How to Stop a Global Economic “Doom Loop”

Summary

Podcast Summary: How to Stop a Global Economic “Doom Loop”

Podcast: Solutions with Henry Blodget
Host: Henry Blodget
Guest: Ishwar Prasad, Professor of Trade Policy and Economics, Cornell University
Date: January 19, 2026

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Episode Overview

In this episode, Henry Blodget talks with economist Ishwar Prasad about his new book, The Doom Loop: Why the World Economic Order Is Spiraling Into Disorder. The conversation explores how the world’s economic and political systems are entangled in a negative feedback loop that threatens global stability, fueled by rising inequality, political resentment, and fraying international institutions. Prasad argues that abandoning globalization is not the solution; instead, we need thoughtful policies to better share its benefits and renew our commitment to international cooperation.

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Main Discussion Themes

1. What Is the “Doom Loop”?

Definition & Origin

• Prasad explains that the original idea for his book was a positive one—describing the transition from a unipolar (US-dominated) world to a more balanced, multipolar world.
• However, as he examined the shift, he realized these forces were leading to greater instability, not less.

  “We are stuck in what I view as a negative feedback loop between economics, domestic politics, and geopolitics… All of these forces are now stuck in this adverse loop where they're bringing out the worst in each other rather than the best.” (Ishwar Prasad, 04:29)

How the Loop Works

• Globalization created potential for shared prosperity, but benefits were unevenly distributed.
• Perceptions that elites and certain countries reaped disproportionate rewards gave rise to the “politics of resentment.”
• This resentment fuels populist politics and protectionist policies, undermining both domestic and global institutions, which then worsens economic outcomes, feeding the loop anew.

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2. Globalization: Boon or Bane?

Globalization’s Promise and Pitfalls

• Theoretically, globalization can lift prosperity by connecting markets and promoting competition.
• In practice, large segments of national populations—in the US and elsewhere—were left behind, particularly those whose jobs were lost to foreign competition or automation.

  “It is not just a lack of economic resources, but of opportunity... Many people felt so left out that they had no chance to clamber back on the economic ladder.” (Ishwar Prasad, 12:30)

Is Globalization Bad?

• Prasad is unequivocal: “Globalization is clearly good. The problem, however… it's not necessarily good for everybody.” (Ishwar Prasad, 11:27)
• The failure of political systems to help “losers” of globalization is the root problem, not globalization itself.

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3. The Limits and Dangers of Tariffs

Questioning Tariffs as a Solution

• Tariffs, championed by some US politicians, are not an effective long-term solution.

  “Tariffs do not necessarily accomplish what the Trump administration would like to accomplish… It's not obvious that foreign exporters are paying… these tariffs are probably being paid by American households, American consumers.” (Ishwar Prasad, 14:00)

• Tariffs hurt consumers, increase prices, and invite retaliation, harming economic growth.

China: Rule Breaker or Smart Player?

• China has leveraged global trade rules while protecting its own industry, sometimes unfairly.
• Still, the suggested response is not to disengage, but to reinforce rules and work with international partners.

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4. Rebuilding and Reforming Institutions

Why Institutions Matter

• Effective institutions—like the WTO, IMF, and various alliances—are weakening as countries withdraw or set up parallel systems (e.g., China’s Asian Infrastructure Investment Bank, BRICS bank).
• Without credible, shared rules, the global system risks fragmentation.

  “What we're seeing right now is that the existing institutions are losing their legitimacy from both sides: U.S. disengagement and emerging markets feeling that they're losing their legitimacy.” (Ishwar Prasad, 26:40)

What Needs to Change?

• Existing rules and structures haven’t adapted to new powers’ realities (e.g., China’s GDP vs. IMF voting rights).
• The US and allies must either reform existing institutions or help create new, more representative ones.
• International cooperation—though in short supply today—is essential for a stable world.

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5. Policy Solutions: At Home and Abroad

Domestic Responses

• Policy must focus on offsetting economic dislocation through a stronger safety net and retraining.
• Reduce money’s influence in politics to rebuild trust and engagement.

International Responses

• Instead of tariffs, the US should lead coalition-building (e.g., reviving or replacing the Trans Pacific Partnership) and set standards with allies, compelling rivals to follow.
• Strategic and targeted “industrial policy” can foster innovation, with government as a seeder of research rather than a picker of winners.

“We have to think about ways to ensure that people feel that they have opportunities to succeed… And we also need better rules of the game.” (Ishwar Prasad, 25:21)

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6. Multipolarity: Promise or Instability?

Multipolar World: Not Necessarily Safer

• A world with several big economic and military powers (US, China, possibly India, Brazil, etc.) doesn’t automatically mean stability.
• “Middle powers” like India often side-shift for advantage, sometimes increasing instability.

Fundamental Clash of Visions

• The US and China’s rivalry is especially unstable because their underlying philosophies and institutions differ profoundly, not just their economic strength.

