Informed by his new book The Doom Loop, Prasad warned that the global system is entering a period of profound instability, characterized by the collapse of longstanding political, economic, and geopolitical frameworks that previously ensured balance and predictability.
Prasad emphasized that we are not simply experiencing a typical economic slowdown or temporary disruption. Instead, a structural transformation is underway, wherein globalization is no longer regarded as a mutually beneficial phenomenon, and institutions that once acted as stabilizers are increasingly losing their credibility. As domestic politics, economics, and geopolitics start to exacerbate each other negatively, the dangers of fragmentation and conflict are escalating, with no clear mechanisms for correction.
From shifts in trade to rising protectionism and the disruptive impact of technology and artificial intelligence, Prasad cautioned that nations—both advanced and emerging—are being drawn into this “doom loop.”
He elucidated how these dynamics could redefine the global economic landscape over the next several decades, while also highlighting the challenging yet essential actions required to restore trust, institutions, and shared prosperity.
This is the edited excerpt of the interview.
Q: The Doom Loop is the title of your new book. How fitting is that title? What insights do you gather from the events of 2025, and what does that signify for the world in 2026?
A: What we are witnessing here in Davos appears to be a disintegration of the traditional world order as we once understood it, characterized by a clear alliance of Western nations and liberal, market-oriented democracies, positioned in contrast to China and other socialist economies. However, we are now observing a fragmentation of the world order influenced by various forces that seem to be negatively reinforcing each other. In The Doom Loop, I explore the interplay between domestic politics, economics, and geopolitics, all of which could, under different conditions, operate synergistically in a positive manner.
Take globalization, for example: it was envisioned as a means to enhance prosperity across nations, thus fostering unity among countries. The expectation was that globalization would represent a positive-sum game, where everyone could benefit from trade, counterbalancing the zero-sum dynamics of geopolitics, wherein the gain of one nation comes at the expense of another.
However, the current narrative portrays globalization as a zero-sum or even a negative-sum game, where the prosperity of one country necessitates the decline of another, eliminating the balancing effect it once provided. This has made the zero-sum dynamics of geopolitics far more perilous, as offsets are now absent. The doom loop concept highlights how these forces are spiraling into instability rather than stability. What we observe here in Davos serves as a salient example, particularly with Donald Trump expected to deliver a speech that implies a fracturing of the Western alliance, thereby intensifying fragmentation across political, economic, and geopolitical dimensions.
Q: Reflecting on your remarks, the changes you’re describing are structural rather than cyclical, suggesting implications that could last for decades.
A: Absolutely. Throughout history, civilization has occasionally shifted in one direction, followed by corrections. Even the United States has experienced these cycles, swinging between extremes. However, what’s crucial to note is that there once existed self-correcting mechanisms. This was true globally as well, but in the case of the US, the mechanisms have stemmed from institutions like the democratic process, the rule of law, and a free press—all of which are currently being eroded, if not outright dismantled.
This erosion applies at the international level as well; institutions that once upheld the rules are now perceived as increasingly illegitimate. This sentiment is echoed not only in advanced economies that created these institutions but also in emerging markets like China and India, which feel underrepresented. We are witnessing a disintegration of the established rules of the game, complicating efforts to restore a functional balance. Your phrasing is spot-on; we are not in the midst of a cyclical shift. Instead, we are undergoing a more foundational reshaping of the world economic order.
Q: In your view, how will this restructuring unfold? What will it eventually lead us to? We are currently observing tactical changes, such as the US’s stances prompting Europe to recalibrate its relations with China. What do you foresee regarding the emergence of new blocks or bilateral relations?
A: One potential outcome we’ve already witnessed in recent years is further fragmentation. While the benefits of global trade are substantial, it appears nations might retreat from universal trade, opting instead for trade relationships aligned with geopolitical ties. Countries that are geopolitical allies are likely to strengthen their trade and financial connections. This approach, however, deprives nations of the advantages of broader, freer trade, yet many believe it’s a means to mitigate geopolitical and other risks.
