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France has the highest government spending to GDP of the major developed countries. But total spending to GDP is just one measure of the government's impact on the economy, which, at increasingly high levels, is negative. It's important to look at all three: government spending to GDP, the deficit to GDP, and total debt to GDP. Spending tells you the raw size of government outlays. The deficit shows whether that spending is funded by taxes or borrowing. Total debt tells you the accumulated deficits. All three follow the same general finding in economics. A little is necessary. A little more is generally good. But there's a point where the benefits level off. Eventually, the improvement in the standard of living flatlines and then turns negative. Taken together, France is the worst of the developed countries, but the United States is not far behind. The US actually runs a bigger deficit. Of course, one important difference is the reserve currency, but this speaks more to capacity vs negative impact of increasing government size. Looking at all three also exposes the inflation fallacy. Inflation can reduce debt to GDP, but with most government spending indexed to inflation, the deficit and spending to GDP don't improve, and those carry consequences too. As the deficit gets bigger, government borrowing crowds out other borrowers. Many point to AI funding getting crowded out, but I think the impact is downstream. If AI is productive and generates returns, it will keep getting funded, and other sectors get crowded out instead. Housing is the most obvious example. Housing investment has been weak for 4 years, and the recent rise in interest rates will likely make that worse. France is currently the most extreme case, but many developed nations are in a similar position, with a level of government size and command-and-control effects on the economy that negatively impact the standard of living.

France has the highest government spending to GDP of the major developed countries. But total spending to GDP is just one measure of government's impact on the economy, which at increasingly high levels is negative. It's important to look at all three: government spending to GDP, the deficit to GDP, and total debt to GDP. Spending tells you the raw size of government outlays. The deficit tells you whether that spending is funded by taxes or borrowed. Total debt tells you the accumulated deficits. All three follow the same general finding in economics. A little is necessary. A little more is generally good. But there's a point where the benefits level off. Eventually, the improvement in the standard of living flatlines and then turns negative. Measured on all three together, France is the worst of the developed countries, but the United States is not far behind. The US actually runs a bigger deficit. Of course, one important difference is the reserve currency, but this speaks more to capacity vs negative impact of increasing government size. Looking at all three also exposes the inflation fallacy. Inflation can reduce debt to GDP, but with most government spending indexed to inflation, the deficit and spending to GDP don't improve, and those carry consequences too. As the deficit gets bigger, government borrowing crowds out other borrowers. Many point to AI funding getting crowded out, but I think the impact is downstream. If AI is productive and generates returns, it will keep getting funded, and other sectors get crowded out instead. Housing is the most obvious example. Housing investment has been weak for 4 years, and the recent rise in interest rates will likely make that worse. France is currently the most extreme case, but many developed nations are in a similar position, with a level of government size and command and control effects on the economy that negatively impact the standard of living.

AI productivity gains are showing up, but only in ~15% of jobs. The three heaviest AI adopters (information, professional services, finance) went from a 2.2% productivity trend to 5.0% since 2022. The rest of the economy: 0.9% to 1.4%.

Builders have 279,000 homes approved to build but haven't started. That's 2.37 months of permits, near the highest in 25+ years. Builders don't sit on approvals when demand is strong. Housing is the weakest part of the economy and the path to a downturn, not AI.

The number of apartment units under construction still outpaces single-family units under construction.

Layoffs Are Near Record Lows. So Why Is It So Hard to Find a Job? youtu.be/ddqBWIKcQ4c?si=TTA5…

Residential construction remains depressed. But housing starts normally decline more sharply ahead of recessionary periods than they have today.