The book is a provocative read for those of us questioning where in the arc of history the American Empire resides and what may happen to the economy next. There are few tomes that coherently map such broad economic histories as well as Mr. Dalio’s. Perhaps more unusually, Mr. Dalio has managed to identify metrics from that history that can be applied to understand today. He examined four empires: the Dutch, British, American and Chinese.
He writes that each followed almost the exact same path:
“Rising education leads to increased innovation and technology, which leads to an increased share of world trade and military strength, stronger economic output, the building of the world’s leading financial center, and, with a lag, the establishment of the currency as a reserve currency. And you can see how for an extended period most of these factors stayed strong together and then declined in a similar order. The common reserve currency, just like the world’s common language, tends to stick around after an empire has begun its decline because the habit of usage lasts longer than the strengths that made it so commonly used.”
Today, Mr. Dalio is most concerned about the end of the American Empire and the beginning of another Chinese Empire, a transition he believes could lead to war. He writes that Americans misunderstand the Chinese and their own place in history.:
“300 years seems like a very long time ago to Americans, but for the Chinese, it isn’t long at all. While the prospect of a revolution or a war that will overturn the US system is unimaginable to most Americans, both seem inevitable to the Chinese because they have seen those things happen again and again and have studied the patterns that inevitably precede them. While most Americans focus on particular events, especially those that are happening now, most Chinese leaders view current events in the context of larger, more evolutionary patterns.”
He believes any attempt by the United States to control or change China will only backfire:
“Given China’s impressive track record and how deeply imbued the culture behind it is, there is no more chance of the Chinese giving up their values and their system than there is of Americans giving up theirs. Trying to force the Chinese and their systems to be more American would, to them, mean subjugation of their most fundamental beliefs, which they would fight to the death to protect. To have peaceful coexistence Americans must understand that the Chinese believe that their values and their approaches to living out these values are best, as much as Americans believe their American values and their ways of living them out are best.”
Ultimately he concludes that “If the US continues to decline and China continues to rise, what matters most is whether or not each can do so gracefully.”
I spoke to Mr. Dalio by video call, and he acknowledged that before doing the research, he “really didn’t have much of an understanding of the connection with internal conflicts, external conflicts, the cost of war — financial and nonfinancial — and the impact of nature.”
He was particularly shocked by the role of natural disasters on economies. “Nature, meaning climate, it was surprising to me — that it caused more revolutions and more deaths and wars and depressions,” he said.
Mr. Dalio said he’s not a pessimist. “I’m not trying to be fatalistic,” he said. “I am trying to give that arc. I’m trying to get measurements that are objective.”