The Coming Great Conflict

As you know, based on my study of history, I believe there are now and have always been five big, interrelated forces that drive how domestic and world orders change. They are the 1) the big debt/credit/money cycle, 2) the big internal order/disorder cycle 3) the big external order/disorder cycle, 4) acts of nature (i.e., droughts, floods, and pandemics), and 5) human innovation that leads to advances in technology. Today, I am focusing on why I believe we are approaching the point in the internal order-disorder cycle when you will have to choose between picking a side and fighting for it, keeping your head down, or fleeing.

Pick a Side and Fight for It, Keep Your Head Down, or Flee

I believe we now have to face the fact that fighting for democracy as we know it—with thoughtful disagreement and compromises governed by rule of law—is unlikely to work. People like me who had a long shot hope for the emergence of a strong middle that fights against the extremists to bring the country together and makes major reforms to improve the system must recognize that the differences are becoming too irreconcilable for this to happen.

Based on the lessons I learned from studying history about how things typically transpire under similar circumstances, I believe that what we are now seeing is the parties increasingly moving to greater extremism and a fight-to-win at all cost mode. This is threatening the rule of law as we know it and is bringing us closer to some form of civil war. (As I will explain below, this is not necessarily a violent conflict, though that is possible).

When I wrote my book Principles for Dealing with the Changing World Order, which looked at the rises and declines of domestic and world orders over the last 500 years, I chronicled the six stages of the “big internal order cycle,” their symptoms, and the cause-effect relationships that drive them. Just like life cycles, these stages are logical and everyone goes through them, typically about once in a lifetime. Toward the end of the cycle, which is where all the signs and symptoms show us to be today, people typically face a choice between fighting for one side or another, keeping their heads down, or fleeing.

When I wrote the book in 2020, I saw the writing on the wall but had hoped for the possibility that we would not cross the brink into a type of civil war, so I estimated the chance of that as about 1 in 3. At the time, this was considered a crazy high estimate (this was before the 2020 election being contested and the January 6th incident). Now I think the risk of some form of civil war is uncomfortably more than 50 percent, and I am confident that in the next year we will know the answer to whether we will cross the brink.

In a Nutshell How It Works

Domestically in the US there are two political sides which are also each divided in two: 1) the right side (i.e., the red Republican team), which is divided into the hard right and the moderate right, and 2) the left (the blue Democratic team), which is divided into the hard left and the moderate left. Throughout history, in the later stages of the cycle of internal order and disorder, both sides become increasingly "hard" (extreme) for logical reasons. This is the part of the cycle that we are in. Classically, at this stage, wealth and values gaps are large, people have lost faith that the system will get them what they want, and the hard right and the hard left become increasingly committed to winning for their constituents at all costs, which eventually means abandoning the rules of the game and the judges and just fighting. In the current case and classically, the sides become unwilling to compromise as compromising is perceived as being weak and people are forced to either pick a side and fight for it, keep their heads down, or flee. You should be prepared to make that choice.

To make the decision only a bit more extreme than it currently is, in looking at these two sides, if you had to choose between a fascist government and a communist government, which would you choose? If you are not knowledgeable about what fascism is (a dictatorship of the hard right) and what communism really is (a dictatorship of the hard left), I urge you to get schooled because if you have to make choices, it’s important to really understand them.

The Case at Hand

Most importantly, there are now big irreconcilable differences that are producing win-at-all cost perspectives that are undermining the willingness to accept the judgements of the legal system. That is very relevant to nearly all decision making—most importantly to legal and political decision making in and beyond the election. We should acknowledge and worry about what's going on and think about its implications. For example, we should pay attention to Maureen Dowd of the New York Times saying that the Supreme Court is "corrupt, rotten, and hurting America" and the numerous other similar attacks on the system. This is only one of a chorus of such comments.
Comments like these beg questions such as 1) what is the definition of corruption, 2) if it is corruption, why don't those who are corrupt get prosecuted and convicted, and 3) if the judicial system and the judges don't make these decisions, how will they be made? Nowadays “corrupt” seems to mean what those on the other side of the political divide decide is corrupt. It is obvious to me that if people don’t rely on the judicial system to make unbiased decisions, decisions will instead be made by revolutionaries on both sides fighting it out. This of course is very relevant to the upcoming election, so let's play out how that will likely go.

It seems to me that if Biden wins, it is likely that Trump and those on the hard right who he represents won't accept the leadership of Biden and the Democratic Party, and that if Trump wins, those on the hard left won't accept Trump's leadership and tactics. What happens next depends on the strength of the legal system, with those on each side seemingly more willing to fight its judgments than abide by them if they don’t get what they want. For these reasons, it seems to me that there is a higher than 50 percent chance that democracy as we know it won't run smoothly through the election and beyond, and that the still most popular view that everyone will abide by the votes and the rules (i.e., if we have ABC votes for president, senators, and congressmen, we will have XYZ policies enacted as a function of the system operating as it has operated) won't prove true.

