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

by Ray Dalio

Because wars are so much more terrible than even those who are eager for them can imagine, they lead to treaties that redefine the order and are followed by periods of peace, until the next big war happens.

wars are devastating financially; that is true for the winners and much more so for the losers.

The Industrial Revolution was driven not only by the creation of brand-new inventions like the steam engine but also by adapting and improving on existing concepts to make production more efficient,

Early in the 1970s, most Americans had never experienced inflation, so they weren’t wary of it and allowed it to blossom. By the end of the decade, they were traumatized by it and assumed that it would never go away.

When there is great popularity of one extreme, one should expect that it won’t be too long before there will be a comparable move in the opposite direction.

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. Because the Federal Reserve could provide money to the banks that made the loans that weren’t being paid back, they didn’t have a cash flow problem, and because the American accounting system didn’t require the banks to account for these bad debts as losses, there was no big problem that couldn’t be worked out. I learned that

Most people pay attention to what they get and not where the money comes from to pay for it, so there are strong motivations for elected officials to spend a lot of borrowed money and make a lot of promises to give voters what they want and to take on debt and non-debt liabilities that cause problems down the road.

To be clear, I’m not ideological. I don’t choose a side on an issue based on whether it aligns with American, Chinese, or my own personal beliefs. I’m practical; I approach things like a doctor who relies on logic and cause/effect relationships and believes in what works well through time.

Getting the most capable people into the most important roles requires the meritocratic selection of people. In Chinese dynasties, the imperial exams often played that role, and it was common for new dynasties to implement educational reforms. It also requires an effective resource-allocation system (Stage 2).

damage of the next war could be worse than the last war,

Critique of Pure Reason by Immanuel Kant,

On Practice, On Contradiction,

The Little Red Book,

e.g., I now view the last 500 years as recent history, the most relevant historical arcs seem about 100-plus years long, and the patterns I’ve gleaned from this perspective help me anticipate how events are likely to transpire, and how I should be positioned for them over the coming weeks, months, and years.

the core difference between Americans and the Chinese is that Americans hold the individual above all else while the Chinese put the family and the collective above everything.

America is run from the bottom up (e.g., democracy) and optimized for the individual; China is run from the top down and optimized for the collective.

I’ve observed that while the Chinese are more interested in asking questions and learning, Americans are more interested in telling you what they think.

Traditional Chinese military philosophy teaches that the ideal way to win a war is not by fighting but by quietly developing one’s power to the point that simply displaying it will cause an opponent to capitulate.

When things are going well it is easy to keep the moral high ground. However, when the fighting gets tough, it becomes easier to justify doing that which was previously considered immoral (though rather than calling it immoral it is called moral).

It will be important to see what these alliances will look like because throughout history, as we’ve seen, the most powerful country is typically taken down by alliances of countries that are less powerful but collectively stronger.

when countries have big internal disorder, it is an opportune moment for opposing countries to aggressively exploit their vulnerabilities.

that neither of these systems is always good or bad. What works best varies according to a) the circumstances and b) how people using these systems are with each other. No system will sustainably work well—in fact all will break down—if the individuals in it don’t respect it more than what they individually want and if the system is not flexible enough to bend with the times without breaking.

“The empire long divided must unite and long united must divide. Thus it has ever been.”

peace is profitable and war is costly.

All empires decline and new ones rise to replace them.

the best way to fight a war is to get strong and show one’s opponent one’s strength so they don’t want to fight violently.

Put deferred gratification ahead of immediate gratification so you will be better off in the future.