  “China sees things completely differently... There is no easy way to mesh these two visions and meet them in the middle.” (Ishwar Prasad, 36:02)

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7. Do Individual Citizens Really Feel the Effects?

• Average citizens may be much less affected by global GDP shifts than by quality-of-life issues.
• Many citizens are willing to trade away some rights for safety and a good standard of living, challenging the inevitability of “liberal democracy.”

  “GDP is a useful measure because it allows us to make cross-country comparisons... But ultimately it is standards of living and quality of life that really matter.” (Ishwar Prasad, 38:18)

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Notable Quotes & Moments

• On the origins of “doom loop”:

  “It's a negative feedback loop between economics, domestic politics, and geopolitics... bringing out the worst in each other rather than the best.”
  — Ishwar Prasad (04:29)

• On the politics of resentment:

  “Politicians found it much easier to latch onto people’s grievances... which in turn affects the economic policies of the new government.”
  — Ishwar Prasad (04:05)

• On the illusion of filtering-down benefits:

  “That proved to be an illusion… We created a large disenfranchised class, and that has come back to bite us.”
  — Ishwar Prasad (12:40)

• On tariffs:

  “It is not in America’s interest to wall itself off from the rest of the world. America cannot really be an island and prosper and thrive.”
  — Ishwar Prasad (23:15)

• Call for personal engagement:

  “Ultimately... it’s going to take each of us... to see ourselves as citizens not just of our countries, but of our communities and of the broader humanity.”
  — Ishwar Prasad (44:45)

• On the future:

  “I wanted an optimistic conclusion… But my head was pulling in a gloomy direction.”
  — Ishwar Prasad (34:20)

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Key Timestamps

• 03:03 – Ishwar Prasad defines the “doom loop”
• 06:36 – Multipolarity’s problems versus the theory
• 11:26 – Is globalization bad? Why the backlash?
• 13:48 – Why tariffs don’t work and the real problems with China
• 19:54 – Alternative policies: coalitions and updated institutions
• 22:44 – Why closing the US economy isn’t a real solution
• 25:21 – Solutions: rethink distribution, strengthen institutions
• 29:14 – How to restore (or rebuild) international legitimacy
• 32:14 – What does a multipolar world really mean for stability?
• 37:18 – Does global power matter to ordinary people?
• 41:58 – The Venezuela incident as a sign of global instability
• 44:28 – Can the doom loop be escaped with better leadership and citizenship?

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Conclusion & Tone

Henry and Ishwar’s discussion is thoughtful, nuanced, and, despite the book’s title, ultimately measured in tone. Both bring a clear-eyed realism, but Ishwar closes with a call to individual and collective action: the doom loop is powerful, but not inevitable. Better policies—domestically and internationally—plus reengaged citizenship can help us break the cycle.

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For listeners:
This episode provides vital context for current economic and political trends, especially the ongoing challenges to globalization, the risks of protectionism, and the urgent need to renew international institutions and domestic safety nets.

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End of summary.

Transcript

[Ishwar Prasad]

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[Henry]

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[Ishwar Prasad]

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[Henry]

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[Podcast Advertiser/Host]

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[Henry]

1-800-Contacts. On Wall street in the 1990s, most of us thought globalization was a good thing. We thought it would increase global prosperity and knit countries and people closer together. Most of us still think that. But it's also clear that the benefits of globalization have left many people behind, not just in America, but around the world. So is globalization a mistake? Not in my view, and not in the view of Ishwar Prasad, a professor of trade policy and economics at Cornell and a senior fellow at the Brookings Institute. But on the way to globalization, Professor Prasad says, we made mistakes and we need to fix them. In his new book, the Doom Loop, Professor Prasad explains why the old world economic order is failing and what will replace it. He also explains what we need to do to return to a more stable world in which the benefits of globalization are more widely shared. The solution, Professor Prasad says, is not the tariffs and other America first policies enacted by the Trump administration. Rather, it is taking care of those who have been left behind and strengthening instead of ignoring or undermining our international institutions. Professor Prasad, thank you so much for joining us. It's great to have you.

[Ishwar Prasad]

Absolutely. Henry, thanks so much. One request. You don't have to refer to me as Professor Prasad. My first name is fine, but it's not an easy first name. It's pronounced Eeshwer.

[Henry]

Okay, I will try that. And if I screw it up, I apologize in advance.

[Ishwar Prasad]

There will be hell to pay if you screw it up, because it literally means God.

[Henry]

Oh, that is. Yes.

[Ishwar Prasad]

Gift of God.

[Henry]

So, Eswar. Fantastic. All right. Well, it's great to have you. All right, let's jump right in. Congratulations on your new book. I will read the title, and it is not very happy reading. Which is the Doom Loop, why the World Economic Order Is Spiraling Into Disorder. Happily, you are not just recommending that we all go into the fetal position, that there's nothing we can do about this. And you do have solutions which we will definitely talk about. But tell us, so what is the doom loop? What are you talking about and what's happening?

