Plain English with Derek Thompson - Why Everything Is Going to Keep Getting More Expensive

Episode Date: August 25, 2026

For much of the 21st century, the U.S. economy was built around cheap money. Today, though, interest rates are rising, and borrowing is getting much more expensive. At the same time, the federal government is running huge deficits while governments and companies around the world are taking on enormous amounts of debt. Derek talks with returning guest Conor Sen, author of the Housing Frame newsletter, about why interest rates have climbed, what’s driving this new age of debt, and how it could change the economy for years to come. Subscribe to our YouTube channel here:https://www.youtube.com/@PlainEnglishwithDerekThompson If you have questions, observations, or ideas for future episodes, email us at [e-mail]. Host: Derek Thompson Guest: Conor Sen Producer: Devon Baroldi Additional Production Support: Ben Glicksman Learn more about your ad choices. Visit podcastchoices.com/adchoices

In the 1990s, the Democratic consultant James Carville told a journalist, quote, I used to think if there was reincarnation I wanted to come back as the president or the pope or a 400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody. End quote. The bond market, he was referring to, is where the government borrows money by issuing IOUs, called bonds. When the world is calm and things are normal, investors clamor to get IOUs from the U.S. government because they're basically seen as the safest thing around. It's practically free money.

But in the 2020s, where things are rarely calm and never normal, something strange is happening. Traditional bond buyers are retreating. And that means the interest rates the U.S. government has to offer to get people to take our IOUs is rising. Rates on new 30-year U.S. bonds, largely considered one of the safest bets in the world, were as low as 1.7 percent in 2021. They've since tripled to more than 5%, the highest rate in 20 years. Now, why would a bond market intimidate people, as Carville said? Well, when the U.S. has to triple the interest rate in its bonds, it becomes more expensive for us to borrow money. And that's a problem because the U.S. is not taxing itself enough to offset our level of spending.

The deficit this year is on pace to surpass $2 trillion for the first time, not counting those weird pandemic years when we bazooked the economy. with money. A surging interest rate on record high levels of debt sounds awfully expensive. Next year, America will pay a higher share of its GDP in interest payments than any year on record going back to 1940. Think about that. That means more money not going to health care or infrastructure or education or social security, money just going to interest on bonds to cover up the difference between spending and taxing. I think we can fairly say that America is intimidated by rising bond yields. The Treasury has announced a range of policies intended to lower interest rates.

But the long-term challenge is that everybody now is also hunting for debt. The U.S. government and the major governments of the world are all running huge post-pandemic deficits. That's trillions of dollars in debt. Meanwhile, the hyperscalers, the big tech companies investing in AI, they're also raising hundreds of billions of dollars in debt. as well. Everybody wants debt. And in a chaotic world with wars in the Middle East and Ukraine and fears about China, jittery investors are demanding higher yields. Now, why does this all matter to you? If you think back to the 2010s, much of the 21st century, as we know it, has been built

on the assumption of low interest rates and low inflation. Government cut taxes and increased spending because borrowing was practically free. So it seemed almost reasonable for a politician to say, we're going to get you more free stuff and cut your taxes while we're at it. Venture Capital took off in Silicon Valley as investors hunted for any return

higher than a few measly percentage points. But now, with higher interest rates, as far as the eye can see, I'm worried that everything is going to change. Life is going to get more and more expensive. And the way that companies think about investing, will be forever shifted by this age of higher yields. Today's return guest is Connor Senn,

the author of the substack, the housing frame. We talk about this age of debt, the paradigm shift that's changing the 21st century economy, and what this all means for investors and consumers. I'm Derek Thompson. This is plain English. Connor Senn, welcome back to the show. Derek, thanks for having me.

So there's a lot I want to get to today. I want to start a bit slow. Let's start with the news that's all over financial media right now, which is that 30-year treasury yields are at their highest point in decades at the same time that interest payments by the U.S. government are at their highest share of GDP in basically modern history. On the spiking of U.S. interest rates in particular, why do you think this is happening now? I think you have a lot of factors going on with that. You have longer end interest rates are going up everywhere in the world.

Japan, Germany, the UK, the U.S. Foreign, and externally, you could say that it's in part due to the war in Iran because other countries are more dependent on foreign oil than we are. So if you're importing a lot of oil, price goes up or you can't even get it. That's going to raise your inflation rate. That's going to put pressure on your bond yields. In the U.S., we have this massive AI buildout. that's really needing a lot of capital now in a way it wasn't even a year ago.

