I did not start out being gloomy, Tom. In fact, the book I planned today was a very different book. It was about how we might be moving from a unipolar world where, after the collapse of the Soviet Union, the US became the dominant power in every respect, to one where economic power is more evenly balanced. And as an economist, one thinks competition is good for balance, efficiency and stability.
But as I thought about all the forces that I was going to argue would push us back to a more stable world, a more stable equilibrium, I began to realize that each of these forces might actually generate more instability rather than stability. So the book ended up being one about where economics, domestic politics and geopolitics, which always go parallel tracks, they intersect with each other, but in this case, they're feeding off each other into a negative loop, a negative feedback loop, and bringing out the worst in each other.
So your publishers didn't say, make it gloomy so you could sell the movie rights?
Tom, I said I was writing this book. My heart was pulling in one direction, but my head was pulling in completely another direction. And I think the reality is that, you know, we're in a difficult world right now, and the book ultimately is going to help us at least understand the forces that brought us here, right, before we think about solutions.
Professor Prasad, I think most of our listeners, most of our viewers grew up in a world of globalization. Is globalization unraveling right before our eyes right here, too?
Globalization was once seen as a positive-sum game, you know, which would offset the zero-sum game of geopolitics. The US-China relationship was a perfect example. You know, the two countries could not, you know, come to terms on certain geopolitical issues, but the economic relationship was seen as one that could benefit both countries. But now even globalization is being seen as a negative or zero-sum game where even there there are no common benefits to be had. And it's worth thinking about what happened here. Globalization did deliver aggregate benefits, but these were not well distributed within countries or between countries. So within countries, in both advanced and emerging market countries, it created the sense of a disgruntled community that essentially felt left out of opportunity. And that infected domestic politics, which in turn is hurting geopolitics.
I would mention Joseph Stiglitz, they're just absolutely definitive. His book and discontent among globalization decades ago as a facade with the book is a doom loop. We're going to continue here with Professor Prasad of Cornell. Paul, so where do we go from here in terms of an economy that is a global economy? Technology has really reduced distances and it just, it's just made everything more tangible here. How do we go back to something less global? And should we go back to something less global?
So what we are seeing is not a complete retreat from globalization, but it is becoming fragmented. So countries are sending more trade and financial flows to countries with which they're geopolitically aligned. So trade and finance, rather than being bridges across the geopolitical rifts, are in fact deepening those rifts. And the same is true of technology. That is what, in my cheerful version of the book, was going to be what led us all to a better place. And it is creating enormous progress. But at the same time, as I point out in my book, it's creating much more economic and financial power concentration within countries and between countries, which is where the dissension comes from.
You know how to do this. So I picked up the book and I went to the index and I looked for Carney in Canada. Carney of Canada, Stop Davos talking about the middle countries in a new variable geometry. Discuss that geometry within the doom loop. So when I think about the superpower competition right now, you have these two on both sides and everybody else is stuck in the middle. My European friends don't like it when I say this, but Europe is sort of a middle power because it's sort of grown up to be, you know, a real power on its own. So everybody else is stuck in the middle of these two very unsavory alternatives.
The U.S. is receding from its leadership role in the world economy. China is not seen as a trustworthy and reliable ally. So take what India, the archetypal middle power, does on issues like cheap oil. It aligns with Russia and China. But on the other hand, it sees its fundamental values as aligned more closely with the West. So it panders from one side to the other. So Mark Carney took a very pragmatic approach. He pointed out, as I do in my book, that, you know, the middle powers include rich and poor, small and large countries. Their interests are not perfectly aligned. But he argued that maybe they should align on specific issues which make sense. The problem is it doesn't create deep trust that is necessary to underpin strong alliances. So the middle powers themselves, again a chapter of my book, rather than being sources of stability, are becoming sources of instability themselves.
Back, I mean, President Trump loves to go back to McKinley in the Gilded Age. We'll get to tariffs here in a moment as well, a facade. But to finish up on the doom loop here, do you have an analog of, as Paul mentioned earlier, almost a nostalgia for a different time and place? Are we going to a new new that we've never seen before?
The fundamental problem right now is that if you think about the competition between the U.S. and Japan in the 1990s, the U.S. and the euro in the 2000s, it was about economic competition. But now the competition between the two powers is completely different. It's about the visions of the world, about how to organize an economic, political, legal system. So I don't think that is going to be an easy way at all for these two visions to be merged. So I think we're stuck with the doom loop for some time to come.
What is the role of the U.S. in this new world order? I mean, is this just a Trump issue? And if we get somebody new in three years, the U.S. will try to reassert its leadership position. How do you see the U.S. moving forward?
Well, Paul, I wish that was the case. But I should point out that I finished the first draft of my book in October of 2024. I put it down and thought, my God, this is too dark. Let's wait for the elections and maybe things will settle down. But everything that has happened since I finished my first draft has only validated or supercharged the thesis of the book, which is unfortunate for the world. But I think the issue is the U.S. is now receding from its leadership role, but it's causing some other countries to stiffen their spines. You know, Europe is coming together at one level. The question is whether there is a political will, not just to deal with territorial integrity attacks, but to do what is necessary to improve productivity, to come together, to reshape institutions within these countries and for these countries to basically get their act together.
