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

by Ray Dalio

Evolution is a relatively smooth and steady improvement because the gaining of knowledge is greater than the losing of knowledge. Cycles on the other hand move back and forth, producing excesses in one direction that lead to reversals and excesses in the other, like the swinging of a pendulum. For example, over time our living standards rise because we learn more, which leads to higher productivity, but we have ups and downs in the economy because we have debt cycles that drive actual economic activity up and down around that uptrend. These evolutionary and sometimes revolutionary changes around the trend are not always smooth and painless. Sometimes they are very abrupt and painful as mistakes are made, learning occurs, and better adaptations result. Together evolution and cycles make the upward corkscrew-type movements that we see in everything—wealth, politics, biology, technology, sociology, philosophy, etc. Human productivity is the most important force in causing the world’s total wealth, power, and living standards to rise over time. Productivity—i.e., the output per person, driven by learning, building, and inventiveness—has steadily improved over time.