Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail
by Ray Dalio
30 popular highlights from this book
Key Insights & Memorable Quotes
Below are the most popular and impactful highlights and quotes from Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail:
Before there is a shooting war there is usually an economic war. As is also typical, before all-out wars are declared there is about a decade of economic, technological, geopolitical, and capital wars, during which the conflicting powers intimidate each other, testing the limits of each other’s power.
the single most reliable leading indicator of civil war or revolution is bankrupt government finances combined with big wealth gaps.
History shows that raising taxes and cutting spending when there are large wealth gaps and bad economic conditions, more than anything else, has been a leading indicator of civil wars or revolutions of some type.
no system of government, no economic system, no currency, and no empire lasts forever, yet almost everyone is surprised and ruined when they fail.
History has shown that we shouldn’t rely on governments to protect us financially. On the contrary, we should expect most governments to abuse their privileged positions as the creators and users of money and credit for the same reasons that you might commit those abuses if you were in their shoes.
Having a reserve currency is great while it lasts because it gives a country exceptional borrowing and spending power and significant power over who else in the world gets the money and credit needed to buy and sell internationally. However, having a reserve currency typically sows the seeds of a country ceasing to be a reserve currency country. That is because it allows the country to borrow more than it could otherwise afford to borrow, and the creation of lots of money and credit to service the debt debases the value of the currency and causes the loss of its status as a reserve currency. The loss of its reserve currency status is a terrible thing because having a reserve currency is one of the greatest powers a country can have because it gives the country enormous buying power and geopolitical power.
History has shown that we shouldn’t rely on governments to protect us financially.
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. We are like ants preoccupied with our jobs of carrying crumbs in our very brief lifetimes instead of having a broader perspective of the big-picture patterns and cycles, the important interrelated things driving them, where we are within the cycles, and what’s likely to transpire.
when people are willing to die for their country, their country will be more likely to be protected than if the individual self is more important, in which case individuals will run from deadly combat.
debt eats equity but central banks can feed debt by printing money instead.
As I studied history, I saw that it typically transpires via relatively well-defined life cycles, like those of organisms, that evolve as each generation transitions to the next.
stronger education leads to stronger technological innovation, which leads to increased productivity and increased shares of trade, greater wealth, more military power, and eventually the establishment of a reserve currency. Further, having strong leaders, a population that is well-educated and civil with each other, a system that efficiently allocates capital and other resources, access to natural resources, and favorable geography all help a lot, and when they decline, they tend to decline together.
the decline of China from around 1840 to 1949, known as the “Century of Humiliation,” came about because the Western powers and Japan exploited China.
Adolf Hitler, the leading populist/fascist, tapped into the mood of national humiliation to build a nationalistic furor, casting the Treaty of Versailles and the countries that imposed it as the enemy. He created a 25-point nationalistic program and rallied support around it.
Taoism teaches that it is of paramount importance to live in harmony with the laws of nature.
Because the US Constitution doesn’t make education a federal government responsibility, it has predominantly been a state and local responsibility with school funding coming from revenue raised by local taxes in cities and towns. Though it varies from state to state, typically those children in richer towns in richer states receive a much better education than those in poorer towns in poorer states.
While the inherited assets and liabilities of a country are very important, history has shown that the way people are with themselves and others is the most important determinant. By that I mean whether they hold themselves to high standards of behavior, whether they are self-disciplined, and whether they are civil with others in order to be productive members of their societies is most important. These qualities plus flexibility and resilience (i.e., the capacity to adapt to both “bad” and “good” things) allows people to minimize setbacks and maximize opportunities.
More specifically, in my opinion, if you don’t understand what happened since at least 1900 and how that rhymes with what is happening now, there is a high likelihood that you will find yourself in trouble.
The greatest risk of military war is when both parties have 1) military powers that are roughly comparable and 2) irreconcilable and existential differences. As of this writing, the most potentially explosive conflict is that between the United States and China over Taiwan.
the United States and China are in an economic war that could conceivably evolve into a military war and comparisons between the 1930s and today provide valuable insights into what might happen and how to avoid a terrible war.
The global depression that followed the Great Crash of 1929 led to almost all countries having big internal conflicts over wealth. This caused them to turn to more populist, autocratic, nationalistic, and militaristic leaders and policies. These moves were either to the right or to the left and occurred in varying degrees, according to the countries’ circumstances and the strengths of their democratic or autocratic traditions. In Germany, Japan, Italy, and Spain, extremely bad economic circumstances and less well-established democratic traditions led to extreme internal conflicts and a turn to populist/autocratic leaders of the right (i.e., fascists), just as at different points in time the Soviet Union and China, which also endured extreme circumstances and had no experience with democracy, turned to populist/autocratic leaders of the left (i.e., communists). The US and the UK had much stronger democratic traditions and less severe economic conditions, so they became more populist and autocratic than they had been, but not nearly as much as other nations.
The Age of Exploration and Colonialism (1400s–1700s)
The Commercial Revolution (1100s–1500s) The Commercial Revolution was the move away from a solely agriculture-based economy to one that included trade in a variety of goods. This evolution began in the 12th century, and by 1500, it was centered in the Italian city-states
The Renaissance (1300s–1600s) A new way of thinking, in many respects modeled after the ancient Greeks and Romans, started in Italian city-states around 1300 and passed through Europe until the 1600s, in a period known as the Renaissance.
Knowledge and ideas spread rapidly because of the invention of the printing press in the mid-15th century.
the way, many of the European Renaissance innovations had already been in place in China for centuries because the Chinese discovered the key elements to produce it—e.g., the printing press, the scientific method, and the meritocratic placements of people in jobs—much earlier.
For example, Henry the Navigator, the brother of the head of the Portuguese royal family, sponsored some of the earliest voyages and established a trading empire in Africa and Asia. Spain followed suit, swiftly conquering and colonizing significant portions of the Western Hemisphere, including the precious-metal-rich Aztec and Incan empires. Though Portugal and Spain were rivals, the unexplored world was huge, and when they had disputes, they were successfully mediated. Spain’s integration into the Habsburg Empire and its control over highly profitable silver mines made it stronger than Portugal in the 1500s, and for a roughly 60-year period starting in the late 1500s the Habsburg king ruled Portugal as well. Both translated their wealth into golden ages of art and technology. The Spanish Empire grew so large it became known as “the empire on which the sun never sets”—an expression that would later be used to describe the British Empire.
China’s Ming Dynasty had its own version of the Age of Exploration but abandoned it. Starting in the early 1400s, Ming Dynasty Emperor Yongle empowered his most trusted admiral, Zheng He, to lead seven major naval expeditions—“treasure voyages”—around the world. Though not colonizing expeditions (and historians debate the extent to which they were commercial), these naval missions helped project China’s power abroad. Yongle’s navy was the largest and most sophisticated in the world, featuring larger and better-constructed ships than any country in Europe would produce for at least a century.
the really big boom periods and the really big bust periods, like many things, come along about once in a lifetime and so they are surprising unless one has studied the patterns of history over many generations.
The Age of Exploration began in the 1400s when Europeans traveled all over the world in search of wealth, creating widespread contact between many different peoples for the first time and beginning to shrink the world. It roughly coincided with the Renaissance because the technological marvels of the Renaissance translated into advancements in shipbuilding and navigation, and the riches that those ships brought back financed further Renaissance advancements. Ruling families supported these money-making explorations and split the profits with explorers.
