Prof G Markets - The World Is In a Doom Loop — ft. Eswar Prasad

Episode Date: February 13, 2026

Ed Elson and Scott Galloway are joined by Eswar Prasad, Professor of trade policy and economics at Cornell University, former chief of the Financial Studies Division of the International Monetary Fund, and author of the new book, “The Doom Loop.” They unpack why he believes the global economic order is unraveling, when the U.S. deficit could become a full-blown crisis, and what’s really happening in the housing market.  Plus, he explains what he thinks America needs to do to get back on track.  Resist and Unsubscribe Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [e-mail] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Past performance is not indicative of future results. This is a paid advertisement. Hi, this is Bella Freud. I'm the host of Fashion Neurosis. This week on the show, Esther Perel, is on my couch. Erotic recovery is part of trauma healing. God, that's interesting. It's not the reward at the end.

Yeah. That's the difference. And I think we both come together around that construct. Yeah. Find fashion neurosis on YouTube or wherever you get your podcasts. Today's number 762,000. New York City experience a significant reduction in water usage during Bad Bunny's Super Bowl halftime show. In the 15 minutes after the show, the borough saw a surge in water usage equivalent to roughly 762,000 toilets. flushing. I wouldn't know about this as I turned into the Kid Rock concert is I like music for people who know the exact amount of Sudafed they're legally allowed to buy. Okay, you don't like that one? I like music for dudes who have weekend custody, but still don't bother to see their kids. Ooh, warmer, warmer. Kid Rock makes music for people that use a breathalizer to start their car.

We have a bingo, Claire. Listen to me. Markets are bigger than I. What you have here is a structural change in the world distribution. Cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it.

Ed, how are you? I'm doing very well. What did you think of the halftime show? I don't know if you knew this, but I live in London, so it came on after, not when I was asleep, but I was deep into my edible and writing and with the dogs, and I just didn't want to, like, if it's not Tom Petty or George Michael, which would be really impressive if they could get either those people to show up for the halftime show, or I would take prints. I'm not interested.

I don't know Bad Bunny's music. I'm not into it, but the show I saw, I'm kind of like, what's not to like? I thought it was nice, well-produced. He's obviously, I mean, I look at this to an economic lens. The NFL is a league. It's an entity trying to take the asset value of duoplies in every city up.

But they're very smart, and they realize that the majority of people under the age of 18, the future of football, are non-white. And they invited the most popular artist in the world. So check, check, check. He's exactly the right choice. You're young. What did you think?

It doesn't matter what I think. I thought the set design was awesome. I thought the production was awesome. I just, I'm not a fan of his music. So I didn't like the music or the performance itself that much. God, that's so racist, Ed. I can't believe. Why do you hate the Latin culture, Ed?

Why do you hate Latinos? Oh, God. I wish I really liked his music. Maybe I need to get into it. But, you know, I wasn't that into the performance. But I thought it was visually, like, unbelievable. One thing I was wondering, I feel like the halftime show is a way bigger deal now than the game itself.

Like, I personally, I wasn't that interested in what the result of the game was. I rarely am. That's because I'm not really an NFL fan. But I was very excited and very interested in the whole. halftime show. And it seems like everyone else was. I mean, I look at my social media. No one's talking about the game. Everyone's talking about bad bunny. You turn on the news, Fox News, MS now. Any show is talking about bad bunny. They're talking about the halftime show. Same thing happened last year with the Kendrick Lamar performance. I haven't been around long enough, nor have I lived in the

US long enough to know if that's always been the case. Is it always true that the half time show is more important and more culturally relevant than the game itself? I think, unfortunately, it's been politicized. So it's become a bigger deal. And I think it sort of started with a culture war sort of started when Justin Timberlake exposed Janet Jackson's breast, and it turned into sort of a culture war. It's become, the whole thing's become so politicized. I didn't watch the game.

I don't care. I think the halftime show has become not a cultural reference, but a culture war. That's my fascinating insight. Oh, my other two pieces of insight, I was like to draw, and I'm curious to get your thoughts here. One, a quarter of the ads were for AI, and so this was kind of the AI bowl, and the last time tech had that level of penetration of ads was in 2022 when it was. was FTCX and Coinbase, and we saw what happened that year with crypto. And then trivia question, when before that did you have more than a quarter of the ads from technology companies?

I'm going to go with 99, 2000. That's exactly right, Paduan. So if economic history is any indicator, basically this is a year that AI really shits the bet. Because whenever you have And also, remember a couple years ago, all those ads were in this is my second insight, remember when a couple years ago they had Cleopatra, and I forget that guy's name from Curb Your Enthusiasm, and they were talking about gaming or betting sites, you know, MGM bet. It was dominated by these betting sites. I think this Super Bowl was the pivot in terms of an enormous transfer of market capitalization of value from the gaming sites to the speculation sites. And if you look at Flutter, all these gaming sites are shitting the bed. And there's now more dollar volume going into or appears more mentions and social on the speculation sites on Kalshi and Polly Market. So it feels like there's a handing off of the baton. Anyways, those are my two economic insights that I drew from the Super Bowl. Any thoughts had?

I think that's right. I think I think it's definitely right. I mean, I will say there was a lot of AI at the Super Bowl. There was also a lot of crypto at the Super Bowl. There was that very famous Coinbase ad. There was also a lot of prediction markets at the Super Bowl, a lot of gambling, a lot of weight loss drug advertising. I mean, we saw a lot of that stuff.

And I think for me, my takeaway was just how dependent on these few categories, the growth economy has become. But it is interesting. The fact that you're right, you know, 2022 it was all FTX, Binance, Coinbase. Yeah, there was that incredible FTX had. And then, of course, FTCN imploded. As I've said, I think that for that to happen,

for a massive downturn to occur, you're going to need some sort of FTX type event. You need some massive explosive moment that really shakes up the story and just sucks up all the confidence in the room. As I've said, I think that if we had to place bets, that would happen to Open AI at some point. But it's going to need something like that.