You have sort of record, peacetime economic expansion budget deficits due to a combination of a lot of retirees on entitlements and the tax cuts we've done in recent years. And then in housing and real estate, these sectors are kind of bottoming out. And the next phase probably looks like wanting capital rather than paying down debt. And so that's just one more thing for bond markets to worry about of we're already struggling with interest rates now. What happens if people actually want to borrow money

into buy a house or build more housing? One thing that I struggle with is like, I think the comment I made a few months ago was that the U.S. economy is like Rasputin. Like at this point, it's been like shot and poisoned so many times, and there have been so many different points when a reasonable economist could say, well, now we're going to enter a recession.

It's like, well, we have high inflation in 2021, 2021, to, okay, inevitably we'll have a recession. And then interest rates rise by their fastest ever in modern history. Oh, well, surely will have a recession. We don't. And then Trump becomes president. And we start waging completely random wars in parts of the world that raise the price of commodities.

Again, for no perfectly articulable reason. And again, you've got economists saying, well, surely now we're going to have a recession on top of the inflation, on top of the interest rates. now we also have commodity price pressures. The U.S. economy is chugging along. You look at stocks, and it's like, stocks are at their highest ever. And in many cases, it's not because prices are becoming totally disconnected from earnings. It's because earnings are kind of on fire as well.

Like, why isn't the U.S. economy, with the world falling apart around it, doing worse? I would say it's two reasons. One is that whenever you have a KAP-X cycle, and that just means tech, company spending record amounts of money, building out AI, whether it's buying chips, memory, building data centers, power infrastructure, all of that. Whenever you're spending that much money, you kind of by definition aren't going to have a recession because lots of spending means lots of growth, even if it's inflationary growth. And then because the Fed raised interest rates so much four years ago, everything that's interest rate sensitive in the U.S. basically

braced for recession and never really got out of it. Like in housing, we've been selling four million existing homes per year for the past four years when normal is probably closer to five and a half. And we're at sort of great recession levels of housing transactions. So it's kind of like if you're already dead, you can't die again. Meanwhile, you have this AI boom going on. Yeah, AI really does seem to be eating the economy. Washington reported it's currently accounting for a third of GDP growth. It's accounting for some enormous double digit percent of tech cap-ex and software investment. I can see two stories. with AI. On the one hand,

AI is clearly creating some jobs, trades jobs, construction jobs. Looks like software is hiring again. It's stimulating spending, especially from the hyperscalers, these companies that are maybe the richest companies in the history of capitalism that built these enormous troves

of money over the last few years who just bazookaing that money at AI. But on the other hand, it's doing some things that clearly aren't necessarily good for the economy. It is putting upward pressure on some prices, especially in software. Some people worry that it's absorbing scarce resources

that other parts of the economy might need or want. What do you think is a good way to think about how AI's dominance is either good or bad for the economy right now? I would say in the short term, it's more inflationary and bad in the sense of, if you're a consumer, you're probably being negatively impacted this year

by it more than you. Maybe we'll benefit it from sometime down the road. If you're looking to buy a laptop or it's back to school, so maybe computers for dorm room, an iPhone, smartphone, a gaming system, you're feeling the impact of rising number prices or just not able to get what you want at all. We're seeing utility prices going up and that's kind of complicated, but you're feeling more of the inflation than the benefit of AI. And you see that in the top level economic data where sort of real economic growth is still

about 2%. So despite the amazing things that a lot of people can do with, with AI, I'm sure you and I use it in different ways. You don't really see it in the economic data. Also, you don't see the job losses either, which is fortunate. But to the extent that it really will be this productivity boom, like sort of life-enhancing benefit, we're just not seeing that yet, because in part, we have these shortages that are pushing up prices and we can't get the compute we need and data centers we need and all these things. So I think the bigger benefit is probably many years down the road, honestly. Maybe another way into this question is by