Nevertheless, this fragmentation poses significant risks. Although it may offer short-term advantages, it aligns geopolitical and economic lines, undermining trade’s former role as a bridge across divides and consequently intensifying instability. However, trade itself won’t vanish. Regional blocs will likely form as countries seek to optimize trade benefits. We’re in a unique moment, particularly with the US and China—two formidable powers—being comparably matched in military, economic, and financial terms. This situation makes it tempting for the rest of the world, in response to the US imposing tariffs, to focus on strengthening trade ties among themselves, yet challenges remain.
China, the world’s second-largest economy, faces significant domestic issues, relying on exports for growth. When a nation of such magnitude is not driving global growth and instead depends on others to absorb its exports, it creates complications for countries in the intermediary, like India, as well as developed nations like Japan, Germany, and the UK, which struggle economically. They require exports and are apprehensive about an influx of inexpensive Chinese products. Thus, the idea of US isolation, which might typically seem plausible, is far less likely to materialize.
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Q: At this forum in Davos, amidst discussions of trade and tariffs, there’s a concurrent optimism regarding AI and its potential impact on global economic growth. How does this fit into the new order described in The Doom Loop?
A: This is a crucial aspect of the book. Initially, I aimed to convey a much more optimistic narrative about transitioning from a unipolar world, post-Soviet Union, to a multipolar or bipolar one. From an economist’s perspective, a world with more evenly distributed economic power should yield greater balance, efficiency, and stability. I had anticipated that technology could drive this new equilibrium, as it promotes prosperity.
However, my conclusions evolved. Within the book, I focus on three specific technologies: AI, digital currency, and social media. While these hold the potential for positive outcomes, they are instead contributing to an intensified concentration of economic and financial power both within and among countries. Furthermore, disruptive states, whether smaller like North Korea or larger like Russia, can wield these tools to instigate instability on a global scale. Thus, while technology enhances productivity and output, beneath the surface, it’s fostering greater instability both within countries and in relations between them.
Q: As we discuss technology and its potential for productivity growth, companies are currently investing heavily in infrastructure, particularly in markets like the US. How do you perceive this unfolding in the short term, given the extensive infrastructure development we are witnessing?
A: Certainly, AI will have a far-reaching impact across various sectors, and many discussions in Davos have highlighted significant investments companies are making in AI. Yet, two intriguing observations have emerged from these conversations: firstly, the impact on the bottom line seems less pronounced than expected, despite the technology’s transformative potential. Secondly, we face major implications for employment.
In advanced economies, an Indian entrepreneur mentioned challenges regarding the establishment of a new facility, which would operate with far fewer employees while maintaining similar output levels through AI and other technological advancements.
While technological innovations can drive productivity and output growth, they concurrently raise employment concerns—a critical issue not just in India but worldwide. Discussions with African leaders indicate similar trends; even those nations, experiencing respectable growth, face lagging employment growth, which compounds the issue. Ultimately, despite economic advancements, failing to create jobs or increase household income could result in adverse feedback loops, affecting domestic politics and economics.
Q: Is there any room for hope within The Doom Loop?
A: I aimed to leave my readers with some optimism, so I do address the formidable challenges ahead in escaping the doom loop. It’s a complex task, particularly because these structural forces are at play. However, achieving change will necessitate a combination of three factors: active citizen engagement, where people prioritize shared prosperity over short-term, narrow national interests, along with leaders—whether community, business, or national—who can inspire us to transcend immediate biases. Lastly, we require the rebuilding of both national and international institutions, emphasizing the rule of law, press independence, and more.
This crumbling of institutions can also serve as an opportunity to create more effective, legitimate alternatives. Achieving this will not be straightforward, but understanding the dynamics that brought us to this point, which is the essence of the doom loop, is a vital first step.
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