The world as reinforcing cycles

Ray Dalio’s Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail presents a comprehensive, longitudinal approach for understanding the world, one that our recency bias sometimes forgets. For those who have primarily experienced periods of growth or focused on the post-WWII era, including myself, it can be difficult to envision a world radically different.

To understand and navigate the complexities of our time, it’s important to explore a broad range of historical examples of how nations rise and fall, which would help uncover the fundamental, timeless patterns that shape these cycles. Dalio’s method of analyzing the intricate forces at play and synthesizing the cause-and-effect relationships behind historical progression is a powerful model. Personally, it has inspired me to rethink how we might study the complexity of user and market behaviors, especially how we could distill principles and patterns to better understand and guide the seemingly complex behaviors of AI/ML models as UX and product builders.

Dalio, Ray. Principles for Dealing with the Changing World Order

01 A 1400-year perspective

Looking back 1,400 years (~600 CE), human productivity has steadily increased global wealth and living standards. While different societies rose at different times, the reasons were consistent — education, inventiveness, work ethic, and economic systems turned ideas into output. For example, wealth once centered on agricultural land, then on machine output, and now on digital data and information processing.

Personal notes

Time scale: Dalio’s 1,400-year perspective is a powerful reminder that our current experiences are just a tiny part of a much larger cycle. Understanding our position within these cycles is crucial for discerning what truly matters amid the noise.
Diverse and global perspective: Drawing insights from a diverse, large sample size across space and time is essential. Too often, we only focus on a single country, missing valuable lessons that a global perspective can surface.
Cause-and-effect relationships: As we shift towards building probabilistic experiences with ML and AI, our role as designers and product builders increasingly involves defining and communicating the underlying cause-and-effect relationships that guide model behavior. Seeing how Dalio studied and presented the cause-and-effect patterns that drive historical progression is an inspiration for effective communication of complex insights.

Guiding question

How might we build collective intuition for long-term thinking?

02 Reinforcing nature of rises and declines

Productivity evolves steadily but doesn’t cause sudden shifts in wealth and power. These shifts come from cycles driven by logical cause-and-effect relationships, such as boosts, booms, evolutions, and wars.

My biggest takeaway is the reminder that strengths and weaknesses are mutually reinforcing. For example, education, competitiveness, economic output, share of world trade, contribute to the others being strong or weak, for logical reasons. This also reflects the old Chinese saying, “That which is long divided must unify; that which is long unified must divide.”（分久必合，合久必分）

Dalio identifies eight key determinants of a nation’s strength: education, competitiveness, innovation and technology, economic output, share of world trade, military strength, financial center strength, and reserve currency status. These determinants reinforce each other, driving a nation’s rise, peak, and decline:

Rise: Strong leadership, inventiveness, and education foster a strong culture and efficient resource allocation, leading to economic growth, strong markets, and financial centers.
Peak: The nation enjoys prosperity with low debt and minimal gaps in wealth, values, and politics, under a stable world order. However, within capitalist systems, uneven financial gains widen the wealth gap.
Decline: Excessive borrowing and financial bubbles weaken the nation as debt rises and wealth, values, and political divides grow. Emerging rivals challenge the nation, leading to a painful restructuring.

Personal notes

Reinforcing dynamics: Although I’ve long heard of the saying that our weaknesses tend to hide behind our strengths, it’s not until reading this book did I truly see how powerful this means over the scale of history, manifesting through humans in aggregates how our strengths and weaknesses reinforce each other in a cyclical pattern.
Mirroring business lifecycles: The rise and fall of nations closely mirrors the lifecycle of a business—from growth to maturity to decline. Similarly, a strong founding team that allocates resources efficiently is more likely to achieve product-market fit, driving rapid growth. However, at its peak, a business may develop inefficiencies that undermine its strengths. Its ability to remain a market leader depends on managing these growth factors effectively.

Guiding question

What are the key factors that drive and hinder a company’s growth, and how can we accurately assess them to ensure long-term investment in the right areas?

03 Measuring real value

Dalio’s articulation of how the debt cycle works is the best I’ve seen, so it’s worth getting into more details in this section. In a capitalist system, money, credit, and economic growth are the biggest influences on how wealth and power rise and decline. The difference between real vs. market value varies at different times of the cycle and a typical long debt cycle goes the follows:

Early stages: With little or no debt, hard money like gold is used for transactions because no trust/credit is required. Later, to avoid the risks and inconvenience of carrying metal money, credible parties issue paper claims on hard money, which soon function as money itself.
Middle stages: Initially, the number of paper claims matches the hard money in reserve. Over time, the appeal of credit and debt grows, leading to trouble when income can’t cover debts, or when claims on money outpace the growth of actual assets or goods to back them up, making debt repayment impossible.
Late stages: In a debt crisis, printing money becomes the quickest way to reduce debt, allowing the credit/debt cycle to restart. This approach, though not well understood, seems beneficial because it alleviates debt, obscures the harm to holders of money and debt assets, and inflates asset values in a depreciating currency, giving the illusion of increased wealth.

Personal notes

Measuring real value: Evaluating real value is crucial in early-stage research—uncovering the honest, unfiltered opinion and behavior of users. Observing where real vs. market value diverges or aligns helps guide investment in products and infrastructure, especially with overhyped areas like generative AI and agent.
Aligning with ground truth: As builders of probabilistic ML models, how do we evaluate if our predictions actually align with ground truth to guide model training and iteration? This is a fascinating area to be further explored to keep our products truly user-centered.

Guiding question

How might we create a clear feedback loop for model iteration and collaboratively define principles for ML model behavior, involving UX, product, engineering, and data teams?

Being able to combine multi-disciplinary thinking to expand our perspective has been my ongoing passion, and Dalio sets a great example for the kind of in-depth, longitudinal studies needed to unpack the complexity of our world, uncovering clear cause-and-effect relationships that are easy to understand and learn from.