expenditures, and lowering interest rates to reduce the U.S. government''s fiscal deficit to 3%, thereby gradually improving the government''s debt-to-income ratio over the next ten to twenty years. This is a treatment plan for a chronic condition, aiming to gradually shrink the plaque in the blood vessels. Given that the U.S. economy is currently in a state of full employment, Mr. Dalio believes now is the best time to start this chronic treatment. I fully agree with Mr. Dalio''s views and believe that since the phenomenon of large debt cycles is not unique to the U.S. but prevalent in many other countries, the chronic treatment plan proposed in "How Countries Go Broke" is not only effective for the U.S. but also serves as a valuable reference for other nations. It essentially creates a standardized treatment template for chronic conditions in this field, which is of immense value. Regarding the formation of large debt cycles, I have some personal views: a country''s government debt rising significantly faster than its nominal GDP growth rate over the medium to long term usually leads to a large debt crisis due to the following three scenarios: 1. Severe poor rich gap causing structural insufficient effective demand, forcing the government to adopt aggressive fiscal and monetary policies, leading to structural fiscal deficits (Mr. Dalio mentioned in his book that the U.S. government successfully reduced fiscal deficits from 1992 to 1998, but the poor rich gap was much smaller then; implementing similar policies today would be more challenging). 2. A severe real estate bubble followed by its burst and inadequate long-term stimulus policies by policymakers (Japan is a case in point). 3. A country''s fiat currency being the world''s reserve currency (the U.S. case). The U.S. dollar, as the global reserve currency, provides seigniorage worldwide, which is beneficial for the U.S. but also brings problems: 1. The dollar is to the U.S. what oil is to Saudi Arabia, but countries heavily reliant on natural resource exports almost invariably experience industrial hollowing-out and weakening of manufacturing sectors. This is because the massive foreign exchange income from strategic resource exports leads to overvaluation of these countries'' currencies, making other industries trade deficit sectors. This principle similarly applies to the U.S. and the dollar. The high demand for the dollar due to its reserve currency status naturally leads to its overvaluation, which weakens the competitiveness of U.S. domestic enterprises in international trade, resulting in trade deficits. 2. From another perspective, when the U.S. provides global liquidity by exporting dollars in exchange for various products and services, a current account deficit is natural. However, the U.S. is a country with significant wealth disparity and already insufficient effective demand (at least tight), now facing massive demand leakage due to large current account deficits. This undoubtedly forces U.S. policymakers to continuously add to the existing aggressive fiscal and monetary policies, accelerating fiscal deficit accumulation and government debt expansion. In this sense, the U.S. trend towards a large debt crisis is a structural issue. Thus, the U.S. dollar as a global reserve currency is a double-edged sword for the U.S., offering benefits but also two major side effects: a. Contributing to industrial hollowing-out and manufacturing outflow; b. Debt expansion (in a sense, the current account deficit is equivalent to the government borrowing to purchase products and services from the external world). Now, the U.S. has entered the Trump 2.0 era. First, I must state that I do not agree with Trump''s values, but I have some impressions of his policy mix: Strict control over low-skilled immigration. This best serves the interests of ordinary Americans, who are his voter base and political support. Additionally, this policy is generally beneficial to the U.S. economy. Increasing import tariffs. This policy aims to balance the current account without devaluing the dollar, helping to bring manufacturing back to the U.S., plugging the demand leakage caused by trade deficits, and creating space for fiscal tightening, which is beneficial for improving debt burdens. Moreover, tariffs themselves can generate some fiscal revenue. Hoping and trying to persuade the Federal Reserve to lower interest rates. Lowering interest rates can help reduce debt burdens and provide the necessary total demand space for contractionary fiscal policies. This aligns with Dalio''s deficit reduction plan. Additionally, lowering interest rates has another implication: to maintain its reserve currency status, the U.S. needs to continuously provide liquidity to the world. However, balancing the current account means the U.S. no longer provides liquidity in this area. When this window of dollar outflow is closed, another window must be opened. Lowering interest rates can help some dollar funds flow out of the U.S. to seek lower-valued assets elsewhere. Tax cuts. This is a major "misstep" in Trump''s economic policy mix. In the current severe debt and deficit situation, taxes should be increased, not decreased. Of course, this was a promise made to voters during the campaign, and now it must be honored. This also reflects the fragility of the U.S. political system. Politically, appropriately easing relations with major competitor China, avoiding hot wars, cooling the arms race to control and reduce the rigid demand for military spending (on China, Trump himself is almost the most moderate in his hawkish team). The above reflects some of Trump''s wishes and possible relationships between related variables. However, relationships between variables with opposite influences also need to be considered, as follows: Increasing tariffs will face retaliation from trade partners, reducing U.S. exports, and combined with reduced imports, will significantly decrease the total trade volume between the U.S. and the external world. This decline will increase the operating costs of the U.S. economy, reduce supply-side output capacity, and cause cost-push inflation. Requiring the Federal Reserve to lower interest rates needs to be accompanied by inflation data. If inflation exceeds a reasonable range, the Federal Reserve will only raise, not lower, interest rates. Of course, if conditions permit in the future, the Federal Reserve might appropriately lower the real interest rate level after deducting inflation factors. After achieving current account balance, to provide liquidity to the world, the U.S. needs to continuously let dollar funds flow to the external world. This is not a matter of one or two years but a long-term commitment, which will undoubtedly have significant negative impacts on the U.S. economy. It seems that the privilege of being a reserve currency is likely a heavy sugar-coated bullet for the U.S. or any other country. This is a topic for future discussion, and we will see more clearly then. Next, I will categorize and theoretically describe macroeconomic management. Economic management is divided into three major categories, all of which are important. The first is supply-side management, which involves the creation and maintenance of all production capacities. Policymakers'' goals should be to maximize production capacities, not only currently but also to maximize the growth rate of production capacities for the future. Its main focus is on encouraging technological progress, especially in key areas, investments in education and training for human resources, and the effective