As the illness of the late Cato Institute co-founder Ed Crane escalated, and with it Crane’s pessimism about how much time he had left, I would tell him he had to stick around lest the members of our weekly lunch crew retreat into fallacious thinking, including – gasp – conventional conservative wisdom.
There was reason for worry. At Cato, a pattern had revealed itself. Once people left Cato and Crane’s counsel, they tended to stray.
The frequently disappointing evolution of individuals outside Crane’s orbit came to mind while reading Cornell economics professor Eswar Prasad’s new book, The Doom Loop: Why the World Economic Order Is Spiraling into Disorder. This is the third book by Prasad that I’ve reviewed, which is hopefully a signal to readers that I’m a fan of Prasad’s. While there’s broad disagreement with him about many things, there’s always been a lot of learning in between the disagreements.
Crane came to mind while reading The Doom Loop because I found myself speculating that if Prasad were to ever talk economics with me, he would likely sound quite a bit different from how he sounds with his regular crowd. Who is his regulator crowd? To Prasad’s credit, it’s big names. Think Robert Rubin, Fiona Hill, Raghuram Rajan, Lawrence Summers, and Janet Yellen, among surely many others. Those mentioned all blurbed his latest release.
About the names listed, more credit to Prasad is due for not joining the echo chamber against Summers for his past associations. The view here is that Summers’s prurient desires over the decades were quite a bit less damaging than the various fallacious economic notions he foisted on the world, which in some ways is the point.
Just as women dress for other women, economists write for other economists. The Doom Loop is a book written for prestigious economists, which is the problem. Thinking about Summers alone, he literally professed the view that Joe Biden’s alleged inflation was so bad that the U.S. needed years of high unemployment to fix it. Yes, conventional economists believe against all logic and empirical realities that economic growth is the cause of inflation, and Summers is rather conventional. Oh well, when the history of the Trump/Biden era is finally written, rational historians will correctly conclude that the 2021-2022 “inflation” had nothing to do with Biden or the Jerome Powell Fed. Yet I digress.
The point of this bit of throat clearing is that The Doom Loop’s very real problem is that Prasad yet again seemingly wrote it for fallacy-stalked individuals like Summers and Yellen. Yet to read the frequently insightful Prasad is to constantly wonder how he would write, and what he would conclude if he didn’t run in such high economic circles.
It’s something to wonder about simply because when Prasad is interesting and insightful, he’s a joy to read. I quote Prasad directly or reference him in lots of economics columns, along with my books. Which is why I’ll be a reader and reviewer of Prasad for as long as he writes books. When he’s good, he’s great. The previous assertion is validated by some of Prasad’s insights in Chapters Five and Six of The Doom Loop.
About the situation in China vis-à-vis Taiwan, he writes at the end of Chapter Five that rather than a bloody invasion, China (p. 205) “could achieve a de facto takeover of Taiwan in far simpler ways. Beijing has already initiated small steps, including incursions into airspace that breach Taiwan’s territory, each of which, on its own, would not be substantial enough to warrant relation but could over time establish new realities on the ground and in the air.” While my hope is that China and Taiwan very much remain separate, much worse than an incremental, bloodless takeover of Taiwan by China would be one involving guns and bombs that would be felt in brutal fashion by China and Taiwan. Worse, and given the importance of both economies to the rest of the world, such an invasion would be felt cruelly all over the world. Whatever happens between China and Taiwan, whatever their differences, war should not be the answer. Hopefully the growing economic ties of Taiwan to the mainland, and vice versa, are what ensure that guns and bombs are never involved. Prasad perhaps shows a way.
In Chapter Six, Prasad expresses worry that central bank digital currencies (CBDC) could be used (p. 210) as a tool for “social policy” such that they couldn’t be used to buy illicit items such as porn, alcohol and other market goods not approved by governments. Of course, the latter speaks to why “legal tender” is near meaningless. Instead, products buy products with money as the agreed upon measure that facilitates value for value. On p. 188, Prasad writes that “the dollar is the de facto national currency in many Latin American countries,” which instructs on the previous point. He also quotes Brazilian leader Lula (p. 61) as asking “who was it that decided the dollar was the currency after the disappearance of the gold standard?” The answer to the question is that producers decide what currencies circulate exactly because producers won’t bring goods to market for “money” that doesn’t buy relatively equal value.
