How to Stop a Global Economic “Doom Loop”
Summary
Economist Ishwar Prasad, author of ‘The Doom Loop,’ joins Henry Blodget to analyze the current breakdown of the global economic order. Prasad defines the ‘doom loop’ as a negative feedback cycle where economic globalization’s uneven benefits fuel domestic political resentment, which in turn leads to destabilizing geopolitical and economic policies, creating more instability.
Prasad argues that globalization itself is not the problem; it has created broad prosperity. The critical failure was the lack of attention to its distributional consequences, leaving many workers displaced without adequate safety nets or opportunities. This created a ‘politics of resentment’ that populist leaders exploit, leading to policies like tariffs that further fragment the international system.
The discussion explores why a multipolar world, which should theoretically be more stable through balanced competition, has instead become a source of instability. Key factors include the zero-sum framing of economic relations, the loss of economic cooperation as a counterbalance to geopolitical rivalry, and the fundamental clash between the US and Chinese visions for societal and economic organization.
Prasad’s solutions focus on two main areas: strengthening domestic institutions to ensure fairer distribution of opportunities and rebuilding legitimate international institutions. He advocates for US leadership in setting multilateral standards (like the abandoned TPP) and for a renewed spirit of cooperation. He concludes that while current trends are dark, the path out requires engaged citizenship and leaders who build on shared human interests rather than exploiting fears.
Recommendations
Books
- The Doom Loop: Why the World Economic Order is Spiraling into Disorder — Ishwar Prasad’s book, which is the central topic of the episode. It analyzes the negative feedback loop between economics, politics, and geopolitics and proposes solutions for a more stable global order.
Concepts
- Industrial Policy — Discussed as a potentially useful tool where the government funds basic research to spur innovation. Prasad distinguishes this from ‘picking winners’ and argues the US is pulling back from this strength.
Institutions
- World Trade Organization (WTO) — Discussed as a key international institution that has lost legitimacy. The US is disengaging from it, and it has been ineffective in making China play by agreed rules, but Prasad argues it should be reformed and used.
- International Monetary Fund (IMF) — Prasad, a former IMF staffer, discusses its legitimacy crisis. He notes the US has veto power and voting shares (e.g., Japan’s over India’s) do not reflect current economic realities, frustrating emerging markets.
- Trans-Pacific Partnership (TPP) — Cited as an example of effective potential US leadership. It was a trade agreement designed to set high labor and environmental standards; the US led its design but stepped back, and other members ratified it.
- Asian Infrastructure Investment Bank (AIIB) — Mentioned as an example of China setting up competing international institutions, like a rival to the World Bank, contributing to a fragmented global system.
- BRICS Development Bank — Noted as another institution set up by emerging economies (Brazil, Russia, India, China, South Africa) to compete with the IMF and World Bank, reflecting institutional fragmentation.
Topic Timeline
- 00:01:21 — Introduction to the Doom Loop Concept — Henry Blodget introduces guest Ishwar Prasad and his new book ‘The Doom Loop.’ Prasad explains the book’s origin, stating he initially intended to write about forces leading to stability but concluded the world is stuck in a negative feedback loop between economics, domestic politics, and geopolitics. He introduces the ‘politics of resentment’ fueled by globalization’s uneven benefits.
- 00:05:51 — Why a Multipolar World Breeds Instability — Prasad explains why the shift from a US-dominated unipolar world to a multipolar one has created instability instead of balance. While economic power (GDP) is more distributed, per capita income gaps remain large, leading to disputes over issues like climate change responsibility. Crucially, economic relations, once a positive-sum counterbalance to geopolitics, are now seen as zero-sum, removing a key stabilizing force.
- 00:10:45 — Globalization’s Benefits and Failures — Prasad unequivocally states globalization is good but was not good for everyone. The critical failure was not compensating the ‘losers’—displaced manufacturing workers—due to a frayed social safety net and lack of retraining opportunities. This, combined with technological change, created a disenfranchised class that found it easy to blame foreign competitors, fueling political backlash.
- 00:13:15 — The Ineffectiveness of Tariffs — Prasad critiques tariffs as a solution, arguing they hurt American consumers through higher prices and fail to make US manufacturing competitive against highly efficient Chinese firms. He acknowledges legitimate grievances about China not playing by WTO rules (e.g., currency manipulation, state subsidies) but argues tariffs are a blunt instrument that intensifies economic fragmentation.
- 00:17:03 — Proposed Solutions: Institutions and Industrial Policy — Prasad outlines smarter policies: using and reforming international institutions like the WTO, and US leadership in setting multilateral standards (citing the abandoned TPP). He also advocates for a moderate ‘industrial policy’ where government funds basic research to spur innovation, a traditional US strength he sees being undermined.
- 00:22:25 — Addressing Distribution and Strengthening Democracy — Prasad emphasizes that any policy must account for distributional consequences. Domestically, this means a stronger safety net and opportunities for displaced workers. It also requires strengthening democratic institutions so citizens feel their voices are heard, countering the sense of disenfranchisement that fuels the doom loop.
- 00:26:17 — The Crisis of International Institutional Legitimacy — Prasad details how international institutions are losing legitimacy from both sides: the US disengages, while emerging markets feel underrepresented (e.g., India’s voting share at the IMF is less than Japan’s despite a larger economy). This has led to fragmented, competing institutions (like China’s AIIB), further undermining a unified rules-based order.
- 00:32:23 — The Clash of US and Chinese Visions — Prasad identifies a key difference in the current US-China rivalry compared to past competitions with Japan or Europe: it’s not just economic but a fundamental clash of visions for organizing society, politics, and law. This ideological divide makes coexistence inherently friction-filled and unstable, forcing other nations to pick sides.
- 00:39:06 — Current Events Turbocharging the Doom Loop — Prasad states that events since the November 2024 election have ‘turbocharged’ his book’s thesis. The US’s recent actions (implied military intervention in Venezuela) represent a breakdown of the rules-based order, entering a ‘Wild West’ era with no clear enforcer. This opens the door for similar behavior by other countries, deepening instability.