operation of market mechanisms. Mr. Ray Dalio proposed a good conceptual framework of five major factors that interact to determine political and economic changes: debt, domestic conflict, international conflict, natural shocks, and the impact of rapid technological progress. Among these, technological progress is the source of new production capacities and should be directly included in supply-side management. Additionally, from a broad perspective, natural shocks, such as climate change, international and domestic conflicts (hot wars or arms races between countries, wars within a country), can negatively impact a country''s total supply and thus should be considered in supply-side management. The second is demand-side management. When I was young, reading classical novels, I often came across the phrase "courage to stand against ten thousand," such as Guan Yu''s courage to stand against ten thousand. As a child, I almost believed any external information I received, but now it''s different; I no longer easily believe the various information I encounter. In the era of cold weapons, if you told me that a person could defeat ten people with their martial arts, I would believe it; even defeating a hundred people, I might believe. However, if you told me that one person could defeat ten thousand people, I would not believe it without seeing it myself. Given the physical differences between people, the so-called courage to stand against ten thousand is certainly a myth. But today, if someone told me that a certain person has courage to stand against ten thousand in making money, I would believe this phrase used here. In today''s world, we can indeed see that there are people with courage to stand against ten thousand in making money (such as a remarkable person like Musk), because there are huge differences in the natural resource endowment of wisdom among people (the distribution of wisdom in the population may basically present a pyramid shape from high to low). The first distribution of society, the market mechanism, distributes wages according to marginal productivity and contribution size. In this sense, the resulting poor rich gap can be said to be unequal, but it is both efficient and fair. Of course, some officials will engage in rent-seeking, and criminal organizations will engage in fraud, which will also contribute to the poor rich gap. Morally, the poor rich gap caused by these factors is unfair. Logically, when the poor rich gap in a country''s economy becomes severe, it will inevitably lead to insufficient effective demand. The lack of aggregate demand will force the government to implement expansionary fiscal and monetary policies to fill this demand gap. In terms of demand-side management, policymakers aim to ensure that aggregate demand is neither too large nor too small, but exactly equal to aggregate supply. This results in actual aggregate output being equal to potential output, with this output level corresponding to full employment and accompanied by an inflation rate of approximately 2.5%. There is a view that the size of the government should be as small as possible, relying entirely on market mechanisms. Society''s role is merely to maximize the supply side, as supply can create its own demand. In equilibrium, the market, like a perpetual motion machine, will always ensure that aggregate demand meets the growth of aggregate supply. However, I do not agree with this view. While it may have been correct during certain special periods in history, it is clearly not supported by facts in the current era of severe poor rich gaps and rampant populism. In short, demand-side management is equally important, and the government cannot afford to be inactive in this regard. The third category is debt-side management. Even if you can manage both the supply side and the demand side effectively, in the long run, if government debt rapidly expands, leading to a major debt crisis as described by Mr. Dalio, such economic operations remain unsustainable. Therefore, debt-side management must be added to the management of supply and demand. The phenomenon of the debt-to-GDP ratio continuously rising is not unique to the United States; this chronic issue is somewhat universal and common to many countries. The book How Countries Go Broke by Mr. Dalio not only provides a standardized treatment plan for the United States but also for other countries on how to address this chronic problem, which is the significant contribution and meaning of his book. Additionally, regarding debt-side management, demand-side management, and supply-side management, I would like to make the following points: Achieving the goals we have set for these three aspects simultaneously is currently very difficult. Therefore, I suggest regulating the poor rich gap as a policy variable. The poor rich gap can be measured by the Gini coefficient, which, like inflation, is measurable. From a purely supply-side maximization perspective, the larger the poor rich gap, the better (which also aligns with the interests of the wealthy). However, if the poor rich gap becomes too large, it will inevitably put significant pressure on the demand side and the debt side. If the demand side and the debt side collapse as a result, the supply side will also suffer greatly. Therefore, a balance must be struck among the three to achieve a maximum "win-win" situation. Moreover, the poor rich gap is not the smaller the better (as the far-left might prefer). An excessively small poor rich gap would weaken aggregate supply, causing aggregate demand to far exceed aggregate supply and trigger high inflation (for example, in 1980, the U.S. had the lowest Gini coefficient but almost the highest inflation rate). Therefore, between these two extremes, there must be an optimal level of poor rich gap that satisfies all three sides and achieves the highest efficiency. We do not yet know what the optimal level of the Gini coefficient is (and it may vary by country), but we can start exploring and moving towards it intentionally. Just as an inflation rate of 2.5% is considered optimal, this understanding was not available hundreds of years ago but was gradually discovered through decades of economic practice in various countries. In a sense, a 2.5% inflation rate only ensures the short-term health of our economy. Adjusting the Gini coefficient to its optimal level and maintaining it will help achieve long-term economic health (solving the issue of major debt cycles). Given the current severe poor rich gap, regulating the Gini coefficient as a policy variable should involve increasing taxes on the wealthy. This policy will certainly have some negative effects on the supply side, but we can make improvements to mitigate these side effects. For example, offering special tax exemptions for those involved in new productive forces, especially in AI and robotics industries, and related wealthy individuals. This policy aligns with special preferential policies for certain strategic industries. Increasing taxes on the wealthy requires a reasonable explanation, and the above discussion itself provides a reasonable rationale. Additionally, it would be best to have a compensatory or hedging action: granting certain privileges to the main taxpayer groups and their representatives in national governance. The Government Efficiency Department (DOGE) established by the current Trump administration is, in my opinion, a great initiative. Musk said that the DOGE would exist for two years and then automatically dissolve, which is a bit of a pity. I believe such a department should continue