Housing Crisis and Toxic Inequality: Why the American Dream Is Stalled for Millennials | Morgan Housel On Impact Theory w/ Tom Bilyeu

Summary

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Podcast Summary: “Housing Crisis and Toxic Inequality: Why the American Dream Is Stalled for Millennials | Morgan Housel on Impact Theory w/ Tom Bilyeu”

Release Date: January 29, 2026
Host: Tom Bilyeu
Guest: Morgan Housel

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Episode Overview

In this gripping and timely episode, Tom Bilyeu sits down with acclaimed finance writer Morgan Housel to unravel the crisis of housing affordability in America. With a focus on the downstream effects of unaffordable housing—spanning economic, social, and even psychological dimensions—the conversation takes a hard look at how systemic choices, regulatory capture, inflation, and asset ownership have led to stalled economic mobility for Millennials and toxic inequality at large. Both speakers grapple with why solutions remain elusive and explore historical precedents, psychological factors, and possible ways to break the deadlock.

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Key Discussion Points & Insights

1. The Centrality of Housing to the American Dream

• Unpacking Downstream Effects:
  • Morgan Housel explains how housing affordability is deeply entwined with core social outcomes. Young people unable to afford homes are less likely to marry or have children and more likely to suffer from mental health issues, substance abuse, and even homelessness ([01:00]-[01:52]).
  • Quote:

    "Buying a house, for better or worse, socially, is a very important box to check of 'I am stepping into adulthood.' And if you're unable to do that, you feel like you are just suppressed into a lower level of not-yet adulthood."
    — Morgan Housel ([01:52])

2. Supply, Demand & Regulatory Constraints

• The Root Issue:

  • Both agree that the principal problem is a supply shortfall—America is short about 3–5 million homes ([01:52]-[04:02]).
  • This is not due to lack of resources or technology, but deliberate political and community choices not to build more housing.
  • Quote:

    "How to bring down housing affordability is the simplest thing in the world: we don't build enough homes, and we need to build more."
    — Morgan Housel ([02:50])

• The Illusion of Wealth from Rising Home Values:

  • Homeowners feel wealthier as home values soar, but unless they sell and move to a cheaper area or downsize, their increased wealth is mostly illusory due to comparable price increases elsewhere ([04:03]-[06:03]).
  • Quote:

    "It's this illusion of getting wealthier for existing homeowners... but if you dig into it, it's just a psychological trick. They're not actually getting wealthier."
    — Morgan Housel ([05:06])

• NIMBY (Not In My Backyard) vs. YIMBY (Yes In My Backyard):

  • Community sentiment, often driven by homeowners trying to protect property values and neighborhood aesthetics, combines with regulatory hurdles to block new development ([04:03]-[06:03], [14:45]-[15:56]).

3. Inflation, Asset Ownership, and K-shaped Economy

• Inflation and Asset Prices:

  • Tom Bilyeu notes how inflation is a man-made phenomenon resulting from unbalanced government budgets and money printing, which falsely inflates asset prices ([06:03]-[06:50]).
  • The “K-shaped” economy results, with those who own assets gaining disproportionate wealth, while non-owners fall further behind ([07:04]-[07:35]).

• Psychology of Asset Building:

  • Compounding works only with time, and the house is the one asset most Americans are willing to hold for decades, giving the illusion that it’s the best (or only) reliable vehicle for wealth—though it is not always a true investment ([07:35]-[08:33]).
  • Most people do not invest at scale in other assets like the stock market due to lack of understanding or patience.

4. Policy Responses: Why Do “Stupid Policies” Persist?

• Demand-Side Fixation:

  • Housel criticizes the near-exclusive focus on boosting demand (lowering interest rates, down-payment assistance) without tackling the supply issue ([08:43]-[10:10]).
  • Notable Moment:

    "Every solution to the housing crisis is ‘how do we stimulate demand?’ ...almost nothing wanting to touch the entire cause of the problem, which is supply."
    — Morgan Housel ([09:16])

• Political Psychology & Lack of Incentive:

  • Voters respond to narratives promising quick fixes and scapegoats rather than the hard, slow work of boosting supply ([12:10]-[13:49]).
  • Quote:

    "It's much more appealing to people if you say, 'You've been screwed by that guy and I have a fix that can help you tomorrow...' That's appealing. I have a villain and I have an easy, quick, short-term solution."
    — Morgan Housel ([12:10])