[Ishwar Prasad]

So it's. First of all, Henry, it's a great pleasure to talk to you, and it's worth thinking a little bit about the genesis of this book. What I was trying to do is make sense of all that was happening around us. And the story was actually intended to be a much happier story. The view I had is that we were moving from a unipolar world where the US Was the dominant power in every respect, financial, economic, military, and so on, to one where economic power at least seemed to be more equally divided and balanced. And as an economist, one's instinct is that more balance is good for competition, for efficiency. So what the book was going to be about was all the forces that would lead us back towards the stability. Unfortunately, as I started working through each of these forces in my mind, I came to a somewhat dark conclusion that in fact they were going to lead to more instability rather than stability. That essentially we are stuck in what I view as a negative feedback loop between economics, domestic politics, and geopolitics. The reason we are stuck in this dynamic is, if you think about globalization, it's a perfect example of how it created, in principle, the basis for shared prosperity within countries and across countries. The idea was that if countries could trade more freely with each other, if investors could find the best place to put their returns worldwide, this would make everybody better off. But it turned out to be the case that, in fact, there were some countries that benefited more than others. And within countries, we had this problem where the fruits of globalization were not very evenly distributed. So there was a sense that in countries, including the United States, that the political and economic elites were essentially walking off with many of the benefits. So that, I think, gave rise to what I call in the book as the politics of resentment, where it becomes much easier for politicians, rather than to talk about hope and about how we could all have a shared future of prosperity, found it much easier to latch onto people's grievances. This infects the political system, which in turn affects the economic policies of the new government. So all of these forces are now stuck in this adverse loop where they're bringing out the worst in each other rather than the best. So that is the concept of the doom loop.

[Henry]

And talk a bit about what you said at the beginning. The idea that we would move from a world where the United States was completely dominant to one in which there are many countries that stand on their own and are thriving on their own. That sounds theoretically good. And part of what I hear when I had this conversation about the United States relative to China, for example, there seems to be this attitude that the United States cannot let China become bigger and more powerful, that we have to keep them down and we have to maintain our position as the dominant economically and militarily. Which seems to me when you look at China and the size of China and the talent, it just seems like a hallucination that that's even possible. So what is it that takes what sounds like actually a stronger system that you were describing with multiple countries having a real say? What is it that has made it into a doom loop? Why isn't that good?

[Ishwar Prasad]

So you're absolutely right that in principle it should be very good. If you have more competition, that means that no single power can act on its own in an unfettered way. They have to play by the rules of the, they have to take account of other powers interests and so on. So it ought to maintain a balance. But even if you think about economic power, which has become much more evenly distributed, there are some interesting quirks. Let's take gdp, which is a measure of country's economic output. Now, the US still has a pretty large share of global output, about 25%, although that's down from about 30% a couple of decades ago. China and other emerging markets, including Brazil, India, Russia, have become much larger in terms of accounting for global gdp. But even though GDP is now being distributed more evenly, if you look at per capita gdp, there is still a gulf between the rich countries of the west, the us, Europe, Japan and so on, and countries like China and India. So if you think about issues where there are common interests, such as climate change, there is a lot of dissension between these two groups about who ought to bear responsibility for creating human induced climate change. The countries like China and India would argue that yes, right now they're emitting a lot more, but the advanced economies benefited from a lot of emissions that they contributed to in the past. So they should be paying more than their GDP share in order to compensate these countries for giving up some economic output. So even where you have a distribution of economic power, it turns out that countries are not seeing common interests in terms of dealing with common problems. And then if you look at things like military power here, again, you might argue that in principle there should be a mutual deterrence effect, if you have large economic powers, and to some extent that is true, but on the other hand, you do have smaller powers that have nuclear warheads, you know, the North Koreas, the Pakistans of the world that are creating instability. And there is one other interesting tweak here. So it used to be the case that when you think about geopolitics, it is intrinsically a zero sum game. If the US gains more influence, China is going to lose influence, or the other way around. But economics was seen as a positive sum game that countries could have beneficial economic relationships, and this was proving to be an offset to the zero sum game of geopolitics. So in other words, countries could say, yes, we are not going to be able to set aside a geopolitical competition because there is inherently a competitive aspect to that. But at least on the economic side, we can cooperate, we can share the fruits of our cooperation. And this kept the geopolitical rifts in balance. That sense of balance is gone now. Right now we have even economics. If you think about trade, if you think about financial flows, investment flows being seen as a zero sum game or even a negative sum game where one country gains, another country loses, loses. So that balancing force is gone. American businesses used to be keen to maintain stable relations between US and China. They don't act as a balancing force anymore. If you think about trade and financial flows, those haven't stopped because there are huge benefits. But trade and financial flows are now falling along geopolitical lines. So rather than creating bridges across the geopolitical dividend, they're intensifying those divides.

