The Week: Paris under Curfew, Trump’s Gift to Putin, and a Looming Data Center Bubble

George Hahn connects the dots across the week's biggest stories: why France’s protests and its bond market are fueling each other, how Trump and Elon Musk betrayed Ukraine, and what the Railroad Panic of 1873 reveals about the money pouring into data centers. We’d love your feedback as we build this show! Let us know what you think: [email protected]. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

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• 1:47George Hahn?

  Welcome to the week from Prof G Media, where we break down what mattered and what it all means. I'm George Hahn and it's Friday, October 23rd. Today, a week of unrest in France. Then, the White House backs off on Russia. And finally, what a 19th-century railroad crash can tell us about the AI boom. Let's get into it. What began as student protests over school conditions has grown into a broader movement over living costs and, in some cities, violent unrest.

• 2:30George Hahn?

  As a result, parts of Paris and several other French cities are under overnight curfews this week. Around 550,000 people marched across France on Saturday and police arrested nearly 2,400 people over the weekend. On Tuesday's Raging Moderates, Jessica Tarlov walked us through where it started and where it could lead.

• 2:53Jessica Tarlov?

  If you've listened to Macron's address, you can see the pain and anguish at monuments and French cities being destroyed by looters. And you're talking about hundreds of thousands of people that are out doing this. He has linked it back to the rising cost of living, especially fuel prices, driven by the US-Iran war, which makes clear that France did not participate, but that they are "suffering the consequences" now. But it's important to look at the original impetus, which were the conditions in these schools. And that they don't have supplies, enough teachers, really an unfair system to give

• 3:37Jessica Tarlov?

  to kids. And that was the beginning of this. And now it has snowballed into basically any grievance that you might have against the state. And then, I assume, more bad actors that have piled on and are doing things like looting Chanel's and Celine's stores up and down Paris. But when you see the meme come to life of the French couple sitting there and having a coffee and smoking a cigarette as it burns around them, you know that you're in big trouble. And this has very real political implications. So, they have an election in about six months.

• 4:14Jessica Tarlov?

  Marine Le Pen, who runs every time, far-right candidate, getting 37%, 38% of the vote. And then, there's a hard-left rival, Jean-Luc Mélenchon, which, if I butchered that, I apologize. No bueno. That was a joke, I know. No bueno is not French. But anyway, it's basically those two candidates, with Le Pen holding a bit of an edge there, and there is nobody in the middle. And we see this bubbling up in countries all over the world, where it feels like the extremes are the ones getting all the oxygen. And the raging moderates are sitting there saying, like, "Well, who represents us in all of this?"

• 4:58Jessica Tarlov?

  But I don't know how they're going to get it under control.

• 5:02George Hahn?

  Markets are rattled, too. France's 10-year yield hit 4.9% on Monday, and its debt is expected to reach 122% of GDP next year. On Wednesday's Prof G Markets, Ed asked Terry Wiseman, global FX and rates strategist at Macquarie, what the red flags are.

• 5:24Speaker 03

  Well, one red flag, and I think you just alluded to it, is that there is potentially a connection between what is happening in the bond market and what is happening on the streets. And that makes a lot of sense. If you think about it, the fact that bond yields have been rising is an indication that the market is less trustful of France's ability to rein in its deficits and get to a situation where their debt is sustainable. But of course, when the market puts these kind of pressures on a country, what the market is effectively saying is they would like that country to reduce spending or raise taxes. Certainly to reduce spending, because France, in the case of France at least, the amount of spending that comes from the government relative to GDP is among the highest in the

• 6:08Speaker 03

  eurozone, certainly in the EU, and within the broader developed market countries. Now, if that is the pressure that the market is applying to the French state, to the French government, the people effectively know about this pressure. It may not be because they watch the market, but they certainly know because politicians have been talking about reducing spending. And that calls them out into the street. The problem is that when they're called out into the street, what they're effectively demanding, to some extent, is more spending. And of course, when they go out into the streets, it hurts GDP. There are quite a few French businesses that are saying that they're going to suffer this month in terms of their revenues and their sales because of this. But of course, when GDP goes down and suffers, tax revenue comes down as well.

• 6:52Speaker 03

  So it puts even more pressure on the bond market effectively, because it detracts from France's and the French state's ability to honor its debt obligations. You need growth to be able to pay down your debt. So there's some people have discussed this in the context of a doom loop, effectively a loop between what the bond market is doing and what the protesters are doing in the street, and one that can only be resolved if the state takes a strong position, one way or the other, i.e. with respect to finding its way to austerity or finding its way to some sort of political dissolution of France's ties to the European Union and the eurozone. Because effectively, those are the constraints that France has right now, is the constraints

• 7:36Speaker 03

  on its spending that are imposed by the rules of the Growth and Stability Pact and the Mastrer Treaty and its obligations to the EU.