• Historical Comparison—Post-WWII Housing Boom:

  • The Levittown model (fast, cheap homebuilding after WWII) is contrasted with today’s hyper-bureaucratic, regulation-choked system ([13:58]-[14:45]).
  • Housel notes that permitting processes have swung so far toward delay and obstruction that “it’s virtually illegal to build the most precious and important asset in the world, which is just somebody’s house.” ([15:12])

5. Regulatory Capture & The Entrenchment of Power

• How Over-Regulation Protects Elites:
  • Stringent regulations make it almost impossible for small or new developers to compete, inadvertently empowering large, well-connected firms ([18:03]-[18:32]).
  • Innovative methods (e.g., 3D-printed housing) are often smothered by red tape; Tom Bilyeu advocates for incentivizing entrepreneurial solutions ([18:32]-[19:47]).
  • Quote:

    "What you've created is regulatory capture. You've made it so that a small number of large, very well-connected people come in. They become the builders and they know that now there's a moat around them of regulatory compliance."
    — Tom Bilyeu ([18:03])

6. The Personal Incentives and Psychology of Opposition

• Conflict of Principles vs. Self-Interest:

  • Even the most pro-development voices (including Housel himself) admit that NIMBY sentiment is understandable on a personal level when one's own backyard is at stake ([19:47]-[21:48]).

• Moral Failing Between Generations:

  • Housel sees it as an “inadvertently evil” act for Boomers to block the opportunities to homeownership they themselves enjoyed ([21:48]).

7. Entrepreneurship, Meaning, and The Limits of Regulation

• Selfishness as a Driver for Progress:
  • Both agree that the only thing you can count on is self-interest: “The only thing you can trust any human to do is be selfish” ([22:10]).
  • Regulations are necessary to avoid pathological outcomes (“consume everything for the dollar”), but excessive regulation stifles value-creation through entrepreneurship ([22:10]-[23:09]).

8. Toxic Inequality, Cultural Factors & Social Media

• Distinguishing Inequality from Toxic Inequality:

  • There’s always been inequality, both because of innate talent and cultural variation. But when inequality becomes intolerable, it can lead to violent or disruptive social backlash ([28:16]-[30:37]).
  • Quote:

    "There is such a thing as toxic inequality where it gets to the point that it is truly intolerable... people get so resentful, a third of society wakes up and says, screw this."
    — Tom Bilyeu, with Housel affirming ([30:19]-[30:37])

• Role of Social Media:

  • Social comparison is now constant and pervasive, leading to dissatisfaction and deepening polarization ([26:35]-[28:00]).

9. Cycles of American Political and Economic Life

• Historical Patterns of Crisis & Recovery:
  • Housel highlights the cyclical nature of American despair and resurgence—from the Great Depression and the embrace of fascism, through postwar prosperity, to the 1970s malaise and 90s resurgence, and now again facing severe division ([33:32]-[37:34]).
  • Quote:

    "...if you become familiar with the cycles of politics... it would not surprise me ... that if in 20 years we look back at this era as a generational bottom from which we grew out of. ...The same forces that are causing a lot of problems plant the seeds of their own demise..."
    — Morgan Housel ([36:59])

10. Mechanisms of Self-Correction & Economic Danger

• Debt, GDP, and Bond Market Discipline:
  • Tom points out that all nations breaching 130% debt-to-GDP (except Japan) eventually face crisis ([37:41]-[38:28]).
  • Housel explains that real correction only comes when the bond market pushes back by raising rates, forcing politicians’ hands; catastrophic or muddled outcomes are possible ([38:28]-[42:50]).
  • Countries can “muddle through” even with high debt if economic growth outpaces deficits—nations, unlike individuals, never pay off debt, they roll it over ([40:36]-[42:44]).