Further on in Chapter Six, Prasad observes that bitcoin is (p. 218) “too volatile in value to serve as a reliable means of payment.” Yes, exactly. Bitcoin is not money contra the religionists who believe it’s the money of the future. Sorry, but it’s decidedly not circulated money if it’s not reasonably stable, which explains the dollar’s global circulation despite it not being “legal tender” in much of the world. Prasad believes (p. 235) that bitcoin “eventually crashes.”
About stablecoins, Prasad writes that they are (p. 218) “entirely at odds with the libertarian ideal of foregoing central bank money altogether.” So very true. No doubt stablecoins offer people in the poorest, most corrupt parts of the world an enhancement over paper money (including dollars) that can be confiscated in ways digital money can’t be, but how odd that the most circulated “crypto” monetary form derives its value 100% from the very “Federal Reserve Notes” that all the crypto religionists claimed would be rendered obsolete by private money.
Those who’ve read my 2022 book, The Money Confusion, know that I predict an eventual replacement of government money forms with crypto or private money. On this supposition Prasad’s books inform my commentary, that going back to the first fiat money in China, the debate even then was who would maintain a stable currency: private or government issuers. Prasad reported in The Future of Money that the Confucians sided with private issuers, but didn’t get their way. My sense is that private issuers will eventually win out, but not if stablecoins are their vehicle. More on money in a bit.
Writing about artificial intelligence (AI) in Chapter Six, Prasad writes with worry (p. 225) that AI “robs my students of the clarity of thought that comes from shaping inchoate ideas into words and organizing those words into a coherent narrative.” Yes, he’s so right. It’s why I don’t fear AI, and I don’t because I’ll never stop writing such that my thinking will be constantly evolving. Which is why I also don’t worry as much about students letting AI do most of their work for them. Surely they’ll let AI handle what doesn’t interest them (a good idea), but they’ll skip AI on subjects about which they’re passionate on the correct supposition that writing out their thoughts, doing the math problems, and conducting the experiments will position them to evolve, and thrive.
About China, the U.S. and AI, Prasad crucially writes that the two countries have sadly and very unwisely turned AI (p. 229) “into a forum for competition rather than a platform for collaboration that could benefit humanity as a whole.” AMEN. This isn’t said enough. Trade is not war. Applied to AI, the way for the U.S. and China to “win” the AI war is for governments to get out of the way so that talent can combine with talent. What prevails now is anti-progress.
From what readers have read so far, ideally they’ll see the very real value in Prasad’s book based on the end of Chapter Five, combined with various useful insights offered in Chapter Six. So, while Prasad is an important read, it’s disappointing to report that by far, Chapter Six was the book’s best chapter. It’s largely free of fallacy and platitudes, which unfortunately can’t be said for the rest of the book.
Just consider the book’s title, and its subhead. Prasad has written a pessimistic book, which means lots of platitudinous commentary along the lines of (p. 6) “now, however, the feedback loop between economics, domestics politics and geopolitics is spiraling out of control.” Yellen et al would embrace such a well put thought about very little, but who else might? Economies aren’t blobs, or machines, they’re just people. Who among us, other than those who blurbed Prasad’s book, thinks about “feedback loops” involving domestic and geopolitics while going about our daily processes?
Prasad similarly writes on p. 6 that “the benefits of globalization have been distributed unevenly.” Which is a line so unoriginal as to be trite, but it’s also one that’s eminently debatable. Implicit in Prasad’s musings about the division of labor with a growing number of hands and machines around the world is that what works brilliantly in a local sense (see Adam Smith’s pin factory, Henry Ford’s assembly lines) loses its genius if some of the hands and machines are located in other parts of the world.
Prasad is surely wise, which means he must secretly know his globalization line is nonsensical. All it takes to see why is to drive the largely empty roads of states like South Dakota, only to see that the tiny towns that occasionally reveal themselves are invariably populated with Walmarts, Targets, Kohls, not to mention that Amazon serves these remote locales online.