While it is now commonly believed that Trump Republicans are the greater extremists and the Democrats will be moderate, based on how things have transpired in history and what I see today, I'm not so sure. I think it's more likely that both sides will be more extreme than is commonly believed. Given that it is doubtful that President Biden will remain president through his next term, we don't know what part of the Democratic Party will win out in leading its agenda. While there are moderate leaders in the Democratic Party (i.e., Hakeem Jeffries, Gretchen Whitmer, and Josh Shapiro), those of the hard left (i.e., Elizabeth Warren, Bernie Sanders, and AOC) have largely gone quiet, knowing that they would scare away moderate voters so it's better for them to bide their time while they are pushing their hard left agenda behind the scenes. President Biden's appointment of Lina Khan, a political activist of the left, to head the FTC is an example of the current administration using appointments the way Trump is making clear he will have his political appointees use their positions to pursue a hard-left agenda. In the recent past, leading Democrats have also expressed support for rule changes that would swing power their way (i.e., making Puerto Rico and Washington DC states so they could get control of the Senate, adding to the number of Supreme Court justices to get control of it, removing of the filibuster, etc.) Given all of this, I’m not so sure that hard left Democrats are out of the picture or are above using their government powers to achieve their political agenda any more than I believe that hard right Republicans are above doing that.

For all these reasons, it appears to me that we are probably headed toward an existential battle of the hard right against the hard left in which you will have to pick a side and fight for it, or keep your head down, or flee.

By flee, I think that will mostly be from one state to another and we will see increased emphasis on state rights rather than the central government being dominant. A clash between state governments and a fractured central government appears likely, which I would regard as a type of civil war even if not violent. If things get bad enough, some Americans will flee to other countries and foreigners will choose not to be here. Such disorder would also not be good for rule-of-law and our capital markets.

From studying history, I have seen these sorts of civil wars happen many times before—in the French, Russian, German, Italian, Spanish, Chinese, Cuban and several other cases—so that the sequence of how this cycle typically transpires is clear and appears applicable to what is happening now in the United States (and in several other countries in varying degrees). For those who are interested, I have copied the section from Chapter Five (“The Big Cycle of Internal Order/Disorder”) of my book which the describes Stage Five (the pre-civil war stage that I believe we are in) and Stage Six (the civil war stage that I believe that we are in the brink of) of the internal order cycle. To be clear, I am not saying that we will certainly cross the brink into civil war—I am saying that there is a much higher probability of some type of civil war (including a non-violent one) than is commonly believed.

By the way, what I described here is about domestic conflict. A similar sort of conflict is happening internationally—i.e., there is a classic great power conflict with the two big sides internationally being the China-Russia side and the US -G7-Australia side and regional conflicts are being sorted out by nations in alliances with these two big sides. But that is a subject for another day. Let's now focus on how the internal conflict dynamic typically works and apply that template to what's happening to internal politics with this excerpt from Chapter Five of Principles for Dealing with the Changing World Order.

Stage 5: When There Are Bad Financial Conditions and Intense Conflict

The most important influence that transpires in a Big Cycle is that of debt, money, and economic activity. Because I covered that cycle comprehensively in Chapters 3 and 4, I won’t explain it here in detail. But to understand Stage 5, you need to know that it follows Stage 3, in which there is peace and prosperity and favorable debt and credit conditions, and Stage 4, in which excess and decadence begin to bring about worse conditions. This process culminates in the most difficult and painful stage—Stage 6—when the entity runs out of money and there is typically terrible conflict in the form of revolution or civil war. Stage 5 is the period during which the interclass tensions that go along with worsening financial conditions come to a head. How different leaders, policy makers, and groups of people deal with conflict has a major impact on whether the country will undergo the needed changes peacefully or violently.

You can see signs of this happening now in a number of countries. Those that have adequate financial conditions (i.e., have incomes that are greater than their expenses and assets that are greater than their liabilities) are in relatively good shape. Those that do not are in relatively bad shape. They want money from the others. The problem is that there are many more who are in bad shape relative to those that
are in good shape.

You can also see that these different conditions are big drivers of the differences in what is now happening to most aspects of these countries, states, cities, companies, and people—e.g., their education, healthcare, infrastructure, and well-being. You can also see big cultural differences in how countries approach their stressful conditions, with some approaching them more harmoniously than others who are more inclined to fight.

Because Stage 5 is such a pivotal stage in the internal cycle and because it’s the stage that many countries, most importantly the US, are now in, I will devote some time to going through the cause/effect relationships at play during it and the key indicators to watch in examining its progression. Then I will turn more specifically to where the United States stands.

The Classic Toxic Mix

The classic toxic mix of forces that brings about big internal conflicts consists of 1) the country and the people in the country (or state or city) being in bad financial shape (e.g., having big debt and non-debt obligations), 2) large income, wealth, and values gaps within that entity, and 3) a severe negative economic shock.

That confluence typically brings about disorder, conflict, and sometimes civil wars. The economic shock can come about for many reasons, including financial bubbles that burst, acts of nature (such as pandemics, droughts, and floods), and wars. It creates a financial stress test. The financial conditions (as measured by incomes relative to expenses and assets relative to liabilities) that exist at the time of the stress test are the shock absorbers. The sizes of the gaps in incomes, wealth, and values are the degrees of fragility of the system. When the financial problems occur, they typically first hit the private sector and then the public sector. Because governments will never let the private sector’s financial problems sink the entire system, it is the government’s financial condition that matters most. When the government runs out of buying power, there is a collapse. But on the way to a collapse there is a lot of fighting for money and political power.