exploring the counterfactual. Like, let's say that ChatT was never released, and the hyperscalers, Microsoft and meta, alphabet, et cetera, they didn't see anything worth spending hundreds of billions of dollars a year on. Like, how do you think the economy would be different without AI? If we essentially had everything else going on, but the AI boom was going to happen in like 2032 rather than 2020. I think I would say that even if you believe that AI one day will be better than the counterfactual of no AI, today, I think most Americans would be better off. And I would say that because you would have a more balanced economy and one that's more responsive to what everyday Americans want, which is lower prices, lower interest rates,

more housing availability. You'd have an economy that's less focused on tech growth and data centers and more on building housing and people borrowing money and sort of consumer credit and the sorts of things that that Americans really want, even if they don't, they might not say they want more debt, but deep down they want lower interest rates and lower borrowing costs. You're right. It's interesting because Americans want a handful of things that don't necessarily go together. And I'm not saying that their wants are irrational. It's just that economics is difficult and it's hard to make everything go up at the same time. They want affordability.

Of course I get that. They want inflation to come down. They want interest rates to go down. That speaks to affordability, because if you want to buy a house, it matters a lot, whether the interest rate is 3.5% or 6%. But they also want stocks to go up, and more than half of Americans are invested in the stock market. And you look at today's stock market, just quoting from a post by Ben Carlson at the Animal Spirits podcast. The S&P 500 is at all-time highs. Small caps are at all-time highs. Mid-caps are at all-time highs. profit margins are rising for the S&P 500 overall. And I would guess that's largely about the profits rising, revenue rising, for companies that are affected by all of this spending, whether they're making chips or building data centers or supplying energy. How significant?

How central do you think AI has been to the stock market growth of 2026, putting aside the fact that I, I think I agree with you on that for sheer like consumer staple affordability or for interest rates, AI might be pushing against what most Americans want. It's definitely a lot of it. And if you look at the S&P 500, the main stock market index that most people invest in through index funds, it's now about half AI companies. And that's everything from the big tech companies that everybody knows to Caterpillar, which is now very sensitive to data center demand, memory companies, all of that, it's about half.

And that share has grown a lot over the past three or four years due to... When you say half, you mean half of the growth is coming from AI or half of the companies in the SP 500, like 250 of them, can be plausibly yoked under the category of these are AI companies now? Half of the market cap of the S&P 500. So Apple might be 8% of the S&P 500, whereas pick a small... CVS might be 0.1%. And so it's not 250 companies.

It's just that half of the overall share of the S&P 500 is directly tied to AI. now. And so I think if you had the counterfactual, that percentage would be a lot lower, and maybe Home Depot would be doing a lot better. And so the composition of the index would be different. Yeah, I remember just last week, I was doing, I was preparing for a talk that I was giving on AI. And I went to, I don't remember if it was Claude or Chachby T, and I just said, hey, could you just quickly pull the 15 stocks with the best year-to-date performance in the SP-500? and then can you color, code them for which of these are memory stocks, which of these are doing things in, you know, non-memory computer chips, which of these are energy companies?

Like, the entire top 15 is AI stocks, and most of it is in the realm of energy or something that has to do with a piece of technology that's being put in a data center. Like, it's unbelievable right now how much revenue and earnings growth is flowing into the proverbial, you know, shovels of, of the gold rush. It's completely dominated the market. And yeah, this goes to your point that I guess, you know, half of market cap growth year to date has just come from AI alone. So I have a thesis that I want to work out with you or sort of, you know, back and forth with you, which is that the high interest rates that we're seeing, the high interest rates that are being reported by the financial times

that are being pushed up by the AI boom that we've discussed. These are going to be a part of our life for a while, I think. Government deficits are not going away anytime soon. The AI boom, I don't think, is going away anytime soon. And I think this is going to have some really important implications for American life and for American politics. I want to start with politics before we get into life.

So as a share of GDP, interest payments on the money, the debt are at an all-time high. But they're basically tied with one other year in American history. And that year is 1991. And you think, huh, okay, so from an interest rate standpoint, we're going back to 1991. What does that mean for politics? Well, in 1991, we had this figure Ross Perrault, who became almost became the most successful third party to Canada American history. I mean, was leading in the polls

against Bush and Clinton in parts of 1992. So the last time that interest rates of the share of GDP were at this level, deficit politics was a major part of the discourse. And now it's basically nowhere. Like even the self-described left populace or, you know, socialist are fundamentally anti-tax.