The major retail names are evidence that globalization loves the little guy like nothing else does, plus it powerfully indicates that the narrative about the little guy seeing his or her economic chances ruined by an increasingly interconnected global economy is utter and complete nonsense. Walmart et al don’t populate these towns because they’re charitable, but because production buys production.
Which is just a reminder that globalization has no victims. None. Does that mean that some neighborhoods, towns, and cities around the U.S. don't struggle today relative to how things used to be? Certainly not. Just the same, what reduced Aliquippa, Flint and Milwaukee to also-ran status wasn’t globalization that revealed itself through the closing of factories, rather it was the exit of human capital that couldn’t get away from the horrid factory life quickly enough. It’s a long way of restating that globalization has ZERO victims, but that some people can’t be bothered to migrate to opportunity in the freest zone of opportunity the world has ever known. And despite their layabout ways, they still enjoy abundant living standards plainly born of the globalization that would stagger previous generations.
The problem for Prasad is that his crowd is economists, and economists love to self-flagellate while at the same time extolling the virtues of globalization. It’s terrible for others. No, not really. Always "dressing" for his fellow economists, Prasad’s pessimistic book wouldn’t be complete without at least one bone thrown to global warming alarmism. On p. 8 he writes of “floods and hurricanes exacerbated by climate change.” Keep in mind that Prasad grew up upper middle class in India, and the bet here is that he was familiar with floods long before the experts decided to tie what’s as old as the earth to industry.
One guesses Prasad is a New York Times reader (as is your reviewer since it’s the world’s greatest newspaper), and it was recently reported in the Times that over 40% of Americans live in coastal locales, the same coastal locales that warming alarmists have been promising for decades would be underwater cities absent a re-engineering of the sun or industry or whatever to cool the earth a bit. If so, is this 40% - and rising – cohort just stupid, as in are the markets stupid, not to mention investors who place their capital in all manner of coastal businesses that will soon enough be wiped away by warming? Barring that, how much of Prasad’s own net worth would he bet on unchecked global warming soon enough wiping U.S. and global cities off the earth’s face? He would be rich if and when reality mugged the so-called global warming “deniers.”
On p. 22, Prasad observes that “on the world stage, power comes mainly from economic size.” Yes and no. What Prasad leaves out is that the U.S.’s economic size is an effect of its enterprising creating must-have products and services (if McDonald’s as a place impress dates in Africa doesn’t make you weepy in a very good way, it’s hard to know what does) for much of the world, and that vastly enhance global living standards. As for the downside, foreign aid’s economically static or impoverishing track record is well established. Said another way, U.S. support passed around globally holds the world down substantially as opposed to lifting it.
Contemplating alleged economic power in China, Prasad writes that (p. 24) its “rare earths” dominance gives it “a major weapon against its economic and geopolitical rivals.” Except that it doesn’t. Short of Chinese producers bankrupting themselves, they extract rare earths to sell to a ravenous global market. Some reading this will say Chinese producers can cut American buyers off, but they can’t. Assuming they're required to "embargo" American buyers, it's of no consequence. Those the Chinese producers can sell to will quickly turn around and sell the rare earths stateside with the sotto voce blessing of Chinese producers.
Seriously, does anyone believe Chinese producers would kiss off such a large market for their wares? No chance. Along similar lines, OPEC’s Arab (Iran is not an Arab nation) members only “embargoed” the U.S. in 1973 in the sense that they sold to non-Americans who sold directly into the United States. Embargoes are symbolic, and they are because there’s no accounting for the final destination of any good in concert with the even bigger truth that no producer turns the proverbial nose up to buyers.
Writing for economists employed by central banks in large numbers, Prasad contends (p. 40) that “central banks have become indispensable for well-functioning economies,” and that (p. 41) “they can help in offsetting episodic failures of fiscal and other government policies.” Reading this while fully cognizant of Prasad’s audience, does Prasad himself really believe this? Ignoring all the wacko Austrian School mysticism about central banks, let’s state the obvious: they have no resources. Which means they can only fiddle with credit and interest rates insofar as market signals are suffocated. Translated, Prasad wants readers to believe that central planning with a gruesome track record of stupendous failure somehow works when economies are struggling. Sorry, but history is clear that dead economies don’t come back to life until the government’s inept hand is removed, not re-inserted. Too bad Prasad is writing for economists who believe almost to a man and woman that the bigger problem with central planning was that they weren’t at the controls.
