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Review: Ray Dalio: Principles for Dealing with THE CHANGING WORLD
ORDER. Simon and Schuster 2021
Preprint · November 2022
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Review: Ray Dalio: Principles for Dealing with THE
CHANGING WORLD ORDER. Simon and Schuster
2021, 552 pages
Dalio measures the fever curve and considers it the cause of change
For me, the reviewer, it is the most exciting book I have gotten my hands on in recent
years. Because I myself wrote a book with overlapping objectives: "Die Intelligenz und
Ihre Feinde: Aufstieg und Niedergang der Inustriegesellschaft [The Intelligenz and Its
Enemies: The Rise and Fall of Industrial Society"; Graz: Ares 2012, 544 pages. (A
masterpiece, too far-reaching, some critics thought. And since I had to agree with them,
two updated abridged versions followed: "Das IQ-Gen"; Ares 2017, 159 pages, and "IQ
Means Inequality: The Population Cycle that Drives Human History", KDP 2020, 138
pages. )
Both Dalio and I are about the same age, but our educational and experiential
backgrounds could hardly be more different. He, an extraordinarily successful financier,
I a scientist among many. Yet we are both driven by the aspiration to recognize what
holds the political world together at its core or what drives it into ruin. Dalio was
prompted to his profound contemplation simply because he wants to optimize profits
and losses of his long-term financial transactions (in Dalio's chapter: Investing in Light
of the Big Cycle); I, because I want to comprehend and illuminate the ideological
resistances that oppose research and findings on IQ differences in their motivations.
Although the starting points of our analyses are completely different, we come to the
same conclusions on the essential points (Chapter: The Big Cycle of Internal Order and
Disorder; Chapter: The Big Cycle of External Order and Disorder): All political events
are cyclical. All great powers experience rise, flourish and and decline; this has always
been the case and will continue. Democracy is (with reference to Aristotle in Dalio and
Weiss) no more than a stage in the cycle of political constitutions; the U.S. is currently in
the phase before upheaval or revolution.
Dalio has mastered the keyboard of the financial world (Chapter: The Big Cycle of
Money, Credit, Debt, and Economic Activity; Chapter: The Changing Value of Money)
with perfection, and his arguments are essentially based on it. But why do I think that
Dalio wants to use the fever curve of the value of money and stock prices to infer the
causes of change, but overlooks essentials?
Dalio started investing money already as a student, I bought my first book with scientific
claim as a student and that was: Witthauer, K.: Die Bevölkerung der Erde: Verteilung
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und Dynamik [The Population of the Earth: Dstribution and Dynamics]. Gotha: Haak
1958. Because also the number of births and the development of the age of life runs in
each country in a cycle, for which the specialists coined the term demographic
transition. The generation that will fill the labor market in the next 40 years. is already
born today. Nothing determines the future more than their numbers, IQ and education.
And I find it to be an unfortunate weakness in Dalio's book that the term demographics
and an understanding of the Demographic Transition do not appear in it, only hidden
and indirectly in: "Education. ... Half of the measure captures the absolute quantity of
educated people at various levels and about half is placed on quality. such as higher
education, rankings, test scores, and average years of education" (p. 506).
But at what point in the demographic transition a nation and a state finds itself is a very
important factor in its prospects in the competitive struggle among economies, not to
mention the military one. In his book, Dalio thanks Henry Kissinger, Mario Draghi and
Lee Kuan Yew, among many others, for their advice. And should no one really have
pointed out to him the importance of demographic change for looking into the future?
One of the proven results is that the later a country enters the early stages of
demographic change, the faster it reaches the final stage, when the number of children
born per woman falls far below two. In China and Iran, therefore, demographic change
is occurring at a much faster pace than was the case in England or Germany. Different
regions or parts of the population of a country may be in different stages of
demographic change, as is the case in Brazil between the Northeast and the South, in
South Africa between blacks and whites, and in the U.S. between the New England
states and the Midwest. Accordingly, these differences correlate with differences in the
political cycle of the corresponding subpopulations.
That it is the shift in population proportions that destabilizes the Soviet Union in the long
run was pointed out by Hélène Carrère d'Encausse in 1978 in her book "L'empire
éclaté". Beginning in 1980, the proportion of non-Russians among recruits for the Red
Army exceeded that of Russians. In 1991, the state and the great power that had grown
over centuries as the Tsarist Empire disintegrated.