You're going to need a trigger. And right now, I'm not so confident that the trigger is going to happen, or at least when you look beyond Open AI, when you look at all of these other companies that are managing their balance sheets relatively well. But it is very interesting. I love looking at the Super Bowl as an economic indicator.

Economic history shows that companies, multi-tillion dollar tech companies, are almost always brought down by an angry, depressed professor through an economic strike who has erectile dysfunction. That's just economic history, Ed. That's just economic history.

That was a mouthful. I'm proud I got that out. It was a good one. And I don't know, I don't know if Amazon is tracking my purchases, but it's now recommending erectile dysfunction socks. I used that joke last week. And we still haven't nailed down what erectile dysfunction socks are, but I guess that doesn't matter.

But I love the idea. Is it it squeezed so hard that it forces blood into your genital? What's going on here, Ed? What's going on here? You're young. Tell me what happens. Tell me what happens. It doesn't exist.

You made it up. I didn't make it up. All right. Should we get on to our interview? Let's do it. Here's our conversation with Isha Prasad, Professor Trouet. Trade Policy and Economics at Cornell University, former chief of the Financial Studies Division of the International Monetary Fund

and author of the new book, The Doom Loop. Professor Prasad, thank you very much for joining us on Profty Markets. It's a pleasure to be on with you. So your new book is out. It's called The Doom Loop, Why the World Economic Order is spiraling into disorder. I figure we should start there. First off, what is the world economic order? and then in what sense is it spiraling?

You know, in the 1990s, after the Soviet Union fell apart, the US became the dominant power in every respect, economic, military, financial. We are now in a position where economic power, at least is somewhat more evenly distributed with China and many other emerging market economies, you know, beginning to play quite an important role in the world economy. So as an economist, one's natural instinct is to think that competition, is to think that competition is usually a good thing. It generates discipline, efficiency, and stability.

So I was going to write a book about how we might just be in a volatile period of transition to a new equilibrium where things would be more stable again, and I was going to write about all the forces that would take us back towards this new equilibrium. Unfortunately, as I started thinking about each of these forces that I had in mind, it became apparent to me that they may be leading

to instability rather than stability. So that became their defining theme of the book that economics, domestic politics, and geopolitics are stuck in this negative feedback loop, which means they're sort of bringing out the worst in each other. And one simple example comes from globalization. You know, globalization used to be seen

as a positive sum game, where countries could benefit mutually from trade, and that would be an offset to what is intrinsically the zero-sum game of geopolitics, where one country can gain influence only at the expense of another. But now even globalization has become seen as a zero-sum game, so it isn't offsetting the zero-sum game of geopolitics, and worse, some of the negative dynamics of globalization have started infecting domestic politics,

not just in the U.S., but in many other countries. So that's the doom loop we are stuck in now. It's so interesting because this seems to be the topic of conversation going into Davos. It seemed like everyone was thinking that Davos was going to be about probably technology, AI, maybe tariffs to some extent. But it ended up being sort of a question, a conversation about globalization. And it has been the Trump administration's view that globalization has been a bad thing. They would probably view it as a zero-sum game.

But then what was interesting was seeing people, people like Mark Carney, the leader of Canada, saying that once you view globalization in this way, the way the current administration in the U.S. is viewing it, suddenly that means it's bad for all the rest of us. And so it almost seems as though the world has come to a consensus now in 26 that globalization is bad. It's not a good thing for most of us and for most of our domestic policies. What were your reflections on Davos? And do you think that that kind of characterization of globalization is true. So my book came out a couple of weeks after Davos, but I was at Davos and got to talk

about the book. And the reaction I got at the panels and closed-door meetings where I talked about the findings of the book was that it seemed to be a book for the moment. Of course, it had been written a long time before that. In fact, I should tell you that the first draft of the book was completed in October 2024, just before the November elections. And I had thought the book seemed a little too dark. So I thought, you know, let's wait for the elections and maybe rethink some part of the book. But of course, everything that has happened since November 2024 has sort of validated the thesis of the book. And that's brought us to this past where, as you pointed out, you know, one of the themes of the book has sort of validated by everything that has happened, including in the lead-up to and what happened at Davos, which is that instability has become the norm in the world order.

And of course, globalization is only one of the forces I talk about, but there is a sense that while globalization worked very well at the aggregate level, it certainly pulled millions of people out of poverty in countries like China and India. It helped those countries and many other emerging market economies rise to middle income status. But within countries, especially in countries like the U.S., the benefits were not evenly distributed, and it created this very disaffected class. Now, that part of the story is sort of well known, but what is interesting is that that, in my view, has created this negative feedback loop where populist politicians or false populists, as they refer to them in my book, can start vilifying the other as the cause of displacement of workers and jobs and so on. And what do I mean by the other? It could be whatever the politician feels gets traction in the voters' mind. the other, could be, you know, the political and economic elites. It could be China. It could be immigrants. And why do these have so much traction, these attempts to pull in the politics of resentment,

which is a phrase I use in the book? You know, the notion that the benefits of something like globalization go to the political and economic elites is certainly very prevalent. But what is interesting is that there is this additional layer that people who feel left out feel they're also left out of opportunity and that political and economic elites can basically capture the political system so that it works even more in their favor. If you look at regulatory policy in the U.S. tax policies, that basically means that those who are benefiting from globalization, get even more of the spoils while those who are left out feel they don't even have an opportunity to clamber up the economic ladder once again.

So in that sense, globalization affects domestic politics. In fact, I'd say it infects domestic politics, which in turn has an implication for how the U.S. deals with the rest of the world, as Trump is doing. Would you then say, as the current administration would say, that globalization was a mistake? No, I think what is the problem is that globalization

worked very well on the aggregate, but there were two things that we did not pay enough attention. to. One was distribution of benefits within each country and whether there were adequate safety nets in place to catch those who fell and give them a sense that they had an opportunity to clamber back the economic ladder. Now in a market economy, it is natural that some industries do well, others decline. Some firms do well, others don't do so well. But the sense that the system is stacked against you and the only way you can reform it is by blowing it up, which is basically Trump's message, got a lot of resonance.