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Notable Quotes & Memorable Moments

• On Housing as an Adulthood Milestone:

  "Buying a house, for better or worse, socially, is a very important box to check of 'I am stepping into adulthood.'"
  — Morgan Housel ([01:52])

• On Regulatory Capture:

  "What you’ve created is regulatory capture... You are not helping the small person, you are hurting the small person."
  — Tom Bilyeu ([18:03])

• On “Inadvertently Evil” Intergenerational Policy:

  "It is inadvertently evil to say, when I was in my 20s, my parents’ generation permitted the house that I was able to buy for 70 grand... but I’m not going to afford that opportunity to the next generation."
  — Morgan Housel ([21:48])

• On Self-Correcting Political Cycles:

  "...the same forces that are causing a lot of problems plant the seeds of their own demise, plant the seeds of pushing in the other direction."
  — Morgan Housel ([36:59])

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Timestamps for Important Segments

• 01:00–04:02: The crisis of housing affordability—social consequences.
• 04:03–06:03: Why current homeowners and politicians oppose more building—illusion of wealth.
• 06:03–07:35: Inflation as a man-made manipulation and asset ownership gap.
• 07:35–08:33: The psychology of holding assets versus stocks.
• 08:43–10:10: Policy misfires—stimulating demand, neglecting supply.
• 11:49–14:43: Historical parallels—how Texas/Tokyo and postwar America built affordable housing.
• 15:26–18:32: Overregulation and regulatory capture.
• 18:32–21:48: The personal cost of more housing—NIMBY psychology.
• 21:48–23:09: Entrepreneurship, incentives, and the need for smart regulation.
• 26:35–28:00: Social media, peer comparison, and the sense of falling behind.
• 28:16–31:43: Inequality, talent, and when the gap becomes “toxic.”
• 33:32–37:34: Cyclicality of American despair and political renewal.
• 37:41–42:50: Debt-to-GDP, the bond market, and how fiscal correction happens.

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Tone and Language

The conversation is frank, insightful, and occasionally impassioned—but always rooted in practical analysis and historic perspective. Housel’s approach is measured and data-driven, while Bilyeu brings urgency and a drive for actionable solutions.

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For New Listeners

This episode offers a clear-eyed examination of why housing affordability remains America's deepest economic wound, why current incentives and regulations perpetuate toxic inequality, and why history both warns of collapse and offers hope for future self-correction—if, and only if, we confront the underlying causes rather than continue to chase political quick fixes.

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Transcript

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[Morgan Housel]

A young person, a young couple in particular, cannot afford to buy a house. They are statistically less likely to get married, less likely to have kids, have higher rates of alcohol abuse, have lower rates of mental health, and go down the list of those problems. A level of the population is going to become homeless.

[Tom Bilyeu]

Looking at history, you will see over and over there's just a cycle where the inequality gets to the point where

[Morgan Housel]

people get so resentful, society wakes up and says, screw this. What benefited one generation 50 years ago has by and large been stalled out today.

[Tom Bilyeu]

Morgan Housel welcome back.

[Morgan Housel]

Good to see you again. Thanks for having me back.

[Tom Bilyeu]

Always a pleasure. You and I are sharing a pain point right now that I think is incredibly consequential. So I want to start with a very simple question. Why do you think that housing is the single most important social problem that we could solve right now?

[Morgan Housel]

The first, I would say is there are so many social problems that don't seem connected to housing, but if you actually dig into it, they are downstream of housing. And so at the high level, most of the evidence will show that if a young person, a young couple in particular, cannot afford to buy a house, they are statistically less likely to get married, less likely to have kids, have higher rates of alcohol abuse, have lower rates of mental health, and go down the list of those problems. Buying a house, for better or worse, socially, is a very important box to check of. I am stepping into adulthood. And if you don't, if you're unable to do that, you feel kind of like you are just suppressed into a lower level of, of. Of not yet Adulthood. And it can kind of stem from there, but you could take this in several different directions almost unavoidably. If housing gets very expensive and some people can't afford to buy a house, you're just pushing people on the conveyor belt of you can't afford it. A level of the population is going homeless. It's unavoidable if there's not enough homes. Of course, that's how it works. What do so many people, homeless people, do for a little bit of pleasure and comfort when they find themselves homeless? Heroin. And so you can draw a straight line, a straight line from housing affordability to drug crises, to fertility crises, to decline in marriage, to all of these things from there. And I think what can be so aggravating about this problem? Most problems in economics are very complicated. And so if we're talking about how do we extract more oil from the ground, like, it's a hard problem. So there. There's a lot of variables in there, and there's technological challenges that make things much more difficult, how to bring down housing. Affordability is the simplest thing in the world, is we don't build enough homes, and we need to build more. And we're probably short in America, something like 3 to 5 million homes that we should have right now that we could build. We have enough money to do it. We have the supplies, the lumber, the windows to do it. We could get this done, and we don't. And so it's one of these problems that, like, if you really get down to it, it's a choice that politicians and regulators and communities at large have made that we don't want to build more homes.