From studying 50-plus civil wars and revolutions, it became clear that the single most reliable leading indicator of civil war or revolution is bankrupt government finances combined with big wealth gaps. That is because when the government lacks financial power, it can’t financially save those entities in the private sector that the government needs to save to keep the system running (as most governments, led by the United States, did at the end of 2008), it can’t buy what it needs, and it can’t pay people to do what it needs them to do. It is out of power.

A classic marker of being in Stage 5 and a leading indicator of the loss of borrowing and spending power, which is one of the triggers for going into Stage 6, is that the government has large deficits that are creating more debt to be sold than buyers other than the government’s own central bank are willing to buy. That leading indicator is turned on when governments that can’t print money have to raise taxes and cut spending, or when those that can print money print a lot of it and buy a lot of government debt. To be more specific, when the government runs out of money (by running a big deficit, having large debts, and not having access to adequate credit), it has limited options. It can either raise taxes and cut spending a lot or print a lot of money, which depreciates its value. Those governments that have the option to print money always do so because that is the much less painful path, but it leads investors to run out of the money and debt that is being printed. Those governments that can’t print money have to raise taxes and cut spending, which drives those with money to run out of the country (or state or city) because paying more taxes and losing services is intolerable. If these entities that can’t print money have large wealth gaps among their constituents, these moves typically lead to some form of civil war/revolution.

At the time of this writing, this late-cycle debt dynamic is now playing out in the United States at both the state and federal levels, with the main difference between them being that state governments can’t print money to pay their debts while the federal government can. The federal government and many state and city governments have large deficits, large debts, and large wealth gaps, and the central bank (the Federal Reserve) has the power to print money. So, at the time of this writing, the central bank is printing a lot of money and buying a lot of federal government debt, which finances the government spending that is much bigger than the federal government’s intake. That has helped the federal government and those it is trying to help, though it has also cost those who are holding dollars and dollar debt a lot in real purchasing power.

Those places (cities, states, and countries) that have the largest wealth gaps, the largest debts, and the worst declines in incomes are most likely to have the greatest conflicts. Interestingly, those states and cities in the US that have the highest per capita income and wealth levels tend to be the states and cities that are the most indebted and have the largest wealth gaps—e.g., cities like San Francisco, Chicago, and New York City and states like Connecticut, Illinois, Massachusetts, New York, and New Jersey.

Facing these conditions, expenditures have to be cut or more money has to be raised in some way. The next question becomes who will pay to fix them, the “haves” or the “have-nots”? Obviously, it can’t be the have-nots. Expenditure cuts are most intolerable for those who are poorest, so there needs to be more taxation of people who can afford to pay more and there is a heightened risk of some form of civil war or revolution. But when the haves realize that they will be taxed to pay for debt service and to reduce the deficits, they typically leave, causing the hollowing-out process. This is currently motivating movements from some states to others in the US. If bad economic conditions occur, that hastens the process. These circumstances largely drive the tax cycle.

History shows that raising taxes and cutting spending when there are large wealth gaps and bad economic conditions, more than anything else, has been a leading indicator of civil wars or revolutions of some type.

To be clear, they don’t have to be violent, though they can be. I see these cycles transpiring in my personal interactions. For example, I live in the state of Connecticut, which has the highest per capita income in the country, the largest wealth gap and income gap in the country, and one of the largest per capita debt and unfunded pension obligations in the country. I see how the haves and the have-nots are focused on their own lives and spend little time worrying about the other because they don’t have much contact. I have windows into what the lives of both the haves and the have-nots are like because I have contact with the people in our community of haves and because the work my wife does to help disengaged and disconnected high school students in disadvantaged communities brings her into contact with people who live in the communities of the have-nots. I see how terrible the conditions are in those have-not communities and how the haves (who appear rich and decadent to the have-nots) don’t feel rich. I see how they are all focused on their own struggles—with the haves struggling with work/life balance, making sure their kids are well-educated, etc., and the have-nots struggling with finding income, food security, avoiding violence, trying to get their kids a quality education, etc.

I see how both groups are more likely to have critical, stereotypical impressions of each other that make them more inclined to dislike each other than to view themselves empathetically as members of one community in which they should help each other. I see how difficult it can be to help each other because of these stereotypes and because the haves don’t feel that they have more than enough or that the have-nots deserve their financial support, and I fear what the future might hold because of the existing circumstances and how they are likely to worsen. I have seen close up how COVID-inflicted health and budget shocks have brought to the surface the terrible conditions of the have-nots and are worsening the financial gaps that could bring about the classic toxic mix dynamic.

Averages don’t matter as much as the number of people who are suffering and their power.

Those who favor policies that are good for the whole—e.g., free trade, globalization, advances in technology that replace people—without thinking about what happens if the whole is not divided in a way that benefits most people are missing the fact that the whole is at risk.

To have peace and prosperity, a society must have productivity that benefits most people. Do you think we have this today?

What does history show as the path that bankrupt governments can follow to raise productivity that benefits most people? It shows that restructuring and/or devaluing enough of the previously created debt and non-debt obligations helps a lot. That is classic in Stages 5 and 6. Once the restructuring or devaluation reduces the debt burdens, which is typically painful at the time, the reduced debt burdens allow for a rebuilding.

An essential ingredient for success is that the debt and money that are created are used to produce productivity gains and favorable returns on investment, rather than just being given away without yielding productivity and income gains. If it is given away without yielding these gains, the money will be devalued to the point that I won’t leave the government or anyone else with much buying power.