The second issue is related to the rules of the game. You know, there was a sense that every country could benefit from globalization if there was a commonly accepted set of rules. But it turns out that while some countries like the U.S., by and large, played by the rules, there were others like China that took advantage of the rules. So essentially, China got access to export markets around the world, but did not reciprocate by providing.

access to its own markets. And the interesting thing, how this came to a head in Davos, is that, you know, Trump was talking about receding from globalization and basically pushing other countries away from the U.S. through tariff barriers and other ways of pushing aside longstanding alliances. China tried to play the adult in the room. You know, China wanted to make the case that it has become the defender of the rules-based order of multilateralism of globalization. The problem is not many countries want to buy that story.

Because China right now, the second largest economy in the world, is requiring demand from the rest of the world to pull its economy along. Last year, China recorded a $1.2 trillion trade surplus. So China's economy now has become reliant on other countries for its own growth. So I think Mark Carney's speech actually pointed out two very important things. Number one, the rest of the world, other than the U.S. and China, to settle in for a period where instability is the norm. And second, the rest of the world has to do whatever it can to circle the wagons because it now faces these two very unsavory alternatives.

The U.S., which is no longer seen as a trustworthy or reliable ally, and China, which wants to bring countries into its embrace, but has its own problems and is not well-trusted. Which seems as though the direction we're headed is just nationalism all around. if those are your options. If your options are this kind of abusive relationship with the U.S., abusive in the sense of tariffs and shitposting and threatening to invade your allies. And then with China, threatening in the sense that or abusive in the sense that they might abuse their trade relationship with your nation, which, of course, a lot of European leaders have been upset about recently.

More questions there, but I'm going to turn it to Scott. It just on a very general level. If someone said to Adavos, give me an overview, a two-minute overview, of the strengths and weaknesses right now of the U.S. economy. How would you respond to that? So the U.S. economy, Scott, is remarkable. You know, the economists think that uncertainty, volatility of policies should hold back growth, especially because that affects investment.

But the U.S. has accomplished one thing that no other major advanced in emerging market economy has done in the post-COVID period, which is generate tremendous productivity growth. And when you have very good productivity growth, that makes a lot of things square up. That means that you can have decent growth, decent employment growth, although that seems to be slowing down a bit right now. You can keep inflation somewhat restrained,

even at a time when from Washington, there are no clear signals about policy, tariffs are potentially adding pressure on businesses, adding to costs and so on, so that fundamental dynamism of the U.S. economy is certainly holding together. We see that in economic performance. We see that in financial markets. And of course, it is a relative perspective that is important here as well, because the U.S. economy looks much better, even though there are some weaknesses relative to most of the countries.

China, as I said, is growing in a very unbalanced fashion. India, is true, is registering pretty good growth right now. but the rest of the world, especially advanced economies in Europe, Japan, the United Kingdom are in a shambles. The one concern I have about the U.S. is that things look very good on the surface, whether you look at GDP growth, labor market performance, financial market indicators, under the surface, if you take the doom look, thesis seriously, there are a lot of tensions building up that I think are really fraying the social fabric. So let's double click on the trouble beneath the surface. And I was, I feel like I'm a, I sound like a boomer when I say this. Five trillion in receipts, seven trillion in expenditures. And people as point to Japan, you know, greater debt to GDP than the U.S. Well, Japan looks like it's starting to get wobbly. At what point does seven trillion in deficit George Washington to George Bush and then another 30 trillion in debt? deficit spending, George Bush, to Trump. At what point, is that something below the surface? And if so, when do you think it appears? I think the reality is that if you look at government expenditures, you know, interest expenditures on government debt have been rising and they're sucking money away

from more productive investments. So going back to my discussion of productivity, that really is a crucial issue. We don't quite know why productivity in the US is doing so well. I mean, we have some guesses AI, maybe an important part of it, maybe the deregulation

that we've seen over the last year is an important part of it. So if we can generate this sort of dynamism so that if you look at debt relative to GDP, that number doesn't grow too fast, then we're okay.

But the difficulty is that that number has been growing over time. So there is a possibility that at one time domestic investors and also foreign investors say we've had enough of this, and that's going to significantly affect growth, because right now it's pulling in a lot of savings, and that is not going to productive growth building elements of the economy. So it is a real fragility. The U.S., because it still has the dominant currency in the world, the dollar, has a lot more

levy than any other economy would, but surely this is going to have an effect negative in terms of growth and potentially a somewhat more, you know, cataclysmic effect if we reach a point where all of a sudden there is no escaping from this debt. The other kind of theme I see that is in terms of below the surface threats, if you look at the genie coefficient, you know, zero being total equality, I don't know if you call that socialism or communism, and one being one person owns all the assets. the French Revolution and Let Them Eat Cake, Marie Antoinette, was around somewhere between 80 and 85. That's usually when it's revolution time. Someone just did the same test on the U.S. economy right now, and we're running at 83.

We keep talking about income inequality and waiting for some sort of revolution. I would argue we're getting a series of mini-revolutions. But is that another problem beneath the surface? And if so, when do you think it manifests itself and how? The evidence on income inequality turns out it is a little less clear cut than when we are thinking, especially over the last few years. If you look at some aspects of wage inequality, it's continued to go up,

some aspects of income inequality have. But if you look at the overall income, accounting for government, taxes and transfers, it's not gone up as much as you might think. But wealth inequality has certainly gone up and the most noticeable portion of wealth inequality, of course, is what goes to the top 1% to the top 0.1%.

