History is changing fast—in fact so fast that it won’t be long after you read this that dramatic changes will take place that will change the complexion of the world order. In this piece I’d like to put these fast-changing developments in the context of the Big Cycle evolutions of world orders, in this case focusing on the “Big Cycle of External Order and Disorder” as laid out in Chapter 6 of my book Principles for Dealing with the Changing World Order. I will focus most on the Big Cycle that began in 1945 and is now 77 years old. I will briefly review how the big cycle of external conflicts typically works in the context of the rises and declines of empires and world orders. In these respects, my perspective will be different from most others’ perspectives in that 1) while most people are now focusing more on the tactical moment-by-moment developments of the Russia-Ukraine-NATO conflict, I am focusing more on the big picture of the changing world order that this conflict is the latest manifestation of, and 2) while most people are looking at this conflict in isolation, I view it as something that has happened many times before in similar historical cases that we can learn from.  

I am looking at what is now happening within these contexts because I know that I need to see the bigger picture and need to have a good historical perspective (as well as look at the day-to-day tactical developments) in order to understand what is happening and to imagine what might happen. I am passing these thoughts along in the hope that they might help you and with the disclaimer that I’m not sure how right or wrong I am. I am just putting them out there for you to take or leave as you like.

To briefly touch on the short-term tactical stuff before getting into the big-picture strategic stuff, I’ll start with the obvious: war is terrible and unpredictable and causes awful human suffering. We are at the brink of finding out if it will stop or expand. More specifically, it seems to me that the two most important and immediate questions are:

1) Will this war extend beyond the Ukrainian-Russian borders to include Russian responses that hurt one or more NATO countries in significant enough ways that could lead to tit-for-tat escalations that could lead the war to become between Russia and NATO countries or will cease-fire talks lead to some sort of cessation of fighting? The big step-up in sanctions recently announced will have very damaging effects on the Russian economy without much cost to NATO countries, especially if the conflict continues for an extended amount of time. The economic pain that Russians will feel will be so bad that it would be surprising if there wasn’t big internal opposition to Putin’s policies that could threaten or topple his regime. These circumstances highlight the obvious questions of a) whether Putin will respond by upping the ante by giving NATO countries something big to lose, what that will be, and how it will be handled, or b) whether he can successfully backpedal to have some sort of compromise (unlikely). Putin giving NATO countries something big to lose (e.g., in a nuclear confrontation) would be worrisome.  

2) How supportive will China be to Russia? Because Russia is not strong in most ways other than militarily, and because these sanctions were always obvious possibilities, it would not have been logical for Putin to have taken the path he took alone, and it is well known that China and Russia are very aligned in many ways and that can be very helpful in minimizing the effects of the sanctions. Most interesting are the questions related to using the Chinese currency and its clearing system (most importantly the development and increased usage of the e-CNY and the reduction in US sanction powers via its control over SWIFT). To be clear, I’m not saying that China will help in this way. I think a more compelling argument can be made for China not helping. In any case, I’m waiting to see what China will do because that will have a big effect on what the rapidly changing world order will soon look like. 

I should say that a huge amount is being learned by what is now happening—most importantly about the strengths and weaknesses and actions of all of the key players—that will be very helpful in imagining how the struggle for control of the world order might unfold in the future. Still, as is true in all such wars and changes in world orders, at this point in the progression what is known is much less than what is not known.

From the Big-Picture, Top-Down Perspective 

Now I will now rise above this short-term tactical stuff to look at how the long-term big cycle of rises and declines of great powers and changes in the world order work in order to help us better understand what is now happening and better anticipate what might happen. With that perspective in mind, we can then drop back down into the current conflict between Russia, Ukraine, NATO, and other countries.

To Review: The Three Big Forces That Are Now at Work

As explained before and more comprehensively in my book Principles for Dealing with the Changing World Order, it seems to me that we are now seeing three big forces that are changing the world order in ways that never happened in our lifetimes but happened many times throughout history:

1) The Financial/Economic One: Classically and currently the world’s leading power (which typically has the leading currency) is spending much more money than it is earning, which is leading it to borrow a lot and print a lot of money to buy the debt, which is reducing the value of the debt and money relative to the value of goods, services, and non-debt investment assets. This is producing inflation in goods, services, and investment assets. History has shown that when the coffers are bare and this sort of money printing takes place, financial weakness is near, and financial weakness causes all sorts of problems and precedes declines. When the coffers are bare and there is the need for more spending on both “guns and butter” there is a lot more printing of money, inflation, and political reactions to inflation.