History shows that lending and spending on items that produce broad-based productivity gains and returns on investment that exceed the borrowing costs result in living standards rising with debts being paid off, so these are good policies.

If the amount of money being lent to finance the debt is inadequate, it is perfectly fine for the central bank to print the money and be the lender of last resort as long as the money is invested to have a return that is large enough to service the debt. History shows and logic dictates that investing well in education at all levels (including job training), infrastructure, and research that yields productive discoveries works very well. For example, big education and infrastructure programs have paid off nearly all the time (e.g., in the Tang Dynasty and many other Chinese dynasties, in the Roman Empire, in the Umayyad Caliphate, in the Mughal Empire in India, in Japan’s Meiji Restoration, and in China’s educational development programs over the last couple of decades), though they have long lead times. In fact, improvements in education and infrastructure, even those financed by debt, were essential ingredients behind the rises of virtually all empires, and declines in the quality of these investments were almost always ingredients behind empires’ declines. If done well, these interventions can more than counterbalance the classic toxic mix.

The classic toxic mix is usually accompanied by other problems. The more of the following conditions that are in place, the higher the probability of having a severe conflict like a civil war or revolution.

Decadence

While early in the cycle there is typically more spending of time and money on productive things, later in the cycle time and money go more toward indulgent things (e.g., the finer things, like expensive residences, art, jewelry, and clothes). This begins in Stage 4 when such spending is fashionable, but by Stage 5 it begins to appear grotesque. Often, that decadent spending is debt-financed, which worsens the financial conditions. The change in psychology that typically goes along with these changes is understandable. The haves feel that they have earned their money so they can spend it on luxuries if they like, while the have-nots view such spending at the same time they are suffering as unfair and selfish. Besides increasing resentments, decadent spending (as distinct from saving and investing) reduces productivity.

What a society spends money on matters. When it spends on investment items that yield productivity and income gains, it makes for a better future than when it spends on consumption items that don’t raise productivity and income.

Bureaucracy

While early in the internal order cycle bureaucracy is low, it is high late in the cycle, which makes sensible and necessary decision making more difficult.

That is because things tend to get more complex as they develop until they reach the point where even obviously good things can’t be done—necessitating revolutionary changes. In a legal and contract-based system (which has many benefits), this can become a problem because the law can stand in the way of doing obviously good things. I will give you an example that I’m close to because my wife and I care about it.

Because the US Constitution doesn’t make education a federal government responsibility, it has predominantly been a state and local responsibility with school funding coming from revenue raised by local taxes in cities and towns. Though it varies from state to state, typically those children in richer towns in richer states receive a much better education than those in poorer towns in poorer states. This is obviously unfair and unproductive even though most people agree that children should have equal opportunities in education. But because this structure is so ingrained in our political system, it is nearly impossible to fix without a revolutionary reinvention of how we approach it. There are more examples of the bureaucracy standing in the way of doing sensible, productive things than I have time and space to convey here. It is now a big problem in America.

Populism and Extremism

Out of disorder and discontent come leaders who have strong personalities, are anti-elitist, and claim to fight for the common man. They are called populists. Populism is a political and social phenomenon that appeals to ordinary people who feel that their concerns are not being addressed by the elites. It typically develops when there are wealth and opportunity gaps, perceived cultural threats from those with different values both inside and outside the country, and “establishment elites” in positions of power who are not working effectively for most people. Populists come into power when these conditions create anger among ordinary people who want those with political power to be fighters for them. Populists can be of the right or of the left, are much more extreme than moderates, and tend to appeal to the emotions of ordinary people. They are typically confrontational rather than collaborative and exclusive rather than inclusive. This leads to a lot of
fighting between populists of the left and populists of the right over irreconcilable differences. The extremity of the revolution that occurs under them varies. For example, in the 1930s, populism of the left took the form of communism and that of the right took the form of fascism while nonviolent revolutionary changes took place in the US and the UK. More recently, in the United States, the election of Donald Trump in 2016 was a move to populism of the right while the popularity of Bernie Sanders, Elizabeth Warren, and Alexandria Ocasio-Cortez reflects the popularity of populism of the left. There are increased political movements toward populism in a number of countries. It could be said that the election of Joe Biden reflects a desire for less extremism and more moderation, though time will tell.

Watch populism and polarization as markers. The more that populism and polarization exist, the further along a nation is in Stage 5, and the closer it is to civil war and revolution. In Stage 5, moderates become the minority. In Stage 6, they cease to exist.

Class Warfare

In Stage 5, class warfare intensifies. That is because, as a rule, l during times of increased hardship and conflict there is an increased inclination to look at people in stereotypical ways as members of one or more classes and to look at these classes as either being enemies or allies. In Stage 5, this begins to become much more apparent. In Stage 6, it
becomes dangerous.

A classic marker in Stage 5 that increases in Stage 6 is the demonization of those in other classes, which typically produces one or more scapegoat classes who are commonly believed to be the source of the problems. This leads to a drive to exclude, imprison, or destroy them, which happens in Stage 6. Ethnic, racial, and socioeconomic groups are often demonized. The most classic, horrific example of this comes from the Nazi’s treatment of Jews, who were blamed and persecuted for virtually all of Germany’s problems. Chinese minorities living in non-Chinese countries have been demonized and scapegoated during periods of economic and social stress. In the UK, Catholics were demonized and scapegoated in numerous stressful periods, such as the Glorious Revolution and the English Civil War. Rich capitalists are commonly demonized, especially those who are viewed to be making their money at the expense of the poor. Demonizing and scapegoating are a classic symptom and problem that we must keep an eye on.