And I think the real concern here again is that there is a sense that market-oriented liberal democracies, which were seen as the paragon and the U.S. in turn, was seen as a paragon of those values, that turns out to have some intrinsic deficiencies. And the deficiencies especially come out when the political system becomes subject to capture. And I think it's that sense of unfairness court that is really the problem. In a market economy, people accept that there is going to be an equality. and in fact, that's how we get wonderful innovation because the returns to innovation are very high. But if people feel that the system is unfairly stacked against them, that is a problem. But to your point about what might happen to the tensions beneath the surface, if you think about the U.S., you know,

it is known for going from one side to another, and of course the U.S. is extreme, so it doesn't just go from one side to another. It's lurches from one extreme to the other. But the self-correcting mechanisms have always worked, Scott. And this is where I get really concerned about the doom loop dynamics, which is that many of the self-correcting mechanisms, including the democratic process, the system of checks and balances,

the rule of law, all of which are very important for these, you know, shifting back to the middle and then over to the other side. Those are all fraying before our eyes. So I worry that these tensions could basically boil over in some way. And one might argue that even the election of Trump was in a sense of boiling over. Because there was a sense that under an alternative scenario, nothing would change. The well-off would still be getting more well-off. The political process would not change.

So when Trump came along with this message that I'm an insider, I know how this works, I'm going to blow it up. That's the only way to make things better. I think many people, you know, accept that there's a role of the dice. It's not worked out so well, but perhaps that's what they were hoping. could affect some change. I think the hopeful notion is that the means of correction around income inequality is a democratic process. My understanding of economic history, and I'm open to pushback here, is that more often the means of correction or war, famine, or revolution. Your thoughts?

That's true. When things get pushed to the edge, there is a sense that people are going to rise up in the streets. The question is, what point does that come at? One thing that I point to in my book is that people seem to care about economic outcomes. They also care about security, both security in terms of their day-to-day lives and also in terms of national security. So skilled politicians are very effectively able to pull the latter trigger, you know, summoning up the politics of fear where they talk about, you know, the fears that people have and that enables them to, overcome the politics of hope, which is why I think we are by we are. But you're absolutely right. There is a risk that we could end up in a much more difficult spot. And, you know, this is not a

book about the U.S. It's not a book about Trump. It's not a book about the last year. We see many of these forces play out around the world, and we've seen, you know, very negative reactions in many countries. In a country like Poland, you saw a huge shift to the right, but then the equilibrating mechanisms sort of worked and it's back at the center. Other countries the dynamics are playing out such that it is shifting even more to the right. And that may be where we end up, where we end up, you know, with a political system that is hugely polarized and where even the center starts shifting even more to the right in terms of issues like immigration, in terms of issues related to globalization and so forth. And that could mean

perhaps a little less inequality, but much less welfare for people as a whole. We'll be right back after the break. And if you're enjoying the show so far, send it to a friend, and please follow us if you haven't already. Support for the show comes from Zbiotics. Having a good night out shouldn't come with a rough next morning. You can set yourself up for success with Zbiotics. Zbiotics pre-alcohol probiotic drink is the world's first genetically engineered probiotic.

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The one and only Flage Johnson joins us to talk about leveling up for the WMBA, managing NIL money, and how she's. nurturing her music career. We're also taking a closer look at why participation in girls sports is declining. Surprising, we know. And we're giving some love to Valentine's Day and what it's like dating a pro athlete and who's the best athlete couple of all time. Check out the latest episode of a touch more wherever you get your podcast and on YouTube. We're back with Prof G Markets. Professor Prasad, you mentioned the difference between what we're seeing in income inequality and wealth inequality, which I think is a topic that is not talked about enough, and that is

income inequality is widening, but not as much as one would think. Wealth inequality is the real problem. That's where we're seeing a huge divergence, at least in America. Now, I think a lot of people would say, or a lot of people who are less concerned about the inequality problem, would say, yeah, the top 1% has a lot more. We can look at the data there. we can look at the numbers and confirm that. But the overall standard of living in America is pretty much okay. Or at least it's more okay than it has been in the past. You know, people in the bottom 10, 15, 20 percent of America,

they can still order things on DoorDash and they can, you know, some of them can afford rent in reasonably, at reasonable prices. I'm probably going to get pushback for saying that. But that is the argument that a lot of people would say. Yes, there's an equality, but overall the standard of living isn't that bad. Look at how many people own a TV and an iPhone and et cetera, et cetera. I'm just wondering if you think that that is an acceptable argument, and if you think that that is something that a society could accept,

the idea that you're never going to have real wealth, You're never going to really have access to, say, buying a home and seeing the massive wealth increase that we saw in, say, the 60s, 70s and 80s. But you'll still be fine. You'll be able to afford enough to get by. Inequality by itself is not necessarily a bad thing. In fact, if we didn't have inequality, it would mean that we are affecting the working of the labor market where better skilled, you know, more entrepreneurial people should be making higher returns. we do want to have incentives in an economy for those who take enormous risks

in setting up companies who come up with great inventions do get compensated fairly and we can argue about what the right level of compensation is. I do worry in America though whether we are in fact taking care of the bottom 15 or 20 percent. Median incomes are doing fine, but if you look at the safety net cushions

that are available for those at the bottom, it's completely inadequate. You know, when I think about the health care system in this country, for instance, I suspect my dog is probably getting, you know, much better health care than a large number of people in this country can afford. So they go to emergency rooms rather than getting routine care. The safety net really doesn't work for a significant share of the population. And this is where I think the sense of unfairness comes into play because the government is,

you know, reducing the tax burden on wealthier families, many of which do pay. a significant amount of taxes, at least in absolute terms, but at the same time, it is fraying the social safety net, and measures we've seen taken over the last year or so have hurt the economically disadvantaged the most. You know, there are inner-city schools which are starved of resources. There are, you know, homes in these neighborhoods where violence is sort of the norm for the kids.

So if we think about the kids in this country, you know, it is by many measures the richest country in the world, maybe not per capita, but in terms of aggregate income, and we're just not taking care of those who are left out of all of the good things that we are seeing around us. And this is the unfortunate reality. This is an incredibly dynamic rich economy that is generating enormous resources

that is leading the world in many ways. But if you go into the inner cities, you know, in any part of the U.S., it's a very different world out there. Do you expect that AI will improve this situation or make it worse? So I do have a discussion of technology in my bookhead, and as I mentioned, you know, in the cheerful version of the book, I had thoughts about what forces would take us to a better place, and I'm a technology optimist. I mean, AI is doing wonderful things in the chapter of technologies.