- 00:42:13 — The Path Forward: Engaged Citizenship — In conclusion, Prasad argues that escaping the doom loop requires more than institutional fixes. It demands engaged citizens who see themselves as part of a broader humanity and leaders at all levels who build on shared interests and hope rather than preying on fears. This is presented as an achievable, optimistic necessity.
Episode Info
- Podcast: Solutions with Henry Blodget
- Author: Vox Media Podcast Network
- Category: Technology Business
- Published: 2026-01-19T09:00:00Z
- Duration: 00:46:44
References
- URL PocketCasts: https://pocketcasts.com/podcast/9c941ed0-56cc-013e-8b75-0e680d801ff9/episode/3cf89763-8d93-4c12-8143-6847a9291e07/
- Episode UUID: 3cf89763-8d93-4c12-8143-6847a9291e07
Podcast Info
- Name: Solutions with Henry Blodget
- Type: episodic
- UUID: 9c941ed0-56cc-013e-8b75-0e680d801ff9
Transcript
[00:00:00] On Wall Street in the 1990s, most of us thought globalization was a good thing.
[00:00:07] We thought it would increase global prosperity and knit countries and people closer together.
[00:00:13] Most of us still think that.
[00:00:15] But it’s also clear that the benefits of globalization have left many people behind,
[00:00:20] not just in America, but around the world.
[00:00:22] So was globalization a mistake?
[00:00:24] Not in my view, and not in the view of Ishwar Prasad,
[00:00:29] a professor of trade policy and economics at Cornell and a senior fellow at the Brookings Institute.
[00:00:35] But on the way to globalization, Professor Prasad says,
[00:00:38] we made mistakes, and we need to fix them.
[00:00:42] In his new book, The Doom Loop, Professor Prasad explains why the old world economic order is failing
[00:00:48] and what will replace it.
[00:00:50] He also explains what we need to do to return to a more stable,
[00:00:54] stable world in which the benefits of globalization are more widely shared.
[00:01:00] The solution, Professor Prasad says, is not the tariffs and other America-first policies
[00:01:06] enacted by the Trump administration.
[00:01:08] Rather, it is taking care of those who have been left behind
[00:01:11] and strengthening instead of ignoring or undermining our international institutions.
[00:01:21] Professor Prasad, thank you so much for joining us.
[00:01:23] It’s great to have you.
[00:01:24] Absolutely.
[00:01:24] Henry, thanks so much.
[00:01:25] One request.
[00:01:26] You don’t have to refer to me as Professor Prasad.
[00:01:29] My first name is fine, but it’s not an easy first name.
[00:01:32] It’s pronounced Ishwar.
[00:01:34] Okay.
[00:01:34] I will try that.
[00:01:35] And if I screw it up, I apologize in advance.
[00:01:38] There will be hell to pay if you screw it up because it literally means God.
[00:01:41] Oh, that is, yes.
[00:01:43] Ishwar Prasad is a gift of God.
[00:01:45] Ishwar, fantastic.
[00:01:46] All right.
[00:01:47] Well, it’s great to have you.
[00:01:48] All right.
[00:01:49] Let’s jump right in.
[00:01:50] Congratulations on your new book.
[00:01:52] I will read the title.
[00:01:53] And it is not…
[00:01:54] It’s a very happy reading, which is The Doom Loop.
[00:01:58] Why the World Economic Order is Spiraling into Disorder.
[00:02:03] Happily, you are not just recommending that we all go into the fetal position,
[00:02:07] that there’s nothing we can do about this,
[00:02:09] and you do have solutions, which we will definitely talk about.
[00:02:13] But tell us, so what is The Doom Loop?
[00:02:15] What are you talking about?
[00:02:16] And what’s happening?
[00:02:18] So it’s…
[00:02:19] First of all, Henry, it’s a great pleasure to talk to you.
[00:02:22] And it’s worth thinking a little bit about the generation,
[00:02:24] about the generations.
[00:02:26] And I’m ourselves, and this is a book.
[00:02:28] And it’s a book called In the Crimson Skin.
[00:02:31] And this is the basis of this book.
[00:02:34] What I was trying to do is make sense of all that was happening around us.
[00:02:38] And the story was actually intended to be a much happier story.
[00:02:42] The view I had is that we were moving from a unipolar world,
[00:02:46] where the US was the dominant power in every respect,
[00:02:49] financial, economic, military and so on,
[00:02:52] to one where economic power at least seemed to be more
[00:02:54] competition, for efficiency. So what the book was going to be about was all the forces that would
[00:03:01] lead us back towards the stability. Unfortunately, as I started working through each of these forces
[00:03:08] in my mind, I came to a somewhat dark conclusion that in fact, they were going to lead to more
[00:03:14] instability rather than stability. That essentially, we are stuck in what I view as a negative feedback
[00:03:21] loop between economics, domestic politics, and geopolitics. The reason we are stuck in this
[00:03:29] dynamic is if you think about globalization, it’s a perfect example of how it created,
[00:03:34] in principle, the basis for shared prosperity within countries and across countries. The idea
[00:03:40] was that if countries could trade more freely with each other, if investors could find the best place
[00:03:45] to put their returns worldwide, this would make everybody better off. But it turned out to be the
[00:03:51] case.
[00:03:51] In fact, there were some countries that benefited more than others. And within countries, we had this
[00:03:57] problem where the fruits of globalization were not very evenly distributed. So there was a sense
[00:04:03] in countries, including the United States, that the political and economic elites were essentially
[00:04:09] walking off with many of the benefits. So that, I think, gave rise to what I call in the book as
[00:04:15] the politics of resentment, where it becomes much easier for politicians, rather than to talk about
[00:04:21] wholeheartedly, to talk about the benefits of globalization. So that, I think, gave rise to
[00:04:21] hope and about how we could all have a shared future of prosperity, found it much easier to
[00:04:28] latch on to people’s grievances. This infects the political system, which in turn affects
[00:04:34] the economic policies of the new government. So all of these forces are now stuck in this
[00:04:40] adverse loop where they’re bringing out the worst in each other rather than the best. So that
[00:04:45] is the concept of the doom loop. And talk a bit about what you said at the beginning. The idea
[00:04:51] that we would move from a world where the United States was completely dominant to one in which
[00:04:58] there are many countries that stand on their own and are thriving on their own, that sounds
[00:05:04] theoretically good. And part of what I hear when I have this conversation about the United States
[00:05:10] relative to China, for example, there seems to be this attitude that the United States cannot let
[00:05:16] China become bigger and more powerful, that we have to keep them down and we have to
[00:05:21] maintain our position as the dominant economically and militarily, which seems to me when you look
[00:05:29] at China and the size of China and the talent, it just seems like a hallucination that that’s
[00:05:34] even possible. So what is it that takes what sounds like actually a stronger system that you
[00:05:41] were describing with multiple countries having a real say, what is it that has made it into a doom
[00:05:48] loop? Why isn’t that good?