indefinitely, staffed by the main taxpayer groups and their representatives, who are the biggest victims of government waste, inefficiency, and even corruption in fiscal spending. Data generated by various government departments in their work should be made public to them, subject to their supervision. This main taxpayer group has the greatest stake in the efficiency of government operations and has the motivation to help the government slim down and reduce its excess fat; otherwise, the government won''t even be able to find a girlfriend. The above discussion focuses on the economic management issues we need to address at the current stage. Next, we turn our attention to the future and explore the economic management issues that will require attention in the future. From historical experience, technological progress has created far more new jobs and industries than it has eliminated old ones, greatly promoting overall employment opportunities. However, such good times are coming to an end. The current situation is that technological progress is accelerating, but its overall positive impact on employment has significantly weakened. This trend, combined with economic globalization and the migration tendency of people from low-income countries to high-income countries, is the main driving force behind the transformation of the income structure in Western developed countries from an olive shape to a pyramid shape and the widening poor rich gap. Recently, we have entered a fast track of strategic development in artificial intelligence and humanoid robotics. What impact will they have on employment? I asked Deep Seek to provide a list of areas where AI and robots are inferior to humans and areas where they surpass humans, from now into the future. It provided the following answers: Areas where AI and robots are inferior to humans: Emotional understanding and empathy: Emotional depth: Humans can deeply understand complex emotions; AI struggles to truly empathize. Emotional expression: Human emotional expression is natural and diverse; AI''s emotional simulation often appears stiff. Creativity and art: Originality: Humans exhibit unique originality in artistic creation; AI mostly relies on existing data to generate content. Artistic intuition: Human artists rely on intuition and inspiration; AI lacks this subjective experience. Complex decision-making and moral judgment: Moral trade-off: Humans can handle complex moral dilemmas; AI''s decisions are based on algorithms and lack true moral understanding. Situational adaptation: Humans can flexibly respond to changing situations; AI''s performance is limited in unknown environments. Social interaction and communication: Non-verbal communication: Humans excel at interpreting body language and tone; AI''s ability in this area is weaker. Interpersonal relationships: Humans can build deep emotional connections; AI struggles to replicate such complex relationships. Intuition and experience: Intuitive judgment: Humans rely on intuition and experience for quick decision-making; AI depends on data and algorithms. Experience accumulation: Humans accumulate experience through long-term practice; AI''s learning depends on large amounts of data. Areas where AI and robots surpass humans: Data processing and analysis: Speed and scale: AI can quickly process massive amounts of data, far surpassing humans. Pattern recognition: AI''s ability to identify complex patterns in data is superior to humans. Repetitive tasks: Precision: Robots perform repetitive tasks more precisely and are less prone to errors. Endurance: Robots can work for long periods without fatigue. Computation and logical reasoning: Calculation speed: AI far surpasses humans in complex calculations and logical reasoning. Algorithm optimization: AI can quickly optimize algorithms to improve efficiency. Dangerous environment operations: Risk resistance: Robots can work in dangerous environments, reducing human risk. Extreme environment adaptation: Robots can operate in extreme conditions such as high temperature and high pressure. Mass production and manufacturing: Production efficiency: Robots are more efficient in mass production, with lower costs. Quality control: Robots can maintain stable product quality and reduce errors. Summary: AI and robots are inferior to humans in: Emotional understanding, creativity, complex decision-making, social interaction, intuition, and experience. AI and robots surpass humans in: Data processing, repetitive tasks, computation and logical reasoning, dangerous environment operations, and mass production. As technology advances, AI and robots may gradually approach or surpass humans in certain areas, but in areas involving emotions, creativity, and complex decision-making, humans will maintain their advantage. The list above is of great importance. It informs us that within the domains where humans can still maintain an advantage, employment opportunities are not easily lost and may even experience moderate growth. However, in areas where humans are at a disadvantage, there will be a comprehensive loss of jobs. Therefore, our current university and vocational education and training should aim to orient their programs towards fields where humans can still maintain an advantage. Regarding the impact of artificial intelligence and robots on human employment, my views are as follows: Human jobs are essentially pyramid-shaped from low to high end, which largely aligns with the distribution of human intelligence (also pyramid-shaped). The basic characteristics of low-end jobs are manual labor and high repetitiveness. These positions account for a high percentage of total employment, but more than 90% of them will eventually be replaced by robots. About half of the high-end or very high-end jobs that require mental labor will be replaced by artificial intelligence and robots. The jobs in areas where humans can still maintain a relative advantage constitute only a small portion of the total jobs, making them insignificant in promoting employment. New industries will undoubtedly continue to emerge in the future, but artificial intelligence and robots can also become the main force in these new industries. Therefore, the new jobs created by these new industries for humans will also be quite limited. Based on the above four points, I believe that with the development of artificial intelligence and robotics, a tsunami of unemployment will hit our society, and we need to prepare for it in advance. Is the above-mentioned employment impact terrifying? Indeed, it is a bit, but there is no need to worry too much. As long as technological progress can rapidly increase the capacity of the supply side, it is a great thing. The remaining problems can be solved through clever management of the demand side and the debt side. Assuming that faced with such a severe wave of unemployment, the government remains indifferent and does nothing, what would happen? From an economic perspective, consumption and total demand would plummet, the operating conditions of enterprises would deteriorate sharply, the stock market would continue to plummet, and the assets of the wealthy would rapidly shrink. From a social perspective, there would be a situation of "the chickens flying and the eggs broken": every day, a group of people would starve or freeze to death, and with the combination of resentment towards the rich and the drive for profit, "beating the rich and dividing the land" would become the main theme of society. Not only would the poor be in a state of despair, but the rich would also live in fear of dire