Abdullah-Said says he wants the tax relief for property-owning seniors. He's not talking about raising taxes on general Americans. You know, we talk about raising taxes on billionaires, but this general idea, the taxes have to go up across the board, that is nowhere to be seen. I think it's one way into this question of how is an age of higher interest rates going to change America and change American politics is. where's our Ross Perot and why isn't he

anywhere close to being seen? So what is your answer to that question? Because I'm not even saying I'm rooting for a Ross Perot necessarily into the picture, but I'm interested in why there doesn't seem to be one on the horizon.

It definitely seems like right now we know Americans are upset about affordability and outsider political figures are what voters seem to want. And we saw this in 2010, 2011, sort of the last time we had economic angst.

And back then it was sort of that post- great recession, people were mad about the economy, and that Tea Party rage and anger that we saw was anti-bailouts, kind of looking for austerity, spending cuts, anti-Obomacare. And I think if you were in that moment, you would have thought the next political figure in the GOP will represent this anti-bailout austerity movement. And I think looking back to use a phrase, that got used a lot over the past 10 years, it was, you should have taken them seriously, but not literally.

And we saw that Donald Trump channeled that anger and rage into a very different. economic agenda. And so maybe when you're in the moment and you see that outsider sort of energy and these emotions looking for something, they don't really know what they want policy-wide. They just know that they're upset and looking for something new. And maybe this sort of socialist rage that we're seeing right now on the left doesn't necessarily represent the actual policy of whatever comes next, but just sort of the emotion of the moment, people looking for something new. Yeah, I feel like there's at least two ways to talk about America's high debt, high interest rate payments, high annual deficits. One way to talk about it is

super histrionic. You say, we're turning into Greece, we're turning into Argentina, we're going to have an inflation crisis, we're going to have a debt crisis. It's coming, it's coming. There's that really sort of breathless, hysterical approach. And I don't agree with most people who talk like that. But there's another approach that says, you know, Americans care about affordability. And one reason why we have upward pressure on prices is because our deficits are so high. One reason

why we have higher interest rates is because our deficits are so high. Politics seems for the moment to be stuck in this model of we're talking, politicians talking about the world as if

interest rates are low and inflation is low. But neither is true anymore. Like interest rates are rising and inflation is high. And no one seems to have any kind of plan for doing anything about that at the federal level. Like, like I said, even the left populace you're talking about cutting taxes.

And I wonder, like, thinking creatively, Connor, like what would a politics of fiscal restraint even look like? What is the sort of thing that you could actually sell to the American people that isn't as austerity-coded as, hi, everybody, I'm going to cut Social Security and raise all of your taxes by five percentage points. Vote for me anyway.

Something I've just started talking about with friends, really in the past week, and I think it's in response to everyone trying to figure out what to do about interest rates being this high, is what if we could find a way to incentivize saving for a number of years? Because at least you could look at the AI buildout

and say, this is a one-time deal. It's big. It's going to last maybe three to five more years. Nobody knows, maybe less. How do we get people to save, and so we can get to the other side of this, defer consumption now, to maybe consume more later. And one idea I was looking at in the UK is they have these, they're called Lifetime Individual Savings Accounts, and it lets people put up to 4,000 pounds a year, which would be, say, $5,000 in the U.S.

into an account, and the government will give you a 25% match, and that account can be used to put a down payment on a home. And so for young people, and there's a lot of talk about how Gen Z is nihilistic and Yolo gambling and all these things, all of a sudden you have a reason for them to save money and not maybe take all these trips to Europe or avocado toast or whatever kind of tired cliche you want to use. Save money now. That will reduce pressure on inflation.

And then on the other side of this AI boom, they'll have down payment money for a house once we're ready to consume more again. And so I think interesting ways of incentivizing people to save for maybe things that right now we have trouble financing would be an interesting path to go down. And just to connect the dots, like, why would that redound in lower interest rates, lower deficits, and more...

Part of the saving would be you are not consuming, you are maybe buying bonds, or just doing anything other than spending money on stuff. And so you take sort of aggregate demand pressure off the economy, let AI do its thing, and then once AI is done, they step back and then household step in again. Yeah, it's interesting. A cheeky way to frame that might be like, how can the U.S. find attractive ways to convince Americans to behave more like the Chinese? And the reason that I put it like that is I was just watching Michael Sembalist do his most recent eye on the market. Just fantastic, fantastic analysis over there on the state of the Chinese economy.

