Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

by Ray Dalio

no system of government, no economic system, no currency, and no empire lasts forever, yet almost everyone is surprised and ruined when they fail.

I believe that the reason people typically miss the big moments of evolution coming at them in life is because they experience only tiny pieces of what’s happening.

Soon after the Trump election in 2016 and with increases in populism in developed countries becoming more apparent, I began a study called “Populism: The Phenomenon.” That highlighted for me how gaps in wealth and values led to deep social and political conflicts in the 1930s that are similar to those that exist now. It also showed me how and why populists of the left and populists of the right are more nationalistic, militaristic, protectionist, and confrontational—and what such approaches led to.

The External Order and Disorder Cycle: For the first time in my life, the United States is encountering a true rival power. (The Soviet Union was only a military rival, never a significant economic one.) China has become a rival power to the United States in most ways and is becoming strong in most ways at a faster rate.

The British Empire generally occupied the countries in its empire while the American Empire has controlled more via rewards and threats—though that is not entirely true, as at the time of this writing the US has military bases in at least 70 countries. Though it is clear that there is an American Empire, it is less clear exactly what is in it.

History shows us that every commodity has declined in value (in inflation-adjusted terms) with big up and down cycles around that downtrend. That is because inventiveness changes what is in demand—e.g.,

But for most, especially those who become the most wealthy and powerful, the pursuit of wealth and power is all-consuming.

History shows that when an individual, organization, country, or empire spends more than what it earns, misery and turbulence are ahead.

Populism is a political and social phenomenon that appeals to ordinary people who feel that their concerns are not being addressed by the elites. It typically develops when there are wealth and opportunity gaps, perceived cultural threats from those with different values both inside and outside the country, and “establishment elites” in positions of power who are not working effectively for most people.

Populists come into power when these conditions create anger among ordinary people who want those with political power to be fighters for them. Populists can be of the right or of the left, are much more extreme than moderates, and tend to appeal to the emotions of ordinary people. They are typically confrontational rather than collaborative and exclusive rather than inclusive. This leads to a lot of fighting between populists of the left and populists of the right over irreconcilable differences.

If the competing parties are unwilling to try to be reasonable with each other and to make decisions civilly in pursuit of the well-being of the whole, which will require them to give up things that they want and might win in a fight, there will be a sort of civil war that will test the relative powers of the relevant parties. In this stage, winning at all costs is the game and playing dirty is the norm. Late in Stage 5 is when reason is abandoned in favor of passion.

Democracy requires consensus decision making and compromise, which requires a lot of people who have opposing views to work well with each other within the system.

In the United States, individuals who fit this description are known as "moderates". In case anyone isn't paying attention, political moderates are being pushed out of politics at all levels, by both the extreme left and the extreme right.

peace is profitable and war is costly. That holds both within countries and between them. When parties cooperate and compete well, and don’t waste resources on fighting, productivity and living standards rise. When they fight, they waste resources (sometimes including lives), they destroy more than they produce, and living standards fall.

History shows us that reversing a decline is very difficult because it requires undoing so many things that have already been done. For example, if one’s spending is greater than one’s earnings and one’s liabilities are greater than one’s assets, those circumstances can only be reversed by working harder or consuming less. The question is whether we Americans can face our challenges honestly and adapt and change to meet them.

the United States appears to be a strong power (No. 1 among major countries today) in gradual decline. As shown in the table, the key strengths of the United States that put it in this position are its strong capital markets and financial center, its innovation/technology, its high level of education, its strong military, its reserve currency status, and its high economic output. Its weaknesses are its unfavorable economic/financial position and its large domestic conflicts.