circumstances. This is a lose-lose situation of a death spiral. Therefore, the government must take action. The government''s coping strategy should be to provide economic subsidies for the minimum living standard to everyone who loses their job, and such subsidies should be gradually adjusted upwards according to the rise in prices and the increase in per capita GDP of the whole society. In addition, the subsidy standards should also meet the needs of demand-side and debt-side target management and match them. The next question is where should this money come from and how should it be raised? By then, the normal income of policymakers will generally come from the following channels: An appropriate amount of seigniorage; Investment income from certain government profit-making institutions such as social security funds, sovereign wealth funds, etc.; Taxation. It includes: a. Personal income tax, considering that most of the working-age population in society at that time has already enjoyed "retirement" life in advance, those who can still continue to work are quite a hard-working group, and it is very unfair to continue to levy personal income tax on them, so this group of people should be tax-free. b. Direct taxes on enterprises, such as business tax, etc. This type of tax can continue to be levied, but considering the relatively large negative impact it may have on the supply side, it may be appropriate to control it appropriately. c. Capital gains tax on shareholders. I believe that capital gains tax should be the main source of government revenue in the future, because capital is the biggest beneficiary of the wealth feast brought by this technological revolution. Imagine that capital mainly relied on human labor to make money, but now with diligent robots, as long as they are charged, they can work 24 hours a day, and they are smart and capable, with efficiency and contribution far exceeding human labor, and finally, they do not need to be paid wages, can capital not make a lot of money? However, the above is only a big cake drawn for capital on the supply side, and the corresponding demand side and debt side need to keep up, so that capital can truly send a considerable part of this big cake into its own mouth in the medium and long term. That is to say, logically, capital cannot enjoy this big cake alone (even God does not have this ability), they must share a considerable part with other groups of humans. Otherwise, there will not be so much effective demand in society to buy all the products that enterprises have the ability to produce, and the government''s debt will fall into a death spiral, causing the country to go bankrupt. To put it more bluntly, if the government cannot effectively control the poor rich gap, does not carry out the second distribution of income, and the country does not have an effective social security system, then the total demand of the economy will collapse, and the profits and stock prices of enterprises will also collapse. For capital owners, not to mention making more money and eating a bigger cake, I am afraid that even the northwest wind will not be able to drink. Therefore, for capital owners, the strategy of sharing or monopolizing the economic cake will produce completely different results of win-win or lose-lose. This is the legitimacy implied by levying more taxes on capital gains. Next, I will make a brief description and reiteration of the economic management in the era of future artificial intelligence and robots: Since most of the future GDP will be produced by robots, the basic concept of economics that potential output matches full employment (or a certain natural unemployment rate) can no longer hold. By then, potential output should match the natural unemployment rate of robots or a certain capital equipment operating rate including robots, but how to measure and count such data? And how to figure out the natural level of this unemployment rate or operating rate? These are open questions that economists need to work hard to answer in the future. The strategy of maximizing the supply side in the short, medium, and long term, and keeping the total demand always just equal to the total supply is still the goal pursued by policymakers, that is, to keep economic activities at the level of potential output as much as possible. However, considering the possible lack of data on the operating rate of capital including robots, and the cognitive uncertainty of the best operating rate level, we may temporarily need to rely more on inflation data and more strictly control inflation at the 2.5% level. In the long term, controlling the government''s debt should still be the goal pursued by policymakers. Specifically, the ratio of government debt to GDP should not be allowed to gradually increase, and when this ratio is high, a work plan should be formulated to gradually reduce this ratio. In this regard, the adjustment of the Gini coefficient should be used as an important policy lever. The best Gini coefficient level (or interval value) may fluctuate with technological progress, time, or the improvement of economic management level. Policymakers need to pay attention and observe in operation, and make corresponding adjustments if there are changes. Finally, I would like to point out that the issues discussed above are extremely important. Although humans are making rapid progress in technological advancement, we have always lived under the shadow of war. Considering the existence of weapons of mass destruction (nuclear weapons), if a domestic war between major countries or a war between countries breaks out, the consequences will be unimaginable. The current situation is formed because the level of human self-management is far behind technological progress. There are problems in both the political system and the economic system. But the issues involving politics are too sensitive, and there are great differences in values and hostile emotions, making it difficult to start for the time being. Therefore, a wiser strategy is to start with the easy and then the difficult, first exploring how to improve the level of economic management. The so-called good governance mainly refers to how to meet the following points: 1. Make the economic cake as large as possible; 2. Divide the cake well; 3. Control the government''s debt well in the long term, so that the country will never go bankrupt due to debt problems, that is, the sustainability of government management. This article discusses these core issues of great strategic value. If we can create a standardized economic management model, and form a broad consensus among experts, scholars, and policymakers in this field, and indeed achieve the imagined effects in operation, it will definitely be a revolutionary change in the level of global governance. It will not only improve the welfare of the whole society but also help avoid or postpone various unnecessary wars and disasters.