Gunnar Heinsohn published in 2003 in his book " Söhne und Weltmacht: Terror im
Aufstieg und Fall der Nationen [“Sons and World Power: Terror in the Rise and Fall of
Nations]" a table (on pp. 60-69) in which he shows the percentage of the population
under the age of 15 in the last half decade at that time. Peak values with a share of
more than 40% - the children of that time are thus today 20 to 40 years old, the sons in
the best man age and full fighting strength - had in 2003 among other things Ethiopia
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(47%). the Sudan (45%), Afghanistan (42%) and the Yemen (47%), thus states, which
are torn since then by internal wars, as it Heinsohns data and remarks let expect. Such
youth shares also had Germany and Russia a century earlier, before World War I and
the Revolution. For Dalio, as a financial expert, this seems to be only a minor matter,
the significance of which for cyclical events he does not discuss. But it is not only in all
industrialized countries - i.e. also in Japan, Taiwan and South Korea, but also
among the white population of North America, Australia and South Africa, but
also in China - that the number of births per woman has long since fallen below
the magic number of two; in recent years, the industrial threshold countries have
followed with rapid acceleration.
Another cyclical event that Dalio only partially recognizes in its full scope is the
development and depletion of new energy sources and thus the development of energy
and raw material prices. If one graphs world oil production and the number of the world
population in the period 1900 to 2005, the two curves run parallel with equal increase
(see Weiss: Die Intelligenz und Ihre Feinde, p. 124). But with this rise of oil production
today or tomorrow is over, the descent begins or is already underway; natural gas has
become more and more important. When Dalio looks at China's cyclical development in
the period from 600 to 2000 (Chapter: The Big Cycle Rise of China and the Renminbi),
he could have left out the centuries before the Industrial Revolution. After all, the
exploitation and consumption of fossil energy for industry represents a singularity in
human history, the end of which is in sight, at least at yesterday's prices.
In the search for the inevitable mechanism, which lets the states and empires become
large, in order to drive them then irrevocably into the ruin, I came across the book of
Eckart Knaul "Das Biologische Massenwirkungsgesetz: Ursache vom Aufstieg und
Untergang der Kulturen" (1985). I have quoted him in the following sense: "If we look
back on the history of past empires and advanced civilizations, we are struck:
Long before the external collapse, an internal decay set in. The economy
stagnated and the finances of the state and the municipalities fell increasingly
into disarray; the number of support recipients increased from year to year, even
though each new ruler set out with the goal of reducing their numbers and the
national debt. The security of citizens was at risk. ... Although no one wanted the
decline, the states headed toward an abyss with internal consistency, as if their
real goal were to fall into the abyss. ... If the cycle of constitutions has led to
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democracy, sooner or later it develops into a 'rule of the inferior', which
redistributes ever more unrestrainedly and disrupts the economy" (Weiss: Das
IQ-Gen. 2017, p. 9f.). Mind you, this is not a momentary description of the
conditions in, say, Great Britain or Germany.
The inner decay comes from the fact that there is also a cycle of human capital, a
cycle of population quality, which Dalio understands in its approach, but not its
inner consistency.
The full passage of a cycle of constitutions presupposes that during a long period
of upswing the mean IQ of the population increases significantly and the rule of
law, which is a prerequisite of industrial society, emerges. Prussia, Saxony,
England and other states were constitutional states before they became
democracies. These states reached the apex of their economic rise before 1890
at a time when they were not developed democracies by today's standards.
Economists have found an explanation in the fact that in the second half of the
19th century, concurrent with the decline in infant mortality, a reversal must have
set in from which point on the poor had more children than the rich. In the book
"Farewell to Alms" (2007) Gregory Clark has compiled statistics from England,
which prove that in the period from 1500 to 1800, the economically more
successful also had the higher number of children. Since economic success is
correlated everywhere in the world with a higher IQ, originally the genes, which
cause a higher IQ, must have enriched, before the development turned around
1880.
Big and bad animals are known to be rare. They are at the top of the food chain.