[00:05:51] So you’re absolutely right that in principle, it should be very good if you have more competition.
[00:05:58] That means that no single power can act on its own in an unfettered way. They have to play by
[00:06:04] the rules of the game. They have to take account of other powers, interests and so on. So it ought
[00:06:10] to maintain a balance. But even if you think about economic power, which has become much more
[00:06:15] evenly distributed, there are some interesting quirks. Let’s take GDP, which is a measure of
[00:06:21] a country’s economic output. Now, the U.S. still has a pretty large share of global output, about
[00:06:27] 25 percent, although that’s down from about 30 percent a couple of decades ago. China and other
[00:06:34] emerging markets, including Brazil, India, Russia, have become much larger in terms of accounting
[00:06:39] for global GDP. But even though GDP is now being distributed more evenly, if you look at per capita
[00:06:46] GDP, there is still a gulf between the rich countries of the West.
[00:06:51] The U.S., Europe, Japan, and so on, and countries like China and India. So if you think about issues
[00:06:57] where there are common interests, such as climate change, there is a lot of dissension between these
[00:07:02] two groups about who ought to bear responsibility for creating human-induced climate change.
[00:07:09] The countries like China and India would argue that, yes, right now they’re emitting a lot more,
[00:07:15] but the advanced economies benefited from a lot of emissions that they contributed to in the past,
[00:07:21] so they should be paying more than their GDP share in order to compensate these countries for
[00:07:27] giving up some economic output. So even where you have a distribution of economic power,
[00:07:33] it turns out that countries are not seeing common interests in terms of dealing with common
[00:07:39] problems. And then if you look at things like military power, here again you might argue
[00:07:44] that in principle there should be a mutual deterrence effect if you have large economic
[00:07:49] powers. And to some extent, that’s not the case. But, you know, it’s a matter of whether or not you’re
[00:07:49] going to be able to maintain a certain level of economic output. So if you look at the U.S. economy,
[00:07:49] we have a lot of debt. We have a lot of debt. We have a lot of debt. We have a lot of debt. We have a lot of debt.
[00:07:49] And in principle, there should be a mutual deterrence effect if you have large economic powers. And to some extent,
[00:07:50] that is true. But on the other hand, you do have smaller powers that have nuclear warheads,
[00:07:57] you know, the North Koreas, the Pakistans of the world that are creating instability. And there is
[00:08:03] one other interesting tweak here. So it used to be the case that, you know, when you think about
[00:08:09] geopolitics, it is intrinsically a zero-sum game. If the U.S. gains more influence, China is going
[00:08:16] to lose influence or the other way around. But economics was seen as a positive-sum game, that
[00:08:22] countries could have beneficial economic relationships. And this was proving to be an offset
[00:08:27] to the zero-sum game of geopolitics. So in other words, countries could say, yes, we are not going
[00:08:33] to be able to set aside a geopolitical competition, because there is inherently a competitive aspect
[00:08:39] to that. But at least on the economic side, we can cooperate, we can share the fruits of our
[00:08:44] cooperation. And this can be done. And this can be done. And this can be done. And this can be done.
[00:08:46] We kept the geopolitical rifts in balance. That sense of balance is gone now. Right now, we have
[00:08:52] even economics, if you think about trade, if you think about financial flows, investment flows
[00:08:57] being seen as a zero-sum game or even a negative-sum game, where one country gains, another
[00:09:03] country loses. So that balancing force is gone. American businesses used to be keen to maintain
[00:09:09] stable relations between U.S. and China. They don’t act as a balancing force anymore. If you think
[00:09:15] about the U.S. and China, they don’t act as a balancing force anymore. If you think about the
[00:09:16] trade and financial flows, those haven’t stopped because there are huge benefits. But trade and
[00:09:21] financial flows are now falling along geopolitical lines. So rather than creating bridges across the
[00:09:28] geopolitical divide, they are intensifying those divides. So let’s talk more about globalization,
[00:09:34] because I was on Wall Street in the 1990s. We were taught, oh, globalization is great. You know,
[00:09:39] let’s knit the world together. We’ll all get richer together. Even for the first decade of the 2000s,
[00:09:45] it was the same. Globalization is good. And as you suggested with China, if China is potentially
[00:09:52] a military or geopolitical enemy of the United States, what better way to actually lessen that
[00:09:59] than to fully get into bed with each other with supply chains and companies and so forth? So
[00:10:05] until recently, that all seemed good, with the exception that we were badly, in my opinion,
[00:10:13] mishandling our manufacturing.
[00:10:15] industry at home, and we were not taking care of people who were displaced by manufacturing moving
[00:10:21] to China. And that created a lot of problems and led to some of the elections that we’ve already
[00:10:26] talked about. But so is globalization actually bad? Is that what we’ve learned? Should we be
[00:10:33] doing what the Trump administration seems to be wanting us to do, which is just become America
[00:10:38] alone? Is that better? Unequivocally, no. I think globalization is clearly
[00:10:45] good. The problem, however, Henry, is that it’s not necessarily good for everybody. And this is
[00:10:52] one of the things that maybe the economists and maybe some politicians did not pay enough
[00:10:56] attention to. Because certainly from free trade and the free flow of goods and services and
[00:11:04] finance, I think there are very large, measurable benefits. The problem is that with as with any
[00:11:11] phenomenon in economics, there are some winners, and there are some losers.
[00:11:15] And our democratic system does not give us an easy way of compensating the losers. And of course,
[00:11:22] in the United States, the social safety net has gotten increasingly frayed over time.
