Posted in Impression

What does Ruel 2 mean in Ray Dalio’s video “How The Economic Machine Works”?

First of all, if you haven’t seen this video before, I strongly recommend you to watch it. You will get thoroughly new ideas for your life.

Here is the video:

And in the end of the video, Ray Dalio suggests you three rules:

1. “Don’t have debt rise faster than income …

… because your debt burdens will eventually crush you.”

2. “Don’t have income rise faster than productivity …

… because you’ll eventually become uncompetitive.”

3. “Do all that you can to raise your productivity …

… because in the long run, that’s what matters most.”

These three rules are very simple but very important. But I get confused by Rule 2. Why he says that I will lose my competitivity if my income grows faster than productivity?

This is stange and nonsense. Nowadays people all over the world are chasing the chance to rise their wages or salaries, and most of they think it is the most important thing in their lives. They change jobs and locations to get the higher payments.

I searched online for some time but can’t get an ideal answer. However, I find something later and know the meaning of it.

Just as what simple knowledges showed in the video, let’s see Rule 2 in the aspect of demand and supply.

If your income grows faster than your productivity, that means the supply is more than demand. Productivity should match your income at the same level. You just should gain what you pay. Too much incomes will lead you lazy and don’t want to improve your productivity.

Meanwhile, higher income will get you in a trap: you think of yourself is strong and have the enough power to earn money. Think about what said in the video: in the fake and foam periods of economy, most people think they have power, money and status etc., but they suddenly find they lost everything in one night.

The last thing is that too much incomes will make you willing to spend your money and extend your loans or debts, and you will find you can’t offset these.

So to sum up, “you’ll eventually become uncompetitive.”

This reminds me of a meme in Chinese:

There are three big unfortunate in the life:

1. Achieve ultimate goal of life or get ultimate reputations and status in the early life
2. Get the windfall
3. Born in the emperor family

In fact, all these three things in China is thought as fortunate or luck that common people can’t get in their whole lives. But if you research some cases in the history, you will find it’s not true.

Many people want to be an emperor, but nearly all the emperors in the history don’t have happy endings. Even those emperors who have happy endings, also pay too much effort to keep their chairs and avoid being killed while they are eating or sleeping. I think the principle behind this meme is the same as Ray Dalio’s Rule 2.

Life is long enough to grow, but few chance to regret. Cherish your life and your family. Don’t be blinded by money.

One thought on “What does Ruel 2 mean in Ray Dalio’s video “How The Economic Machine Works”?

  1. You got it backwards: the demand increases over the supply, therefore the price increases at the scarcity of the goods. You may arbitrarily increase prices, and you lose competitiveness (nobody will buy from you). If your income is not based on what you make, but based on artificial scarcity, you are literally outputting less for more money.
    If this is generalized in the whole economy, you’ve got an inflation.


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