With currencies, Prasad is a good teacher who unfortunately is pulled into lots of "two-handed" economist thinking as he pretzel-izes himself to say what economists believe. Take his comment on p. 70 that “appreciation in the exchange rate of the country’s currency usually makes imports cheaper.” He immediately follows the latter with “Dollar appreciation is good for American consumers but makes it harder for domestic manufacturers to compete with foreign counterparts.” Hopefully readers see the obvious contradiction: all production is an effect of global cooperation, including imported imports rendered cheaper by the appreciating currency. From this, we can conclude that whatever producers allegedly lose from an appreciating currency (this wasn’t a problem for Japan in the 1980s…) they gain from cheaper production costs. Are you dizzy? You should be.
Prasad contends (p. 77) that the Fed is “the guarantor of the dollar’s stable value,” but that’s just not true. The dollar’s exchange value has never been part of the Fed’s policy portfolio, and if anyone doubts this they need only ask ChatGPT why Fed Chair Eugene Meyer resigned in 1933, only for him to buy the Washington Post as a vehicle to fight FDR’s inflationary policies. Meyer was utterly powerless to fight FDR’s dollar devaluation in 1933, and so was Fed Chair Arthur Burns in 1971 powerless vis-à-vis President Nixon, Paul Volcker, and administration insiders like Milton Friedman who promoted odious monetarism (Keynes, albeit in a monetary sense) to Nixon. Burns’s diaries are explicit about how passionately he was against Nixon severing the dollar’s link to gold, but also that he was powerless to stop Nixon’s explicit devaluation.
Considering Prasad’s audience yet again, he naturally included an attack on the always gracious Judy Shelton (with whom your reviewer has found much disagreement with modernly on what inflation is) as having brought (p. 77) “unconventional ideas” to her Fed nomination, including advocacy for what Prasad deems a “failed experiment of tying the dollar’s value to the price of gold.” Prasad claimed about my review of his frequently informative The Future of Money (my review here) that I didn’t like it solely because he disdains pegging the dollar to gold (not true, my critiques were broader than that), but the bigger critique is that Prasad routinely describes a gold exchange standard that coincided with remarkable growth for the U.S. (see the beautiful inflows of people the world over into the U.S.) as a “failed experiment” without offering any evidence supporting his problem with what, by is his very description is the opposite of bitcoin (see yet again p. 218 – bitcoin is “too volatile in value to serve as a reliable means of payment”) exactly because it imbues money with remarkable stability as a measure of value.
Indeed, as Prasad might sheepishly acknowledge with economists well out of earshot, the whole point of gold as a definer of money the world over was the stability that the commodity lent to paper money. Economists reading this, and who buy into Friedmanite mysticism about central banks controlling so-called “money supply,” will of course say that the real problem with a gold exchange standard is that it limits so-called “money supply,” but for the consistent global fact that it never did. More realistically, what’s stable as a measure massively increases in circulation, and that’s surely what happened with dollars given the previously mentioned desires of producers to get value in exchange for value. Even better, and citing Prasad’s wise disdain for bitcoin once again (“too volatile in value to serve as a reliable means of payment”), it’s volatile bitcoin that are supply constrained, which is yet another reason why bitcoin will never be money. There's quite simply no limit to credible money. With gold-defined money, or for that matter any money measure that’s credible, it’s the credibility of the measure (meaning its stability as a measure) that coincides with its ever-increasing circulation.
Prasad adds that (p. 89) “prices would tank” if central banks tried to sell “tens of billions” worth of gold, but that’s just not true. If it were true, then central banks wouldn’t hold all the gold that they do, nor would gold have become global money in the way that it did. Gold’s constancy as a measure is confirmed by Prasad and the central bankers he caucuses with who hold it in large amounts, which means his attacks are non sequiturs more than anything.