I also talk about digital currencies and social media, which have enormous power to bring us together. digital currencies in many low-income economies have given, you know, even street vendors easy access to digital payments, banking services for managing their credit, savings, risk and so on. So this is all wonderful. The fear I have, though, is that the dark side of technology, and I have one particular vision of the dark side as playing a pretty big role, which is that we are seeing increasing concentration of economic and financial power within countries and between countries. You know, take AI, it is making all of our lives a little more efficient. But if you think about those whose jobs are most at risk, it is personally those who are

at the front lines in terms of providing some types of service sector employment, for instance. Across countries, we see a very similar phenomenon. At Davos, I had a couple of meetings with African entrepreneurs who were super excited about how the new technology would increase their productivity, allowed them to compete with other manufacturers at the world level, both in terms of goods production, but also in terms of services. But when the conversation turned to employment, it was a very different story. The sense that they would be able to do a lot more with these new tools, while at the same time employing fewer workers, I think was a constant refrain. And I fear that something similar might happen in the U.S. that we see many of the benefits of

AI, even some of the open source AI that in principle everybody has access to. On net, it might create some new jobs. There might be some jobs lost. But again, the overall benefits might end up becoming much more concentrated, which again feeds into the doom loop dynamics. Yeah, this is something we've been discussing a lot. Is AI taking your job or isn't it? And it's a nuanced conversation. But, you know, we are looking at the numbers now, 1.2 million job cuts last year, 5% were outwardly attributed to AI, it seems that the argument that AI isn't taking any jobs is just false at this point. AI might not be taking all the jobs, but it's certainly taking some of the jobs.

From a policy perspective, the current administration's view on the AI jobs problem has been just let's not touch it. Or at least let the market run its course. We're going to set a moratorium on states implementing their own AI laws because any form of policy or regulation is going to stifle innovation. It's going to be a problem for keeping up with, say, China. What is your view on AI policy as it pertains to the labor market? Should we be using some sort of controls in Washington or in any government around the world to perhaps alleviate the potential displacement that will come as a result of AI?

That's an extraordinarily difficult challenge because, again, we don't know. exactly how the effects of AI will play out. You know, when digital currencies came out with blockchain technologies, there was a sense that blockchain would completely transform financial services, and it is playing a useful role, but it's not exactly transformed finance altogether. AI seems like a much more powerful technology. My fear, of course, is that we end up stifling innovation, and I think the example of Europe is important here,

because Europe has taken a much more aggressive approach towards regulation of AI, and they're falling significantly behind in terms of the competitive race, which has now become a China versus US competition by and large with some other players that are marginal. I don't think it's good to stifle technology. At the same time, we certainly need to have some guardrails

to ensure that this technology benefits us rather than causing more problems for a society. And I think we need to have some mechanisms in place to deal with the displacement that AI will cause. There are certainly going to be some industries and some firms that are winners, some that are losers. The question is, how do we ensure that we can support the more dynamic parts of the economy while ensuring that those who lose out during this transition don't fall through the cracks? Because that is where the problem arises, where you have a large, disaffected population that feels that there are wonderful things happening around them

that other people benefit from and that they have no chance to get any of these economic opportunities. So we may need to think about an economic structure, you know, not socialism or communism, but just a robust safety net that allows people to get back on their feet, and I fear that that safety net is fraying right now. In terms of regulation, again, it's extraordinarily challenging when I think about these new innovations.

we don't want to stand in their way. But again, with something like AI that can potentially transform a variety of issues, you know, and intrude into our lives in many good and also in many ugly ways, I think we need at least have some regulation in place to make sure that it doesn't lead society to a very dark place. I'd love to move to or start talking about potential solutions and propose a thesis and just get your response to it. So if we're going to have an honest conversation around the long-term sustainability of our economy,

I think we've got to address the deficit. And if we're going to have an adult conversation about the deficit, all roads, for me at least, lead to entitlements and health care. $13,000 per capita on health care, as you referenced. And yet we live less long, we're more obese, and we're more anxious. The best way to describe U.S. health care, as you said, is expensive but bad. And my thesis is the following, that AI is overhyped in terms of the amount of attention it gets as a technology, that the most underhyped technology is, in fact, GLP-1s or Semi-glutides, as a potential remedy for bringing down health care costs and finally addressing entitlements in the deficit. So AI overhyped, semi-glutides underhyped.

Your thoughts? Now you're taking me far beyond my ken, Professor. It doesn't stop us, Professor. What do you think of the notion that, let me put it, unless we address health care, it's talking about the deficit or any sort of responsible fiscal policy is a bit of a, I don't know, a kabuki dance. Absolutely right. The entitlements are hugely important. I think we need to come to grips with the fact that the incentives in our system are hugely,

misaligned. When you think about healthcare, if you think about incentives for retirement savings, many of these things I need to be dealt with as a matter of policy. And the healthcare system is really gummed up right now. And, you know, as we have

an aging population, as we have, you know, demographic projections indicating that especially with the tighter immigration policies, we are going to have a population that is certainly not growing and will perhaps start shrinking, we need to start thinking more seriously about generating more resources and

using them a lot more effectively. And if we have this huge debt overhang above us, that is going to have serious implications as we were discussing earlier with more and more of government revenues going towards just paying off the interest on that debt. And there is no real path to fiscal restraint unless we can deal with entitlements. What I worry about, though, is that the Trump administration, true to its word, has been attacking entitlements, but it's been attacking entitlements that ultimately are, again, part of the social safety net. If you start cutting or making Medicare and Medicaid payments in particular, much more difficult to access, that's going to be hard. So we need better incentives, certainly.

I mean, as you pointed out, you know, obesity is a problem in the U.S. that there are other solutions. for. But, you know, if you think about most healthcare plans for proactive, you know, care that comes ahead of major problems arising, we don't really have enough coverage. And we certainly need to think about the system of health insurance we have right now, which is largely employer-based, and especially going back to an earlier conversation at a time when there is a huge amount of churn in the American economy from industries doing well to those not doing so well. If we leave people without this protective mechanism, it's just going to increase the cost of the system and lead to worse outcomes.