Mr. Ray Dalio is one of the most esteemed top thinkers in the world today whom I deeply admire. Recently, I received a letter from Mr. Dalio, in which he mentioned his latest work, "How Countries Go Broke," and invited me to share my thoughts on it. I have since carefully read his book and found it profoundly insightful. The book is impeccably structured and logically rigorous. It outlines the trajectory of small (short) and large (long) debt cycles based on historical case studies from various countries. Additionally, the analogies of blood flow, plaque, heart, and brain in the book are very vivid. According to the symptoms, the United States is currently in the late stage of a large debt cycle, which is a dangerous and critical period from a long-term perspective. The tipping point is not far off, and if no measures are taken to curb the current rate of government debt expansion, the U.S. will soon fall into a debt death spiral. In his earlier work, "Principles for Navigating Big Debt Crises," Mr. Dalio proposed a beautiful deleveraging strategy to address large debt crises. This strategy, akin to a surgical solution, is ingenious but still has some side effects. In "How Countries Go Broke," he introduces a new strategy: 3% + three major levers, which involve increasing taxes, reducing expenditures, and lowering interest rates to reduce the U.S. government''s fiscal deficit to 3%, thereby gradually improving the government''s debt-to-income ratio over the next ten to twenty years. This is a treatment plan for a chronic condition, aiming to gradually shrink the plaque in the blood vessels. Given that the U.S. economy is currently in a state of full employment, Mr. Dalio believes now is the best time to start this chronic treatment. I fully agree with Mr. Dalio''s views and believe that since the phenomenon of large debt cycles is not unique to the U.S. but prevalent in many other countries, the chronic treatment plan proposed in "How Countries Go Broke" is not only effective for the U.S. but also serves as a valuable reference for other nations. It essentially creates a standardized treatment template for chronic conditions in this field, which is of immense value. Regarding the formation of large debt cycles, I have some personal views: a country''s government debt rising significantly faster than its nominal GDP growth rate over the medium to long term usually leads to a large debt crisis due to the following three scenarios: 1. Severe poor rich gap causing structural insufficient effective demand, forcing the government to adopt aggressive fiscal and monetary policies, leading to structural fiscal deficits (Mr. Dalio mentioned in his book that the U.S. government successfully reduced fiscal deficits from 1992 to 1998, but the poor rich gap was much smaller then; implementing similar policies today would be more challenging). 2. A severe real estate bubble followed by its burst and inadequate long-term stimulus policies by policymakers (Japan is a case in point). 3. A country''s fiat currency being the world''s reserve currency (the U.S. case). The U.S. dollar, as the global reserve currency, provides seigniorage worldwide, which is beneficial for the U.S. but also brings problems: 1. The dollar is to the U.S. what oil is to Saudi Arabia, but countries heavily reliant on natural resource exports almost invariably experience industrial hollowing-out and weakening of manufacturing sectors. This is because the massive foreign exchange income from strategic resource exports leads to overvaluation of these countries'' currencies, making other industries trade deficit sectors. This principle similarly applies to the U.S. and the dollar. The high demand for the dollar due to its reserve currency status naturally leads to its overvaluation, which weakens the competitiveness of U.S. domestic enterprises in international trade, resulting in trade deficits. 2. From another perspective, when the U.S. provides global liquidity by exporting dollars in exchange for various products and services, a current account deficit is natural. However, the U.S. is a country with significant wealth disparity and already insufficient effective demand (at least tight), now facing massive demand leakage due to large current account deficits. This undoubtedly forces U.S. policymakers to continuously add to the existing aggressive fiscal and monetary policies, accelerating fiscal deficit accumulation and government debt expansion. In this sense, the U.S. trend towards a large debt crisis is a structural issue. Thus, the U.S. dollar as a global reserve currency is a double-edged sword for the U.S., offering benefits but also two major side effects: a. Contributing to industrial hollowing-out and manufacturing outflow; b. Debt expansion (in a sense, the current account deficit is equivalent to the government borrowing to purchase products and services from the external world). Now, the U.S. has entered the Trump 2.0 era. First, I must state that I do not agree with Trump''s values, but I have some impressions of his policy mix: Strict control over low-skilled immigration. This best serves the interests of ordinary Americans, who are his voter base and political support. Additionally, this policy is generally beneficial to the U.S. economy. Increasing import tariffs. This policy aims to balance the current account without devaluing the dollar, helping to bring manufacturing back to the U.S., plugging the demand leakage caused by trade deficits, and creating space for fiscal tightening, which is beneficial for improving debt burdens. Moreover, tariffs themselves can generate some fiscal revenue. Hoping and trying to persuade the Federal Reserve to lower interest rates. Lowering interest rates can help reduce debt burdens and provide the necessary total demand space for contractionary fiscal policies. This aligns with Dalio''s deficit reduction plan. Additionally, lowering interest rates has another implication: to maintain its reserve currency status, the U.S. needs to continuously provide liquidity to the world. However, balancing the current account means the U.S. no longer provides liquidity in this area. When this window of dollar outflow is closed, another window must be opened. Lowering interest rates can help some dollar funds flow out of the U.S. to seek lower-valued assets elsewhere. Tax cuts. This is a major "misstep" in Trump''s economic policy mix. In the current severe debt and deficit situation, taxes should be increased, not decreased. Of course, this was a promise made to voters during the campaign, and now it must be honored. This also reflects the fragility of the U.S. political system. Politically, appropriately easing relations with major competitor China, avoiding hot wars, cooling the arms race to control and reduce the rigid demand for military spending (on China, Trump himself is almost the most moderate in his hawkish team). The above reflects some of Trump''s wishes and possible relationships between related variables. However, relationships between variables with opposite influences also need to be considered, as follows: Increasing tariffs will face retaliation from trade partners, reducing U.S. exports, and combined with reduced imports, will significantly decrease the total trade volume between the U.S. and the external world. This decline will increase the operating costs of the U.S. economy, reduce supply-side output capacity, and cause cost-push inflation. Requiring the Federal Reserve to lower interest rates needs to be accompanied by inflation data. If inflation exceeds a reasonable range, the Federal Reserve will only raise, not lower, interest rates. Of course, if conditions permit in the future, the Federal Reserve might appropriately lower the real interest rate level after deducting inflation factors. After achieving current account balance, to provide liquidity to the world, the U.S. needs to continuously let dollar funds flow to the external world. This is not a matter of one or two years but a long-term commitment, which will undoubtedly have significant negative impacts on the U.S. economy. It seems that the privilege of being a reserve currency is likely a heavy sugar-coated bullet for the U.S. or any other country. This is a topic