• 7:46George Hahn?

  France's government spending equals about 57% of its GDP, the highest share in the OECD. Pensions make up a quarter of that. For Scott, the unrest points to a broader question. What happens when a country protects older generations while leaving young people behind?

• 8:09Speaker 00

  France is what happens when a country makes two promises it can't keep at once, right? To its old people that they'll never have to sacrifice, and to immigrants that they'll be French. The reality is, it's kept the first promise and it's broken the second. And young people are the agent for expressing the dissatisfaction here. And I'm just trying to draw a lesson for America. And the way I see it is, it's the biggest threat to social stability isn't immigration or aging. It's a system that rewards people for what they already have and punishes those who are just starting out. Again, the largest transfer in the history of the world, it happens every year, and

• 8:54Speaker 00

  that is young people transfer and working-age people transfer one and a half trillion dollars to the wealthiest generation in the history of the planet in the form of social security. I'm going to continue to touch this third rail over and over and over. We are headed towards France if we don't start acting more responsibly and start investing, for example, more money in kids than we... We're spending more money on ICE right now than we're spending on kids. Kids don't vote, and they're paying the price for it.

• 9:21George Hahn?

  Elsewhere in Europe, the war in Ukraine took a turn this week. President Trump signed an executive order waiving new sanctions and tariffs on Russia two days before they were set to take effect under a law he signed himself. Vladimir Putin has also proposed a summit next month, with Trump and Xi Jinping to discuss ending the war. On Monday's Raging Moderates, Jess called it "a betrayal of Ukraine."

• 9:50Jessica Tarlov?

  He is doing absolutely everything that Vladimir Putin wants. I am sure that he's sitting there in Moscow thinking, like, "I didn't realize I could get this lucky at this point." And the narrative around the oil issues being about Ukraine and just ignoring what's going on in the Middle East, like, the Strait of Hormuz is the problem. Zelensky is not at this point, and they have admitted as much. I'm just horrified by all of this. The idea that Trump might consider, I mean, it's Putin's proposal. We'll see if he says yes, but that he should stand shoulder to shoulder with Putin and Xi to talk about Ukraine and you don't invite Zelensky to come or even a representative

• 10:35Jessica Tarlov?

  of Zelensky's government. Like, if you hate the guy, and Zelensky has shown himself to be someone with an enormous amount of flexibility about this, call elections. When we can guarantee that people can get to the polls, that's fine. He's not attached to being president in the same way that someone like Donald Trump is, or certainly Putin, Xi, Netanyahu, who we also have to talk about. Like, this feels like really getting to criminal stuff in the level of betrayal. Big op-eds, Wall Street Journal editorial board, "To Russia with Love," signed Donald, and they write, "When the election is over, there needs to be a bipartisan reckoning for Mr. Trump's budding alliance with the Kremlin against Ukraine, Europe, and American interests."

• 11:19Jessica Tarlov?

  Andy McCarthy with similar sentiment in the National Review. I get it that these are like normie Republicans and not whatever this MAGA wing actually represents, but this is harrowing stuff, what we're doing to Ukraine right now.

• 11:34George Hahn?

  Last week, Ukraine's military lost speed on Starshield, the military version of Starlink, without warning. The Telegraph reported that Elon Musk pitched the slowdown to Trump, and one source said Trump agreed. Both men have denied responsibility. Scott called them both out.

• 11:56Speaker 00

  I think Donald Trump, the president, and Elon Musk are traitors to the West. And I really do hope there's a reckoning here. When we think about how many people have risked or given their lives trying to ensure the safety of Europe, or how many Americans have died at the hands of people who've been armed by Russia. If you think about the majority of cyber attacks come from one place, Russia. If you look at the fact that Tucker Carlson's engagement declined 72% the day after the Yandex server farms were bombed in Russia, we are now allies with arguably the biggest threat to democracy globally.

• 12:41Speaker 00

  We've decided to ally with them. And it's also, it's not, actually, that's the wrong word. President Trump has decided to ally with Russia. The American people are still very much on the side of Ukraine. And we have minority rule right now, where our president, under the cover of darkness, is coordinating or conspiring with Elon Musk to turn off battlefield technology that results in the deaths of Ukrainian citizens. If they can't stay on the offensive here, they go on the defense, and Russia's going to continue to take out civilian infrastructure and bomb civilian targets. This is, what the Ukrainian army here has done is basically, they are NATO.

• 13:23Speaker 00

  They are the ones protecting the West right now. And for Trump and Musk to ally with Russia and not give Ukraine any warning that they're turning off Starshield and Starlink, and then them pointing at each other like the cowards they are, "Oh, it's the government, it's President Trump. Look at him, talk to him." Oh, I have no idea what happened.