So I'm completely with you, Scott, that we need to have a serious conversation about entitlements, about dealing with not just discretionary elements of government spending, but these other core elements, and perhaps we also need to think about a different tax system, where, for instance, a value-added tax system on consumption, I think would be much more efficient. It would broaden the tax base without necessarily raising taxes, and I think we could keep much better incentives in place. On the point of how to address the deficit, how to address this unsustainable debt that we continue to run up every single year, and it's only getting worse. And you mentioned this administration is attacking the entitlements, but while doing that, they have somehow also figured out a way to

explode the deficit even more. So it doesn't really work on that issue. I feel like the argument or the conversation goes one or two ways. Either we need to reduce spending, and that's really what Doge was all about and what a lot of conservatism is about. Or we need to increase tax revenue. And in a lot of ways, that's what a lot of liberalism is about, increased taxes, maybe a wealth tax, maybe in ways to figure out how to get more money out of the hands of the top 1% 0.1%. Or maybe it's both. We need to spend less and we need to tax ourselves more. How do you approach this argument? Do you think that there is an answer to that question? There is an issue about revenues, and I think a lot of that can be addressed by simplifying. the tax system. I mean, every year, you know, April 15 brings a nightmare for practically every American citizens because our tax system is so convoluted, even for people who have just a single

stream of income. And many of the elements that are, you know, in our tax system simply do not help in terms of either economic efficiency or raising taxes. Plus, of course, we have a very large number of loopholes. So I don't think we even need to raise taxes. Like I said, we can, can think about an alternative tax structure, which is much more simplified, that can leave better incentives in place, and that could potentially increase revenues as well. On the expenditure side, I think, you know, without dealing with non-discretionary spending, we're not going to make much progress. And here, of course, the paradox is that we are talking about increasing military spending, not all of which is necessarily productive. And of

course, if you have an administration that, you know, wants to project America first through military strength rather than economic strength, you get a lot of expenditure being misallocated to uses that I think are not really good for the productive part of the economy. So there's a whole range of very difficult issues to talk about in the context of the public debt. And much of the conversation really ends up being about, you know, laying off a bunch of federal workers, cutting some discretionary spending, cutting Medicaid spending, all of which I think has some effect, but these are swamped by everything that has happened on the tax side where you've had much more generous tax breaks for those who are already well off, and additional measures to

even more complicate an already complicated tax system. So I think simplification is really one very important element on the tax side at least that could get us to a better place. We'll be right back. And for even more markets content, sign up for our newsletter at profityemarkets.com slash subscribe. At MedCan, we know that life's greatest moments are built on a foundation of good health

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Medcan, live well for life. Visit medcan.com slash moments to get started. We're back with Profi Markets. So another, there's five legs of the stool, another leg we haven't discussed. Curious to get your thoughts on housing. And I realize that it's, it's regional. And there's a lot of dynamics to play here. But I think for the first time in a while, There's now more than half the houses have mortgages above three or four percent. Like there's some sort of hopefully tipping point that creates more liquidity in the market, but we're still not building enough. Curious to get your take on the housing market.

And I always go to the sociology of it, and that is I believe that it's created a great deal of poor risk-taking for young people, and that is, I think saving for a house stops you from gambling or spending money on, you know, at the pub or whatever, you're like, you know you got to save a thousand bucks a month, such that. In three years, you can have a down payment. And now that housing has become out of reach or kind of a pipe chain for people, young people are engaging, especially men, in much riskier behavior, which does nothing but fuel gambling apps. Curious about your thoughts on housing and the second order effect of the median age of homebuyers getting, you know, older and older every year.

The notion that this is the American dream that you have to have your own house with a little garden and the backyard and a fence that you can talk to your neighbors. So, you know, that still, you know, animates a lot of U.S. policymaking and economic decisions by young people and households more broadly. And the supply side is really the constraint here. You know, you can shuffle around the existing household. houses, but with people growing older, many people having mortgages, that they got at very low rates, the amount of housing that is available for sale that is turning over, or that is

being built is certainly quite limited. So certainly one needs to think about that issue, and ultimately, there has to be a supply response. And one interesting question is, why isn't there a supply response at the right level. Partly that is related to issues that you mentioned, a lot of saving is being sucked up by the U.S. government right now, leaving much less out there that it can go into a pool for housing or anything else of the sort. But there are also, you know, regulatory and other constraints in many urban areas,

but many states more broadly that limit the supply of housing. So I think we may need to think about rationalizing that as well. And, you know, in my own community, so I split my time between Arlington, Virginia, and Ithaca, New York. And in Arlington, you know, single-family homes do take up a lot of room. And there is a question about whether they could be different zoning that allows for multifamily homes and so on. So some of those could make a difference at the margin. But, you know, if you think about the Trump administration's approach, and on the one hand, Trump talks about wanting houses to be worth more

so that those who have houses can feel richer. At the same time, he wants to increase the affordability of housing and his solution to that seems to be, you know, 50-year mortgages, which are going to mean much greater interest payments. So I think bringing some rationality to the secondary markets that support mortgages could be a more effective way of, running government policy. I think an implicit government guarantee of all mortgages probably is not a good idea. But I think the government could certainly play a more constructive role in the secondary

market than seems to be happening under the current administration. So again, it's a problem that besets this country. There are no easy solutions, but I think we have to nibble away at this problem with a particular focus on the supply side. The last leg of the school I'll ask you about is our industry, if you think about the certification you need to get ahead and the asset that people want to start a family and begin some sort of force saving, we talked about housing, education, which is consistently, other than health care is grown faster than inflation than any other, you know, part of the economy. You are a professor at a university that is consistently raised, as am I, but consistently raise tuition faster than inflation. We sit on large endowment

you guys sit on the endowment the size of a small nation or the GDP of a small nation, and yet we sequester, in my opinion, or artificially sequester supplies such that we have pricing power. And I think that the externalities have been really damaging for America. Your thoughts on the role education plays in our economy and how some elite universities approach, where they invest and class size. I would just love for you to riff on education or higher education in America. I think our education system,

