Something Has to Give
“Ill fares the land, to hastening ills a prey,
Where wealth accumulates, and men decay.”
— Oliver Goldsmith, The Deserted Village (1770)
I feel like I’ve stepped into the future, or onto a Sci-Fi movie set. Today is my third day in China, where I’m on a tour of technology companies. “Wow” is the word I find myself continuously saying.
Yesterday I toured Xiaomi’s 784,000 square meter car factory. For scale, this is larger than Toyota’s largest auto factory. It was built in two years (can you imagine!) and today produces over 1,000 cars per day, with only 2,000 employees, plus around 1,000 robots. The cars are some of the sexiest, most sophisticated high-end vehicles I’ve ever seen. At half the price of anything comparable from the US, Japan, or Germany. Trust me, when you actually sit in one, you’ll want one.
I’m writing to you while traveling at 180 miles per hour… but I’m not flying. I’m on a train. The open-top, fresh cup of hot coffee on my tray is barely vibrating. I wouldn’t dare try this on an Acela train, let alone a Metro North commuter. Out my window is the first of several nuclear power plants I’m told I’ll see on this trip.
I’ll have more for you on China in the weeks ahead, once I’ve had a chance to experience and digest all of this.
For now, we need to talk about something more urgent, and that’s what is happening in France and why you should care.
On Saturday, October 17, hundreds of thousands of people marched across France. Families struggling with living costs. Students protesting overcrowded classrooms and missing teachers. Workers frustrated by stagnant wages and rising taxes.
The French government is looking boxed into a corner. For decades they have borrowed to keep the peace. In 2023 President Macron tried to increase the retirement age from 62 to 64. This was an important step toward fiscal responsibility. The French responded with massive protests and strikes. Ultimately the retirement age was only increased by nine months. But the fiscal problems didn’t go away. They got deferred.
As the saying goes, debt doesn’t matter until it matters. For France, today it matters.
French 10-year bond yields are now roughly 5.5%, a 24-year high. The move has come quickly. Just last week Juliette Declercq of JDI Research highlighted how France is borrowing at roughly 4.8%, while its economy is growing roughly 2.5%. What she is pointing out, is the status quo is unsustainable, and getting worse.
France, like so many western nations, got addicted to borrowing when rates were low. In a world where very little debt gets paid off, this is now a problem. As sovereign bonds mature, nations are forced to refinance at today’s higher interest rates. The increased cost of servicing their debt leaves even less money for other budget items. Things like social services, defense, and juicy political payouts to appease voters.
In France, markets are pressing for a measure of austerity, while the population wants more, not less.
On the one hand, families are squeezed by costs they can’t keep up with and entitlement programs they’ve come to see as a right. On the other, the government is squeezed by debt it can’t grow out of. Every way out (higher taxes, deeper cuts, more borrowing) infuriates the populace or delays the problem. Neither side has any room left. Something has to give.
Does any of this sound familiar?
Plenty of Americans are frustrated, too. The cost of everything keeps climbing. Housing is out of reach for a generation of first-time buyers. College costs more than ever. Healthcare is obscenely expensive. This is the K-shaped economy. I’ve written about it for months, from a US perspective. But it is not unique to the US.
What happens next in France is important for Americans. It will be like seeing one potential future for our own debt crisis. So far the solution, for France at least, does not look peaceful.
I think we can avoid that fate, but only if we get ahead of the problem now – something politicians are loathe to ever do, especially in an election season. Given our politics, “election season” could last for the next two years.
Two Different Economies
The K shaped economy was a hot topic at Jared Dillian’s DirtCon conference in Nashville two weeks ago.
Over two days, the data and conversations with speakers and attendees kept finding their way to this contradiction: The US economy continues to grow, the stock market has created enormous wealth, yet plenty of Americans are being left out.
If you own a home and have a substantial investment portfolio, the last several years have been very good to you. If you’re trying to buy your first home, raise a family, and accumulate some savings, your experience may be quite different.
My friend Peter Boockvar discussed housing affordability. Existing home sales are running at about 4 million a year, roughly where they were in the mid-1990s, when the country had more than 70 million fewer people.
Meanwhile, home prices are up roughly 50% over the past six years. Add today’s mortgage rates, and the market is, in Peter’s word, frozen.
