Book review “Principles for dealing with the changing world order” by Ray Dalio

In his book, “Principles for Dealing with the Changing World Order”, hedge fund manager and billionaire investor Ray Dalio explores the major shifts in the global order and offers his thoughts on how to navigate them.

Dalio argues that the world is undergoing a major transition, with the U.S. losing its status as the dominant power. He believes that this shift will have far-reaching implications for both the American economy and global geopolitics.

While Dalio’s predictions may be controversial, his book provides an insightful look at the changing world order and is well worth a read. The book has an accompanying website https://economicprinciples.org/. One of the biggest comments from me previously was that I wished he could share more raw data or make the graphs more precise so that we can interpret/gauge the timing better. He did that and even more with the book and the website. He also shared this summary video recently “principles for dealing with the changing world order“. So if you don’t have a lot of time and just want to get the gist of the book, the video is a good option. Or if you prefer to listen to the audio version of the book, here it is. All the graphs or quotes below are from the book or the website.

(FYI, you can download all the graphs in the book here).

So what did I learn from this book and the website?

  • The US is now at about 70% of a typical great empire cycle, give or take 10%. They are in the decline phase of the cycle.
  • China is on the other hand, in the rise phase of the cycle.
typical big empire cycle simplified ray dalio
Typical big empire cycle (simplified version)

A more detailed version of the empire cycle is below

typical big empire cycle detailed version ray dalio

If you go deeper a bit, the story is a lot more nuanced than you think though. Using the data from the “country power index Jan 2022“, we can see that while the US is in relative decline, it is still very strong as an empire in comparison to China and extremely strong compared to other countries

Empire score (0-1) across major countries Jan 2022 - from economic principles.org

Ray and his team break down the overall empire score into its individual components and share their readings on the same website. What I would love to see here is a Peer review! I don’t have the capacity, expertise or bandwidth to do a thorough peer review of the data published by Ray and his team on https://economicprinciples.org but someone should!

This way, we can have a much more meaningful debate, validate Ray’s findings/scores, or dispute it.

When we put the detailed individual scores for the US and China next to each other, this is what we see as of Jan 2022.

Key drivers of country power score between US and China Ray Dalio Jan 2022

We can see that while the gap between the US and China is reducing across many scores, the US is still very strong in education, trade, innovation & technology, military strength, etc… China’s economic/financial position, and internal order (wealth/value gap, internal conflict) are significantly better than the US.

The immense value that I have gained from the above simple table is that:

  • Some people only talk about the high indebtedness of the US, the money printing, the internal disorder (large wealth/opportunity/values gap) and conclude that the US is heading for trouble at any moment now.
  • On the flip side, some people cite very strong education (with most global leading universities are in the US), high level of innovation, strong financial center, many of the most valuable companies in the world are US MNCs, etc… as examples of the US strength and dismiss the idea that the US in in decline.
  • Well they are both right and wrong 🙂 both side look at part of the picture and not the whole picture. And they are not looking at the speed of change (speed of increase or decrease) and the direction of change also.
  • This systematic way of seeing things is highly valuable so thank you very much Ray and his team!

If you ask me what I don’t like about the book and I have to nitpick, it is about the use of words like “timeless” or “universal”. What Ray shares in the book are about history, human beings, not the law of nature, not physics or math so I think the use of words like “timeless” is not warranted. But again, this is a very minor detail and it doesn’t impact my overall impression of the book that much.

In conclusion, a good read but a Peer review of the numbers/models are needed as the topic is too important for us all.

Cheers,

Chandler

P.S: Nov 2022 update: Ray Dalio issued a stark warning on Nov 1 about the changing world order is approaching stage 6. And here is what I think about it.

P.P.S: if you want to listen to the conversations between Ray Dalio and others (like Henry Kissinger, Larry Summers, Fareed Zakaria, or Hank Paulson) you can watch those Youtube videos here.

Please follow and like us:

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.