including the universities, you and I are at Scott, are really the treasure of this nation and it is painful to see, you know, what this administration has done in terms of the ability of these institutions to generate research that then breeds innovation. But the access to education is certainly a piece of the

set of issues we were talking about as well. Now, I suspect at your university, just like at mine, the sticker price is not what a majority of students pay. We do have very generous financial aid programs. We try to make sure that students who do have, you know, the credentials to come to Cornell are supported financially through. But one might argue that the real problem arises even earlier on, you know, I said students who have the ability to prosper at Cornell, but if you think about the educational system more broadly, there are many people, especially from inner city schools who are never going to have this opportunity. Now, the education system by itself cannot solve the ills of society. You know, I know teachers in some of these inner city

schools and the kids that they teach, you know, are essentially coming from broken homes where violence is the norm inside the house, outside the house. It's hard for those schools to fix those problems, and if those problems don't get fixed at the school, you get students who cannot really in any sense compete for a position at a top university. But I also think, in addition to fixing those problems, we do really need to think about what we want the educational system to deliver to students. You know, there is this notion that a more practical vocational-based education might be somewhat better. I'm not entirely convinced of that. I think at least that, especially in a world where AI starts becoming more important.

It's nice to think about critical thinking in the abstract, but I think it really has an important role to play if you want to send our students out into the real world. But we also need to equip them with some real skills that they can take to the marketplace. But of course, five years ago, it used to be a standard notion, just learned programming and you're going to be fine.

Well, all of a sudden, you may be very skilled in programming, but your skills are not that worthwhile anymore because I can write computer code using chat GPT or Claude, I can even clean up computer code. But now I have my research assistants do certain higher order tasks because they can do much more of the basic

somewhat more menial tasks, much more easily using AI. So then they can help me with some of the more critical analysis. This is where the critical thinking part becomes important. But going back to your, original point, is the education system serving the American people well? I think it has a role,

but certainly needs some, you know, it changes, it needs some reforms. But fundamentally, I think the problems arise, not just at the university level, but much earlier in the education system. Those are the problems we need to fix. Before I toss it back to add for the last round of questions, I want to personalize this a little bit. We're the same age. Graduate from college, the same year. You graduated from the University of Madras. I graduated from UCLA. I'm going to go out on a limb here and assume that because you came from India, I came from UCLA. I had a 2.27 GPA undergrad. I'm going to speculate your GPA was much higher. A bit higher. And that you are what we call, you are what we call literally the best and brightest. And we're like an NFL team that in

1986 got the top draft choices from everywhere in the world, go 40 years forward and imagine a student with your qualifications, your pedigree, your work ethic. Imagine that person now in 2026. What do you think their view is of America? And what is America's view of them in terms of welcoming them into higher education and a faculty position? So first of all, Professor Gallagher, you're an inspiration to those around the world with 2.27 GPAs how well you ended up doing. So clearly a high GEP is not necessarily the best path to success. I worry a great deal, Scott.

You know, I've benefited enormously from all that this country has had to offer me, and I've built a wonderful career and a family here. I fear that America is no longer seen as the loadstom. that the best and the brightest around the world look to as a place where they can come develop their skills and contribute to society, to the economy, and so forth. There is a sense that the U.S. has become much more hostile, not just to foreign labor, but even to foreign intellects, people with enormous drive, who in many cases come here, build careers and then go back to their home countries, thereby enriching the U.S., but also their home country.

And I fear that it makes America a much less rich place, not just economically, but also culturally and in terms of the perspectives we bring to bear. I mean, this is seen as the country where you can start with nothing. You know, I literally came to the U.S. with about $600 in my pocket. And this is where you can build something out of that. And that sense, I think, is quickly receding. You know, people are looking to other parts of the world. they're looking to universities elsewhere. And I think our universities are still by far

those that set the standard for the rest of the world. But we cannot count on that with a sense of complacency. And I think that advantage is fast eroding. And it also affects how we see the rest of the world. You know, if we see the rest of the world through these eyes where, you know, we think about the other as the problem, you know, the other could be domestic economic and political elites or immigrants or China, we stop thinking about what is really needed to fix our own problems

rather than blaming others for our problems. So I think it is also creating a more jaundiced view of Americans towards the rest of the world. Every time we speak to someone like you, I'm always, I'm optimistic and then also pessimistic because I realize that the problems that America needs to solve are so complicated. And I'm reminded of how little we are doing to actually solve. them right now, at least from a policy perspective. But, you know, we've talked about the issues that we're facing. You've talked and written about the Doom Loop. Just before you go, if you could control our policy, if you were in the White House, if you were at the helm,

what are some things that you would focus on? How can we actually get this country back on track? I think the solution is not that difficult to see, but very difficult to execute. I mean, each of us, I think, has a responsibility as citizens. We have to see ourselves as citizens not just of our countries, but of our communities, of the world at large and recognize that shared prosperity is really the only way forward. We need leaders, you know, community leaders, business leaders, national leaders, who can help us see beyond our short-term prejudices, our fears, and really guide us through hope for a better future.

But ultimately, and this comes to the policy question, we need solid institutions. When I think about the greatness of America, about the American dollar, which I've talked about in many of my writings, what is really important is the institutional framework here. That includes the rule of law,

which even the government is subservient to. The government creates the laws, but it has to follow them once it's created. The free and fearless press that holds government officials, and others to account a system of checks and balances, an independent central bank that can maintain monetary policy stability. All of these are pretty important, and in addition, we need international institutions.

You know, I used to work at the IMF. I think it still serves a very useful role. Institutions like that can maintain common rules of the game. So what I think we really need, and this is important even when we think about the corrective mechanisms that I spoke about, not just in the US but the world economy. We need these institutions working well. So if I had the year of somebody in a position of influence, this is what I would emphasize.