[00:11:27] So this has meant that many of the people who were displaced, when we lost many manufacturing
[00:11:34] jobs to low wage competitors like China and elsewhere, you know, ended up without any clear
[00:11:39] alternatives in terms of employment. And as I point out in the book, it is not just a lack of
[00:11:45] economic resources, but of opportunity. There was a sense that many people felt so left out that
[00:11:52] they had no chance to clamber back on the economic ladder that could lead them to a more secure
[00:11:58] middle class existence. There were a lot of other phenomena, of course, in play in the last couple
[00:12:04] of decades, including technological shifts that favored the highly skilled, the highly educated,
[00:12:10] and did not really favor low skilled workers in many sectors,
[00:12:15] including manufacturing workers, who may have had high paid jobs, and were very skilled in their
[00:12:21] particular jobs, but did not have transferable skills. So we ended up with a lot of people who
[00:12:27] felt that essentially, it was globalization that was to blame, because it’s a lot easier
[00:12:32] to blame the other, you know, China, foreigners, and so on. And the fact that we did not pay enough
[00:12:39] attention to these distributive consequences, and just felt that so long, as there were broad
[00:12:45] strides, that eventually they would filter down to everybody, and everybody would see the benefits of
[00:12:49] globalization. That proved to be an illusion. So we created a large disenfranchised class,
[00:12:57] and they felt disenfranchised both economically and politically, and that has come back to bite us.
[00:13:03] And so as a trade policy expert, what do you think of the tariffs? Is that the way to address
[00:13:09] what’s going on? So my view is that tariffs do not necessarily accomplish what
[00:13:15] the Trump administration would like to accomplish. And it’s worth thinking as an economist, first of all,
[00:13:21] what is the objective, what it is you’re trying to achieve. And Trump has talked about, you know,
[00:13:26] bringing manufacturing jobs back to the US. He’s talked about reducing the trade imbalances with
[00:13:32] other countries. Now, as an economist, I know that yes, if you put a very large tariff barriers,
[00:13:38] that is certainly going to reduce imports. But the question is whether this is going to hurt the
[00:13:42] American consumer in terms of higher prices.
[00:13:45] And who’s going to pay those tariffs? Yes, the US government is collecting a lot of tariffs,
[00:13:50] but it’s not obvious that foreign exporters are paying a lot of these tariffs, probably being
[00:13:56] paid by American households, American consumers. But it’s worth, again, stepping back a little bit
[00:14:04] and thinking about how politicians like Donald Trump were able to latch on to this notion of
[00:14:10] playing to the politics of resentment. Now, there was a sense that when we had globalization,
[00:14:15] you know, beginning to play out, that there was a common set of rules of the game governing
[00:14:20] international trade, international finance that every country could play by. Not everybody did.
[00:14:26] China in particular used those rules to its advantage. So when it entered the World Trade
[00:14:31] Organization in the early 2000s, it basically made a commitment that it would open up its markets,
[00:14:38] it would adopt market-friendly practices, and in return, it would get easy access to markets
[00:14:43] worldwide, including in the United States. And so, you know, there was a set of rules of the game
[00:14:45] in the United States. It did not live up to its part of the bargain. So although China will claim
[00:14:51] that it does allow foreign firms to operate freely in China, it comes with a lot of restrictions.
[00:14:58] Chinese companies do get a lot of advantages in terms of cheap capital through bank financing
[00:15:04] from state-owned banks, cheap land, and other sorts of benefits from the government,
[00:15:09] which allowed the Chinese companies to compete on a somewhat uneven basis. And of course,
[00:15:15] China has a lot of restrictions. So, you know, there’s a lot of restrictions. So, you know,
[00:15:15] China has a lot of restrictions. So, you know, there’s a lot of restrictions. So, you know,
[00:15:15] China has been using its currency policy. Normally, when a country runs large trade
[00:15:20] surpluses, where its exports exceeds its imports, its currency would appreciate, you know, making
[00:15:26] its exports less competitive and acting as a natural balancing mechanism. China took measures
[00:15:32] to keep its currency from appreciating. So, it gained an unfair advantage in trade. So, some of
[00:15:38] these issues are legitimate, but it is also true that the Chinese government has played a very
[00:15:44] effective role. China has been using its currency policy. So, you know, there’s a lot of restrictions
[00:15:45] in terms of protecting its companies in their early stages while they grow up and can compete
[00:15:51] toe-to-toe with multinationals worldwide. So, essentially, China has a policy and a set of
[00:15:58] policies now that has led to its companies being extraordinarily efficient. So, even when
[00:16:04] there are large tariffs on Chinese imports into the U.S. or into other countries,
[00:16:10] you know, there is very little ability for domestic firms to compete with Chinese
[00:16:15] firms because they are so cost efficient, so effective at producing whatever it is they are
[00:16:21] producing. So, tariffs, I think, are not the best way to approach this because it creates a lot of
[00:16:27] problems for the domestic economy. But one can understand why it is that at least at first blush,
[00:16:34] it seems like a very legitimate thing for the U.S. to do to protect itself from other countries that
[00:16:40] are not playing well by the rules.
[00:16:45] So, if it’s not tariffs, but there has been unfairness, particularly with China and the
[00:16:52] United States, what would smart policies be? What should we do?
[00:16:57] So, what we should do, ideally, is to use the existing institutions, such as the World Trade
[00:17:03] Organization, which, unfortunately, the U.S. is now disengaging from, and also bring other
[00:17:09] countries, you know, other countries that are important export markets of China, all to our
[00:17:14] side. So,
[00:17:15] a few years ago, there was this notion of creating what was called the Trans-Pacific Partnership or
[00:17:21] TPP, which was a trade agreement where the U.S. was basically going to take the lead in terms of
[00:17:27] setting up labor, environmental, and other standards that would govern exports. And these
[00:17:32] 11 countries, which included Japan and some of the other major economies, would basically have
[00:17:37] set standards that would then have become necessary for countries like China to follow.
[00:17:44] All the other countries,
[00:17:45] in that group, ended up ratifying the TPP, where the U.S. took the lead in designing it. But the U.S.