[Henry]

So let's talk more about globalization, because I was, I was on Wall street in the 1990s, we were taught, oh, globalization is great. You know, let's knit the world together, we'll all get richer together. Even for the first decade of the 2000s, it was the same. Globalization is good. And as you suggested with China, you know, if, if China is potentially a military or geopolitical enemy of the United States, what better way to, to actually lessen that than to fully get into bed with each other with supply chains and companies and so forth. So until recently, that all seemed good, with the exception that we were badly, in my opinion, mishandling our manufacturing industry at home and we were not taking care of people who were displaced by manufacturing moving to China. And that created a lot of problems and led to some of the elections that we've already talked about. But so is globalization actually bad? Is that what we've learned? Should we, should we be doing what the Trump administration seems to be wanting us to do, which is just become America alone. Is that better?

[Ishwar Prasad]

Unequivocally, no. I think globalization is clearly good. The problem, however, Henry, is that it's not necessarily good for everybody. And this is one of the things that maybe the economists and maybe some politicians did not pay enough attention to, because certain, certainly from free trade and the free flow of goods and services and finance, I think there are very large measurable benefits. The problem is that, as with any phenomenon in economics, there are some winners and there are some losers. And our democratic system does not give us an easy way of compensating the losers. And of course, in the United States, the social safety net has gotten increasingly frayed over time. So this has meant that many of the people who were displaced when we lost many manufacturing jobs to low wage competitors like China and elsewhere ended up without any clear alternatives in terms of employment. And as I point out in the book, it is not just a lack of economic resources, but of opportunity. There was a sense that many people felt so left out that they had no chance to clamber back on the economic ladder that could lead them to a more secure middle class existence. There were a lot of other phenomena, of course, in play in the last couple of decades, including technological shifts that favored the highly skilled, the highly educated, and did not really favor low skilled workers in many sectors, including manufacturing workers, who may have had high paid jobs and were very skilled in their particular jobs, but did not have transferable skills. So we ended up with a lot of people who felt that essentially it was globalization that was to blame, because it's a lot easier to blame the other China foreigners and so on. And the fact that we did not pay enough attention to these distributive consequences and just felt that so long as there were broad benefits, eventually they would filter down to everybody and everybody would see the benefits of globalization. That proved to be an illusion. So we created a large disenfranchised class, and they felt disenfranchised both economically and politically, and that has come back to bite us.

[Henry]

And, and so, as a trade policy expert, what do you think of the tariffs? Is that the way to address what's going on?

[Ishwar Prasad]

So my view is that tariffs do not necessarily accomplish what the Trump administration would like to accomplish. And it's worth thinking as an economist, first of all, what is the objective, what it is you're trying to achieve? And Trump has talked about, you know, bringing manufacturing jobs back to the U.S. he's talked about reducing the Trade imbalances with other countries. Now, as an economist, I know that, yes, yes, if you put a very large tariff barriers, that is certainly going to reduce imports. But the question is whether this is going to hurt the American consumer in terms of higher prices and who is going to pay those tariffs. Yes, the US Government is collecting a lot of tariffs, but it's not obvious that foreign exporters are paying a lot of these tariffs are probably being paid by American households, American consumers. But it's worth again stepping back a little bit and thinking about how politicians like Donald Trump were able to latch onto this notion of playing to the politics of resentment. Now, there was a sense that when we had globalization beginning to play out, that there was a common set of rules of the game governing international trade, international finance, that every country could play by. Not everybody did. China in particular used those rules to its advantage. So when it entered the World Trade Organization in the early 2000s, it basically made a commitment that it would open up its markets, it would adopt market friendly practices, and in return it would get easy access to markets worldwide, including in the United States. It did not live up to its part of the bargain. So although China will claim that it does allow foreign firms to operate freely in China, it comes with a lot of restrictions. Chinese companies do get a lot of advantages in terms of cheap capital through bank financing from state owned banks, cheap land and other sorts of benefits from the government which allowed the Chinese companies to compete on a somewhat uneven basis. And of course, China has been using its currency policy Normally, when a country runs large trade surpluses, where its exports exceeds its imports, its currency would appreciate making its exports less competitive and acting as a natural balancing mechanism. China took measures to keep its currency from appreciating. So it gained an over unfair advantage in trade. So some of these issues are legitimate. But it is also true that the Chinese government has played a very effective role in terms of protecting its companies in their early stages while they grow up and can compete toe to toe with multinationals worldwide. So essentially China is a policy, a set of policies now that has led to its companies being extraordinarily efficient. So even when there are large tariffs on Chinese imports into the US or into other countries, there is very little ability for domestic firms to compete with Chinese firms because they are so cost efficient, so effective at producing whatever it is they are producing. So tariffs, I think are not the best way to approach this because it creates a lot of problems for the domestic economy. But one can understand why it is that, at least at first blush, it seems like a very legitimate thing for the US to do to protect itself from other countries that are not playing well by the rules.

[Henry]

What turns unrest into a revolution and where could it lead? The big open question is whether this set of protests that are currently underway.

[Ishwar Prasad]

Is the end or the beginning of.

