State of the Economy

On Thursday, October 29, the most recent GDP numbers came out, and the economy grew at a 3.4% annual rate in the third quarter. That is well above what the forecasters had you expecting — the Congressional Budget Office had penciled in around 2.2%, and the blue-chip consensus was about 2.4%. In other words, actual growth came in more than 50% above the CBO's 2.2% estimate — and up from 2.2% in the second quarter. At 4% we'd call it a booming economy, and 3.4% is not far off. The inflation gauge inside the report cooled too — the price index for gross domestic purchases rose 3.0%, down from 5.6%.

So why were the estimates so low?

Because strong growth doesn't serve the agenda. A booming economy is inconvenient for a certain segment of people whose whole pitch depends on things going badly — the ones trying to gain control. Good news gets buried or lowballed; bad news gets amplified.

The war on data centers

The clearest example right now is the way the AI data-center buildout is being vilified. The scare tactics are everywhere: higher electric bills for the towns nearby, all the water needed to cool the things, nothing but negative impacts on the surrounding communities. Most of it is misleading at best.

Here's what gets left out: we have already done exactly this, and nobody screamed about it.

If you don't know how the internet actually works, let me explain. The internet is powered by data centers. Every website you visit — your online banking, Amazon, Netflix, YouTube, Hulu, TikTok — lives in a data center somewhere, and there are regional ones spread out near you to make it all fast.

If you're old enough, you remember when a video had to buffer. You'd click play, and the little wheel just spun and spun while it downloaded enough content to get ahead of the lag. It was maddening. Today you almost never hit that, and the reason is the same principle FedEx was built on. Fred Smith's idea — famously the subject of a paper he wrote in college — was that a handful of regional hubs could get a package to anyone in the country within 24 hours. Netflix, YouTube and TikTok run on the same model: data centers spread across the country so the video has a short trip to your screen. That's why your stream doesn't stall every ten minutes anymore.

Those data centers weren't vilified when the internet was built out. So why now?

Every big build has tradeoffs

The AI buildout is going to happen. It will create high-paying jobs in the communities it lands in for decades to come. Are there legitimate concerns about electricity, cooling, and local impact? Of course. But there are concerns like that with every piece of infrastructure we have ever built.

Go back to the railroads — buying up rights of way from farmers and ranchers to lay track from New York to LA. Then the highways that let us crisscross the country and move goods cheaply to your door. Every one of those projects had winners and losers. Some towns dried up because the highway came through with no off-ramp. Others boomed because they finally got one. Same story as the trails blazed across the country before that — where it was easy to travel is where a lot of America's biggest cities ended up.

The same concerns apply to the chip factories now being built at breakneck speed so we stop depending on foreign-made semiconductors. And to the first new aluminum smelters in 50 years, the first new gas refinery in 50 years, the new steel plants, the small modular nuclear plants, and the decades-old nuclear plants being brought back online. All of those create jobs — so where is the outrage about them? AI gets singled out because the story is that it's going to take your job and kill us all. It isn't. It's just the next round of something that has happened over and over.

Technology has always displaced workers

The Xerox machine wiped out the steno pools — rooms full of people retyping a document a hundred times to make a hundred copies. (There was the mimeograph before that; if you don't know what that is, Google it.) Excel put thousands of accountants who added up columns by hand out of that particular job. Computers have been displacing people for decades.

They have also created an enormous number of jobs — building the machines, programming them, writing the software and the code. I work in this business, and the server closets and IT rooms packed into practically every company in America today are full of hardware, cable, and fiber that didn't exist a generation ago. Look at your own house: modems, routers, Wi-Fi, a dozen devices that weren't there before. All of it created hundreds of thousands, if not millions, of jobs.

Jobs come and go. Industries come and go. The responsibility to carry a skill set the market actually wants — one that funds the life you want to live — is yours. That is not the economy's job. That is each of our jobs as adults.

What's actually driving the 3.4%

A lot of that growth is new investment, and a big share of it traces back to the current administration's policies. The "Big Beautiful Bill" is responsible for a large chunk of it.

One thing it did was allow 100% expensing of plant and equipment in the same year you spend the money. Build a $3 billion plant this year and you can write the full $3 billion off your company's P&L this year. Traditionally you had to spread that deduction over the 20, 30 or more years of the building's life — you laid out the cash now and only clawed back the tax benefit slowly, over decades. Accelerating all of it into year one is a massive incentive, and it is driving a wave of investment in plants and technology.

Then there is the philosophy: if you want to sell it here, build it here. Pair that with tariffs on countries that spent years hollowing out American industry by offshoring and dumping, and the "build it here" approach has pulled in — per the White House's own tally — more than $11 trillion in pledged investment:

• new car plants
• new aluminum plants
• new steel plants
• gas refineries
• new chip-fabrication plants
• new pharmaceutical production facilities

All in the United States, all requiring American workers to build them and then to run them. Those are traditionally good-paying, blue-collar, middle-class jobs — the kind that have been gutted over the last 50 years by offshoring to Mexico, Canada and China.