And it's an incredibly multifaceted piece of sort of analytical reporting. But one point he made that really surprised me is that the average Chinese household still saves up to 40% of their disposable income, in part because the Chinese government doesn't have the same level of pension programs and universal health care programs. So you have to save a lot more just in case something really, really bad happens to your family. And so a part of what makes China work, a part of why they are not a consumerist economy, but incredibly oriented toward production and export, is because the government can plow all of this money toward companies in production and export across especially the electricity stack, whether it's solar panel manufacturers or electric car manufacturers, and a lot of those savings are being supplied by the Chinese.

here in the U.S., we don't say 40% of our disposable income on average. I believe the average is a lot closer to 4%. So we save by some accounting 10 times less than the average Chinese family. But I do think there's like an economic case for creating new savings vehicles that both, I think, to your point, take demand out of the economy, thereby reducing inflation, but also free up capital for other investments. So is this different from like the concept? of like baby bonds that sometimes floated around by folks like Cory Booker in the Democratic Party? I think so because it's about, it's sort of perverse that we have 25-year-olds we want to put money into a 401k and an IRA to save for retirement, something that they're not going to really think about

for 35 years. And yet a house down payment, which a lot of people are going to want by their 30s, there's no mechanism to get people to save for that. It's basically just do it. There's no advantage and the government's not helping you with that. And so why not create a new savings vehicle to meet a need that people are going to have much earlier in life than retirement, rather than, again, sort of incentivizing people to consume and then, wait, where am I going to find $40,000 for a down payment? And if you were to save a few thousand dollars a year, starting in your mid-20s with some government benefits with that, then by the time you're 30 or 35, you'd have $20,000, $40,000. Interesting. So like a 401k but for housing, like a $529, but for housing.

Yeah, that's interesting. I can definitely see a politician, getting some policy points from both nerds and some ordinary fans for saying, hey, let's make it easier for young people to buy a house. And oh, by the way, this has the clever sort of ricochet effect of taking money out of the economy in the short term

to encourage you to be able, to encourage saving that allows you to buy a house in a medium term. That is pretty clever. I'm not sure I can, on the spot, think through all of the implications of the government subsidizing the housing economy in just this way,

because fundamentally, if you are the same way, you know, 401K is essentially a subsidy for retirement and 529s or a tax subsidy for education, you would be here, it would be a demand side subsidy for housing effectively. But maybe that's a good thing for us to have. Well, you are time shifting it a bit because it ultimately would be demand, but it's after you've been saving and deferring demand for five or ten years. Let's hold on housing for a bit, because this is another area that I'm really interested in just what happens in an era of permanently higher interest rates. I mean, the first order effect seems like really obvious and not particularly good, that like people who were lucky enough to buy a house between, let's say, 2009 and 2020, got interest rates that were as low as like 2%. But, I mean, what's the 30 year right now for mortgage rates today? I don't know. It's 675.

Yeah, 675. Okay, so it's more than triple. And like when I, you know, when I'm talking to people who don't sort of follow this stuff at a granular level as closely, I say, look, all things equal, especially if you're paying an interest-only mortgage, I mean, just the rate alone triples the cost of paying for a house. Like if anything else in your life tripled that was that significant, like the cost of a car triples over the course of like six years, the cost of, you know, groceries, triples

over the course of six years, that's an affordability catastrophe. But this is what a lot of folks are dealing with if they have a memory of the 2010's interest rate and they're dealing with the interest rates of the 2020s. So with all of the headwinds created by higher interest rates, what's a good way to help us begin to see what the state of housing in America is today? What I would say is that AI has created a really case-shaped housing market, especially this year, where stock market wealth keeps going up. So you're seeing that in San Francisco home prices.

Those are exploding higher now, and it's starting to leak into the East Bay, and I think it's going to spread out from there. And if you just have stock market wealth, because you have a lot of money, you invest in done really well, those submarkets within different cities, New York, Miami, Nashville, those are growing again. So the high end of the housing market, which does not really need much interfaid financing is doing well. And anybody who does need a mortgage who's more impacted by affordability, that's continuing to decline. So you have the high on doing well, entry level is stuck. And that speaks to an environment where the housing market's really acting as if credit is flat. And there's just no possibility for growth there. And it's just really an issue that I think we're all trying to deal with.