• 13:46George Hahn?

  We'll be right back.

• 13:53Speaker 00

  Support for the show comes from USA Facts. I've interviewed countless politicians, and if there's one thing we all find disconcerting is when they butcher the facts with some biased half-truth. Give us a break already. So when I had the chance to debate conservative podcaster Ben Shapiro, our natural response was bring it on. Why? Because it was sponsored by USA Facts, and each debate segment started with a presentation of government data and facts. Employment, government spending, income data, housing, and more. The topic? The American dream. Is it still within reach? We argued, we found some common ground, we actually debated, and there were no personal attacks. Watch the full debate on the USA Facts YouTube channel. We think you'll find it unlike any other debate.

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• 15:50George Hahn?

  Welcome back. We talk a lot about AI on this show and about the hundreds of billions of dollars going into data centers to power it. Nobody can say for sure where it's headed, but one analogy that keeps coming up might help. The railroad boom of the 1800s. Pulitzer Prize-winning financial historian Liaket Ahmed has a new book about the railroad crash of 1873 and the depression that followed. Microsoft CEO Satya Nadella called it "the book to read right now." On last Friday's Prof G Markets episode, Ed asked Ahmed whether this comparison really holds up.

• 16:33Speaker 06

  Obviously, we're seeing a massive data center build-out today. I think that the data center would be the analogy to the railroads. Yes. Do you think that this is an apt comparison? We'll dig into it more specifically, but on a general level, do you think that this comparison makes sense? Yes, very much so. Because the key risk in the data center boom is overbuilding.

• 16:57Speaker 06

  And overbuilding financed by debt.

• 17:02Speaker 06

  Until recently, the bulk of the money going into data center construction was from hyperscalers, and it was being financed out of earnings. But the scale of the construction boom in data centers has been so large that the resources of the large tech companies has not been enough, and they've turned to financing through debt. And what makes it particularly worrying is that much of this debt is quite opaque. We don't actually know how much debt there is.

• 17:43Speaker 06

  At the center is a company like Nvidia, which is essentially lending to its customers. It doesn't call it lending, but it is a form of lending. And so we don't really know how much of the construction is being financed by debt. So that's the first sort of comparison. The second is by 1873, it is clear that there has been overbuilding.

• 18:19Speaker 06

  And it shows up in the form of excess capacity on railroad lines and erosion in profitability of railroad lines. So by the end of 1872, only a quarter of the railroad companies are able to pay dividends.

• 18:44Speaker 06

  And I suppose the analogy today is, you know, is all of this data center construction leading to a fall in the prices of their output, which I suppose is tokens, and token prices are going down. So that's the second analogy. And then the third is because of a collapse in the stock markets across Europe, not related to data centers, but just related to a stock market bubble.

• 19:23Speaker 06

  It leads to financing problems, so for railroad companies, that they begin to have to pay up to issue bonds. And until then, they've been borrowing at 5%, 6%. Now that spikes up to 9%. So the combination of overbuilding, erosion of profitability, and sort of constraints in financing show up at the end of 1872, beginning of 1873. And the question we have to ask ourselves is, are those three things appearing today?

• 20:04Speaker 06

  Why was there such, was this pervasive problem of overbuilding when it came to railroads? Why was it that the railroad companies couldn't accurately assess the demand for this new technology that was actually transformative and did change the world for the better? But still, we say that they overbuilt because they were, you know, they didn't have a business model that made sense, and they had to look back and say, okay, we made a mistake here. So why was it that they landed in that position of overbuilding?

• 20:41Speaker 06

  A few months ago, they asked Satya Nadella, who's the CEO of Microsoft, you know, "How are you going to prevent overbuilding?" And very kindly, he referenced my book and said, you know, "Everyone's reading this book, and what we're going to do is be very careful." And I think he got the wrong end of the stick. Because each individual railroad company, in the same way that each individual tech company is trying to be careful.

• 21:20Speaker 06

  It's the collectivity of their decisions that leads to overbuilding. Because what it would require to prevent overbuilding, it would require some sort of collective action. And you have something of a prisoner's dilemma here, that each one thinks, I'm going to be the one to get on top. So I would be giving up market share if I slowed down my construction. But the problem is, you add all of their individual decisions up, and you end up with an overbuilding boom. Is there a solution to this?

• 22:05Speaker 06

  Probably not. I mean, I think it's just inherent in the competitive situation, that everyone wants to be one of the two or three companies that comes out on top.

• 22:17George Hahn?

  That concern surfaced again this week. Business Insider reported that Amazon is buying Nvidia server racks faster than it can install them, and some are sitting in a warehouse. Last month, Ed Zitron, author of the newsletter Where's Your Ed At?, and resident AI bear, estimated that roughly half of AI chip sales by dollar value are sitting unused. On Wednesday's Prof G Markets, he and Ed Elson debated what's behind it.