The Loss of Truth in the Public Domain

Not knowing what is true because of distortions in the media and propaganda increases as people become more polarized, emotional, and politically motivated.

In Stage 5, those who are fighting typically work with those in the media to manipulate people’s emotions to gain support and to destroy the opposition. In other words, media folks of the left join with others of the left and media folks of the right join with others of the right in the dirty fight. The media goes wild like vigilantes: people are commonly attacked and essentially tried and found guilty in the media, and they have their lives ruined without a judge and jury. A common move among 1930s populists of the left (communists) and of the right (fascists) was to take control of the media and establish “ministers of propaganda” to guide them. The media they produced was explicitly aimed at turning the population against the groups that the governments considered “enemies of the state.” The government of the democratically run United Kingdom created a “Ministry of Information” during World War I and World War II to spread government propaganda, and leading newspaper publishers were elevated by the government if they did what the government wanted them to do to win the propaganda war or were vilified and suffered if they didn’t cooperate. Revolutionaries did the same distorting of the truth in all sorts of publications. During the French Revolution, newspapers run by revolutionaries pushed anti-monarchist and anti-religious sentiment, but when those revolutionaries attained power, they shut down dissenting newspapers during the Reign of Terror. During times of great wealth gaps and populist thinking, stories that bring down elites are popular and lucrative, especially those that bring down left-leaning elites in right-leaning media outlets and those that bring downright-leaning elites in left-leaning media outlets. History shows that significant increases in these activities are a problem that is typical of Stage 5, and that when combined with the ability to inflict other punishments, the media becomes a powerful weapon.

It is well-recognized this is happening at the time of this writing. The perceived truth in media, both traditional and social, is lower than at any other time in our lifetimes. For example, a 2019 Gallup poll found that only 13 percent of Americans surveyed have “a great deal” of trust in the media and only 41 percent of those surveyed have either a “fair” or “great deal” of trust in the media. That compares with 72 percent who trusted the media in 1976. This is not just a fringe media problem; it is a mainstream media problem and a problem for our whole society. The dramatically decreased trustworthiness has even plagued former icons of journalistic trust such as The Wall Street Journal and The New York Times, which have seen their trust ratings plunge. In addition to being politically motivated, sensationalistic stories have become commercially rewarding at a time when the media business is in financial trouble. Most of the media folks I speak with share my concerns, though they typically won’t share them openly. Still, in reflecting on the problem, Martin Baron, then executive editor of The Washington Post, said, “If you have a society where people can’t agree on the basic facts, how do you have a functioning democracy?” This dynamic is impeding free speech since people are afraid to speak up because of how they will be attacked in both traditional and social media by distortions that are meant to bring them down.

Even very capable and powerful people are now too afraid of the media to speak up about important matters or run for public office. Since most high-profile people are torn down, most everyone I speak with agrees that it is dangerous to be a high-profile, vocal person who fights for truth and justice, especially if one offends people who are inclined to use the media to fight. Though not discussed in public because of fears of media reprisals, this issue is continuously discussed in private. For example, during a lunch I had not long ago with a general who had held a very high political position and had just left government service, we explored what he would do next. I asked him what he was most passionate about. He said, “Of course helping my country.” I asked him whether he would consider running for elected office, and he explained that while he was willing to die for his country he couldn’t bring himself to run for public office because of how enemies would use the media and social media to make up lies to harm him and his family. This general and almost everyone I know who we should listen to are afraid to speak openly because they fear that attacks by extremists who oppose them will be enabled and amplified by the sensationalistic media. Many of my friends tell me that I’m crazy to speak so openly about controversial things such as those covered in this book because it is inevitable that some people or groups will try to take me down via the media. I think they are probably right, but I won’t let the risks dissuade me.

Rule-Following Fades and Raw Fighting Begins

When the causes that people are passionately behind are more important to them than the system for making decisions, the system is in jeopardy. Rules and laws work only when they are crystal clear and most people value working within them enough that they are willing to compromise in order to make them work well.

If both of these are less than excellent, the legal system is in jeopardy. If the competing parties are unwilling to try to be reasonable with each other and to make decisions civilly in pursuit of the well-being of the whole, which will require them to give up things that they want and might win in a fight, there will be a sort of civil war that will test the relative powers of the relevant parties. In this stage, winning at all costs is the game and playing dirty is the norm. Late in Stage 5 is when reason is abandoned in favor of passion.

When winning becomes the only thing that matters, unethical fighting becomes progressively more forceful in self-reinforcing ways. When everyone has causes that they are fighting for and no one can agree on anything, the system is on the brink of civil war/revolution.

This typically happens in a couple of ways:

Late in Stage 5 it is common for the legal and police systems to be used as political weapons by those who can control them. Also, private police systems form—e.g., thugs who beat people up and take their assets, and bodyguards to protect people from these things happening to them. For instance, the Nazi party formed a paramilitary wing before it came to power that then became an official force when the Nazis were in power. The short-lived British Union of Fascists in the 1930s and the Ku Klux Klan in the US were effectively paramilitary groups as well. Such cases are quite normal, so view their development as a marker of moving to the next stage.