2) The Internal Conflict One: Classically and currently there is great internal conflict over wealth and values gaps that is leading to populism of the right and populism of the left and fights between the sides. There is a “win at all cost” mentality, which eliminates the compromising and rule-following that is essential for maintaining internal order. The more internal disorder there is the more polarity and fighting there is, which typically leads to some form of civil war.

3) The External Conflict One: Classically and currently the rising of one or more foreign powers to become comparable in power to the leading power(s) leads to power struggles, typically external wars, that determine which power(s) will be in control and what the new order will be.  

Classically and currently these three cycles—i.e., the financial/economic one, the internal conflict one, and the external conflict one—are both individually evolving and influencing each other to create the Big Cycle of rises and declines of empires, countries, dynasties, and world orders.

 

• All empires in history have risen and declined for knowable and measurable reasons. To objectively measure and monitor these three and other important forces I created 18 indices of power that reflect 18 different types of power. While I don’t have the space to show them here they are shown in Principles for Dealing with the Changing World Order, so if you want to see them I direct you there.

 

Today I will focus on the third of these three big forces, pulling out some of the most important principles covered more completely in Chapter 6, “The Big Cycle of External Order and Disorder,” and relating them to what is now happening.

The Big Cycle of External Order and Disorder

Some relevant principles are:

 

• International relations are driven much more by raw power dynamics than internal relations are. That is because all governance systems require effective and agreed-upon 1) laws and law-making abilities (e.g., legislators), 2) law enforcement capabilities (e.g., police), 3) ways of adjudicating (e.g., judges), and 4) ways of inflicting punishments. None of these has been able to be established on a global basis because the most powerful countries won’t give up power to the majority of countries because it would be unwise for them to do so. For example that is the reason that the US-China trade dispute wasn’t adjudicated by the World Trade Organization.
• There are five major kinds of competitions or wars that exist between countries:

 

 

1. Trade/economic wars
2. Technology wars
3. Geopolitical wars
4. Capital wars
5. Military wars  

 

 

• These competitions or wars reward the winners and penalize the losers, which reinforce their strengthenings or their weakenings. They vary in severity from healthy competitions to all-out wars. The progression tends to be from the first one on the list (trade/economic wars) toward the last one on the list (military wars), with each growing in intensity. Then, when a military hot war begins, all four of the other types of wars are applied full-on and weaponized. For these reasons, by monitoring the progression and intensities of the conflicts one can pretty well anticipate what is likely to come next.
• To be a leading world power one must be strong in most of the major ways. For example the United States and China are now strong in all of these ways but Russia is not. For that reason Russia needs to align itself with a leading power (China) to win wars.
• The weak will lose to the strong.
• One must be strong internally in order to be strong externally. These ways and how strong each country is in them are measured and shown in the appendix to my book and will be updated on economicprinciples.org. 
• People and countries are more likely to have cooperative relationships during economic good times and to fight during economic bad times.
• Shortly before there is a military war there is an economic war that typically includes:

 

 

1. Asset freezes/seizures
2. Blocking capital markets access
3. Embargoes/blockades

 

Over the weekend we saw significant intensifications of these economic war actions by Western (mostly NATO) powers, inflicting them on Russia. The magnitudes of increases and levels of these are a classic red flag that we should worry about a hot war between the major powers. At this moment we haven’t yet seen a retaliation by Russia, though we are hearing nuclear and other threats. So it appears that we are in the “at the brink” part of the cycle that is just after the big intensification of the economic war attacks and just before the military hot war. In other words, while the military hot war has been confined within the borders of Ukraine, it could spread to include the major powers. Seeing an acceleration and intensification of these economic war actions and/or a retaliation by Russia to hurt the NATO countries would signal a major increase in the risk of a major hot war. When I say that it would signal a major increase in the risk, I wouldn’t yet say that it is probable.  

 

• The choice that opposing countries face between fighting or backing down is very hard to make because both are costly—fighting in terms of lives and money expended and backing down in terms of the loss of status, since it shows weakness, which leads to reduced support. This is playing a role for both Russia and the opposing Western powers since backing down would be viewed as an unacceptable sign of weakness as the world is now looking to find out who will win this war. Putin now appears trapped. This could be dangerous or it could neuter Russia as a power. We will soon find out which happens.
• Hot wars typically occur when irreconcilable existential issues cannot be resolved by peaceful means. For example existential issues a) for Putin might be having another Western/NATO-supported country on its border, b) for China might be not having control over Taiwan, c) for Iran and/or North Korea might be not having nuclear weapons to protect themselves, and d) for the US and other countries might be these countries having these things.[1]
• The greatest risk of hot war is when both parties have military powers that are roughly comparable because if one side is dominant it typically gets its way by simply threatening war. Russia and NATO have roughly comparable military capability.
• Winning means getting the things that are most important without losing the things that are most important, so wars that cost much more in lives and money than they provide in benefits are stupid. This looks like a stupid war.