for future discussion, and we will see more clearly then. Next, I will categorize and theoretically describe macroeconomic management. Economic management is divided into three major categories, all of which are important. The first is supply-side management, which involves the creation and maintenance of all production capacities. Policymakers'' goals should be to maximize production capacities, not only currently but also to maximize the growth rate of production capacities for the future. Its main focus is on encouraging technological progress, especially in key areas, investments in education and training for human resources, and the effective operation of market mechanisms. Mr. Ray Dalio proposed a good conceptual framework of five major factors that interact to determine political and economic changes: debt, domestic conflict, international conflict, natural shocks, and the impact of rapid technological progress. Among these, technological progress is the source of new production capacities and should be directly included in supply-side management. Additionally, from a broad perspective, natural shocks, such as climate change, international and domestic conflicts (hot wars or arms races between countries, wars within a country), can negatively impact a country''s total supply and thus should be considered in supply-side management. The second is demand-side management. When I was young, reading classical novels, I often came across the phrase "courage to stand against ten thousand," such as Guan Yu''s courage to stand against ten thousand. As a child, I almost believed any external information I received, but now it''s different; I no longer easily believe the various information I encounter. In the era of cold weapons, if you told me that a person could defeat ten people with their martial arts, I would believe it; even defeating a hundred people, I might believe. However, if you told me that one person could defeat ten thousand people, I would not believe it without seeing it myself. Given the physical differences between people, the so-called courage to stand against ten thousand is certainly a myth. But today, if someone told me that a certain person has courage to stand against ten thousand in making money, I would believe this phrase used here. In today''s world, we can indeed see that there are people with courage to stand against ten thousand in making money (such as a remarkable person like Musk), because there are huge differences in the natural resource endowment of wisdom among people (the distribution of wisdom in the population may basically present a pyramid shape from high to low). The first distribution of society, the market mechanism, distributes wages according to marginal productivity and contribution size. In this sense, the resulting poor rich gap can be said to be unequal, but it is both efficient and fair. Of course, some officials will engage in rent-seeking, and criminal organizations will engage in fraud, which will also contribute to the poor rich gap. Morally, the poor rich gap caused by these factors is unfair. Logically, when the poor rich gap in a country''s economy becomes severe, it will inevitably lead to insufficient effective demand. The lack of aggregate demand will force the government to implement expansionary fiscal and monetary policies to fill this demand gap. In terms of demand-side management, policymakers aim to ensure that aggregate demand is neither too large nor too small, but exactly equal to aggregate supply. This results in actual aggregate output being equal to potential output, with this output level corresponding to full employment and accompanied by an inflation rate of approximately 2.5%. There is a view that the size of the government should be as small as possible, relying entirely on market mechanisms. Society''s role is merely to maximize the supply side, as supply can create its own demand. In equilibrium, the market, like a perpetual motion machine, will always ensure that aggregate demand meets the growth of aggregate supply. However, I do not agree with this view. While it may have been correct during certain special periods in history, it is clearly not supported by facts in the current era of severe poor rich gaps and rampant populism. In short, demand-side management is equally important, and the government cannot afford to be inactive in this regard. The third category is debt-side management. Even if you can manage both the supply side and the demand side effectively, in the long run, if government debt rapidly expands, leading to a major debt crisis as described by Mr. Dalio, such economic operations remain unsustainable. Therefore, debt-side management must be added to the management of supply and demand. The phenomenon of the debt-to-GDP ratio continuously rising is not unique to the United States; this chronic issue is somewhat universal and common to many countries. The book How Countries Go Broke by Mr. Dalio not only provides a standardized treatment plan for the United States but also for other countries on how to address this chronic problem, which is the significant contribution and meaning of his book. Additionally, regarding debt-side management, demand-side management, and supply-side management, I would like to make the following points: Achieving the goals we have set for these three aspects simultaneously is currently very difficult. Therefore, I suggest regulating the poor rich gap as a policy variable. The poor rich gap can be measured by the Gini coefficient, which, like inflation, is measurable. From a purely supply-side maximization perspective, the larger the poor rich gap, the better (which also aligns with the interests of the wealthy). However, if the poor rich gap becomes too large, it will inevitably put significant pressure on the demand side and the debt side. If the demand side and the debt side collapse as a result, the supply side will also suffer greatly. Therefore, a balance must be struck among the three to achieve a maximum "win-win" situation. Moreover, the poor rich gap is not the smaller the better (as the far-left might prefer). An excessively small poor rich gap would weaken aggregate supply, causing aggregate demand to far exceed aggregate supply and trigger high inflation (for example, in 1980, the U.S. had the lowest Gini coefficient but almost the highest inflation rate). Therefore, between these two extremes, there must be an optimal level of poor rich gap that satisfies all three sides and achieves the highest efficiency. We do not yet know what the optimal level of the Gini coefficient is (and it may vary by country), but we can start exploring and moving towards it intentionally. Just as an inflation rate of 2.5% is considered optimal, this understanding was not available hundreds of years ago but was gradually discovered through decades of economic practice in various countries. In a sense, a 2.5% inflation rate only ensures the short-term health of our economy. Adjusting the Gini coefficient to its optimal level and maintaining it will help achieve long-term economic health (solving the issue of major debt cycles). Given the current severe poor rich gap, regulating the Gini coefficient as a policy variable should involve increasing taxes on the wealthy. This policy will certainly have some negative effects on the supply side, but we can make improvements to mitigate these side effects. For example, offering special tax exemptions for those involved in new productive forces, especially in AI and robotics industries, and related wealthy individuals. This policy aligns with