Late in Stage 5 there are increasing numbers of protests that become increasingly violent. Because there is not always a clear line between a healthy protest and the beginnings of a revolution, leaders in power often struggle over how to allow protests without giving the perceived freedom to revolt against the system. Leaders must manage these situations well. A classic dilemma arises when demonstrations start to cross over into revolution. Both giving the freedom to protest and suppressing protests are risky paths for leaders, as either path could lead the revolution to get strong enough to topple the system. No system allows people to bring down the system—in most, an attempt to do so is treason, typically punishable by death. Nonetheless, it is the job of revolutionaries to bring down systems, so governments and revolutionaries test each other to see what the limits are. When broad-based discontent bubbles up and those in power allow it to grow, it can boil over to the point that when they try to put a lid on it, it explodes. The conflicts in the late part of Stage 5 typically build up to a crescendo that triggers the violent fighting that signifies the transition into what historians stamp as official civil war periods, which I am identifying as Stage 6 in the Big Cycle.

People dying in the fighting is the marker that almost certainly signifies the progression to the next and more violent civil war stage, which will continue until the winners and losers are clearly determined.

That brings me to my next principle:

When in doubt, get out—if you don’t want to be in a civil war or a war, you should get out while the getting is good.

This is typically late in Stage 5. History has shown that when things get bad, the doors typically close for people who want to leave. The same is true for investments and money as countries introduce capital controls and other measures during such times.

Crossing the line from Stage 5 (when there are very bad financial conditions and intense internal and external conflict exist) to Stage 6 (when there is civil war) occurs when the system for resolving disagreements goes from working to not working. In other words, it happens when the system is broken beyond repair, people are violent with each other, and the leadership has lost control.

As you might imagine, it is a much bigger deal to break a system/order and build a new one than it is to make revolutionary changes within an existing system/order. Though breaking a system/order is more traumatic, it isn’t necessarily a worse path than operating within a system.

Deciding whether to keep and renovate something old that is not working well or to dispose of it and replace it with something new is never easy, especially when the something new is not clearly known and what is being replaced is as important as the domestic order. Nonetheless, it happens, though typically it is not decided on intellectually; it is more often emotionally driven.

When one is in Stage 5 (like the US is now), the biggest question is how much the system will bend before it breaks.

The democratic system, which allows the population to do pretty much whatever it decides to do, produces more bending because the people can make leadership changes and only have themselves to blame. In this system regime changes can more easily happen in a peaceful way. However, the “one person, one vote” democratic process has the drawback of having leaders selected via popularity contests by people who are largely not doing the sort of thoughtful review of capabilities that most organizations would do when trying to find the right person for an important job. Democracy has also been shown to break down in times of great conflict.

Democracy requires consensus decision making and compromise, which requires a lot of people who have opposing views to work well with each other within the system. That ensures that parties that have significant constituencies can be represented, but like all big committees of people who have widely different views (and might even dislike each other), the decision-making system is not efficient.

The biggest risk to democracies is that they produce such fragmented and antagonistic decision making that they can be ineffective, which leads to bad results, which leads to revolutions led by populist autocrats who represent large segments of the population who want to have a strong, capable leader get control of the chaos and make the country work well for them.

Also noteworthy: history has shown that during times of great conflict federalist democracies (like the US) typically have conflicts between the states and the central government over their relative powers. That would be a marker to look out for that hasn’t yet arisen much in the US; it’s happening would signify the continued progression toward Stage Six.

There are far too many breakdowns of democracies to explore, let alone describe. While I looked into a number of them to see the patterns, I haven’t fully mined them, and I’m not going to dive into them here. I will say that the factors described in the explanations of Stage 5 when taken to the extreme—most importantly, terrible finances, decadence, internal strife and disorder, and/or major external conflict—lead to a dysfunctional set of conditions and a fight for power led by a strong leader. Archetypical examples include Athens from the late 400s to the 300s BCE, the end of the Roman Republic in the century or so preceding 27 BCE, Germany’s Weimar Republic in the 1920s, and the weak democracies of Italy, Japan, and Spain in the 1920s and 1930s that turned to autocracies of the right (fascism) to bring order to the chaos.

Different stages require different types of leaders to get the best results. Stage 5 is a juncture in which one path could lead to civil war/revolution and the other could lead to peaceful and, ideally, prosperous coexistence. Obviously the peaceful and prosperous path is the ideal path, but it is the much more difficult path to pull off.

That path requires a “strong peacemaker” who goes out of their way to bring the country together, including reaching out to the other side to involve them in the decision making and reshaping the order in a way that most people agree is fair and works well (i.e., is highly productive in a way that benefits most people). There are few such cases in history. We pray for them. The second type is a “strong fighter” who is capable of taking the country through the hell of civil war/revolution.

Stage 6: When There Are Civil Wars

Civil wars inevitably happen, so rather than assuming “it won’t happen here,” which most people in most countries assume after an extended period of not having them, it is better to be wary of them and look for the markers to indicate how close one is.