[00:17:52] stepped back at the last minute. And then, of course, Trump basically walked away from it,
[00:17:57] and there’s been no ability to get back to that. So, what we would need to do, ideally, is to show
[00:18:02] a leadership role. Because the reality, going back to a point you made right at the beginning of the
[00:18:08] show, is that the U.S. cannot, you know, run the world alone. It does need partners, and that would
[00:18:14] be the most effective way to run the world. So, what we would need to do, ideally, is to show a leadership role.
[00:18:15] To sort of corral China. If the U.S. can set standards that other countries, other major
[00:18:20] trading partners, then follow, then China would end up, you know, having little choice but to
[00:18:27] follow those rules. So, that’s one aspect of it. The second is to use government policy somewhat
[00:18:32] more effectively. Now, there is this term called industrial policy, which is, in some sense, a very
[00:18:39] dirty connotation, because there is a sense that it is the government picking winners and losers.
[00:18:45] But, you know, there is a role for at least some modicum of industrial policy, where the government
[00:18:51] can cede funding, can cede research funding at least, so that you have innovation taking place
[00:18:58] in an economy. And unfortunately, under this administration, we are pulling back even from
[00:19:02] some of the greatest strengths of the U.S. economy, which is, you know, the ability to
[00:19:06] create knowledge, to create innovation. And that, I think, is really going to hurt us.
[00:19:12] And what would happen if you, if the U.S.
[00:19:15] really opted out of world trade and said, we are just going to focus on ourselves,
[00:19:21] all economic activity is going to be internal? President Trump seems to waffle on this,
[00:19:28] depending on the given day. But J.D. Vance, the vice president, seems very committed to that,
[00:19:33] as the idea is, look, we’re going to make toasters here. And yeah, they’re going to cost a lot more,
[00:19:38] but it’s worth it, because we’re going to have all these wonderful manufacturing jobs.
[00:19:42] Is that actually an option in today’s world?
[00:19:45] Would that be good for the United States?
[00:19:47] So at some level, it is an option, because one could argue that the U.S. basically puts up,
[00:19:53] say, 100, 150 percent tariffs on all imports. Other countries would probably retaliate with
[00:19:59] similar imports. So the U.S. would become what we would call a closed economy, where there is
[00:20:04] very little trade with the rest of the world. So yes, if you wanted a toaster then, and the
[00:20:10] price of a toaster is going to be double or triple because of the tariffs, if you import it,
[00:20:14] we are going to start cutting it. And if you want a toaster, you are going to have to cut it.
[00:20:15] So there will be more jobs. The question is whether this is efficient, whether this is going
[00:20:20] to create more GDP, and whether this is going to make all of us better off. So yes, there might be
[00:20:27] a few more people who have jobs. But if you think about, you know, adjusting whatever we create here,
[00:20:33] the toasters, by the price of that toaster, it’s going to mean that the average American consumer
[00:20:38] is going to be much worse off. So ultimately, it is not in America’s interest to wall itself off.
[00:20:45] America cannot really be an island and prosper and thrive. Even when we think about the tremendous
[00:20:53] innovation engine that the American economy is, you know, the benefits of this innovation that
[00:20:58] can be enormously scaled up, if we can export them to the rest of the world. If you think about
[00:21:03] Apple, you know, and iPhones, it’s fantastic that we created iPhones. But the U.S., you know,
[00:21:09] has a little over 300 million people. If each of us, including babes in arms had an iPhone,
[00:21:14] that’s still a market.
[00:21:15] They get saturated relatively easily. If Apple can sell its iPhones around the world,
[00:21:20] it’s a much bigger market. So it’s good for American consumers. It’s good for American
[00:21:25] investors as well. And I think the other point that I would make there is that it’s much better
[00:21:30] for U.S. companies if they’re actually competing on a global stage. I’m watching what’s happening
[00:21:36] now with electric cars, and some of the Chinese companies are just way better. And you look at
[00:21:42] what’s happening in Europe, where the cars are available for sale,
[00:21:45] BYD and others, their sales are rocketing up because people recognize they’re much better
[00:21:50] cars. We’re basically not allowed to buy them in the United States. And we’re trying to protect
[00:21:55] our companies by pushing them back to the 1950s. They’ve just got to make gas cars.
[00:22:00] It just seems, it feels like short-term thinking. And so talk about more of your solutions. And
[00:22:07] let’s go back. The idea of this doom loop is scary because it sounds like you can’t pull out
[00:22:11] of it. But we certainly went through a bout of protectionism.
[00:22:15] In the Great Depression, and we got out of that. What else do we need to do to avoid just taking
[00:22:21] ourselves down and everybody else down with us?
[00:22:25] So it’s very important to think about the distributional consequences of any
[00:22:28] policy that we undertake, whether it is globalization, industrial policy,
[00:22:34] or any other policy. And we have to think about ways to ensure that people feel that they have
[00:22:39] opportunities to succeed. Yes, they may lose a job because their industry is on the wrong side
[00:22:45] of the world. But we have to think about the opportunities to succeed. And we have to think
[00:22:45] particular bout of competition. But they must feel that, you know, there is a safety net that
[00:22:50] can catch them when they fall from that job, give them some protection as they start looking for
[00:22:54] other jobs, maybe acquire other skills, and eventually move into a different phase. And we
[00:23:00] also need better rules of the game. So in the happier version of the book that I had planned
[00:23:06] to write, I had the idea of talking a lot more about institutions, you know, domestic institutions,
[00:23:12] as well as international institutions. So when you think about domestic institutions, you know,
[00:23:17] there are basic elements, like everybody has to feel they’re treated fairly in the judicial system.
[00:23:23] So the rule of law, one needs to think about government policies that are not going to favor
[00:23:28] the wealthy or the elite in any sense. There must be a sense that there is a genuine prospect
[00:23:34] for people to have their views heard through the ballot box, rather than having money,
[00:23:41] in fact, the political…
[00:23:42] process as well. So at the country level, I think we need much better institutions, including
[00:23:47] strengthening our institutions of democracy. Because once there is a sense that the average
[00:23:53] citizen feels that his or her voice no longer really counts in this process, in terms of setting
[00:23:59] up outcomes, leaders, and so on, who don’t fully reflect their views, that is a problem.