[Tom Bilyeu]

Why not?

[Morgan Housel]

I think if it comes down to it, there is the battle between NIMBYs and YIMBYs. Yes, in my backyard. No, in my backyard. And I think it's not too simplistic to say that the group of current homeowners, particularly if you've owned a home for a long time, like it when the value of those homes go up, makes you feel wealthier, I'll get into a second. While they're not actually wealthier, and if you build more homes, the price will go down. That's basic supply and demand. And then if the value. If your parents, your grandparents own a house and the value has gone up a lot, and you build a lot of new homes and the price declines, they don't like it. And some of them, if they bought recently, might find themselves underwater and potentially owe more on the mortgage than the house is worth. And people don't want to go down that route now. I said people feel wealthy when the value of the house goes up, but they're not actually wealthier. And now I'll show you what I mean. Let's say you buy a house for 300 grand and 10 years later it's worth 600 grand. A lot of people in that situation would say, I just made $300,000. I've never seen that much money in my life. This is amazing. But you didn't actually make anything because if you sell that house for 600 grand, you have to go buy another house. And the price of that other house also doubled in value over the last 10 years. That other house, if it's an equivalent house, also cost 600 grand. You didn't make anything. And so it's this illusion of getting wealthier for existing homeowners. Getting wealthier. But if you actually dig into it, it's just kind of a psychological trick. They're not actually getting wealthier. The only exceptions to that is if you sell and you relocate to a cheaper area or you downsize, then you can make money. But most people do neither nor they're not actually doing that. And so I think if you tie that all together, we are inflating the values of homes almost intentionally to keep current home owner homeowners happy in a way that gives them the impression of getting wealthier, even if they're not. And we're doing that at the cost of younger generations who, because home prices have risen, can't afford to take their first step into it.

[Tom Bilyeu]

Yeah, to me, this is the nightmare of all nightmares for all of the reasons that you just said. But I think it also plays into another thing that I become increasingly obsessed with, which is inflation is man made and inflation is simply an unbalanced budget where the government says, oh, we have a shortfall and so we're going to print money. I won't get into the mechanisms right now, but certainly my audience is used to hearing me talk about that we're going to print money. And that causes the value of each dollar to go down, which creates the illusion of asset prices going. Now some asset prices really do become, or some assets really do become more productive and therefore actually are worth more. But I would say on balance that you're really tracking inflation.

[Morgan Housel]

Yeah.

[Tom Bilyeu]

And so you put people into this position where the K shaped economy is born out of people don't understand assets, they don't understand asset ownership full stop. Most people couldn't even tell you what assets are.

[Morgan Housel]

Yeah.

[Tom Bilyeu]

And so they are in a position now where there is a way to save yourself from that unbalanced budget, from that inflation, to get into owning the stock market or whatever. But as of right now, 10% of people own 93% of the assets. So just the math tells you that the vast majority of people don't put any meaningful amount into their 401k or whatever. And the one asset that they intuitively understand that they don't even need to think of as an asset that their wife is going to harangue them to go buy is a house.

[Morgan Housel]

Yes. And so it's like to them, it's not this nebulous stock market thing, it's the thing you can wrap your head around. Another element to this didn't mean to cut you off. And you're a great story you're telling. But all wealth comes from compounding. And compounding takes time. That's. Time is the magic sauce of compound interest. And for a lot of people, a house is the only asset, I'm not going to say investment, it's the only asset that they are willing to own for 10 or 20 or 30 years and actually give compounding a chance to work. Whereas most people, if they buy the stock, if they, if they invest in the stock market, they're going to check it 90 days later and say, didn't do anything. It's a scam, didn't do it. But they're going to live in the house for 30 years. And if you live in it for 30 years, even if the value only goes up by 3% per year over 30 years, that's a lot. And this is why you hear stories about people who bought a house in the 1970s for 70 grand and now it's worth 4 million or whatever it might be, just because, like, the average annual return on that might not be that much, but if you compound it for 50 years, it's a lot.

[Tom Bilyeu]

Now, what do you think about Trump putting a ban on investors being able to go in, or big companies being able to go in and scoop up house after house after house? Is it going to help?