While in the last section we looked at nonviolent revolutions that took place within the order, in this section we will be looking at the markers and the patterns of civil wars and revolutions that were almost always violent and toppled the old order and replaced it with a new one. Though there are innumerable examples that I could have examined to understand how they work, I chose what I believe are the 29 most significant ones, which are shown in the following table. I categorized this group into those that produced big changes to the system/regime and those that did not. For example, the US Civil War was a really bloody civil war that failed to overturn the system/order, so it is in the second group at the bottom of the table, while those that toppled the system/order are at the top. These categories are of course imprecise, but once again we won’t let imprecision stand in the way of seeing what we couldn’t see if we insisted on being precise. Most of these conflicts, though not all of them, transpired in the archetypical way described in this section.

A classic example of a civil war breaking the system and having to build a new system is the Russian Revolution/Civil War of 1917. This put into place the communist internal order that eventually entered Stage 5 in the late 1980s, which led it to attempt to make revolutionary changes within the system—called perestroika (i.e., restructuring)—which failed and were followed by the collapse of the Soviet Union’s order in 1991. The communist domestic order lasted 74 years (from 1917 until 1991). That order was replaced by the new system/order that is now governing Russia, which, after the collapse of the old order, was built in the classic ways described earlier in this chapter in my explanations of Stages 1 and 2.

Another is Japan’s Meiji Restoration, which came about as a result of a three-year revolution (1866–69) that happened because the Japanese were closed off to the outside world and failed to advance. The Americans forced the Japanese to open, which prompted a revolutionary group to fight and defeat the rulers (led by the military shogun) in battle, which led to overturning the internal order then run by the four classes—the military, farmers, artisans, and merchants—that had ruled Japan. This old Japanese order run by traditional people was ultra-conservative (e.g., social mobility was outlawed) and was replaced by revolutionaries who were relatively progressive and changed everything by reinstating the powers of a modernizing emperor. Early in this period there were lots of labor disputes, strikes, and riots that resulted from the classic triggers of wealth gaps and bad economic conditions. In the reform process the leadership provided universal elementary education for both boys and girls, adopted capitalism, and opened the country up to the outside world. They did this with new technologies, which led them to become very competitive and gain wealth.

There are many such cases of countries that did the right things to produce revolutionarily beneficial improvements, just as there are many cases of revolutionaries doing the wrong things that inflicted terrible pain on their people for decades. By the way, as a result of its reformations Japan went on to move through the classic stages of the Big Cycle. It became extremely successful and rich. But over time it became decadent, overextended, and fragmented, had an economic depression, and fought expensive wars, all of which led to a classic demise. Its Meiji order and its classic Big Cycle lasted for 76 years from 1869 to 1945.

Civil wars and revolutions inevitably take place to radically change the internal order.

They include total restructurings of wealth and political power that include complete restructurings of debt and financial ownership and political decision making. These changes are the natural consequence of needing to make big changes that can’t be made within the existing system. Almost all systems encounter them. That is because almost all systems benefit some classes of people at the expense of other classes, which eventually becomes intolerable to the point that there is a fight to determine the path forward. When the gaps in wealth and values become very wide and bad economic conditions ensue so that the system is not working for a large percentage of the people, the people will fight to change the system. Those who are suffering the most economically will fight to get more wealth and power from those who have wealth and power and who benefit from the existing system. Naturally the revolutionaries want to radically change the system, so naturally they are willing to break the laws that those in power demand they adhere to. These revolutionary changes typically happen violently through civil wars, though as previously described, they can come about peacefully without toppling the system.

The periods of civil war are typically very brutal. Typically, early on these wars are forceful and orderly struggles for power, and as the fighting and emotions intensify and the sides do anything to win, the levels of brutality accelerate unexpectedly such that the actual levels of brutality that occur in the Stage 6 civil wars and revolutions would have been considered implausible in Stage 5. The elites and moderates generally flee, are imprisoned, or are killed. Reading the stories of civil wars and revolutions, such as the Spanish Civil War, the Chinese Civil War, the Russian Revolution, and the French Revolution, made my hair curl.

How do they transpire? Earlier I described the dynamics of Stage 5 that led to crossing the line into Stage 6. During this stage all of those intensify greatly. I will explain.

How Civil Wars and Revolutions Transpire

As previously described, the cycle of building wealth and wealth gaps that leads to a very small percentage of the population controlling an exceptionally large percentage of the wealth eventually results in the poor majority overthrowing the rich minority via civil wars and revolutions. This has happened more times than one can imagine.

While most of the archetypical civil wars and revolutions shifted power from the right to the left, many shifted wealth and power to the right and away from those on the left. However, there were fewer of them and they were different. They typically happened when the existing orders slipped into dysfunctional anarchies and a large percentage of the population yearned for strong leadership, discipline, and productivity. Examples of revolutions from the left to the right include Germany, Spain, Japan, and Italy in the 1930s; the fall of the Soviet Union in the 1980s to the early 1990s; the 1976 coup in Argentina replacing Isabel Perón with a military junta; and the coup leading to the Second French Empire in 1851. All those that I examined worked or didn’t work for the same reason. Like those of the left, these new internal orders succeeded when they produced broad-based economic successes and failed when they did not. Because broad economic prosperity is the biggest reason a new regime succeeds or fails, the long-term trends have been to both greater total wealth and broader distribution of the wealth (i.e., better economic and health outcomes for the average person). That big picture can be easily lost when one is in and experiencing one part of the Big Cycle.