 

While these things sound ominous, my experiences over my lifetime have been that when push came to shove all sides, when faced with the choice of pulling back or experiencing mutually assured destruction, chose pulling back from hot wars. My first encounter with this, which is also the most analogous case to the one at hand, was the Cuban Missile Crisis when Russia had a sympathetic government and arms on the border of the United States and the United States considered that an existential threat and the parties could have gone to nuclear war fighting over it. I remember watching TV news and thinking that it was implausible that either side would back down and then being relieved that the decision makers chose to back down and find a path out of what could have been total destruction. I also remember how close a call that was because some of the leaders and generals favored war over the path that was taken to avoid war. For that reason, I believe it’s too early to consider the movement to a hot war between Russia and NATO countries likely. Instead of trying to anticipate it I’d rather react to the next stepped-up threats and/or some form of actual attack, which I would expect to be more restrained than an all-out military hot war.

When Hot Wars Begin

Before I get into what hot wars look like I want to re-emphasize that I believe that odds favor not getting into a hot war between Russia and NATO countries for the foreseeable future; at the same time I believe that they aren’t low enough for me to not consider and protect myself against the possibility. The most important principles about them are:

 

• The two things about hot wars that one can be most confident in are that 1) they won’t go as planned and 2) they will be worse than imagined. As a result, smart leaders typically go into them only if the other side has pushed them into a position where losing by backing down can be ruinous. We know that if there was to be a hot war between the United States and Russia (especially if China was involved) it would be disastrous so that the fear of mutually assured destruction remains the main impediment to having a hot war.
• Those who are most likely to win hot wars aren't the most powerful. They are the ones who can endure the most pain for the longest amount of time. In this regard the Russians and the Chinese are stronger than the Westerners.

 

More Indications of What a Hot War Could Look Like for Economies and Markets

The following table shows wartime economic controls that existed in each of the major countries during World War II.

The next table shows the controls over markets and capital flows that were put in place by the major countries during World War II.

Stock market closures were common in a number of countries, leaving investors in stocks stuck without access to their capital. I should also note that money and credit were not commonly accepted between non-allied countries during the war because of a justifiable wariness about whether the currency would have any value. As noted in Principles for Dealing with the Changing World Order, gold—or, in some cases, silver or barter—was the coin of the realm during wars. At such times, prices and capital flows are typically controlled, so it is difficult to say what the real prices of many things are.

Because losing wars typically leads to a total wipeout of wealth and power, movements of those stock markets that remained open in the war years were largely driven by how countries did in key battles as these results shifted the probability of victory or defeat for each side.

Protecting one’s wealth in times of war is difficult because normal economic activities are curtailed, traditionally safe investments are not safe, capital mobility is limited, and high taxes are imposed when people and countries are fighting for their survival. Protecting the wealth of those who have it is not a priority relative to the need to redistribute wealth to get it to where it is needed most. When hot wars happen, classically it pays to sell out of debt and buy gold because wars are financed by borrowing and printing money, which devalues debt and money, and because there is a justifiable reluctance to accept credit.

It is for these reasons that, as I said before, my two most important questions are now 1) will this war pass beyond Ukraine’s borders and include some form of a Russian attack on a NATO country that leads to a tit-for-tat acceleration, and 2) what will China do?

I will conclude this piece with my power principle.

Power principle: Have power, respect power, and use power wisely. Having power is good because power will win out over agreements, rules, and laws all the time. When push comes to shove, those who have the power either to enforce their interpretation of the rules and laws or to overturn them will get what they want. It is important to respect power because it’s not smart to fight a war that will produce more pain than reward; it is preferable to negotiate the best settlement possible (that is unless one wants to be a martyr, which is usually for stupid ego reasons rather than for sensible strategic reasons). It is also important to use power wisely. Using power wisely doesn’t necessarily mean forcing others to give you what you want—i.e., bullying them. It includes the recognition that generosity and compromise are powerful forces for producing win-win relationships, which are fabulously more rewarding than lose-lose relationships. In other words, it is often the case that using one’s “hard powers” is not the best path and that using one’s “soft powers” is preferable.

Footnotes

[1] Note that the US is in all these conflicts because the United States is the leader of the existing world order, which has led it to be the defender of its ideologies and areas of influence. You can decide whether or not you think this is an enviable position to be in and how to handle it. History tells us that it’s an unenviable position to be in unless one is a dominant power.

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