In German, we speak of a "high animal" when someone occupies a prominent
social position. The big animals cannot reproduce at will; they are also the first to
sense when the food margin begins to narrow. Couples limit their number of
children when they fear that their offspring will no longer be able to maintain the
social status of their parents, when social advancement is improbable and ways
out through emigration or new settlement are not possible. Since upper-class
places are rarer than those further down, birth restriction begins in the upper
class. It is not so much the absolute population density that is important, but the
relative social density.
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In mammals that establish a social hierarchy, population collapse and new
beginnings are forced by a chain of events dictated by nature: The crowding of
overpopulation leads to a striving for equality and the destruction of the social
hierarchy. Not only on Easter Island has this cycle taken place in all its phases
and terrible manifestations, but also repeatedly and repeatedly in complex
human societies. Crucially, through this regulation, population density and
behavioral change are constantly fed back, and the progression of the cycle
presupposes the destruction of social hierarchy and the total disorientation of
female individuals. The more highly qualified a woman is, the greater her desire
to apply her knowledge and skills to her professional life. The more a woman
insists on total equality, the less chance she has of balancing children and career
and leading a happy marriage.
If a biological species overuses its allotted space, then Natural Selection turns
against the species as a whole and regulates it by a catastrophe down to a size
that makes a new beginning possible, that is, the earth's population to 2 billion or
below. While individual selection plays a major role in the ascent phase and gene
frequencies increase for genes that are positively correlated with performance
parameters - i.e. IQ in particular - negative selection and group selection prevail
in the descent phase. This switching from individual selection to group selection
is the crucial point that leads beyond Darwin and Marx....
As if the earth is tired of a species that overuses it, evolution tries to put this
species in its place and programs it from a certain turning point in the direction of
catastrophe. Until now, all such catastrophes, when they affected the human
species, were regional in nature. Now, for the first time, in the age of fossil fuels,
humanity may have set the stage for a global catastrophe, with different world
regions in converging phases of the cycle. For chaos and upheaval after 2030,
my forecast (2012, p. 475. Table On the Cycle of Population Quality) is "very
sharp increase in the price of energy, collapse of the central electric power grid."
I had written this in the hope that I would not have to experience it myself. A
mistake?
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Russia's demographic structure and thus its innovative strength is suffering from
old age, its energy reserves show it to be a great power. In the end, no one
knows what will be more important in the war in Ukraine. The final chapters of
Dalio's book deal with the growing antagonism between China and the United
States. Will there be war over Taiwan, and will the U.S. stand by Taiwan militarily
or not? The cycle of political constitutions condemns both world powers to
decline. According to Dalio's analysis, it is impossible to say today in which
phase of decline China, which is still on the rise today, will find itself in relation to
America, which is on the decline.
The macroscopic processes of history result from the lives of billions of individual
human beings. If we want to calculate our future, we have to arrive at a statistical
description of society which has an analogy to the gas laws. The gas laws
describe the state of a gas by the state variables pressure, volume, temperature
and number of particles. If we apply this to society, then particle number and
volume can easily be interpreted as population size and social density, i.e., the
number of possible applicants to a job. For measuring the pressure and
temperature of a society, Dalio's book is undoubtedly an extremely important
contribution, but a measure of social mobility is still missing.
As required in rigorous science, for Dalio the criterion for the goodness of a
theory and prediction is whether it is accurate or not. When he predicts for South
Africa (p. 500) an average annual growth of the real gross product (GDP) of more
than 3% for the next 10 years, i.e. until 2031, then one can only wish and hope
that he is still right at least for this period due to the country's wealth of raw
materials. Because according to my own analysis, South Africa's demographic
and social structure has led it inexorably down the road to chaos.
Dalio's book is not a scientific book. Unfortunately, it lacks references or even
footnotes, as well as an index. Nevertheless, the reviewer hopes that his review
will somehow reach Dalio's screen and contribute to a substantial improvement
of his computational models. My book, “Intelligence and Its Enemies” (2012), is
dedicated to Hari Seldon. Why, who is he? He should have contributed to Dalio's
book! See https://en.wikipedia.org/wiki/Hari_Seldon And what is psychohistory?
https://en.wikipedia.org/wiki/Psychohistory_(fictional)
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