[Morgan Housel]

No, I think it's. I think it's entirely symbolic. And now I want, from a politician's point of view, I would not discount symbolism. It's important to do. But the idea that that's making a meaningful change in supply, I think, I think doesn't, doesn't bear out whatsoever. It's a, you know, it's a, it's a very small amount of supply relative to what we need to create and if, if you know someone's going to be owning those homes, whether it's an institutional investor or a mom and pop landlord or whatnot. So I don't think around the edges, I think the only thing that makes a difference is that we build more homes. And this is what should be aggravating about it, too. Every solution to the housing crisis is how do we stimulate demand, how can we lower interest rates, how can we let People raid their 401ks for a down payment, how can we give people housing assistance? It's all stimulating demand and almost nothing wanting to touch the entire cause of the problem, which is supply, which don't build enough homes. And that again, is largely a choice. It's, I mean, in lots of areas, the areas where by and large people want to live, the big cities in California, on the east coast, it's very difficult to build, particularly if you're a big builder and you want to go build 100 homes. Well, you're going to, you're going to run into roadblock after roadblock after roadblock and, and petition from, from neighbors who say it's going to hurt the environment, it's going to hurt the view. We're going to shut it down. We're going to shut it down to where the demand is there, the money is there, the materials are there, and you can't build a house, you can't get a permit for it.

[Tom Bilyeu]

We're hitting pause for a moment, but there's plenty more ahead, so don't go anywhere.

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[Tom Bilyeu]

Thanks for sticking around. Let's get right back into the action. We know supply and demand, like the person on the street is going to understand that concept, at least at a high level. Yeah, we're looking at housing. We're grasping for solutions. Why is it that instead of people going, let's build more houses. Like, even if it's just young disaffected people, why aren't they banging that drum? But instead they're gravitating towards people like Mamdani who are like, don't worry, I'm going to control from the top down. I'm going to control the prices of your rent. Why, given that you're the maestro of the psychology of money and spending and all that, why do people break in the direction of what I'll call stupid policies? Instead of breaking in the. Let's look at what places do that actually have defeated this. Whether it's Houston, whether it's Tokyo.

[Morgan Housel]

I was going to say Texas and Tokyo. You're, I can, I can tell you've dug into this topic because those are pretty much the two major areas are Texas and Tokyo is an extremely large city. There's no cities in America anywhere near the size of Tokyo and has relatively cheap housing because they build and build and build and build and build.

[Tom Bilyeu]

So what's in the psychology that breaks people towards socialism?

[Morgan Housel]

I think, I think part of it just from the psychology of politics, it's much more appealing to people. If you say you've been screwed by that guy and I have a fix that can help you tomorrow, that guy screwed you and I can lower interest rates tomorrow, that's appealing. I just, I have a villain and I have an easy, quick, short term solution that you can implement right now. It's much harder if you say the villain here are millions and millions of people across the country who are by and large well meaning, probably just didn't understand the consequences of their action. And the solution is, even if we start tomorrow, it's going to take years, going to take years and years to build homes. That's, that's not very. You're not going to win any elections with that argument, even if that's what it is now. A good precedent for what we're dealing with here was the end of World War II, when during the war we by and large didn't build a single house in America because we were building tanks and airplanes and guns and whatnot. And so we didn't build any homes. And then the late 1940s, 16 million GIs come home from Europe and Japan and really is crazy. I'm sorry, the scale really is 16 million huge. And, and, and by and large they were, you know, 20 to 30 years old. They wanted more than anything stability. They had just been in war for several years. The Great Depression preceded that they want stability, massive housing shortage, unbelievable housing shortages, more than we have right now. And if you go to like the late 1940s, it was, that was a top issue on everybody's minds. There's no homes. I can't even rent a house. I'm. I came home, I fought for my country and served in Europe and fought in the war and I came home and I'm living in my mom's basement. And the indignity of that huge issue. And we solved the issue very quickly. So late 1940s to early 1950s, we built millions and millions of homes.

[Tom Bilyeu]

What does that mean though? Is it just so my. The drum that I beat to death is leave it to the public market. So. Or let. Let private citizens try their entrepreneurial hand

[Morgan Housel]

at something that was by and large what it was. And so so far, regulating it can get more complicated than that. But I'll give you the well known example. In the late 1940s, the Levitt brothers were home builders and they saw this unprecedented demand from GIs coming home and they said, this is the opportunity. We can make a fortune by going out and buying a bunch of abandoned farmland in Pennsylvania and New York and building tens of thousands of small, cheap homes. And that's what became Levittown. And, and they were able to do that and just throw them up very quickly. And they had a lot of economies of scale. They figured out how to build cheap homes that people still liked and that a GI and his family and his three kids can move into and have a dign. And they did it very quickly. You could never do that today. It would never.