Typically, the people who led the civil war/revolution were (and still are) well-educated people from middle-class backgrounds. For example, three of the key revolutionary leaders of the French Revolution were Georges-Jacques Danton, a lawyer raised in a bourgeois family; Jean-Paul Marat, a physician, scientist, and journalist raised in a bourgeois family; and Maximilian Robespierre, a lawyer and statesman also from a bourgeois family. This revolution was initially supported by many liberal aristocrats, like the Marquis de Lafayette, who were raised in moderately well-off families. Similarly, the leaders of the Russian Revolution were Vladimir Lenin, who studied law, and Leon Trotsky, who was raised in a bourgeois family of intellectuals. The Chinese Civil War was led by Mao, who was from a moderately well-off family and studied a variety of subjects such as law, economics, and political theory, and Zhou Enlai, who was from a scholarly middle-class family of civil servants. These leaders also typically were (and still are) charismatic and able to lead and work well with others to build big, well-run organizations that have the power to bring about the revolutions. If you want to look for the revolutionaries of the future, you might keep an eye on those who have these qualities. Over time they typically evolve from being idealistic intellectuals wanting to change the system to be fairer to brutal revolutionaries bent on winning at all costs.

While having large wealth gaps during economically difficult times was typically the biggest source of conflict, there were always other reasons for conflict that added up to a lot of opposition to the leadership and the system. Typically, in revolutions the revolutionaries with these different grievances joined together to make revolutionary changes; while they looked united during the revolution, after winning the revolution, they typically fought with each other over issues and for power.

As previously mentioned, during the civil war/revolution stage of the cycle the governments in power almost always had an acute shortage of money, credit, and buying power. That shortage created the desire to grab money from those who had it, which led those who had wealth to move it into places and assets that were safe, which led the governments to stop these movements by imposing capital controls—i.e., controls on movements to other jurisdictions (e.g., other countries), to other currencies, or to assets that are more difficult to tax and/or are less productive (e.g., gold).

To make matters even worse, when there was internal disorder, foreign enemies were more likely to challenge the country. This happens because domestic conflict causes vulnerabilities that make external wars more likely. Internal conflict splits the people within a country, is financially taxing on them, and demands attention that leaves less time for the leaders to tend to other issues—all things that create vulnerabilities for foreign powers to take advantage of. That is the main reason why internal wars and external wars tend to come close together. Other reasons include: emotions and tempers are heightened; strong populist leaders who tend to come to power at such times are fighters by nature; when there are internal conflicts leaders find that a perceived threat from an external enemy can bring the country together in support of the leader so they tend to encourage the conflict; and being deprived leads people/countries to be more willing to fight for what they need, including resources that other countries have.

Almost all civil wars have had some foreign powers participating in an attempt to influence the outcome to their benefit.

The beginnings of civil wars and revolutions aren’t clear when they are happening, though they are obvious when one is deeply in the middle of them.

While historians assign dates to the beginnings and ends of civil wars, they are arbitrary. The truth is that almost no one at the time knows that a civil war has begun or that it has ended, but they know when they are in them. For example, many historians have designated July 14, 1789, as the day the French Revolution began because a mob stormed an armory and prison called the Bastille. But nobody at the time thought it was the beginning of the French Revolution or had any idea how terribly brutal that civil war and revolution would become. While one might not know what’s to come, one can have imprecise markers that help one place where one is, to see the direction that one is moving in, and to know something about what the next stage will be like.

Civil wars are incredibly brutal because they are fights to the death. Everyone is an extremist because everyone is forced to pick a side and fight—also moderates lose out in knife fights.

As for what types of leaders are best for civil wars and revolutions, they are the “inspirational generals”—people who are strong enough to marshal support and win the various types of battles they have to win. Because the fight is brutal, they have to be brutal enough to do whatever is necessary to win.

The time that historians stamp as the civil war period typically lasts a few years and determines the official winners and losers, which is conveyed by who gets to occupy the government buildings in the capital. But like the beginnings, the ends of civil wars/revolutions are not as clearly defined as historians convey. The fighting to consolidate power can go on for a long time after the official civil war has ended.

While civil wars and revolutions are typically extremely painful, they often lead to restructurings that, if done well, can establish the foundation for improved future results. What the future after the civil war/revolution looks like depends on how the next
steps are handled.

Conclusion

My study of history has taught me that nothing is forever other than evolution, and within evolution there are cycles that are like tides that come in and go out and that are hard to change or fight against. To handle these changes well it is essential to know which stage of the cycle one is in and to know timeless and universal principles for dealing with it. As conditions change the best approaches change—i.e., what is best depends on the circumstances and the circumstances are always changing in the ways we just looked at. For that reason, it is a mistake to rigidly believe that any economic or political system is always best because there will certainly be times when that system is not best for the circumstances at hand, and if a society doesn’t adapt it will die. That is why constantly reforming systems to adapt well is best. The test of any system is simply how well it works in delivering what most of the people want, and this can be objectively measured, which we can do and will continue to do. Having said that, the lesson from history that comes through most loudly and most clearly is that skilled collaborations to produce productive win-win relationships to both grow and divide the pie well, so that most people are happy, are much more rewarding and much less painful than fighting civil wars over wealth and power that lead to one side subjugating the other side.

Adapted from Principles for Dealing with the Changing World Order by Ray Dalio. Copyright © 2021 by Ray Dalio from Avid Reader Press, a division of Simon & Schuster.