[00:24:05] At the international level, we need much better institutions as well. So the U.S. had a role in
[00:24:10] setting up many of these multilateral institutions. So I think we need to have a much better
[00:24:12] institutions, like the United Nations, the World Trade Organization, and so on. But there is a sense
[00:24:18] that many of those institutions are losing legitimacy. You know, the U.S. is pulling back
[00:24:23] from many of these institutions that underpin what we call the rules-based order, the idea that
[00:24:29] everybody has a common set of rules that we agree upon. Countries like the U.S. feel that these
[00:24:35] institutions are no longer serving their interests. And unfortunately, that interest is very narrowly
[00:24:40] defined.
[00:24:42] Countries like China, India, and so on, feel that other institutions like the International Monetary
[00:24:47] Fund, you know, which manages global financial flows, takes care of countries that are experiencing
[00:24:53] crises, and so on. There is a sense that those institutions are still in the hands of the United
[00:24:59] States and the other rich Western powers. So what we’re seeing right now is that the existing
[00:25:06] institutions are losing their legitimacy from both sides. U.S. disengagement and emerging
[00:25:12] markets are losing their legitimacy. And so, you know, we need to have a much better
[00:25:12] relationship between the two sides, feeling that they’re losing their legitimacy. And then you have
[00:25:15] countries like China and the emerging markets setting up their own institutions. The Chinese
[00:25:22] government has set up the Asian Infrastructure Investment Bank, which is sort of supposed to
[00:25:27] compete with the World Bank. The five BRICS economies, you know, Brazil, Russia, India,
[00:25:32] China, and South Africa, the leading emerging markets have set up a BRICS Development Bank,
[00:25:38] again, to compete with the IMF and World Bank. And here again, one might argue,
[00:25:42] as an economist, Henry, that, you know, institutional competition is good. It should cause
[00:25:47] all of these institutions to be on their toes, you know, create better outcomes. But instead,
[00:25:53] what we might end up with is a world where there is a fragmented set of rules.
[00:25:58] And so what would one do, actually? Like, how did those institutions come to be powerful and useful?
[00:26:05] And when did we start to disengage and say, hey, we don’t want to have anything to do with that
[00:26:09] now. We’re out for ourselves. Like, what would one do?
[00:26:12] What would we have to do to strengthen them again or adapt them to the new world?
[00:26:17] So we have to think a little bit about what it means for them to be legitimate. So if you think
[00:26:22] about the International Monetary Fund, for instance, you know, the voting rights are
[00:26:26] distributed according to certain economic criteria. And there is this weird situation
[00:26:32] right now that the United States has veto power at the IMF. And I care a lot about the IMF because
[00:26:37] that’s where I spent the first half of my career. It’s a great institution.
[00:26:42] It turns out that the U.S. has veto power over all major decisions. And if you take the U.S.
[00:26:48] and all the Western countries put together, they have a slight majority. And this irks countries
[00:26:54] like China, which now accounts for, you know, 16, 17 percent of world GDP. The emerging markets
[00:27:00] collectively account for a significant share of global GDP. But voting rights at the IMF are a
[00:27:06] zero-sum game. So if Japan needs to give up some of its voting rights, you know,
[00:27:12] you have to give up some of its voting rights for China and India to gain more. And it doesn’t want
[00:27:16] to do that. So we have these oddities that, for instance, you know, the Indian economy is now
[00:27:21] bigger than Japan’s, but India has a smaller voting share than Japan’s. So if you have this
[00:27:26] sort of system, there is no way that the rising powers are going to see these as legitimate
[00:27:31] institutions. The World Trade Organization has tried to be fair, but here the U.S. has felt
[00:27:37] that the World Trade Organization has not been effective in terms of getting China to
[00:27:42] play by the rules. And there is some legitimacy to that. So the U.S. has chosen to walk away from
[00:27:48] the institution rather than trying to work with the institution and try to change it from the
[00:27:53] inside. So there is a lot of work to be done. But one alternative is that given all of these
[00:28:00] institutions seem to be fraying at the edges and none of them is perfect, one can think about this
[00:28:05] as potentially an opportunity where we could all come together and create new institutions that
[00:28:11] are designed for the future. So I think that’s a good idea.
[00:28:12] It’s designed in a much better way that serve the broader good while making sure that individual
[00:28:18] countries and groups of countries feel their interests are going to be protected. But for
[00:28:23] that, you need a spirit of cooperation, which sadly is lacking at the moment.
[00:28:31] So listening to your solution, it sounds like we strengthen the institutions, which, yes,
[00:28:36] we would need to redevelop a spirit of cooperation and sharing. And we also change
[00:28:41] policies and policies that are not going to be protected. So I think that’s a good idea.
[00:28:42] at home a little bit to support better people who are being disenfranchised or victims of
[00:28:48] globalization or what have you. But we keep trading. We stay involved with the rest of the
[00:28:54] world. If China continues to grow, which one assumes it will, India continues to grow, the
[00:29:02] world GDP rebalances even more so. What does the new world look like? It is multipolar at that
[00:29:10] point. And what is the new world going to look like? And what is the new world going to look like?
[00:29:12] And what is it that would make that stable and even better than the world we had before?
[00:29:16] It depends on what dimension one is thinking about. So in terms of economic power,
[00:29:21] if you view raw GDP as a measure, certainly things will become a lot more balanced. But if
[00:29:28] you think about per capita GDP, as we discussed earlier, there is still going to be a gap,
[00:29:32] which means that countries will see different issues through different lenses. A more even
[00:29:39] distribution of military power is not necessarily
[00:29:42] going to be very stabilizing. And the reality right now is that even as these two superpowers,
[00:29:50] US and China, you know, tried to sort out the way their relationship is going to evolve,
[00:29:56] the middle powers could in principle play a stabilizing role. And I argue in the book,
[00:30:01] that is, again, one potential source of hope. Countries like India, Indonesia,
[00:30:07] Brazil, and so on, have a very strong interest in these two major powers not colliding with
[00:30:12] each other because all the middle powers get caught in the middle. But unfortunately,
[00:30:16] even the middle powers are playing a somewhat destabilizing role right now. If you think about
[00:30:21] India, for instance, you know, when it comes to issues related to getting cheap oil, and India
[00:30:26] imports a lot of oil, it’s sided with Russia and China was not very keen to participate in
[00:30:31] the sanctions. But at the same time, you know, India does want to be seen as a friend of the
[00:30:37] West and wants to be much closer to the US, even though the US right now is pushing it away.