[Tom Bilyeu]

Because of regulations.

[Morgan Housel]

Yes. I mean if you went to the suburbs of Philadelphia right now and said, I want to build 20,000 homes in the next year, it's going to take you five years to try to get a permit. And then. And, and your odds of even getting one during that period are probably 50, 50 at best. And it's going to cost you millions of dollars to get there. And so this is why it's a. And I'm not like, I'm not saying all permitting is bad. I want to live in a world that is well thought out. I care about the environment. So this is, I understand this is not black and white, but I think anyone who digs into it knows that the pendulum is swung so far into the area of it's virtually illegal to build the most precious and important asset in the world, which is just somebody's house.

[Tom Bilyeu]

Before we started rolling, I was saying, I'm always looking for the mechanistic cause of something like that. So looking at why you can't build a house right now, part of it is nimbyism. So not in my backyard. People don't want to see that. I won't even say they don't want to see the price of their house go down because it wouldn't. If you just match demand, it's not going to go down. It's just going to stay flat.

[Morgan Housel]

Yeah.

[Tom Bilyeu]

So they want to see the property value go up. And I get that. But at some point you have to break the reliance on that.

[Morgan Housel]

Yeah.

[Tom Bilyeu]

The other part for me is just this increasingly psychotic nanny state approach of we can't let anybody get hurt. And I, when I say this out loud, I know people hate it, but I'm like, you have to create a situation where some people can go broke.

[Morgan Housel]

Yeah.

[Tom Bilyeu]

So that other people can claw their way out of poverty. Like, if you don't, if you, if

[Morgan Housel]

you break the conveyor belt and say nobody can fall off the other end, then nobody can climb on the other end.

[Tom Bilyeu]

And I don't understand how people don't see that. So it's like, as somebody who's been very economically successful, I am saying you have to make it possible for me to fail.

[Morgan Housel]

I wonder if I agree with every word you said. But I wonder if, if you and I, and I don't think we ever will, were suddenly the governor of California or the mayor of la. I never will too. But I wonder if you and I would say, get it now. We. We. So, no, I would still believe I would never get the principles. That's. That's the let's say we are magic wand. I anoint you, the mayor of L. A tomorrow, and you say, I'm going to eliminate all zoning laws. There's probably a lot of brick walls that you and I don't know about.

[Tom Bilyeu]

There's a lot of brick wal better run into. Because you would never want to get rid of all zoning laws. To your point, you want to live in a world that is well thought out.

[Morgan Housel]

I don't want Ferris wheels next to my backyard.

[Tom Bilyeu]

This is one of those things where you want to talk about a good use of bringing people in, giving someone a job, you get people paired up with AI to say, go through the regulations, which ones make sense, Put them in different buckets. Then you have a human go through and audit them and say, these ones just no longer make sense. Like, we're going to focus on things that have to do with safety. We're going to hold ourselves accountable to, you've got to be able to make a certain number of houses over a certain period of time. Like we've been building houses for way too long not to know which things make sense and which ones don't make sense. What we don't have is we don't have an incentive structure for smart people to go, oh, I can get rich doing this. If you create right now the incentive structure. To your point about California, New York, the incentive structure is come in as a developer, be the guy that's so tenacious, you'll get the houses made. Now you know you have it on lock because no one else can get in.

[Morgan Housel]

Yeah.

[Tom Bilyeu]

So what you've created is regulatory capture. You've made it so that a small number of large, very well connected people come in. They become the builders and they know that now there's a moat around them of regulatory compliance.

[Morgan Housel]

Price stays high. Yeah.

[Tom Bilyeu]

What drives me crazy is people don't understand when you create those regulatory environments, you are making it possible for the incredibly shrewd, well connected, rich elite guy that you hate to come in and monopolize that area because you've made it so difficult.

[Morgan Housel]

Yes.

