Eswar Prasad on Escaping the Doom Loop

In "The Doom Loop," economist Eswar Prasad argues that today’s global order is caught in a self‑reinforcing cycle where economic trends, domestic politics, and geopolitics amplify each other’s worst effects. The book departs from the optimistic 1990s narrative of a unipolar United States, showing how once‑strong institutions in both advanced and emerging markets have eroded, leaving the world vulnerable to instability. This erosion is central to the doom loop’s feedback mechanism, turning what should be a positive‑sum game of globalization into a source of political discontent.

Prasad highlights that globalization is increasingly perceived as zero‑sum, especially as rising powers like China and India expand total GDP while their per‑capita incomes remain far below those of the United States and Europe. The income gap fuels resentment, reshapes blame narratives, and intensifies U.S.–China trade tensions that spill into broader geopolitical rivalry. Climate‑change negotiations illustrate how emerging markets view legacy industrial economies as responsible for past emissions, yet they are pressured to limit their own growth. These dynamics illustrate how economic size no longer guarantees shared interests, deepening the doom loop.

The dominance of the U.S. dollar further entrenches the status quo. Dollar‑denominated trade and reserves simplify transactions for American firms but also raise the dollar’s value, making U.S. exports less competitive while keeping imports cheap for consumers. Although the dollar’s supremacy persists because of deep, liquid markets and institutional credibility, many countries seek alternatives, yet lack the rule‑of‑law framework and market‑driven exchange rates required for a viable rival. Prasad concludes that rebuilding robust domestic institutions—independent central banks, free press, checks and balances—and revitalizing international bodies like the IMF and World Bank are essential to break the doom loop and restore global stability.