Which brings me to the question, or realistically questions, that I’d most eagerly pose to Prasad. It references his comment on p. 96 that so-called “dollar dominance” is “hardly an uplifting story of American exceptionalism, rather it is a melancholy one of the frailties in the rest of the world.” While the view here is that Prasad overstates so-called “dollar dominance” (if it ever takes on the turbulence of bitcoin, its “domination” will decline substantially), what would he guess the result would be if President Donald Trump, rather eager to cause derangement among economists, were to announce alongside Treasury secretary Scott Bessent a plan to redefine the dollar in stable fashion as a fixed amount of gold. Does he suspect Trump doing so would mean the dollar would no longer be the “de facto national currency in many Latin American countries” (p. 189), that Saudi Arabia would cease pegging its currency to the dollar (p. 62), and that the world broadly would sever implicit and explicit currency pegs to the dollar? All that, plus would Americans gradually ditch the stable dollar for unstable measures like bitcoin? What about stablecoins? Would they exit their 1:1 dollar relationships for euros, yen and yuan?
Prasad adds on p. 89 that gold “severely constrains monetary policy,” but wouldn’t that be a feature of gold rather than a bug? If we gloss over the happy fact that money has always circulated wherever there’s been production, and utterly without regard to the actions of Mints, Treasuries or Central Banks, we can’t ignore Prasad’s frequent observations in his various books that there are very few currencies liquefy global exchange, the dollar the biggest liquefier of all. If the previous truth isn’t evidence of what a powerfully awful job most governments are doing conducting so-called “monetary policy,” it’s hard to know what is. As for the former assertion about money circulating wherever there’s production without regard to Mints, Treasuries or Central Banks, Prasad’s books confirm this truth too as his lament about “dollar dominance” yet again indicates. And if his claim is that the dollar circulates globally thanks to great “monetary policy” from Fed, please tack back to the previous paragraph: does Prasad honestly think the dollar’s global circulation would decline if the greenback had a gold definition?
Bringing the discussion back to globalization, part of the desire to focus on it so much in this review is to address Prasad’s attempts at evenhandedness on the presidency of Donald Trump, and why people voted for him. My thinking is that Prasad has mis-analyzed why Trump attracted votes. See Prasad’s quote of Trump (p. 100) saying that tariffs are “the most beautiful word in the dictionary.” Ok, but watch what Trump voters do (shop at Walmart), not what they don’t even really say. Translated, the vote for Trump was never ideological, never about economic desperation (sorry, but Cracker Barrels aren’t that cheap, and they’re full of Trump voters), as much as it was and is about style. As in, Trump could have just as easily made Prasad’s economics popular, or those of your reviewer. And that’s because increasingly prosperous Trump voters like to get in return for their work in the way we all do.
The good news is that while Trump is leaning against the genius of trade, he’s nearing lame duck status. Better yet, the rest of the world isn’t keen to embrace Trump’s protectionism. Prasad reports in optimistic fashion that (p. 100) China views globalization as “an overwhelming trend of history.” It is, and it is because no one loses from it. Which requires the mildly sentient (Prasad is quite sentient despite his associations) to stop apologizing for what relentlessly lifts us. There are surely down and depressed people the world over, but they’re not that way because the world is increasingly connected economically. Quite the opposite.
It’s also not true (p. 105) that globalization is about a search for “cheap labor.” Total nonsense. If there were any truth to such a view, New York City, San Francisco and Los Angeles would be bereft of human capital rather than the biggest capital importers in the world, plus the citizens of the world would have no need to take their talents to prosperous, high-compensating locales. Say it repeatedly that productivity that correlates with rising pay is the biggest magnet for global capital, and nothing else comes close.
As with The Future of Money, Prasad routinely makes a variation of the odd claim that countries like the U.S. are (p. 108) “borrowing money from the rest of the world to finance their trade deficits.” That’s quite simply not true. The U.S. floats no “trade deficit” bonds that global investors can buy from a federal government needful of trade finance. It’s all nonsense. The U.S. has so-called “trade deficits” precisely because the world’s greatest and most prosperous corporations are located here. Great U.S. corporations attract enormous amounts of investment, though shares in U.S. corporations don’t count as exports while the import of shoes, socks and t-shirts does. Prasad has to know this, right?