Peter also made the point that a couple of generations ago, the typical home cost about 3.5 times household income. Today it’s closer to 5 times. Ultra-low mortgage rates let buyers stretch to cover that gap. With rates back to normal, something has to come down, and the most direct route back is lower prices.
And look at who’s buying. The National Association of Realtors reported that the median age of all homebuyers reached 59 in its 2025 survey. First-time buyers had a median age of 40 and accounted for just 21% of transactions.
Lower prices would help younger buyers, but reduce the equity of everyone who already owns a home. If you’re counting on that equity to fund your retirement, you probably don’t want the value of your house to fall. One generation’s nest egg is another generation’s locked door. A political hot potato.
Who Pays?
Households aren’t the only ones squeezed. The US government faces the same trap France does: promises it made, money it borrowed to keep them, and a debt that keeps growing.
Jared showed us a chart at DirtCon breaking down government expenditures.
We’re spending more servicing debt than defending the country. In fiscal 2025, federal net interest costs reached approximately $970 billion, exceeding the $917 billion spent on national defense. This is dangerous territory for a global power. Niall Ferguson points to numerous examples of past super-powers that have crossed the “Ferguson Limit” and lost their global dominance.
The thing is, this is not an insurmountable problem. As I have written, and Jared mentioned at his conference, we don’t necessarily need to balance the budget. We need to reduce the deficit relative to GDP. The rule is simple: keep spending growing slower than the economy. Do that for long enough, and the debt shrinks as a share of what we produce. We can improve the arithmetic without eliminating every deficit.
Social welfare programs make up nearly half of all government spending. Restraining spending growth eventually will require touching sacred cows like Social Security, Medicare, and the other programs Americans have planned their lives around.
The math is becoming less sustainable. No one is going to like our options. Again, a political hot potato.
What Comes Next
The fix is obvious, but the solution is infinitely complicated. It’s easy to say we need to spend less. It gets harder when we start talking about what gets cut. Every solution has opponents. Raise taxes, and households and businesses resist. Keep borrowing, and interest consumes more of the budget. Allow inflation to erode the debt, and people lose purchasing power.
And Americans are in no mood to give anything up.
People don’t experience the economy as a GDP report. They experience it through their paychecks, housing costs, medical bills, and what’s left at the end of the month.
If they’re working and saving but still getting further from buying a home or retiring comfortably, we shouldn’t be surprised when they start looking for different answers.
Many Americans already feel that way. In a New York Times/Siena poll earlier this year, two-thirds of voters said a middle-class lifestyle is now out of reach for most people. More than three-quarters said it’s harder to achieve than it was a generation ago. Only 14% said they feel they’re getting ahead.
Look at what tops the list: education, housing, and health care. Translated: a home, a degree, a family, medical care. The divide runs along the same line as the housing market. Most voters over 65 said they can afford the life they feel they should have. Three-quarters of voters under 30 said they can’t.
These aren’t the views of one party. Voters were split almost evenly on whom to blame. But the frustration is shared.
With the midterms this close, affordability is on the ballot. I don’t know how this election will turn out and I’m not advocating for one party. I’m advocating for collaboration and cooperation.
France is a reminder that economic frustration doesn’t stay economic. It becomes political and physical. We shouldn’t assume we’re immune.
People can live with hard times. What they struggle to live with is the belief that hard times are permanent, or that the system is rigged.
Thanks for reading.
Ed D’Agostino
Partner & COO
Ed D’Agostino
Publisher & COO
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Please DO NOT refer to Social Security as a "welfare" program! I was forced to contribute to SS for 50 years before I retired. It was taken from my paycheck automatically. I paid for this program via a mandatory tax, therefore I deserve the benefits. Welfare programs are for people who have paid little or nothing in taxes and have very little income. Not the same thing! The USA has plenty of real welfare programs, but SS is NOT one of them!
It's worth having a read of Dr Tim Morgan's latest blog, 'Debunking the growth credentials of neoliberalism'.
"...much of the “growth” delivered by the neoliberal policy revolution most closely associated with Margaret Thatcher and Ronald Reagan was the purely cosmetic effect of statistical distortion. What really happened in the years after 1980 was that the West was de-industrialised, and simultaneously loaded with ultimately unsustainable debt, processes that were falsely validated by the vagaries of GDP."
Tim's model of C-GDP - clean GDP or reported GDP stripped of the 'credit effect' clearly shows why people are marching in the streets; in France today, tomorrow...?