[Henry]

The end of this third phase of sort of modern governance when it comes.

[Ishwar Prasad]

To Iran, the end of clerical rule.

[Henry]

I'm Jake Sullivan.

[Podcast Advertiser/Host]

And I'm John Finer and we're the.

[Henry]

Hosts of the Long Game, a weekly national security podcast. This week we cover the massive nationwide protests in Iran and the US Response. The episode's out now.

[Podcast Advertiser/Host]

Search for and follow the Long Game.

[Henry]

Wherever you get your podcasts.

[Podcast Advertiser/Host]

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[Ishwar Prasad]

And it shouldn't be a wake up that if you work hard, play by the rules, we're gonna make the American dream accessible and affordable to you. You're not going to struggle. You're going to strive to achieve something for those who think that the system is rigged. Breaking news. You're not paranoid. I'm Preet Bharara and this week former Chicago mayor and U.S. ambassador to Japan Rahm Emanuel joins me to break down the affordability crisis, education, why Trump supporters feel betrayed, and what a Rahm Emanuel presidential campaign might look like. The episode is out now. Search and follow Stay tuned with Preet wherever you get your podcasts.

[Henry]

So if it's not tariffs, but there has been unfairness, particularly with China and the United States, what would smart policies be? What should we do?

[Ishwar Prasad]

So what we should do ideally is to use the existing institutions, such as the World Trade Organization, which unfortunately the US Is now disengaging from, and also bring up other countries, other countries that are important export markets of China, all to our side. So a few years ago, there was this notion of creating what was called the Trans Pacific Partnership, or tpp, which was a trade agreement where the US Was basically going to take the lead in terms of setting up labor, environmental, and other standards that would govern exports. And these 11 countries, which included Japan and some of the other major economies, would basically have set standards that would then have become necessary for countries like China to follow. All the other countries in that group ended up ratifying the tpp, where the US Took the lead in designing it, but the US Stepped back at the last minute. And then, of course, Trump basically walked away from it. And there's been no ability to get back to that. So what we would need to do, ideally, is to show a leadership role, because the reality, going back to a point you made right at the beginning of the show, is that the US Cannot run the world alone. It does need partners. And that would be the most effective way to sort of corral China. If the US can set standards that other countries, other major trading partners, and follow, then China would end up having little choice but to follow those rules. So that's one aspect of it. The second is to use government policy somewhat more effectively. Now, there is this term called industrial policy, which is in some sense a very dirty connotation, because there is a sense that it is the government picking winners and losers. But there is a role for at least some modicum of industrial policy where the government can seed funding, can seed research funding, at least, so that you have innovation taking place in an economy. And unfortunately, under this administration, we are pulling back even from some of the greatest strengths of the US Economy, which is, you know, the ability to create knowledge, to create innovation. And that, I think, is really going to hurt us.

[Henry]

And what would happen if you. If the US really opted out of world trade and said, we are just going to focus on ourselves, all economic activity is going to be internal. President Trump seems to waffle on this depending on the given day, but J.D. vance, the Vice president, does seems very committed to that, as the idea is, look, we're going to make toasters here, and, yeah, they're going to call cost a lot more, but it's worth it because we're going to have all these wonderful manufacturing jobs. Is that actually an option in today's world? Would that be good for the United States?

[Ishwar Prasad]

So at some level it is an option because one could argue that the U.S. basically puts up say 100, 150% tariffs on all imports. Other countries would probably retaliate with similar imports. So the US would become what we would call a closed economy where there is very little trade with the rest of the world. So yes, if you wanted a toaster, then, and the price of a toaster is going to be double or triple because of the tariffs. If you import it, we are going to start creating toasters here so there will be more jobs. The question is whether this is efficient, whether this is going to create more GDP and whether this is going to make all of us better off. So yes, there might be a few more people who have jobs. But if you think about adjusting whatever we create here, the toasters, by the price of that toaster, it's going to mean that the average American consumer is going to be much worse off. So ultimately it is not in America's interest to wall itself off from the rest of the world. America cannot really be an island and prosper and thrive. Even when we think about the tremendous innovation engine that the American economy is, the benefits of this innovation can be enormously scaled up if we can export them to the rest of the world. If you think about Apple and iPhones, it's fantastic that we created iPhones, but the US has little 300 million people. If each of us, including babes in arms, had an iPhone, that's still a market that gets saturated relatively easily. If Apple can sell its iPhones around the world, it's a much bigger market. So it's good for American consumers, it's good for American investors as well.

[Henry]

And I think the other point that I would make there is that it's much better for US Companies if they're actually competing on a global stage. I'm watching what's happening now with, with electric cars and some of the Chinese companies are just way better. And you look at what's happening in Europe where the cars are available for sale, BYD and others, their sales are rocketing up because people recognize they're much better cars. We're basically not allowed to buy them in the United States. And we're trying to protect our companies by pushing them back to the 1950s. They've just got to make gas cars. It just seems, it feels like short term thinking. And so talk about more of your solutions. And let's go back. The idea of this doom loop is scary because it sounds like you can't pull out of it, but we certainly Went through a bout of protectionism in the Great Depression and we got out of that. What else do we need to do to avoid just taking ourselves down and everybody else down with us?

