When coronavirus struck our world, it left lasting marks on how it works. The pandemic gave rise to a new normal: a world we never imagined would happen, but one that we accepted as the norm. It left permanent changes to the economy, infrastructure, and the entire world order.
American billionaire and hedge fund manager, Ray Dalio, has shared his views on how the pandemic has transformed the world. According to him, it changed at various points in history, in big and numerous events. He has carefully studied the rise and fall of great empires; this is his analysis of our situation.
Principles of The Changing World Order
To understand how the pandemic changed the world order, we need to have an understanding of the current world order. Dalio saw changes coming when he noticed a pattern in powerful countries like the Dutch, British, and, more recently, the U.S. The three main things that happened in history included printing money, the wealth gap, and rising rival power that led to a shift in power dynamics. The last time this happened was after World War II.
What exactly is the “order”?
Domestically, it is the governing system of people dealing with each other, an internal order found in the constitution. The world order is a governing system between countries, something established in treaties. These orders often change after wars, whether it be a civil war or an international war.
The Economic Cycle Explained
The current world order, also known as the American world order, formed after World War II when the U.S. emerged as a superpower and our dollar became the reserve currency.
When one country becomes the dominant power, it’s called the Big Cycle. This cycle has three stages: the rise, the top, and the decline. But it’s more important to understand its decline. The decline is the result of internal and external conflicts in a country. It starts gradually, then the economic downturn happens quickly and often occurs when there’s excess debt.
In this situation, countries will print large amounts of money, devaluing the currency that brings the empire’s downfall. We’ve already been through three cycles of debt, finance, and booms and busts since the 90s. The pandemic was the third and last cycle for the U.S.
Post-Pandemic Economy
Reversing a decline is difficult for any empire but is possible depending on the following indicators:
- Leadership capabilities
- Education levels
- Rate of law
- Corruption
- Global thinking
- Resource allocation efficiency
The virus left massive financial damage behind, which could trigger a changing world order. According to Dalio, our current situation is like the great depression (the worst economic crisis in American history). Still, he remains hopeful and predicts the U.S. can make a recovery, even if it takes several years, unlike the previous downturn.
Rational Optimism is The Way Out
Despite the negative stats, the downturn may not be as dire as the Great Depression. Even if unemployment is on the rise, sectors in healthcare and e-commerce are growing exponentially in the new normal. These changes could be the catalyst that restructures the U.S. economy, but for rising powers like China, it’s also an opportunity to compete.
