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

by Ray Dalio

While most of the archetypical civil wars and revolutions shifted power from the right to the left, many shifted wealth and power to the right and away from those on the left.

broad economic prosperity is the biggest reason a new regime succeeds or fails, the long-term trends have been to both greater total wealth and broader distribution of the wealth (i.e., better economic and health outcomes for the average person).

it is a mistake to rigidly believe that any economic or political system is always best because there will certainly be times when that system is not best for the circumstances at hand, and if a society doesn’t adapt it will die.

international relations are driven much more by raw power dynamics.

the financial strength to outspend one’s rivals is one of the most important strengths a country can have.

a country must be strong enough financially to give its people both a good living standard and protection from outside enemies.

If one is in a lose-lose relationship, one has to get out of it one way or another, preferably through separation, though possibly through war.

To handle one’s power wisely, it’s usually best not to show it because it will usually lead others to feel threatened and build their own threatening powers, which will lead to a mutual escalation that threatens both.

Raising tariffs to protect domestic businesses and jobs during bad economic times is common, but it leads to reduced efficiency because production does not occur where it can be done most efficiently.

Tariffs do, however, benefit the entities that are protected by them, and they can create political support for the leaders who impose them.

In war one’s ability to withstand pain is even more important than one’s ability to inflict pain.

The game I play for handling both my life and my career is to try to figure out how the world works, develop principles for dealing with it well, and then place my bets.

People today often assume that World War I must have been easy to foresee in the years leading up to it, but that wasn’t the case.

Governments want to control the money that is used within their borders because by increasing and decreasing its supply, its cost of borrowing, and its value the government has enormous power.

In the post-war monetary system, within countries, people and companies used the government-controlled paper money. When they wanted to buy something from another country, they typically exchanged their own country’s paper currency for the other country’s paper currency with the help of their central bank that settled with the other country’s central bank in gold.

What I had missed was that when debts are in the currencies that central banks have the ability to print and restructure, debt crises can be well-managed so they are not systemically threatening.

when there is a great increase in money and credit, it drives down the value of money and credit, which drives up the value of other investment assets.

greater polarization equals either a) greater risk of political gridlock, which reduces the chances of revolutionary changes that rectify the problems or b) some form of civil war/revolution.

Confucianism seeks to bring about harmony by ensuring that people know their roles in the hierarchy and how to play them well,

we should expect all countries’ leaders to try to get the best balance between “state” (government influence and control of the economy) and “capitalism” (free-market control of the economy and capital markets) through the proper management and coordination of monetary and fiscal policies, and we should try to understand the thinking behind their approaches.

The goal in a capital war is to cut the enemy off from capital because no money = no power.

The euro (20 percent) is a weakly structured fiat currency made by smaller, uncoordinated countries with weak finances that are tenuously held together by a highly fragmented currency union. Because the European Union is financially, economically, and militarily at best a secondary power, buying its currency and debt denominated in its currency, which its central bank is free to print, is not an enticing thing to do.

in the markets and in life, to be successful one should bet on the upside that comes from a) evolution that leads to productivity improvements, but not so aggressively that b) cycles and bumps along the way knock you out of the game.

Know all the possibilities, think about the worst-case scenarios, and then find ways to eliminate the intolerable ones.

and others who are interested: Use the gauges I gave you, or take the stats and make your own, to 1) measure the health of your country and other countries you’re interested in, 2) see if it is improving or worsening and in what ways, and 3) make changes in the determinants of the future to get a better future. That’s it.