The Changing World Order (Part 2 of 4)

PART I: HOW THE WORLD WORKS Chapter 1:?The Big Cycle In A Nutshell

I’m on a mission to figure out how the world works and to gain timeless and universal principles for dealing with it well. It’s both a passion and a necessity for me.

?I learned that the biggest thing affecting most people in most countries through time is the struggle to make, take, and distribute wealth and power, though they also have struggled over other things too, most importantly ideology and religion.?

I also saw how, throughout time and in all countries, the people who have the wealth are the people who own the means of wealth production. In order to maintain or increase their wealth, they work with the people who have the political power, who are in a symbiotic relationship with them, to set and enforce the rules. I saw how this happened similarly across countries and across time.?

I saw how, over time, this dynamic leads to a very small percentage of the population gaining and controlling exceptionally large percentages of the total wealth and power, then becoming overextended, and then encountering bad times, which hurt those least wealthy and less powerful the hardest, which then leads to conflicts that produce revolutions and and/or civil wars. When these conflicts are over the new world order is created, and the cycle begins again.

In this chapter, I will share more of this big picture synthesis and some of the details that go along with it.

UNDERSTANDING THE BIG CYCLE

For reasons that are explained in this book, I believe that we are now seeing an archetypical big shift in relative wealth and power and the world order that will affect everyone in all countries in profound ways.

The most important three cycles are the ones I mentioned in the introduction:?

• 1.?The Long-Term Debt and Capital Market Cycle,?
• 2.?The Internal Order and Disorder Cycle, And?
• 3.?The External Order and Disorder Cycle.

Embedded in the swings in one direction are the ingredients that lead to the swings in the opposite direction.

EVOLUTION, CYCLES + THE BUMPS ALONG THE WAY

Evolution is the upward movement toward improvement that occurs because of adaptation and learning. Around it cycles. To me, most everything transpires as an ascending trajectory of improvement with cycles around it, like an upward pointing corkscrew:

Human productivity is the most important force in causing the world’s total wealth, power, and living standards to rise over time.

This is shown in the following charts (FIGS 2 + 3): estimated output (i.e., estimated real GDP) per person and life expectancy over the last 500 years. These are probably the two most widely agreed-upon measures of well-being, though they are imperfect. You can see the magnitude of their evolutionary uptrends relative to the magnitudes of the swings around them.

The fact that the trends are so pronounced relative to the swings around the trends shows how much more forceful the power of human inventiveness is relative to everything else. As shown from this top-down, big picture, perspective, output per person appears to be steadily improving, though very slowly in the early years and faster starting in the 19th century, when the slope up becomes much steeper, reflecting the faster productivity gains.

THE CYCLES AROUND THE UPTREND

While significant, because these learnings and productivity improvements are evolutionary, they don’t cause big abrupt shifts in who has what wealth and power. The big abrupt shifts come from booms, busts, revolutions, and wars, which are primarily driven by cycles, and the cycles are driven by logical cause/effect relationships (FIGS 4+5). These charts also show how bad these periods get depending almost exclusively on how strong countries are and their ability to endure them.?

Principle: Throughout time, the formula for success has been a system in which well-educated people, operating civilly with each other, come up with innovations, receive funding through capital markets, and own the means by which their innovations are turned into the production and allocation of resources, allowing them to be rewarded by profit-making.

However, over the long run capitalism has created wealth and opportunity gaps and over-indebtedness that have led to economic downturns and revolutions and wars that have caused changes in the domestic and world orders.

Principle. Countries with large savings, low debts, and a strong reserve currency can withstand economic and credit collapses better than countries that don’t have much savings, have a lot of debt, and don’t have a strong reserve currency.

Because these turbulent times are small in relation to the evolutionary uptrend of humanity’s capacity to adapt and invent, they barely show up in the previous charts of GDP and life expectancy, appearing only as relatively minor wiggles. These wiggles seem very big to us because we are so small and short-lived.

Take the 1930–45 depression war period, for example. The levels of the US stock market and global economic activity are shown in the next chart (FIG 6). The economy fell by about 10% and the stock market fell by about 85% and then began to recover.

Briefly, a credit collapse happens because there is too much debt. Typically, the central government must spend a lot of money it doesn’t have to make it easier for debtors to pay their debts - printing money and liberally providing credit – as they did in response to the COVID pandemic.

There are always arguments or fights between those who want to make big redistributions of wealth and those who don’t.

Most cycles in history happen for basically the same reasons.

These periods of destruction/reconstruction devastated the weak, made clear who the powerful work, and established revolutionary new approaches to doing things (i.e., new orders) that set the stage for periods of prosperity that eventually became overextended as debt bubbles with large wealth gaps, led to debt busts that produced new stress tests and destruction/reconstruction periods (i.e., wars), which led to new orders and eventually the strong again gaining relative to the weak, and so on.

While these revolution/war periods typically lead to a lot of human suffering, we should never, especially in the worst of times, lose sight of the fact that one can navigate them well – and that humanity’s power to adapt and quickly get to new and higher levels of well-being is much greater than all the bad stuff that can be thrown with us.

Ray Dalio

Next: THE ARCHETYPICAL BIG CYCLE:?Cycle Shifts in Wealth and Power