[Ishwar Prasad]

So it's very important to think about the distributional consequences of any policy that we undertake, whether it is globalization, industrial policy, or any other policy. And we have to think about ways to ensure that people feel that they have opportunities to succeed. Yes, they may lose a job because their industry is on the wrong side of a particular bout of competition, but they must feel that there is a safety net that can catch them when they fall from that job. Give them some protection as they start looking for other jobs, maybe acquire other skills, and eventually move into a different phase. And we also need better rules of the game. So in the happier version of the book that I had planned to write, the idea of talking a lot more about institutions, domestic institutions as well as international institutions. So when you think about domestic institutions, there are basic elements, like everybody has to feel they're treated fairly in the judicial system. So the rule of law. One needs to think about government policies that are not going to favor the wealthy or the elite in any sense. There must be a sense that there is a genuine prospect for people to have their views heard through the ballot box, rather than having money infect the political process as well. So at the country level, I think we need much better institutions, including strengthening our institutions of democracy. Because once there is a sense that the average citizen feels that his or her voice no longer really counts in this process in terms of setting up outcomes leaders and so on, who don't fully reflect their views, that is a problem at the international level. We need much better institutions as well. So the US Had a role in setting up many of these multilateral institutions like the United nations, the World Trade Organization, and so on. But there is a sense that many of those institutions are losing legitimacy. The US Is pulling back from many of these institutions that underpin what we call the rules based order, the idea that everybody has a common set of rules that we agree upon. Countries like the US Feel that these institutions are no longer serving their interests. And unfortunately, that interest is very narrowly defined. Meanwhile, countries like China, India, and so on feel that other institutions like the International Monetary Fund, which manages global financial flows, takes care of countries that are experiencing crises and so on. There is a sense that those institutions are still in the hands of, of the United States and the other rich Western powers. So what we're seeing right now is that the existing institutions are losing their legitimacy from both sides, U.S. disengagement and emerging markets feeling that they're losing their legitimacy. And then you have countries like China and the emerging markets setting up their own institutions. The Chinese government has set up the Asian Infrastructure Investment bank, which is sort of supposed to compete with the World Bank. The five BRICS economies, Brazil, Russia, India, China and South Africa, the leading emerging markets, have set up a BRICS Development bank, again to compete with the IMF and World Bank. And here again, one might argue as an economist, Henry, that institutional competition is good. It should cause all of these institutions to be on their toes, create better outcomes. But instead what we might end up with is a world where there is a fragmented set of rules.

[Henry]

And so what would one do actually? Like, how did those institutions come to be powerful and useful? And when did we start to disengage and say, hey, we don't want to have anything to do with that. Now we're out for ourselves. Like, what would we have to do to strengthen them again or adapt them to the new world?

[Ishwar Prasad]

So we have to think a little bit about what it means for them to be legitimate. So if you think about the International Monetary Fund, for instance, you know, the voting rights are distributed according to certain economic criteria. And there is this weird situation right now that the United States has veto power at the imf. And I care a lot about the IMF because that's where I spent the first half of my career. It's a great institution. It turns out that the US Is veto power over all major decisions. And if you take the US and all the Western countries put together, they have a slight majority. And this irks countries like China, which Now accounts for 16, 17% of world GDP. The emerging markets collectively account for a significant share of global gdp. But voting rights at the IMF are a zero sum game. So if Japan needs to give up some of its voting rights, it would have to give up some of its voting rights for China and India to gain more. And it doesn't want to do that. So we have these oddities that, for instance, the Indian economy is now bigger than Japan's, but India has a smaller voting share than Japan's. So if you have this sort of system, there is no way that the rising powers are going to see these as legitimate institutions. The World Trade Organization has, has tried to be fair, but here the US has felt that the World Trade Organization has not been effective in terms of getting China to play by the rules. And there is some legitimacy to that. So the US has chosen to walk away from the institution, rather than trying to work with the institution and try to change it from the inside. So there is a lot of work to be done. But one alternative is that given all of these institutions seem to be fraying at the edges and none of them is perfect, one can think about this as potentially an opportunity where we could all come together and create new institutions that are designed in a much better way, that serve the broader good, while making sure that individual countries and groups of countries feel their interests are going to be protected. But for that, you need a spirit of cooperation, which sadly is lacking at the moment.

[Henry]

So. So listening to your solution, it sounds like we strengthen the institutions which, yes, we would need to redevelop a spirit of cooperation and sharing. And we also change policies at home a little bit to support better people who are being disenfranchised or victims of globalization or what have you. But we keep trading. We stay involved with the rest of the world. If China continues to grow, which one assumes it will, India continues to grow, the world GDP rebalances even more. So what does the new world look like? It is multipolar at that point. And what is it that would make that stable and even better than the world we had before?