"To put this in context, we need to recall that global population numbers increased by 25% between 2005 and 2025. On the basis of reported GDP, the World’s average person was 56% better off last year than he or she had been twenty years previously. On the C-GDP basis, however, this average person’s betterment falls from 56% to just 6%, leaving him or her woefully ill-equipped to carry his or her greatly expanded share of debts and quasi-debts."
Remember the origins of GDP: GDP emerged in the 1930s as a tool for policymakers trying to quantify the national economy during the Great Depression. Credited with formalising GDP was the Russian-born American mathematician and economist Simon Kuznets. But he was explicit about its limitations, stating, “The welfare of a nation can scarcely be inferred from a measurement of national income.”
We should also remember that France gave us the cautionary example of the dangers of using. "Let them eat cake" as the response to people's concerns.
Can’t wait for TRAITOR Trump to lose the mid-terms who supports an Ex-KGB operative who is President of our enemy. Makes me sick and disgusted! Russia kills innocent Ukrainians and started the war, and this IDIOT blames Ukraine. Promised gas at 2 bucks, lower inflation and never forever wars. Even said day 1 he could end the Ukraine/Russia war….JERK AND LIAR! Oh and don’t forget the Epstein files he PROMISED to release. So disappointed and pissed off!!!!
What also needs to be determined and discussed is what a middle income lifestyle has, is and should entail. What we have now in my declining years for even those on the lower end of the economic spectrum is way more comfortable than what my lower middle class upbringing provided. We have all become spoiled, and much like the frog in the pot, we have failed to realize that the water that was warm and cozy at first is now boiling. We are all going to have to make sacrifices and that will only happen when we realize how blessed we truly are right now. My son is in college now at my former university and the difference in cost, even though it is half a century ago, is ridiculous. And do we really need a drug commercial every five minutes on TV telling us how wonderful life would be if only we took it? And as for housing, just because one's parents raised you in a home as big as it was, does not mean you are entitled to the same things as your starter home. Chances are their starter home was not what you were raised in. Have a great day and share a smile with a stranger and pray for both our country and, at the moment, France, if not all of the EU. They are a cautionary tale for us that should not go unappreciated.
The easiest 'fix' (only a partial fix, but a good start) for the US would be to go to single-payer health care. The losers would be insurance companies and big medical providers. The winners would be everyone else.
Informative article. One would hope that our politicians are as shaken as the French about the violent riots there.
But yet again I haven't read or heard any article or voice that warns us that we are in exactly the same position as France is now, if we continue on our present irresponsible path. You said it:"Something has to give". If only our politicians on both sides would react constructively to that!
With Trump having done as much as he can, to destroy the Republican party, we are looking at more Democrats being elected Nov. Democrats will attempt to satisfy their constituents, who mostly get more from government than they pay in taxes to pay for what they receive.That means Democrat politicians will attempt to raise taxes, which few of their constituents pay, on higher incomes. In other words, punish success and reward failure.
great article, didn't quite understand the beginning quote, but content was interesting and to the point. compromise is the answer, virtue is a way for collaboration to work. Greed, selfishness, laziness, and lack of perspective are sins which reward us with thoughts of failure and lost opportunity. the Universe, constantly changing, always is open to improvement, and yet, someone need make the effort. Bringing attention to these matters is a beginning, change is in the Air as you rightfully suggest, how smart or stupid are our Politicians and Populace will determine the outcome.
So far, not a very good record for the above reasons. Can we find leaders both wise and acting as humanitarians, humble in their Quest to foster a more mature stewardship of our planet Earth and all it's inhabitants and resources. good Luck, mankind, in today's picture we need a lot!
We need a radical change in public education: Manual arts such as preparation and training in construction, welding, plumbing, electrical, with a strong push to think like an entrepreneur, owner, self responsible person. More of the budget for Ed pushed toward work/entrepreneurial training institutions. I retired with 25 years in PubEd and I know it is what will radically change the mass attitude toward education. Currently, much of education has no target consumer, so to speak and the truants and low achievers are such because no one is making a place for their practical needs and desires. Too many people are receiving social service dollars because they are bored to distraction. Evidence: Job Corps.
We need to eliminate all fraud in SSA, medicaid and medicare as well as government procurement along with constraining spending to below GDP. Connie Mack once proposed the penny plan. Each government department had to reduce their budget by 1% each year. There are very few organizations that are unable to reduce their budgets by 1% while mainting their level of service.