special preferential policies for certain strategic industries. Increasing taxes on the wealthy requires a reasonable explanation, and the above discussion itself provides a reasonable rationale. Additionally, it would be best to have a compensatory or hedging action: granting certain privileges to the main taxpayer groups and their representatives in national governance. The Government Efficiency Department (DOGE) established by the current Trump administration is, in my opinion, a great initiative. Musk said that the DOGE would exist for two years and then automatically dissolve, which is a bit of a pity. I believe such a department should continue indefinitely, staffed by the main taxpayer groups and their representatives, who are the biggest victims of government waste, inefficiency, and even corruption in fiscal spending. Data generated by various government departments in their work should be made public to them, subject to their supervision. This main taxpayer group has the greatest stake in the efficiency of government operations and has the motivation to help the government slim down and reduce its excess fat; otherwise, the government won''t even be able to find a girlfriend. The above discussion focuses on the economic management issues we need to address at the current stage. Next, we turn our attention to the future and explore the economic management issues that will require attention in the future. From historical experience, technological progress has created far more new jobs and industries than it has eliminated old ones, greatly promoting overall employment opportunities. However, such good times are coming to an end. The current situation is that technological progress is accelerating, but its overall positive impact on employment has significantly weakened. This trend, combined with economic globalization and the migration tendency of people from low-income countries to high-income countries, is the main driving force behind the transformation of the income structure in Western developed countries from an olive shape to a pyramid shape and the widening poor rich gap. Recently, we have entered a fast track of strategic development in artificial intelligence and humanoid robotics. What impact will they have on employment? I asked Deep Seek to provide a list of areas where AI and robots are inferior to humans and areas where they surpass humans, from now into the future. It provided the following answers: Areas where AI and robots are inferior to humans: Emotional understanding and empathy: Emotional depth: Humans can deeply understand complex emotions; AI struggles to truly empathize. Emotional expression: Human emotional expression is natural and diverse; AI''s emotional simulation often appears stiff. Creativity and art: Originality: Humans exhibit unique originality in artistic creation; AI mostly relies on existing data to generate content. Artistic intuition: Human artists rely on intuition and inspiration; AI lacks this subjective experience. Complex decision-making and moral judgment: Moral trade-off: Humans can handle complex moral dilemmas; AI''s decisions are based on algorithms and lack true moral understanding. Situational adaptation: Humans can flexibly respond to changing situations; AI''s performance is limited in unknown environments. Social interaction and communication: Non-verbal communication: Humans excel at interpreting body language and tone; AI''s ability in this area is weaker. Interpersonal relationships: Humans can build deep emotional connections; AI struggles to replicate such complex relationships. Intuition and experience: Intuitive judgment: Humans rely on intuition and experience for quick decision-making; AI depends on data and algorithms. Experience accumulation: Humans accumulate experience through long-term practice; AI''s learning depends on large amounts of data. Areas where AI and robots surpass humans: Data processing and analysis: Speed and scale: AI can quickly process massive amounts of data, far surpassing humans. Pattern recognition: AI''s ability to identify complex patterns in data is superior to humans. Repetitive tasks: Precision: Robots perform repetitive tasks more precisely and are less prone to errors. Endurance: Robots can work for long periods without fatigue. Computation and logical reasoning: Calculation speed: AI far surpasses humans in complex calculations and logical reasoning. Algorithm optimization: AI can quickly optimize algorithms to improve efficiency. Dangerous environment operations: Risk resistance: Robots can work in dangerous environments, reducing human risk. Extreme environment adaptation: Robots can operate in extreme conditions such as high temperature and high pressure. Mass production and manufacturing: Production efficiency: Robots are more efficient in mass production, with lower costs. Quality control: Robots can maintain stable product quality and reduce errors. Summary: AI and robots are inferior to humans in: Emotional understanding, creativity, complex decision-making, social interaction, intuition, and experience. AI and robots surpass humans in: Data processing, repetitive tasks, computation and logical reasoning, dangerous environment operations, and mass production. As technology advances, AI and robots may gradually approach or surpass humans in certain areas, but in areas involving emotions, creativity, and complex decision-making, humans will maintain their advantage. The list above is of great importance. It informs us that within the domains where humans can still maintain an advantage, employment opportunities are not easily lost and may even experience moderate growth. However, in areas where humans are at a disadvantage, there will be a comprehensive loss of jobs. Therefore, our current university and vocational education and training should aim to orient their programs towards fields where humans can still maintain an advantage. Regarding the impact of artificial intelligence and robots on human employment, my views are as follows: Human jobs are essentially pyramid-shaped from low to high end, which largely aligns with the distribution of human intelligence (also pyramid-shaped). The basic characteristics of low-end jobs are manual labor and high repetitiveness. These positions account for a high percentage of total employment, but more than 90% of them will eventually be replaced by robots. About half of the high-end or very high-end jobs that require mental labor will be replaced by artificial intelligence and robots. The jobs in areas where humans can still maintain a relative advantage constitute only a small portion of the total jobs, making them insignificant in promoting employment. New industries will undoubtedly continue to emerge in the future, but artificial intelligence and robots can also become the main force in these new industries. Therefore, the new jobs created by these new industries for humans will also be quite limited. Based on the above four points, I believe that with the development of artificial intelligence and robotics, a tsunami of unemployment will hit our society, and we need to prepare for it in advance. Is the above-mentioned employment impact terrifying? Indeed, it is a bit, but there is no need to worry too much. As long as technological progress can rapidly increase the capacity of the supply side, it is a great thing. The remaining problems can be solved through clever management of the demand side and the debt side. Assuming that faced with such a severe wave of unemployment, the government remains indifferent and does nothing, what would happen? From