Ray Dalio – Part I: How the World Works

Ray Dalio – Part I: How the World Works – 4PT

A theme of Dalio’s book is the fact that all the obvious signs of the end of the Big Cycle are often missed by the people who live through it. This is simply because they were not alive at the beginning of the current cycle.

[T]he world order is now rapidly shifting in important ways that have never happened in our lifetimes but have happened many times before (23).

Central to Dalio’s thesis, as an committed evolutionist and a determinist, is that in general, human beings are progressing forward. Dalio cites the two most common indicators of well-being, life expectancy and global real GDP per capita (adjusted for inflation), as trending upward. Both of these trends progressed very gradually in history until the time of the 1500s and then accelerated sharply. This was brought about by a variety of factors including the Age of Exploration, the invention of the printing press during the Renaissance, increased education and knowledge, the scientific revolution during the Enlightenment, the Dutch invention of investment capitalism, and the Industrial Revolution in Britain. Both increased health and wealth hit an inflection point around 1870 and then began to soar in the 20th century.

However, this upward trend in health, wealth and power has within it booms and busts, times of peace as well as revolutions and wars, which cause a lot of miniature cycles. Rather than a steady upward trend in a straight line, society progresses upward along a diagonal spiral or what Dalio calls a corkscrew.

Dalio cites a number that is the single measure of wealth and power for each country that achieved world power status in the past 500 years in a series of charts showing the rise and fall of world powers.⁴² These 18 factors are given points and averaged to give a single measure. The 18 factors can be reduced to the following eight factors that are the most important.

Education
Competitiveness
Innovation and technology
Economic output
Share of world trade
Military strength
Financial center strength
Reserve currency status

These factors begin with strong education and result in dominant reserve currency status. A world power begins with a highly educated and hard working population. It invests in innovation and technology. It acquires the most powerful military, the richest economy, and control over the world’s reserve currency. However, as a nation moves toward “hard power,” it tends to let the “soft power” that produced this top position lag behind the other newly emerging powers. So the Big Cycle begins with one world power that rises to the top, declines, and ends by being replaced with a new world power and new world order.

According to Dalio, during the end of the Old Order, and the beginning of the New Order most or all of the following things happened:

Debt restructuring and debt crisis
Internal revolution (peaceful or violent) that leads to large transfers of wealth from the “haves” to the “have-nots”
External war
Big currency breakdown
New domestic and world order

These major tectonic shifts in world economic and military geopolitics take up to 20 years to ramp up, resulting in “more extended periods of peace and prosperity in which smart people work harmoniously together and no country wants to fight the world power because it’s too strong”(55). These peaceful periods last on average 40 to 80 years, although variations can be longer or shorter and crises can occur in between. For example, from 1921 to 1944 (23 years) the US survived a Great Depression and a World War to emerge as the undisputed world power. The US grew in power and wealth from 1944 to 2008 (a period of 64 years). Then the US entered a crisis period with all the classic end of empire markers. If the pattern holds, we should see a new order in place by 2028.

In the next section of “Part 1: How the World Works,” Dalio outlines his theory of determinism or what he calls the determinants of the Big Cycle. Although Dalio is a secularist and is not religious, it does not mean that he does not recognize a spiritual dimension of human beings that is hard to quantify. Culture is a major determinant and is shaped by people as diverse as “Jesus, Confucius, Mohammed, Buddha, Mahavira, Guru Nanak, Plato, Socrates, Marx, and many others.” Approaches to life are captured in many works including “the Hebrew Bible and the New Testament, the Talmud, the Quran, the I Ching, the Four Books and Five Classics, the Analects, the Upanishads, the Bhagavad Gita, the Brahma Sutras, Meditations, Republic, Metaphysics, The Wealth of Nations, and Das Kapital” (74).

From this, we can see that Dalio is deeply affected by both religion and philosophy, but is something of a universalist. He often speaks about how he has practiced a form of Transcendental Meditation since he was in college. This openness to spirituality has taught him that everything is interconnected. Everything moves from the internal to the external, from the individual to the entire universe, and vice versa. This means that the number of factors that determine our world are so complex that no one can predict the future for sure, but there are still some principles that will show us why nations succeed and fail. Obviously, as an evangelical Protestant, I reject pure determinism and universalism. However, I am also persuaded of the words of Jesus concerning people who are not His disciples, yet provide an example of how to handle money.

For the sons of this world are more shrewd in their generation than the sons of light. “And I say to you, make friends for yourselves by unrighteous mammon,⁴³ that when you fail, they may receive you into an everlasting home (Luke 16:8-9).

Ray Dalio, as the most successful hedge fund manager in history, has something to teach Christians. In the following pages, I list some financial principles that stood out to me as profound and true.

⁴² Instead of using Portugal and Spain in his study, Dalio uses the Chinese Dynasties of the last 1000 years as a view of wealth and power in the East that show the same pattern of rise and fall. The difference is that the Chinese as a large civilization state have been able to reset their economy and power within their own Great Space, while Europeans have traded centers of power between nation-states that occupied smaller areas of geography until the United States came along.

⁴³ Aramaic for “wealth.”

Book

The Fourth Political Theory in Biblical Perspective

Jay Rogers

A Christian civilization is emerging from under the wreckage of Modern culture.

A Christian civilization is emerging from under the chaos that has been strewn throughout the wreckage of Modern culture. As dawn breaks through the darkness, many will be awakened to a new understanding of the fulfillment of the Law through love and grace. Many will comprehend, as if for the first time, what it means to be truly human. We are being prepared to overcome a world system that has denied God, faith, family, and even humanity itself. This book analyzes and critiques several leading experts in the theory of the rising multipolar world including –

• The Changing World Order by Ray Dalio
• The Clash of Civilizations by Samuel Huntington
• The Fourth Political Theory by Aleksandr Dugin