Billionaire Ray Dalio thinks universal basic income is no magic wand — and may even do more harm than good

• Ray Dalio cast doubt on the idea of universal basic income on the "Lex Fridman Podcast" in 2019.
• The elite investor warned cash handouts could fuel bad habits and defund superior social programs.
• Programs with proven outcomes that boost productivity are a better bet, Dalio said.

Universal basic income is winning support from some as a powerful tool to combat poverty, but Ray Dalio thinks it could be harmful and pull cash away from better social programs.

The general concept of UBI is to make recurring cash payments to people regardless of their wealth, with no restrictions on how they spend the money.

Dalio is the billionaire founder of Bridgewater Associates, the world's largest hedge fund, and the official mentor to its three co-chief investors.

He questioned the wisdom of handing $1,000 a month to everyone on an episode of the "Lex Fridman Podcast" in December 2019.

"What is going to happen with that $1,000? Will that $1,000 come from another program? Does that come from an early childhood developmental program? Who are you giving the $1,000 to, and what will they do with that $1,000?" he asked.

Dalio said that giving people some financial "wiggle room" would be great, but cash payments could produce negative outcomes as they may "use that money detrimentally, not just productively."

He drew a distinction between responsible parents who'd use the money to help their children, and an "alcoholic or drug-addicted parent" who might use the cash to fund their habit, which would "produce more harm than good."

He also warned that UBI could siphon money from public budgets, hurting efforts to realize equal opportunities for all, such as funding high-quality education and ensuring a meritocratic job market.

Costly and inefficient

Dalio shared a UBI primer prepared by Bridgewater's researchers in a LinkedIn post in July 2018. They estimated that paying $1,000 a month to every American would cost $3.8 trillion annually — about 21% of US GDP at the time.

Even if the government cut all social spending apart from infrastructure and education programs, that would still only provide about 92% of the money required, they noted.

In a follow-up post, Dalio emphasized that he sees the wealth-and-opportunity gap as the "greatest threat" to the US. He bemoaned that nearly 30% of American children live in relative poverty, calling it "institutionalized intellectual child abuse."

But he questioned whether "giving poor people the free money to make their own choices" was a better solution than funding programs aimed at helping them, such as low-income classes, school lunch programs, and support services.

The author and financial historian added that increasing people's productivity is shown to have psychological and physical benefits, and improves living standards for society as a whole.

"I'd much prefer directing money into severely budget-constrained programs that we know enable people, especially programs that we know have great productivity paybacks," he said.

Dalio gave the examples of early-age job training, microfinance, and earned-income tax credits that reward people for working. Yet he also called for the US opportunity gap to be declared a national emergency, and for an expert commission to tackle to problem.

Pushing back

UBI experts counter skepticism about how cash grants are spent by pointing to trial results showing recipients mostly use the funds for essentials like groceries, clothing, housing, healthcare, and transportation.

They also underscore the importance of treating people with dignity and trusting them to make the best decisions for their own lives.

As for Dalio's worries about blowing the budget, experts say UBI could be financed by a more progressive tax system that makes the wealthy net losers from the program.

UBI could even boost economic growth and productivity by relieving financial stress and allowing people to pick jobs that pay better and make them happier, they say.