Did you know Uber has a range of safety features for riders? Like the Share My Trip feature that lets you send your live location to the people who matter most, your spouse, your kids, your best friend, so they can track your ride and make sure you get where you're going. But the safety doesn't stop there. Uber requires every driver to pass a thorough background check before they can start driving. This consists of a multi-step screening process that checks for impaired driving or criminal offenses, followed by annual background checks each and every year moving forward. Share My Trip and annual driver screenings are just a few of Uber's many safety features that put safety at every turn.

Learn more at uber.com slash safety. annual driving history reruns do not apply in New York City. One thing that always surprises me when I look into it, is that despite the fact that we are in a decade of inflation and an era of high interest rates, home prices in many, many metros and states are actually falling. I mean, if you look at Florida, for example,

in many of these cities, average housing prices are down like double digits year over year, certainly over the last two years. What's a good way for us to get our head around where prices, where housing prices are going up, where they're basically flat, and where in fact housing prices are actually declining year-over-year?

So I would say you look at 2021 and what was going on back then. You had 3% mortgage rates, booming home prices, booming migration to states like Florida and Texas and Boise, places like that. And at the time, you didn't have a lot of construction

being sort of being delivered to the market. And then fast forward four years, and everything reversed. So interest rates went up a lot. The affordability was incredibly poor in places like Austin where home prices boomed the most. Migration ground to a halt as people went back to the office and maybe housing wouldn't let them move from New Jersey to Texas the way they could during the pandemic.

And a lot of supply entered the market, both on the single-family and multifamily side, as builders saw what was going on in housing in the early 2020s and met that demand. So you had this sort of two-tier geographic market where the sort of south and west were seeing a lot of supply and falling prices, but the northeast and Midwest,

which all of a sudden didn't have that out-migration to the south and didn't really build much in the early 2020s, those still saw incredibly tight supply markets, and those continue to grind higher on home prices for 5% a year or something like that. So if someone is looking to move from a market where home prices are flat or rising to a home market that they might be surprised to learn

if prices are falling. Where are the sort of states and metros they should look? It's really the states that built a lot and are currently the weakest. So Austin, by some measures, is the cheap as it's been in a long time, especially on the rental side.

On the rental side, it's probably the cheapest it's been since at least the mid-2010s. So it's interesting how people are so concerned about affordability, and yet renting in Austin has arguably never been a better deal. But in the Northeast and Midwest, and obviously with interest,

rates, that's certainly not the case. So it really just depends on if you're trying to rent or buy and in what part of the country. In the long run, we want to build more houses as the population continues to grow. And one thing I'm concerned about is that there is so much competition for capital right now. Like you've got the government running $2 trillion deficits and bond yields, 30-year bond yields rising to 20-year records. You've got the AI hyperscalers who are raising hundreds of billions of dollars in debt. Meanwhile, if you're building a data center,

maybe you're theoretically competing for construction labor. Maybe you're competing for these AI companies or amassing more natural resources to actually build those AI data centers. And it makes me worried that we're not going to be able to build sufficient housing with this level of interest rate in a way that's going to break affordability in the housing market for a long period of time. Are you concerned about that, or do you think the home prices, home price declines that you're describing

could actually really, really hold for a while in a way that helps to rebalance the housing market, which has obviously been horrifically unbalanced for a long time? Well, if you look at, again, geographically, the Northeast and Midwest never really built, even when times were good. So they had a real structural problem, and I think abundance and the things you've talked about really speak to needs for zoning reform and easier financing, things to unlock supply there. And then in the South and the West, I'm concerned because a lot of money was lost investing in housing over the past five years. If you invested in an office international apartment building in 2021, you might have gotten wiped out. And so now that the rental markets,

at least in these places are starting to find their footing somewhat. It's like, do you really want to go back into Austin apartments? A lot of people had a bad experience doing that, and they might say, I'm done with that, or I'm going to invest in a data center, or I need to be really being convinced that fundamentals have improved for me to invest in these places again. And part of the challenge in financing housing is that investors want to make money. And so they typically want to see rising rents, rising home prices before committing capital. And that obviously counteracts the affordability dynamics that we all want. So it's sort of like if Austin rents need to go up 20% before you'll finance a new apartment building, that's kind of working against the affordability argument.