He adds that so-called “trade surpluses" (so-called because trade balances, by its very description) allegedly (p. 118) strengthen country currencies, which is absurd, but also a contradiction. If the faux correlation had any validity, then it would be true that the dollar would have long been in freefall due to the U.S.’s persistent “trade deficits.” If so, the dollar wouldn’t “dominate” as Prasad laments.
Prasad claims (p. 119) Japanese cars and something he calls a “China Shock” led to the loss of “millions of manufacturing jobs,” but in reality progress, most of it in the U.S., thankfully freed Americans of manufacturing jobs. Contra Prasad, President Trump, Oren Cass and others who overwhelm us with trite commentary along the lines of “why did globalization fail to deliver on its promise?”, people who actually worked in factories loved globalization more than anyone else, and as evidenced by factory and mill workers in places like Aliquippa demanding that their children get out and away from the jobs that eventually exited quite mercifully. While economists near universally loathe Donald Trump, they sound quite a lot like him with their endless laments about work divided.
Funny about the odd relationship between Trump and the self-flagellators inside economics is that Prasad (p. 249) contends that a “fragility” of democracy “is the tendency of free markets to be characterized by self-reinforcing inequality, which can lead to political capture, allowing the wealthy to tilt government policies in their favor.” Oh well, luckily Trump likes “free markets” about as much as prestigious economists do, which is not much.
While Prasad makes sheepish, even well-put arguments for free markets, ever the two-handed economist he invariably qualifies his pro-market opinions with lots of qualifiers. The biggest howler was his lament that since free markets afford us (p. 251) “so many options, the fear of marking the wrong choice can be paralyzing, potentially deterring someone from making any decision at all.” Oh the shame! Of course, lost on Prasad is that no act of saving ever subtracts from the consumption that excites economists so much. Production is always matched by consumption, and that's true even if every producer lives a monastic existence.
Prasad writes of the “negative externalities” markets allegedly foist on us, including (p. 251) corporations “releasing pollutants into nearby waterways.” Ok, but can he name one instance of this in modern times? On the next page (p. 252) Prasad asserts what’s not true, that “it’s widely accepted that a government should implement antitrust regulations to limit the formation of monopolies.” Ok, can he name a true monopoly that government has broken up, or broken? Prasad cites Google’s “dominance in web search,” which supposedly “allows it to dictate terms to advertisers and users,” but as evidenced by the profound change in the nature, scope and helpfulness of Google searches in 2026 versus November 30, 2022 (when ChatGPT was released), Prasad’s critique of Google’s “dominance” is baseless.
While he makes a previously mentioned case that a possible takeover of Taiwan by China will be bloodless, and makes an even more important case for AI innovators in the U.S. and China to work together to build the future, Prasad oddly cheers (p. 255) “the Chinese government’s extensive involvement in the economy,” which on its own is discredited by all the remarkable progress that China has enjoyed since the 1990s when the government finally began to retreat in substantive ways. Of greater relevance, Prasad ignores just how much American investment has factored in China’s economic renaissance, particularly in the technology space. If talking to non-economists, the bet here is that Prasad would say American investment paired with growing economic freedom has factored exponentially more in its prosperity than has “the Chinese government’s extensive involvement in the economy."
Though Prasad seemingly agrees way too much with Trump about so-called “trade deficits” and the alleged downsides of globalization, he chides Trump for spending cuts (seemingly DOGE) that (p. 273) “will inevitably undermine the reliability of and trust in U.S. economic data.” Oh stop! Who’s better at measuring unemployment? The BLS or a payroll company like ADP?
On the matter of inequality, Prasad contracticts himself (p. 285) with the assertion that inequality doesn’t trouble people, “but the lack of opportunities” does. Except that as we see routinely, those with the least always, always, always migrate to where inequality is greatest, including the United States. And once here, they migrate to the richest U.S. cities, not to Flint and Detroit.
Coming to the close of The Doom Loop, Prasad gives readers platitudes, including a comment about how (p. 297) “the world needs more compelling visions – both for countries and for humanity at large – that speak to common needs and aspirations.” No, what would help the world much more is if Prasad would write books that address the beauty of human action (the only economics), not what’s on the minds of Janet Yellen and Larry Summers. Put another way, Prasad's mind is too good to be wasted on economists.