[Ishwar Prasad]

It depends on what dimension one is thinking about. So in terms of economic power, if you view raw GDP as a measure, certainly things will become a lot more balanced. But if you think about, about per capita gdp, as we discussed earlier, there is still going to be gap, which means that countries will see different issues through different lenses. A more even distribution of military power is not necessarily going to be very stabilizing. And the reality right now is that even as these two superpowers, US and China, try to sort out the way their relationship is going to evolve, the middle powers could in principle play a stabilizing role. And I argue in the book that is again, one potential source of hope. Countries like India, Indonesia, Brazil and so on have a very strong interest in these two major powers not colliding with each other because all the middle powers get caught in the middle. But unfortunately, even the middle powers are playing some more destabilizing role right now. If you think about India, for instance, when it comes to issues related to getting cheap oil and India imports, a lot of oil sided with Russia, and China was not very keen to participate in the sanctions. But at the same time, India does want to be seen as a friend of the west and wants to be much closer to the U.S. even though the U.S. right now is pushing it away because it sees Its democratic values is aligned more closely with the West. So it is undertaking what I call these issue based alliances where depending on the issue it goes into a particular alliance. So it's teetering from one side to another and not really creating a source of balance. So that's yet another source of instability. So as I look at all of these forces, I see much more instability rather than stability. But you know, when I was writing this book, Henry, you know, my head was pulling in one direction, which was a gloomy direction, but my heart was pulling me in a very different direction. I wanted an optimistic conclusion. So I thought to myself, you know, this is all very dark. Surely countries must see common interests that will pull them together. But I think there is one very, very important difference now relative to previous periods of great power competition or hegemony. If you think about the 1990s, the US became the dominant power, like I said, after the fall of the Soviet Union. And then Japan started rising, looked like it might be a rival to the US and then it sort of faded away in the 2000s with the creation of the Eurozone. It looked like Europe might be a competitor to the US but centrifugal forces are pulling Europe apart. So it doesn't look like it's going to become a major competitor. Now China is rising. But there is one very important difference. When you think about competition with Japan, with Europe, it was really just economic rivalry. The fundamental values, how you organize a society, a political system, an economic system. There was a commonality of views. China sees things completely differently. Its view about how you organize an economic, a political, a legal system, a social system, are very, very different from that of the us. So even though we may come to some sort of detent in terms of this great power competition, I think it's a very different kinds of superpower competition that is going to to be inherently unstable because it's not just a matter of who wins economically, but about whose vision of the world. The title of my penultimate chapter, that really is going to govern and that I think creates very fertile grounds for instability to continue.

[Henry]

And can they coexist or does one vision have to win?

[Ishwar Prasad]

So they have to coexist at one level because there is going to be some degree of balance, but it's going to create a lot of friction in the world. We're going to see much more, more polarization because countries in a sense are being forced to pick sides. I spoke about the middle powers, but there are many countries in Asia that are really in a very difficult position. Take a Country like Vietnam. You know, Vietnam has very strong economic and trade links with China. It cannot afford to create any sort of enmity with China. But at the same time, countries like Vietnam, the Philippines, Malaysia and so on don't entirely trust China. But where are they going to turn? Once upon a time they could have turned to Japan, but Japan is a declining power. They could have turned to the United States, but the United States is disengaging from the region and doesn't look like a trustworthy power in itself. So these countries are going to sort of keep teetering from one side to another and both these great powers will eventually try to bring them onto their side and it's not going to create much more stability. So I think we are setting ourselves up for a world, at least for the foreseeable future, where there is going to be a lot of friction between these two superpowers because there is no easy way to mesh these two visions and meet them in the middle.

[Henry]

And a couple more questions. One is, and as I was reading your book, I was very struck by it, about the share of GDP and how the United States grew for so long and I think reached 30% and now we're declining because China is growing so rapidly. To individual citizens, does it really matter what a country's share of GDP is or even really GDP growth rates and things like that? And the reason I ask is people always talk about, oh yeah, the British Empire, they used to be in charge of everything. Now they're tiny little island, nobody cares. Japan, it was this incredible rising nation. Now it's declining. When I go to the UK and Japan, people have very nice lives and they do in Europe too. Amazing countries. People say, ah, there's no innovation, there's no growth. Yeah, but they have great lives. And so does all of this macro analysis of GDP and power and geopolitics and all that stuff. How much does that really affect individuals?

