Dalio argues that the dominant power of the day – the power that controls its own currency, is the dominant trading power, and has the most political power – has an economic trajectory that is fundamentally different than any secondary power and therefore must be analyzed separately. Rogoff and Reinhart, in an attempt to get larger sample sizes, were quick to lump together secondary powers along with major world powers. In the end, though, the Dalio analysis is superior. Both books argue that these cycles proceed in somewhat predictable ways.

Both books show, in impressive detail, how periods of excess – where, broadly speaking, the financial claims on wealth grow to far outstrip an economy’s actual wealth production capacity – give way to periods of crisis, when it becomes evident that holders of financial claims do not have what they think they have. It was not surprising that, when the generational history The Fourth Turning, which seems to have had some influence on Dalio’s work, became a bestseller in the late 90s, it was written not by a historian but by a sociologist and a playwright.Ī near neighbor to the Dalio analysis is Ken Rogoff and Carmen Reinhart’s This Time is Different: Eight Centuries of Financial Folly. The idea that history proceeds along predictable cycles was very much in favor among historians in the first half of the century – when Oswald Spengler’s The Decline of the West and Arnold Toynbee’s A Study of History were widely read – but it then fell about as far out of favor as it is possible to fall. It’s worth a digression to note just how fraught this enterprise is. To simplify, Dalio argues that there are roughly one hundred year cycles, which proceed as follows:ġ) New order begins and new leadership consolidates powerĢ) Resource-allocation systems and government bureaucracies are built and refinedĤ) Excesses in spending and debt, and the widening of wealth and political gapsĥ) Bad financial conditions and intense conflict As the architect of the biggest hedge fund in the world, Dalio is in the business of using history to predict the future. In the book, he ventures far into this dangerous territory, arguing that dominant powers arc along long-term cycles, and that the cycles of growth and decline are to some extent quantifiable and predictable. It was unlikely in the first place that it would be published – it is clearly the effort of tens if not hundreds of people over six-plus years (this project is a follow-up to his last book, Big Debt Crises ) - and, since it’s focused on markets, there is value in not sharing it.Ībove all, The Changing World Order is a systematic attempt to learn about economics and politics from the historical record. I think Ray Dalio’s The Changing World Order is a very important book.

Changing world order book