Legendary Investor Warns Our Capitalist Society Will End in ‘Revolution, Higher Taxes or War’

March 20, 2015

Photo: Bret Hartman/TED

Paul Tudor Jones II, the famous hedge fund manager who predicted the global stock market crash known as Black Monday in 1987 that tripled his capital, has another prediction for us — our capitalist society is going to devolve into one of these three scenarios: social revolution, higher taxes for the rich, or war.

Impending Doom

Jones, founder of Tudor Investment Corporation and whose net worth hovers at $4.6 billion, explained how corporate profits in the U.S. are at an all-time high in a sold out TED Talk (video not yet available) this week. In a corporate culture where executives earn five times more than their workers and income inequality continues to grow, history may may be due to repeat itself. Tudor explained:

“Now here’s a macro forecast that’s easy to make and that’s that the gap between the wealthiest and the poorest it will get closed. History always does it. It typically happens in one of three ways – either through revolution, higher taxes or wars. None of those are on my bucket list.”

Of course, capitalism has given a lot to the billionaire, but at least he’s smart enough to know it doesn’t end well for the vast majority of people.

“It’s a system I love because of the successes and opportunities it has afforded me and millions of others.

“I’ve seen a lot of crazy things in markets … And unfortunately, I’m sad to report that right now we might be on the grips of certainly one of the most disastrous certainly in my career.”

The problem is in how we do business, which isn’t news. He states the obvious:

“It’s like we’ve ripped the humanity out of our companies … We have this double standard when it comes to the way we value businesses. You know what? It’s threatening the very underpinnings of our society.”

Here’s a theory of what it might look like if we let unchecked capitalism continue to widen the gap between the poor and the insanely wealthy.

Income Inequality, Capitalism and Communism Explained

Imagine that countries live on a socio-economic cycle. On opposite sides of that cycle are capitalism and communism. Over time, depending on the governing politics, societies will lean towards and transform into the other.

In capitalism (depending on what country you live in), there always has to be a winner and loser. In a society where income inequality and unemployment is high, where the .1% profit off and exploit the 99.9%, where class designations are few and far between each other, and where class mobility is next to impossible, an eventual change, sometimes violent and destructive, is natural. Imagine the short-lived and radically pro-worker Paris Commune following the downfall of Emperor Napoleon III, the corrupt Qing Dynasty of an internationally pillaged and poorly governed Imperial China, or Tsarist Russia and the rise of the exploited proletariat.

The poor get angry. Governments lose control. Revolution happens. Those who have nothing to lose but their chains revolt against the rich who have money and land. Society is reduced to chaos for a period until an oligarchy masked as a communist government for the people takes control and everyone is promised a set common denominator where food and opportunity are plentiful.

Over time, state-controlled policies are pushed aside for more profitable capitalist policies, class mobility is high, economic development follows, and that country becomes a land of opportunity of sorts. Capitalism, and its inevitable corruption, is eventually embraced, democratic or republican political ideals grow, millionaires and billionaires spring up, and society slowly begins to sort itself between the rich and poor again, only for that inequality to break the back of the poor, exploited and unemployed. Rinse and repeat.

Preventing a Socio-Economic Revolution

Of course, it doesn’t always have to end in revolution. A government can see an impending social revolution and take drastic measures, like forcefully imposing heavy taxes on the rich and tightening regulations on corporations to manually stem income equality. A government can even nationalize institutions in an attempt to take from the rich and give back to the unemployed, but even if a democratic/republican government could agree to do those things, there’s always a risk of civil war.

Maybe the violence we’ve seen in history isn’t necessary, maybe we’ve learned from our past mistakes, and maybe we can can solve the problem of income inequality peacefully. But if not, it’s not going to be fun to be a rich person in a country where the poor are hungry, have nothing to lose and are extremely angry at you.

“Capitalism has driven just about every great innovation that has made our world a more prosperous, comfortable and inspiring place to live. But capitalism has to be based on justice and morality.”

Jones, who equates higher taxes with war, gives his own “answer” to avoid these problems — a nonprofit group called JUST Capital. How will his nonprofit group prevent America from destroying itself? It will, according to him, ”help companies learn how to operate in a more just fashion by using the public’s input to define exactly what the criteria are for just corporate behavior.” In other words, an annual poll that publishes how “just” corporations are run will somehow prevent the collapse of society as we know it when angry poor people violently riot against the rich.

At least one billionaire is willing to admit we have a possibly disastrous problem up ahead, but his answer is clearly not a solution — he may have to tack “higher taxes” to that bucket list of his to start.

How would you prevent (or save yourself) from the next communist revolution?

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