What's the smart way to think about the degree to which data centers are stealing from the residential market, whether it's because you've got investors looking for higher rates of return and saying AI is going crazy and residential is in a little bit of a rut. So money, that maybe 10 years ago I would have put toward residential. I'm instead going to put toward a data center. Or on the scarce resources side, whether it's just like construction labor. I sometimes hear the claim that AI is eating residential construction. But I don't know how seriously to take it.

So how do you see the interplay there? Certainly the cost of money is a big factor where AI is making it more difficult to build housing. It's interesting if you talk to the developers and builders in housing, their costs have been going down modestly over the past year. But that sort of speaks to, well, housing's been in a recession, so of course, costs tend to go down. But if we want to grow housing construction, say 20%, that's where I think it could get really difficult. Because, sure, if you're in an industry in mild contraction, your costs will go down. But what happens if you need new workers?

And you need to recruit people back to Florida and Texas who have gone to other parts of the country to work on data centers. That's where I think it would get more challenging. So if we want to actually grow housing construction, that's where I think the inflation dynamics would come in. To round out housing, like eventually demand is going to come back. Eventually people will accumulate enough savings or earn enough money that someone who is delaying home buying today because of interest rates will eventually turn 35, 40, 42 and say, screw, I need to buy a house and they're going to do it. And enough people will do that that you'll have a return in demand in the housing market.

But then you'll still have these high interest rates. And so I wonder, like, are we going to be able to meet consumer demand in housing if we remain in this paradigm of higher interest rates the next five to ten years? Right. And a concern with that is that in single-family housing, you've seen a lot of industry consolidation this year. There have been at least three or four publicly traded home builders that have been bought out. And typically what happens in buyouts is you downsize, you consolidate, you cut costs. You're taking capacity out of the market. and making it more difficult for supply to come back when demand returns.

And then in multifamily, it takes two plus years to build an apartment building. So if you don't get people excited about building until at some point next year, if not later, you're not gonna get a meaningful supply response until 2029, 2030. And that it just means if demand comes back on a dime, it's just gonna take a couple years at least

to even get back to normalized levels of construction. Yeah, I mean, my big thesis for this episode is that I think an underrated part of the 2010s, and what we assumed to be a normal part of the 21st century economy in the 2010s, was downstream of low interest rates. It's not just that you had politics that was all about offering as much as possible

while simultaneously promising to cut taxes because it was easy for the government to raise money. I also think that a certain part of what I called like the, you know, millennial urban lifestyle of Uber and all of these apps that the venture capitalists were investing in, that those apps didn't necessarily promise a particularly significant profit, but it didn't matter that they weren't that profitable because what's the alternative? Like, your money isn't doing anything if it's in an account earning like 1% a year when interest rates are low.

And so the like the venture capital identity. The tech identity or the consumer tech identity of the 2010s, I think, was also downstream of interest rates. I think the 2020s are like a completely different world, even if we can't yet see how many things are going to change. I think that the politics that we sort of got ourselves locked into in the 2010s are inevitably going to have to change as interest rates become more and more and more share of GDP and spending.

I do wonder if, like, you know, you have like basically every venture capital, like, every, like, startup, like, plowing into AI because AI seems to be an industry that promises such overwhelming profits to the people who are, who are plowing into it, that, like, no one's going for these, like, consumer tech companies anymore, it seems. And then in housing, I feel like interest rates are just going to reshape the residential market for a long, long time, including when demand comes back. I guess my last question is, like, as I'm beginning to think about, like, the degree to which the next decade is going to be shaped by the fact of, and the duration of higher interest rates and higher cost of money, is there anything that I said that you want to push back on or anything I said that you think might have missed an implication of this new paradigm shift? I think the hopeful interpretation would be that at some point this AI buildout does end one way or another. Either it's as beneficial as people hope it'll be, or it'll be seen as misinvestment. capital misallocation and it will pull back in a major way. And that'll relieve some of the pressure. And then at some point, baby boomers really will sell their houses. And that's probably more of a 2030s story than 2020s. People probably got ahead of their skis on that. But that will

eventually relieve the pressure on a lot of the housing market. And so at some point, maybe it's the earlier mid-2030s, I think we could move into a better, more balanced paradigm. But it's just a question of how painful will this be to get through it over the next two, three, five year? Conner Sen, thank you very much. Thanks, Derek.