• 22:48Speaker 06

  I want to know what the real truth is. And I mean, I think that I can see a world in which there was a gold rush. I mean, this story to me is quite indicative of what we saw with like the railroads as an example, and we just had Leak get Ahmed on to explain the similarities. Where, to me, I'm less jumping to Jensen manufactured this, but we know he had a lot of power. There was a chip rush that was akin to a gold rush. Everyone wanted to buy chips. Suddenly, everyone's trying to buy them. And to me, this is an example of, oh, yeah, we overspent. This is sort of the physical example of, we put too many railroad tracks on the ground, and now we're not using them.

• 23:32Speaker 06

  Now they're sitting in a warehouse, because we didn't fully figure out how to match our timelines. And let me just be explicit about what I'm saying. I think you were right for the most part. I think, yeah, he got a ton of orders that backed up. Like, that's one, like, there was a gold rush, it happened. I now think with this early rack receipt program, he's taking advantage of that, because this whole thing about scarcity just does not make sense to me. What scarcity? When you've got Microsoft, Google, Amazon, Meta, all of these companies with hundreds of billions of dollars of GPUs they can't install, how is there scarcity? Scarcity, like, there's clearly enough of them, there's clearly so many of them, you can't install them. What's making the scarcity happen? Or indeed, maybe the question is, what would make these scarce?

• 24:16Speaker 06

  And it seems what would make them scarce was not taking delivery. We may never know, unless someone gets actual reporting around that. And Eugene Kim did a magnificent job with this. Eugene has been around forever. He should get his rose over this one. He really kicked ass on this report. But I think, even if you don't agree with me on the challenge stuffing, this is a sign that hyperscalers are overburdened with these assets. And we are so close to this thing bursting, and at some point, investors are going to turn on them and start demanding they pull back on capex. I mean, just aviably, because if you're an investor in a hyperscaler right now, and you're saying, okay, I invest, and I want the value of my equity to go up, because you're buying these GPUs, and you hear these things aren't even being installed, the natural

• 25:01Speaker 06

  question is, why? Why are you still doing this? Oh, you claim there's demand, why don't stop buying them until you've taken your fill? Is there a reason you can't? Well, at least until the data centers are able to be operational.

• 25:15George Hahn?

  While investors debate whether the spending will pay off, Ethan Moloch argues we're still underestimating what AI can really do. The Wharton professor joined Scott on Thursday to discuss his new book, Coexistence: The Next Phase of AI and How to Navigate What Comes Next.

• 25:35Speaker 03

  So I think the first thing I would say overall to everybody is, you're underestimating what these systems could do. We don't need any future development for large-scale change. Underestimating. But there is what these systems could do today, and what they will be able to do in the near future, in terms of the quality and amount of work. That will take time to absorb, but I worry that the investors, like, a lot of people in business and the investing world are focusing on AI as an investment, and not thinking enough about what changes or transforms as a result of ubiquitous intelligence at low cost everywhere. And I think that the transformational opportunities are far beyond the companies themselves. So I don't know whether anthropic rises or falls, I don't know whether the debt financing model for, you know, for data centers is problematic or not.

• 26:19Speaker 03

  Like, I can't tell you the answer to that question. But AI is not going away in either case, right? And the capability overhang is still quite large. So I'd be thinking one step beyond just the idea of, like, do I invest in Anthropic or Nvidia and start thinking about what happens next? The second thing I would say for individuals using these systems is, you have to try and use them for everything that you can, to figure out the shape of the jagged frontier. And you need to be as ambitious as possible, be maximalist in how you're using these things, to figure out what they're good or bad at. And then you have to make really strong choices about when you use AI and when not to. This will take willpower, it will take some self-examination, but you have to make choices about what you want to maintain humanity for and what you don't. And that is also kind of a big deal. And on the business side, leaders need to start making decisions about how AI is going to be used.

• 27:03Speaker 03

  That means transforming their companies, but also making decisions about how they're going to augment rather than just replace labor. Because I think replacing labor is going to be very tempting, but is actually dangerous, not just to society, but also to the companies involved. Like, think about if you're a company that was doing marketing work, and you switched all of your marketing language to Claude back in January, before anyone knew Claude speak, right? Before it was filled LinkedIn in every article you read. It's probably seemed like a really good idea at the time, and now, anytime you read that stuff, you get nauseous. Like, it's carrying the weight, like, we all know this Claude language. And so, the fact that you fire all your marketers is probably going to hurt you, because you have the same companies as everybody else.

• 27:36George Hahn?

  That's the week. I'm George Hahn. We'll see you next Friday.

• 27:50Speaker 05

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