[Ishwar Prasad]

So we economists, Henry, have a very narrow vision of what makes people happy. What we call utility that we get. We think people largely get utility from being able to, to buy and consume a lot of stuff and also to have as much leisure as possible. So this is a very narrow way of thinking. And the more GDP you have, the higher the per capita GDP per country citizen, which means that you can acquire more stuff. And in principle you can trade off some of that stuff for leisure so you can have a little more leisure. But you're absolutely right that if you're living in a country that is fraught with crime, if you don't feel safe stepping out onto the street buying a lot of goods and services is really not going to be very helpful. So I think GDP is a useful measure because it allows us to make cross country comparisons of economic power and so on. But ultimately it is standards of living and quality of life that really matter. And there is an interesting question about what people view as trade offs. Are they willing to trade off some amount of material well being for other things like say, the freedom of expression, the ability to associate freely and so on. So I do have a discussion in the book where I talk about visions of the world, where I make the point that people in many countries seem to be willing to give up liberties if they feel that their basic economic needs are met and also that they're going to be relatively safe. There was this hope that this paragon of liberal market oriented democracy would rule the world in the 1990s. We thought that that paradigm had. We thought that bringing China into the fold, giving them access to our markets, and as China became more economically developed, you would have Chinese citizens clamor for democracy, freedom of expression and so on. I don't quite see that people seem quite willing to give up these economic liberties for standard of living and security. Even in the US we've given up a lot of our privacy. We've given up rights that, you know, before 9, 11 we'd have wanted to preserve all in the name of security and safety. So I worry that this paradigm that we had thought would be the paradigm that every country aims towards, you know, liberal market oriented democracy that has really lost its shine.

[Henry]

I was very struck by that. I went to China for about a week for a reporting trip for Slate about 20 years ago and a long time ago now. But I remember going in saying, oh, it's so terrible. You guys can't say what you think, you know, no first Amendment. And I had several people say, like, dude, we don't, like, there are so many things we need to deal with before we get to the First Amendment. By the way, you can say whatever you want, just don't publish it and you're fine. And so I remember thinking like, yeah, okay, in the order of priorities, maybe that one is a luxury for the United States. So let's. Another thing you talk about in the book is military power. We have something going on right now that I think not many Americans certainly I was not very focused on Venezuela as a country that we might attack. And we have now attacked Venezuela and kidnapped their president. And now we are talking about running their oil and running the country. Is this part of the instability that you're talking about? And should we expect more of this in the doom loop?

[Ishwar Prasad]

So I should point out that I finished the first draft of my book, Henry in October of 2024. And I thought, my God, this book is very dark. Let's wait for the elections to be done. And surely I need to find a better way to spin this. The thesis of my book has been turbocharged by everything that has happened since November 4, 2024. I think we've really seen many elements of the book, again, sadly for the world, perhaps okay, for my book play out. And what we're seeing right now is a turbocharging of this breakdown of this rules based order. Essentially we are in a world where there is no clear set of rules that every country is going to follow. And if the US does not follow those rules, it's not obvious why other countries are going to be motivated to do so. So we're essentially entering a bit of a Wild west era where many of the rules governing international trade, international finance, and international engagement more broadly have broken down and there is no real enforcer anymore. I mean, once upon a time, the US was not only responsible for setting up the institutions that would maintain the rules of the game, but also enforce those rules. But now we are the ones essentially taking liberties that seem to violate the existing order. So I worry a great deal about what this means for every aspect. Even if you think about something as narrow as trade, which we've spent a lot of time talking about, what the US has done is essentially contravened many of the principles underlying the World Trade Organization. And now when it comes to going in and plucking in a leader of a country, no matter how obnoxious he might be, is a concern. And it opens the door, I think, for similar behavior by other countries.

[Henry]

And as you look at that, how much of that do you think is the, the personality of the particular leader in charge of the United States right now? And how much of it is actually what we were talking about before, which is general frustration and discontent with the impact of globalization and so forth? Like could you, could we still be in an era where people are politics of resentment, they're unhappy, but you have a leader who is acting more, I would just say, less impulsively, maybe.

[Ishwar Prasad]

So I think the two options would have been either a mild version of the doom loop or a turbocharged version of the doom loop. Like I said, I finished my book, first draft in October of 2024 and many of these forces. And it's not just the us it's around the world. If you look at many countries in Europe, if you look at Asia, these forces are playing out around the world. So we would have had that playing out nevertheless. But certainly we've got a much more dire version of the doom loop in play, right? Which means it is also going to be much more difficult for us to extricate ourselves. And you had asked me what it's going to take to extricate ourselves. I think ultimately, in addition to institutions, it's going to take each of us, we have to become engaged citizens, not just showing up to I voted the ballot box, but we have to see ourselves as citizens not just of our countries, but of our communities and of the broader humanity and recognize that our shared interests are really what ought to dominate over any conflicts we may have. And we have leaders who should be able to. We need leaders, you know, community leaders, business leaders, national leaders who can give us a sense of hope rather than simply prey on our fears and concerns.

[Henry]

I think that is a very optimistic. Because that seems achievable. So that sounds like a very optimistic place to end this. Professor Prasad, thank you so much. Congratulations on the the book. It's not as doomy as it sounds, but obviously it is a doom loop. But you've also outlined the solution, so thank you very much.

[Ishwar Prasad]

Thank you, Henry. That was a real pleasure talking to you.

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