Book SummaryPrinciples for Dealing with the Changing World Order, by Ray Dalio

1-Page Summary1-Page Book Summary of Principles for Dealing with the Changing World Order

In Principles for Dealing with the Changing World Order (2021), Ray Dalio explains his model of world history and the method he uses to make decisions in light of that model. Dalio’s model, based on his personal research and complemented by sophisticated computer systems, describes the major political and economic patterns that characterize our world, past and present. For Dalio, it represents his lifelong effort to make sense of the world in order to make better decisions as a learner and an investor.

Dalio is an American billionaire investor and founder of Bridgewater Associates, one of the world’s largest hedge funds. He’s known for the titular principles-based thinking that he describes in his books—which also include _[Principles:...

Principles for Dealing with the Changing World Order Summary How History Unfolds as Cyclical Struggles for Wealth and Power

In this section, we’ll introduce the basic terms of Dalio’s model, and we’ll explain how it centers on the competition for wealth and power, which Dalio says is central to human history. We’ll then discuss the main pattern that he derived from his studies of the many historical instances of this competition—the rising and falling of many world powers.

Basic Concepts: Cycles, Evolution, and Human Inventiveness

Dalio contends that human history evolves through cycles. In his view, these evolving cycles center on the rising and falling of major powers (“empires”) and the world orders they create. This major cycle transpires roughly every 250 years and follows roughly the same broad pattern each time. For instance, the ways in which the Spanish, Dutch, and British Empires fought for, established, and managed their wealth and power have much in common. From many such examples, Dalio says, he derived a general pattern that describes all such cycles in a more-or-less accurate way.

(Shortform note: Much like Dalio, William Strauss and Neil Howe argue in The Fourth Turning that [human history progresses through...

Principles for Dealing with the Changing World Order Summary The Three Dimensions of Dalio’s Model

Now that we’ve established the overarching pattern of causes and effects that Dalio describes, we’ll explain the key takeaways from the financial or economic dimension (how economies cycle), the sociopolitical dimension (how societies cycle), and the geopolitical dimension (how international world systems cycle) of this model.

The Financial Dimension: Credit, Debt, and Economic Cycles

First, Dalio explains that all economies go through debt cycles that typically last around 50-75 years. In other words, an economy cycles through phases of increased debt and credit use, or leverage, and phases of lessened debt and credit use, or deleveraging. Expansion and contraction are both natural and inevitable: Major powers go through periods of prosperity and periods of austerity, and this reflects in their economy. Debt and credit enable wealth building and prosperity, but because people tend to overextend financially, contraction always follows expansion.

For instance, recall how in 2008, the US housing market ballooned during a period of seeming prosperity—banks handed out big loans left and right. But when the bubble burst and many borrowers couldn’t pay off their debts...

Principles for Dealing with the Changing World Order Summary Dalio’s Predictions: The US Weakens, China Strengthens

With Dalio’s main models and concepts covered, we’ll end this guide by discussing his thoughts on anticipating the future. Specifically, we’ll discuss his predictions regarding the United States and China as the two major powers to watch on the global stage, and we’ll explain how to prepare for an ultimately uncertain future.

The US and China: Four Factors to Watch

To anticipate what’s next in the world’s cycles, Dalio asserts that you must watch for the signals that indicate what major shifts will most likely occur. He calls back to four key concepts: human inventiveness and the three dimensions of the main pattern.

Human Inventiveness

Human inventiveness: Given the many spectacular inventions of the past—from electricity to vaccines—and due to advances in AI and quantum computing, Dalio is optimistic about human progress continuing. The US and China will lead this progress, as both have productive, innovative workforces and economies.

(Shortform note: Another major country to watch is India, which some experts argue is perhaps the most important emerging world power. With...

Shortform Exercise: Practice Preparing for What Could Happen

Dalio suggests a variety of possibilities for the future, some concerning and some promising. Below, reflect on your priorities and practice preparing for the uncertain future.

Given Dalio’s predictions that a hot war might break out between the US and China, or that the US may decline further into civil disorder, how might you prepare for the worst, according to Dalio?