an economic perspective, consumption and total demand would plummet, the operating conditions of enterprises would deteriorate sharply, the stock market would continue to plummet, and the assets of the wealthy would rapidly shrink. From a social perspective, there would be a situation of "the chickens flying and the eggs broken": every day, a group of people would starve or freeze to death, and with the combination of resentment towards the rich and the drive for profit, "beating the rich and dividing the land" would become the main theme of society. Not only would the poor be in a state of despair, but the rich would also live in fear of dire circumstances. This is a lose-lose situation of a death spiral. Therefore, the government must take action. The government''s coping strategy should be to provide economic subsidies for the minimum living standard to everyone who loses their job, and such subsidies should be gradually adjusted upwards according to the rise in prices and the increase in per capita GDP of the whole society. In addition, the subsidy standards should also meet the needs of demand-side and debt-side target management and match them. The next question is where should this money come from and how should it be raised? By then, the normal income of policymakers will generally come from the following channels: An appropriate amount of seigniorage; Investment income from certain government profit-making institutions such as social security funds, sovereign wealth funds, etc.; Taxation. It includes: a. Personal income tax, considering that most of the working-age population in society at that time has already enjoyed "retirement" life in advance, those who can still continue to work are quite a hard-working group, and it is very unfair to continue to levy personal income tax on them, so this group of people should be tax-free. b. Direct taxes on enterprises, such as business tax, etc. This type of tax can continue to be levied, but considering the relatively large negative impact it may have on the supply side, it may be appropriate to control it appropriately. c. Capital gains tax on shareholders. I believe that capital gains tax should be the main source of government revenue in the future, because capital is the biggest beneficiary of the wealth feast brought by this technological revolution. Imagine that capital mainly relied on human labor to make money, but now with diligent robots, as long as they are charged, they can work 24 hours a day, and they are smart and capable, with efficiency and contribution far exceeding human labor, and finally, they do not need to be paid wages, can capital not make a lot of money? However, the above is only a big cake drawn for capital on the supply side, and the corresponding demand side and debt side need to keep up, so that capital can truly send a considerable part of this big cake into its own mouth in the medium and long term. That is to say, logically, capital cannot enjoy this big cake alone (even God does not have this ability), they must share a considerable part with other groups of humans. Otherwise, there will not be so much effective demand in society to buy all the products that enterprises have the ability to produce, and the government''s debt will fall into a death spiral, causing the country to go bankrupt. To put it more bluntly, if the government cannot effectively control the poor rich gap, does not carry out the second distribution of income, and the country does not have an effective social security system, then the total demand of the economy will collapse, and the profits and stock prices of enterprises will also collapse. For capital owners, not to mention making more money and eating a bigger cake, I am afraid that even the northwest wind will not be able to drink. Therefore, for capital owners, the strategy of sharing or monopolizing the economic cake will produce completely different results of win-win or lose-lose. This is the legitimacy implied by levying more taxes on capital gains. Next, I will make a brief description and reiteration of the economic management in the era of future artificial intelligence and robots: Since most of the future GDP will be produced by robots, the basic concept of economics that potential output matches full employment (or a certain natural unemployment rate) can no longer hold. By then, potential output should match the natural unemployment rate of robots or a certain capital equipment operating rate including robots, but how to measure and count such data? And how to figure out the natural level of this unemployment rate or operating rate? These are open questions that economists need to work hard to answer in the future. The strategy of maximizing the supply side in the short, medium, and long term, and keeping the total demand always just equal to the total supply is still the goal pursued by policymakers, that is, to keep economic activities at the level of potential output as much as possible. However, considering the possible lack of data on the operating rate of capital including robots, and the cognitive uncertainty of the best operating rate level, we may temporarily need to rely more on inflation data and more strictly control inflation at the 2.5% level. In the long term, controlling the government''s debt should still be the goal pursued by policymakers. Specifically, the ratio of government debt to GDP should not be allowed to gradually increase, and when this ratio is high, a work plan should be formulated to gradually reduce this ratio. In this regard, the adjustment of the Gini coefficient should be used as an important policy lever. The best Gini coefficient level (or interval value) may fluctuate with technological progress, time, or the improvement of economic management level. Policymakers need to pay attention and observe in operation, and make corresponding adjustments if there are changes. Finally, I would like to point out that the issues discussed above are extremely important. Although humans are making rapid progress in technological advancement, we have always lived under the shadow of war. Considering the existence of weapons of mass destruction (nuclear weapons), if a domestic war between major countries or a war between countries breaks out, the consequences will be unimaginable. The current situation is formed because the level of human self-management is far behind technological progress. There are problems in both the political system and the economic system. But the issues involving politics are too sensitive, and there are great differences in values and hostile emotions, making it difficult to start for the time being. Therefore, a wiser strategy is to start with the easy and then the difficult, first exploring how to improve the level of economic management. The so-called good governance mainly refers to how to meet the following points: 1. Make the economic cake as large as possible; 2. Divide the cake well; 3. Control the government''s debt well in the long term, so that the country will never go bankrupt due to debt problems, that is, the sustainability of government management. This article discusses these core issues of great strategic value. If we can create a standardized economic management model, and form a broad consensus among experts, scholars, and policymakers in this field, and indeed achieve the imagined effects in operation, it will definitely be a revolutionary change in the level of global governance. It will not only improve the welfare of the whole society but also help avoid or postpone various unnecessary wars and disasters.