Book Review of Ray Dalio’s Changing World Order

Book Review of The Changing World Order by Ray Dalio

I learned about this book from a podcast, discussing the financial situation that the world may be heading to resulting from actions that have taken place in the last two years. Admittedly, I am no financial aficionado, nor have I ever taken an Economics, Financial, or related class in that department in my life. But I figure it’s important for a couple of reasons: 1) You should not have to rely on others whom you must trust to tell you what may happen in macroeconomics, but attempt to learn at least the fundamentals, and 2) you should try to not waste opportunities (especially at this point in my life and maybe your life) related to your investments. Everything I hope to discuss here aims to review the book, share insights from the book, and convince you to at least skim through what many consider a leading financial figure in this space.

Dalio has written other books that are related to this one, except this is the most recent of his publications (as of today) presenting a wealth of information related to what markets really looked like for each “world power” since people started to keep track. As one of the co-founders of Bridgewater Associates working as a Hedge-fund manager, he started investing when he was twelve years old. This is fascinating to me because even twelve-year-old children today have it so much easier learning about markets and investing through many investing apps available today. Basically, he was learning about all of this in the 60s. I only started learning about investing and certain terminology when I was 24, consequently right before the lockdowns because of the pandemic.

What strikes me in this book is how difficult it was for me to put it down initially. Maybe it is the politically charged environment I try to avoid for multiple reasons, not least of which I am only in my 20s and I have yet to experience what the world can truly offer me while I am in my 30s or 40s. Or it was Dalio’s writing style. Maybe a different outlook that was mainly neutral, with respect for history and a balanced level of drama to keep me intrigued by the author’s line of thinking. While all these reasons may also align with your consideration for reading this review, I have not read a macroeconomic/political science/historical book of this nature before.

Dalio prefaces his content with tips on how to read this book. From an efficiency standpoint, he would read any book focusing only on the bold-faced content (if available, which he has made available in this book). If further clarification is necessary, he would recommend reading the regular print which reflects bold-faced writing. Organization-wise, I think the book does its job of sequentially organizing information appropriately. The introduction presents the thesis for much of his argument, suggesting that cycles define a world power’s period of prosperity and depression. Later, Dalio explores stages in every cycle, explaining that the first three stages are what grows the world power into the period of prosperity; how that prosperity begets depression (eventually). Through historical exploration of previous world powers ranging from ancient China to the Dutch in the 1600s, Dalio studies the determinants of what prompts world powers to thrive until those determinants begin to falter and lead to downfall.

In keeping with the theme of labeling determinants that *determine* the ranking order of countries in their respective hierarchical ranks, Dalio attempts to explain how this all came about and what we can expect to see in the future. He introduces the significance of these determinants in the introduction:

Each of these aspects or powers transpired in cycles, and they were all interrelated. For example, nations’ levels of education affected their levels of productivity, which affected their levels of trade with other countries, which affected the levels of military strength required to protect trade routes, which together affected their currencies and other markets, which affected many other things…All the empires and dynasties I studied rose and declined in a classic Big Cycle that has clear markers that allow us to see where we are in it…the swinging of conditions from one extreme to another in a cycle is the norm, not the exception.

To list out all the determinants, Dalio parses a total of eighteen determinants into three sections:

If these three determinants are well controlled, fair, and prosperous, a country is said to be in a strong phase of the cycle

a) Big debt/Money/Capital Markets/Economic Cycle

b) Big cycle of internal order/disorder

c) Big cycle of external order/disorder

Eight key measures of power are listed here:

a) Education

b) Innovation/Tech

c) Cost competitiveness

d) Military strength

e) Trade

f) Economic output

g) Markets and Financial center

h) Reserve Currency status

Additional determinants are listed here, which can be controlled by the eight previously detailed determinants:

a) Geology

b) Resource-Allocation efficiency

c) Acts of Nature

d) Infrastructure and Investment

e) Character/civility/Determination

f) Governance/Rule of Law

g) Gaps in wealth, opportunity, and values

Keeping these determinants in mind, along with the recurring cyclical peaks of prosperity versus decay, the book becomes formulaic in a way. Dalio’s website economicprinciples.org also shares more insight into his so-called “project.” You can tell how much effort it took from Dalio to synthesize all the history and economic information over the past millennium and beyond to construct these models and determinants. To learn about the process, read his commentary, and provide someone a deeper look into the macro ecosystem is reason enough to read through the book.

Another thing that may be obvious to most, but not all, is the immense amount of money in circulation at seemingly any given moment. When you figure that those who preside over each country’s economy have so much power, you truly marvel at the decisions being made. Those decisions rely on recent history, news, money management by companies, hiring statistics, and many more factors. If you are interested in how, it all works, I believe this book would serve you well in your endeavors.

Was it a difficult read? Being someone who has never taken a financial class and has not much idea of what it all entails, it was somewhat challenging to sift through Chapter 3 in the book, given the importance of following the money, so to speak. For instance, it is one thing to understand how one entity’s performance amid the environment is measured by profits or expenses. It is another to add another dimension, which is how would that impact another business or a consumer. Add in the facet of debt versus equity, where one entity’s debt equates to another business’ assets, it starts to get confusing. Throw in an uncertain environment like the pandemic, and then the possibility of bailouts comes into play, which influences business decisions that must cater to their shareholders, and the whole system can be overturned. If you followed that line of logic, then know it can get even more complicated but Dalio’s writing style essentially mirrors this style of cause leading to downstream effects. Like how I approach physiological mechanisms that alter certain things going on in the body.

With that, I leave you with one more reason to consider this book, leading into Chapter 3:

What most people and their countries want most is wealth and power, and money and credit are the biggest influences on how wealth and power rise and decline. If you don’t understand how money and credit work, you can’t understand how the system works, and if you don’t understand how the system works, you can’t understand what’s coming at you.

Works Cited

Dalio, R. (2021). Principles for dealing with the Changing World Order. Avid Reader Press.