[00:30:42] Because it sees its democratic values as aligned more closely with the West. So it is undertaking
[00:30:48] what I call these issue-based alliances, where depending on the issue, it goes into a particular
[00:30:54] alliance. So it’s teetering from one side to another, and not really creating a source of
[00:30:58] balance. So that’s yet another source of instability. So as I look at all of these forces, I see much
[00:31:05] more instability rather than stability. But you know, when I was writing this book, Henry, you know, my
[00:31:12] heart was pulling me in one direction, which was a gloomy direction. But my heart was pulling me in
[00:31:16] a very different direction. I wanted an optimistic conclusion. So I thought to myself, you know,
[00:31:21] this is all very dark. Surely, countries must see common interests that will pull them together.
[00:31:27] But I think there is one very, very important difference now, relative to previous periods of
[00:31:34] great power competition or hegemony. If you think about the 1990s, you know, the US became the
[00:31:40] dominant power, like I said, after the fall of the Soviet Union, you know, after the fall of the Soviet Union,
[00:31:42] Soviet Union. And then Japan started rising, looked like it might be a rival to the U.S.
[00:31:47] And then it sort of faded away. In the 2000s, with the creation of the Eurozone, it looked like
[00:31:52] Europe might be a competitor to the U.S., but centrifugal forces are pulling Europe apart,
[00:31:58] so it doesn’t look like it’s going to become a major competitor. Now China is rising, but there
[00:32:04] is one very important difference. When you think about competition with Japan, with Europe, it was
[00:32:09] really just economic rivalry. The fundamental values, how you organize a society, a political
[00:32:16] system, an economic system, there was a commonality of views. China sees things completely differently.
[00:32:23] Its view about how you organize an economic, a political, a legal system, a social system,
[00:32:29] are very, very, very different from that of the U.S. So even though we may come to some sort of
[00:32:36] detente in terms of this great power competition,
[00:32:39] I think it’s a very, very, very different view of the U.S.
[00:32:39] I think it’s a very different kinds of superpower competition that is going to be inherently unstable
[00:32:45] because it’s not just a matter of who wins economically, but about whose vision of the
[00:32:51] world, the title of my penultimate chapter, that really is going to govern. And that, I think,
[00:32:56] creates very fertile grounds for instability to continue.
[00:33:00] And can they coexist or does one vision have to win?
[00:33:05] So they have to coexist at one level because,
[00:33:09] you know, there is going to be some degree of balance, but it’s going to create a lot of
[00:33:13] friction in the world. We’re going to see much more polarization because countries, in a sense,
[00:33:18] are being forced to pick sides. I spoke about the middle powers. There are many countries in Asia
[00:33:23] that are really in a very difficult position. Take a country like Vietnam. You know, Vietnam is very
[00:33:30] strong economic and trade links with China. It cannot afford to create any sort of enmity with
[00:33:36] China. But at the same time, countries like Vietnam,
[00:33:38] the Philippines, Malaysia, and so on, don’t entirely trust China. But where are they going
[00:33:43] to turn? Once upon a time, they could have turned to Japan, but Japan is a declining power. They
[00:33:48] could have turned to the United States, but the United States is disengaging from the region
[00:33:52] and doesn’t look like a trustworthy power in itself. So these countries are going to sort of
[00:33:57] keep teetering from one side to another. And both these great powers will eventually try to bring
[00:34:03] them onto their side. And it’s not going to create much more stability. So I think we are
[00:34:08] setting ourselves up for a world, at least for the foreseeable future, where there is going to be a
[00:34:13] lot of friction between these two superpowers, because there is no easy way to mesh these two
[00:34:19] missions and visions and meet them in the middle. And a couple more questions. One is, and as I was
[00:34:26] reading your book, I was very struck by it, about the share of GDP and how the United States grew
[00:34:31] for so long and I think reached 30 percent and now we’re declining because China is growing so
[00:34:36] rapidly. To individual citizens,
[00:34:38] does it really matter what a country’s share of GDP is or even really GDP growth rates and things
[00:34:48] like that? And the reason I ask is, you know, people always talk about, oh, yeah, the British
[00:34:52] Empire, they used to be in charge of everything. Now they’re tiny, little island, nobody cares.
[00:34:57] Japan, it was this incredible rising nation. Now it’s declining. When I go to the UK and Japan,
[00:35:03] people have very nice lives and they do in Europe, too. Amazing countries. People are like, oh,
[00:35:08] there’s no innovation. There’s no innovation. There’s no innovation. There’s no innovation.
[00:35:08] There’s no growth. Yeah, but they have great lives. And so does all of this macro analysis of GDP
[00:35:16] and power and geopolitics and all that stuff, how much does that really affect individuals?
[00:35:21] So we economists, Henry, have a very narrow vision of what makes people happy, what we call
[00:35:28] utility, that we get, we think people largely get utility from being able to buy and consume a lot
[00:35:35] of stuff and also to have as much leisure as possible. So we have a very narrow vision of what
[00:35:38] leisure as possible. So this is a very narrow way of thinking. And the more GDP you have,
[00:35:44] the higher the per capita GDP per country citizen, which means that you can acquire more stuff.
[00:35:52] And in principle, you can trade off some of that stuff for leisure so you can have a little more
[00:35:56] leisure. But you’re absolutely right that if you’re living in a country that is fraught with
[00:36:02] crime, if you don’t feel safe stepping out onto the street, buying a lot of goods and services
[00:36:07] is really not going to be a good thing. So I think that’s a very narrow way of thinking.