We really need to start rebuilding, reinvigorating our institutions, because without that, everything sort of starts falling apart. The unfortunate situation we are in right now, though, that those who ought to be rebuilding or strengthening the institutions, are the very ones shredding them because it is in their interest to do so. So it's going to take a lot of effort, Herculean effort, as I talk about in my book,

from everybody playing their roles to bring us back from the doom loop. Isha Prasad is the Talani Senior Professor of Trade Policy and Professor of Economics at Cornell University. He's also a senior fellow at the Brookings Institution where he holds the New Century Chair in International Economics and a research associate at the National Bureau of economic research. He was previously chief of the Financial Studies Division in the International

Monetary Funds Research Department, and before that was the head of the IMF's China Division. Prasad's latest book, The Doom Loop, Why the World Economic Order is spiraling into disorder, is out now. Professor Prasad, really appreciate your time. Thank you so much, Ed Scott. That was a great conversation. I really enjoyed it, and let's all hope for a better world for each of us and our future generations. Amen, brother. Thank you, Professor. What'd you think? So let me say the obvious.

He's a very impressive guy. Really, I always learn from him. It's heartening that people like that decide to go into academia and especially encouraging they decide to go into American academia. It also, and I don't know if it's because I haven't eaten, it's getting light here, it kind of pisses me off that we in America just have decided that we attract the best and brightest and no longer want them. We're a football team that has the best draft choices in the world.

And it's decided, no, we want, we'd rather have some Joey Bag of Donuts from a shitty little school who can't, who can't, you know, can't throw a ball because we don't want to, you know, we don't, we don't want people who aren't, you know, who are brown. It is such a gift, this pipeline of human capital we have had from India into our academic institutions. And we've decided to turn off the tap. it's so short-sided. Yeah, I think that's very true. I think what he said about institutions at the end there is, you know, maybe we all know that, or at least people who listen to this podcast

would agree with that point, but it is so true. And to your point about the immigration issue, it would be a different story if this administration was saying, you know, the way things work right now are not working, so we're going to rip all that up, and here's what we're going to do instead. But it does seem like on every issue, whether it is immigration, whether it is, you know,

deficit spending, even like, I think tearing down the east wing is a good example. I mean, what we're now seeing is that actually that wing is currently in ruins, and they don't have a plan because it's going to go through all of this litigable. now to actually rebuild it and build the new wing. And that seems to be a really apt metaphor for everything that is happening with this administration right now. It's like the way things work aren't working.

So what are we going to do? We're going to tear it down. We're going to tear out the institutions, gut them. That's the plan. And then we don't know what we're going to do. We're just going to see what happens. It's so short-sighted.

And you know what's going to happen. I mean, there's a kid who is strikingly similar in terms of how impressive he is, Professor Prasad. And he or she is just not going to come to Brown where he got his master's. He or she is going to go to McGill or Instituto Impressa and end up working at their universities

or figuring out financial instruments for the World Bank of Canada or for Banca Santander. And our economy is just not going to be as prosperous. It's just, it's as if we said, how can we elegantly over the short, medium, and long term just reduce everyone's prosperity. And we're only going to know that long into the future. Like we're only going to realize our mistakes, you know, 10, 20 years down the line because

that's how long it happens for these things to coalesce. And I look at where I grew up, the UK, which is a very interesting example of what happens when you make really, really stupid policy decisions and then how people kind of process those decisions later on. For the UK, it was Brexit, which was a decision back. in 2015, 2016, which was one of the worst decisions in the history of the UK, absolutely decimated the economy. And what is so interesting now is that the UK population has decided to kind of, they've all agreed it was a mistake, but they've decided to kind of remove that from their heads.

And now the leader of the next party is the guy who introduced Brexit to the UK in the first place, which is Nigel Farage. Now we're seeing all of this interest and excitement and support for the Reform Party, which is his new party. And it's so interesting how even when you make a mistake and when everyone agrees that it was a mistake, somehow populations as societies later down the line figure out a way to just not learn the lessons, even though we all agree on what mistakes were made. I worry that it's going to be the exact same thing. Yeah, I don't. I'm blissfully ignorant as it relates to UK politics, except for the fact that the prime minister, according to Kalshi, is probably going to resign over the Epstein files,

despite the fact that our president is named, has his name in the Epstein files, is named more often than Jesus is named in the Bible or the term meth is named in all eight seasons of Breaking Bad. True, both those things. Is that true? But Prime Minister Starmor is probably going to, he may have to resign because one of his cabinet officials

has been implicated. I mean, the standards here, I'm so, when any, people have constantly asked me, at conferences here. What do you think of UK politics? I'm like, you know, we have so many great exports coming out of the United States, education, we make great weapons, we make great films with men in tights and capes. Our, what I'll call political division does not need to be exported over here. I'm going to stay out of this. You know, but the only thing I will say is that

you're the ones that decided to stay, and the risk gene in the U.S. is paid off for, you know, you know, a century. And, you know, my parents got on a steamship. I think that my success is largely a function of I'm willing to endure public failure. But anyways, I'm going off on a tangent. But the economy here, it, it did notice that, okay, it's like they're so traumatized, they want to suppress it and not talk about it. Like, Dad doesn't talk about his time in Vietnam. Nobody here talks about Brexit. It's like, you do understand that you made the fucking stupidest economic decision since America went into Iraq. Which, by the way, you poll them and the majority of them agree. Remember, the majority of them wanted to leave. Now you poll them, they say, the majority of them

say it was a mistake. And yet, the most ascendant party right now in the UK is the party of the guy who introduced Brexit and made it happen. And the argument is going to be, we didn't do it right. And I guess my point is we're going to make very, very similar mistakes in America. And what is even sadder is seeing Britain in a similar position 10 years down the line. I will bet you that 10 years down the line in America, we're going to figure out a way to double down on the mistakes that we made or figure out a way to justify them and make them even worse. That seems to be what's happening in the UK. Oh, Ed, don't be such a pessimist. I need to do is resist and unsubscribe. Fair enough.

This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our research team is Dan Shalahn, Isabella Kinsel, Chris Nodonohue, and Mia Silverio, Drew Burrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Profugee Markets from Property Media. We will be off for President's Day, but we will be back with a fresh take on markets on Tuesday.