Why the middle class matters

All of that was done in the name of cheaper flat-screen TVs and fatter CEO bonuses — lower costs, higher profits, bigger stock options — paid for by hollowing out the middle class. And a society cannot hold together if its middle class isn't doing well. The people at the top stay rich no matter what the economy does. It is the middle class that pays the price, and the bulk of the income taxes too. When their jobs leave and their incomes fall, the gap between the haves and the have-nots widens — and when that gap gets big enough, you get unrest, crime, and worse, because people can't feed their families the way they once could.

Go back to the '50s and '60s: one working father on a blue-collar salary, a stay-at-home mom, a house, a couple of cars, kids, maybe even a lake house. Today two parents working can barely manage it. That is a whole separate piece on the cost of things — but it comes back to the same root cause we'll get to below.

The blue-collar boom

So the AI buildout is going to happen, period. The only real questions are where it lands, who builds it, and who works in it.

Start with just the construction. These are not things you throw up overnight. If you have never seen an oil-and-gas refinery, Google a picture — it looks like a bowl of spaghetti dumped on the ground, a maze of pipe running everywhere. You don't build that in a year; it is three, four, five years. Same with steel mills and aluminum smelters. Every one of them is years of high-paying construction work.

And the people to do it don't exist in the numbers we need. Larry Fink — CEO of BlackRock, one of the largest money managers in the world — has said the companies BlackRock is invested in can't find the electricians they need and end up poaching them from each other. Mike Rowe, of Dirty Jobs, puts numbers on it: the country is short something like 300,000 electricians, and tradespeople making $250,000 a year are getting poached twice in 18 months. The welder shortage runs into the hundreds of thousands on top of that. Demand for skilled blue-collar labor over the next decade is going through the roof.

The debt, and the only three ways out

Put $11 trillion in pledged investment next to the size of the economy. U.S. GDP — the dollar value of everything the country produces in a year — runs around $32 trillion. So these pledges are on the order of a third of a full year's output. That is enormous.

There is also a lot made of the national debt, now north of $40 trillion. There are really only three ways a government ever gets out from under debt:

• Default on it. Plenty of third-world countries do this every decade or so. The United States isn't going to.
• Inflate it away — keep printing money and pay the debt back with cheaper and cheaper dollars. The more dollars they print, the less each one is worth, which is exactly why prices go up.
• Grow out of it — expand the economy faster than the debt, so the debt shrinks relative to everything you produce. That is what all this investment and reshoring is really aimed at.

Inflation is the government printing money

Which brings me to the thing almost everyone gets wrong.

Inflation gets blamed on everything under the sun. It is not prices rising because a supply chain got snarled. It is not any of the reasons they give. I once heard Janet Yellen — Treasury Secretary at the time — say inflation was being caused by consumers buying too much stuff. Or that it happens when the economy "overheats," meaning it grows too fast, meaning American business is too successful. Which is laughable.

The only cause of inflation is the government printing money. The more they print, the less each existing dollar is worth. Everything in the country is priced in dollars — so are gold and silver — and it is not that the stuff is worth more. It is that the dollar it takes to buy the stuff is worth less, so it takes more of them.

The way I explain it to my kids: there is a difference between price and value. Take a three-bedroom, three-bath house. Its value — its utility — is that it can shelter a family of six or seven: a couple of kids to a room, mom and dad in another. Housing prices in America more than doubled from 2009 to 2022 — the median sale price went from about $208,000 to roughly $443,000. And that is just the recent stretch. Go all the way back to 1971, when the dollar's last tie to gold was cut, and the median home has gone from around $24,000 to $443,000 — up roughly eighteenfold — while the purchasing power of that same dollar has fallen by about 87%. But the value of the house hasn't changed one bit. It is still three bedrooms and three baths, sheltering the same number of people.

So why did the price climb like that? Not because the house became more useful. Because the dollar you buy it with lost value. Print dollars long enough and their purchasing power collapses — the dollar has lost something like 85 to 90% of its purchasing power over the last half-century — and everything priced in dollars "goes up," when really the dollar is going down.

That is the only cause of inflation. Full stop.

Supply and demand isn't inflation

Everything else they call inflation is just supply and demand. If China suddenly stopped shipping us semiconductors, the price of anything that needs a chip would spike, because demand would outrun supply. That is Econ 101 — prices rise when there is more demand than supply. But that is a temporary dislocation, the free market finding equilibrium. It is not inflation.

That is the whole point of building chip factories here: so we are not dependent on an adversary for something that is in everything now. Look around you — your computer, your phone, your microwave, your oven, your refrigerator, your TV, your car with its hundreds of chips. Make them here and we blunt the supply shocks that send prices temporarily through the roof.

Three kinds of spending

I'll leave you with something a very smart man explained to me years ago. There are three kinds of purchases:

• You spend your money on something for yourself. You care about both the cost and the quality.
• You spend your money on something for someone else — a birthday or Christmas gift. Now you care about the cost, but not so much the quality. We have all grabbed the $20 sweater off the clearance rack for Uncle Fred because we needed something to wrap.
• You spend someone else's money on something for someone else. Now you care about neither the cost nor the quality.

That third one is, by definition, every dollar the government spends. It isn't their money — the only money the government has is what it takes from citizens in taxes — and they are spending it on things that aren't for them. No wonder it is the least efficient way to deploy capital and the most prone to fraud and waste. Just read the news. In my own opinion, a good third to half of government spending is either corrupt, aimed at something that isn't needed, or going to something the government shouldn't be doing in the first place.