[00:36:08] Very helpful. So I think GDP is a useful measure because it allows us to make cross-country
[00:36:15] comparisons of economic power and so on. But ultimately, it is standards of living
[00:36:20] and quality of life that really matter. And there is an interesting question about what people view
[00:36:27] as trade-offs. Are they willing to trade off some amount of material well-being for other things,
[00:36:34] like, say, the freedom of expression, the ability to associate freely? And,
[00:36:38] so on. So I do have a discussion in the book where I talk about visions of the world,
[00:36:43] where I make the point that people in many countries seem to be willing to give up liberties
[00:36:48] if they feel that their basic economic needs are met and also that they’re going to be relatively
[00:36:55] safe. You know, there was this hope that this paragon of liberal market-oriented democracy
[00:37:01] would rule the world. In the 1990s, we thought that that paradigm had won. We thought that
[00:37:07] bringing China into the fold, we thought that bringing China into the fold, we thought that
[00:37:08] bringing China into the fold, you know, giving them access to our markets, and as China became
[00:37:13] more economically developed, you would have Chinese citizens clamor for democracy, freedom
[00:37:18] of expression, and so on. I don’t quite see that. People seem quite willing to give up these
[00:37:24] economic liberties for standard of living and security. Even in the U.S., we’ve given up a
[00:37:30] lot of our privacy. We’ve given up rights that, you know, before 9-11, we would have wanted to
[00:37:37] preserve. All in all, we’ve given up a lot of our privacy. We’ve given up a lot of our
[00:37:38] in the name of security and safety. So I worry that this paradigm that we had thought would be
[00:37:47] the paradigm that every country aims towards, you know, liberal market-oriented democracy,
[00:37:51] that has really lost its shine. I was very struck by that. I went to China for about a
[00:37:57] week for a reporting trip for Slate about 20 years ago and a long time ago now. But I remember
[00:38:03] going in and saying, oh, it’s so terrible. You guys can’t say what you think. You know, no First
[00:38:08] Amendment.
[00:38:08] And I had several people say, like, dude, we don’t, like, there are so many things we need to
[00:38:15] deal with before we get to the First Amendment. By the way, you can say whatever you want. Just
[00:38:19] don’t publish it. And you’re fine. And so I remember thinking, like, yeah, okay. In the order
[00:38:25] of priorities, maybe that one is a luxury for the United States. So let’s, another thing you talk
[00:38:32] about in the book is military power. We have something going on right now that I think not
[00:38:37] many Americans, certainly.
[00:38:38] I was not very focused on Venezuela as a country that we might attack. And we have now attacked
[00:38:44] Venezuela and kidnapped their president. And now we are talking about running their oil and running
[00:38:52] the country. Is this part of the instability that you’re talking about? And should we expect more
[00:38:59] of this in the doom loop? So I should point out that I finished the first draft of my book, Henry,
[00:39:06] in October of 2024.
[00:39:08] And I thought, my God, this book is very dark. Let’s wait for the elections to be done. And surely
[00:39:14] I need to find a better way to spin this. The thesis of my book has been turbocharged by
[00:39:20] everything that has happened since November 4, 2024. I think we’ve really seen, you know,
[00:39:28] many elements of the book, again, sadly for the world, perhaps okay for my book, play out. And
[00:39:36] what we’re seeing right now is a turbocharging of this,
[00:39:38] breakdown of this rules-based order. Essentially, we are in a world where there is no clear set of
[00:39:45] rules that every country is going to follow. And if the U.S. does not follow those rules,
[00:39:49] it’s not obvious why other countries are going to be motivated to do so. So we’re essentially
[00:39:55] entering a bit of a Wild West era where many of the rules governing international trade,
[00:40:01] international finance, and international engagement more broadly have broken down.
[00:40:07] And there is no real
[00:40:08] enforcer anymore. I mean, once upon a time, the U.S. was not only responsible for setting up the
[00:40:13] institutions that would maintain the rules of the game, but also enforce those rules. But now we
[00:40:19] are the ones essentially, you know, taking liberties that seem to violate the existing
[00:40:25] order. So I worry a great deal about what this means for every aspect. You know, even if you
[00:40:31] think about something as narrow as trade, which we’ve spent a lot of time talking about, what the
[00:40:35] U.S. has done is essentially contravened many of the rules of the game. And so I think that’s a
[00:40:38] great thing to do. And I think that’s a great thing to do. And I think that’s a great thing to do.,
[00:40:39] the principles underlying the World Trade Organization. And now when it comes to going
[00:40:44] and plucking in a leader of a country, no matter, you know, how, you know, obnoxious he might be,
[00:40:52] it’s a concern. And it opens the door, I think, for similar behavior by other countries.
[00:40:58] And as you look at that, how much of that do you think is the
[00:41:02] personality of the particular leader in charge of the United States right now? And how,
[00:41:08] you know, how much of that do you think is the personality of the particular leader in charge of the United States right now? And how,
[00:41:08] 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.
[00:41:17] 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?
[00:41:31] 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.
[00:41:38] 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.
[00:41:47] If you look at many countries in Europe, if you look at Asia, these forces are playing out around the world.
[00:41:53] 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 now,
[00:42:01] which means it is also going to be much more difficult for us to extricate ourselves.
[00:42:05] And, you know, you had asked me, what?
[00:42:08] What’s it going to take to extricate ourselves?
[00:42:09] I think ultimately, in addition to institutions, it’s going to take each of us.
[00:42:13] We have to become engaged citizens, not just showing up to a vote at the ballot box.
[00:42:18] But, you know, 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.
[00:42:32] And we have leaders who should be able to, we need leaders, you know, community leaders, business leaders.
[00:42:38] We have national leaders who can give us a sense of hope rather than simply prey on our fears and concerns.
[00:42:45] I think that is a very optimistic, because that seems achievable.
[00:42:48] So that sounds like a very optimistic place to end this.
[00:42:51] Professor Prasad, thank you so much.
[00:42:53] Congratulations on the book.
[00:42:55] It’s not as doomy as it sounds, but obviously it is a doom loop.
[00:42:59] But you’ve also outlined the solution.
[00:43:01] So thank you very much.
[00:43:02] Thank you, Henry.
[00:43:03] That was a real pleasure talking to you.
[00:43:08] Thank you.