[Tom Bilyeu]

You are not helping the small person, you are hurting the small person. What you want to do is create a system where the up and coming entrepreneur, ankle biter, who's 23 and like, sees how he can use 3D printing to build homes faster, better, safer than anybody else. He's not regulated into oblivion. So he actually does come do the thing that everybody else thinks is crazy and he 3D prints your house and you're like, holy hell, this is incredible. And then that guy becomes stupid wealthy and then the goal is he gets replaced by the next 23 year old who sees something he misses. But what actually ends up happening is regulatory capture plays out in the following way. A small group of elite people who are well connected to each other end up going, hey, you know what? Just put this regulation in place because they know how to deal with it. And then slowly but surely, all those regulations go to the people that make the campaign contributions. And then the world is set to make it hard. But they know how to get over those hurdles. And they might not even mind that it goes more slowly because then the assets that they do have just keep going up in value. And it's like, that is so knowable, so predictable, and yet we still find ourselves trapped there. It drives me mad.

[Morgan Housel]

It drives me mad. It should drive everybody mad. I'll give you a devil's advocate Please. And it is a devil's advocate because I think you and I are in firm agreement. We moved houses, my, my, my family, about a year, year and a half ago. And our old house, which we loved, was awesome. The backyard was this big green belt backed up to a forest, beautiful trees, awesome. Loved it. Very soon after we sold that house, we learned that a developer is putting up 28 homes just behind what used to be our backyard. Now I am a yimby build. We need, we need millions of homes. And so there's half my brain that says, good, we need more homes. The other half of my brain that used to enjoy this beautiful green belt and now it's going to be a ton of homes says, so glad I got out of there. Yeah, so glad I got. So there's part of me, it's like, I get it. I get why if you own a house and you don't and you like the quaintness of your neighborhood and you like your view and you don't want it to change from what it is, people say, I don't want that. And they're gonna use whatever regulatory power they have to protest and put their foot down to get it now. So I understand, like that incentive. I still think though, it is inadvertently evil. I think most people who do it mean well, but it is inadvertently evil to say when, if you're a baby boomer. When I was in my 20s, my parents generation permitted the house that I was able to buy for 70 grand and raise my family in. But I'm not going to afford that opportunity to the next generation. You know, if, if the previous generation helped you build and grow. And by and large that's what we did in the 1950s and 60s. We came together and said, we need millions of homes. We're going to need hundreds of thousands of schools around those homes and fire stations and bridges and highways. Let's go build. And we did it. And by and large I think we have, by choice, stopped doing that. And what benefited one generation 50 years ago has by and large been stalled out today.

[Tom Bilyeu]

I think if you look back at that time and you see altruistic behavior, you're not being clear eyed about what actually happened. What I think actually happened was you saw an economic, economic opportunity that somebody was like, oh my God, I can go capitalize on that. Which is exactly what we should. The only thing you can trust any human to do is be selfish.

[Morgan Housel]

Yes.

[Tom Bilyeu]

Mother Teresa would not help people if it made her vomit and feel badly about herself. She did it because it Felt awesome. It was good for the soul and it made her feel uplifted. And all the hard work felt worth it. Awesome. Meaning and purpose. Entrepreneurship is a certain personality trait and when it is unleashed, it will create new things, it will push progress forward, and then if you don't have certain regulations, it will go absolutely pathological and it will consume everything for the dollar. So you want to put these bumpers in the alley to keep it from going pathological, because humans absolutely will do that. But if you don't open up the regulations enough to go, I want these selfish people that want to like figure out how to get rich doing this thing. But the fastest way to get rich is to add value to somebody else's life, such that they look at the thing that you created and we're like, whoa, you did the hard work of making that so that I can actually afford it.

[Morgan Housel]

And this is better life.

[Tom Bilyeu]

Better life. So somewhere along the way and 1913, we can certainly derail down that if we need to. But somewhere along the way we got to the point where we gave the mechanism by which the elites could entrench themselves and continue to siphon money off of the average person through something called inflation. And that mechanism has set up this flywheel of destruction that has made it possible for a small group of people to continue to get more and more wealthy, using people's desire for safety against them. Hey, your bank is in trouble. Don't worry, we're going to come in and deal with it. Hey, 2008 financial crisis, don't worry, we're going to save it all. Not realizing that that is just furthering that K shaped economy. And for people that have never heard that before, our economy right now is split between people that own assets. 2025 was an extraordinary year. People that don't own assets, the last five years, so brutal, you've lost approximately 25% of your wealth. So if you want to know why such a small percentage of people have gotten so wealthy while everybody else has been moving backwards, it is very simple. The people that have gotten wealthy understand assets and the people that have gotten behind don't understand assets. Now the thing that I'm trying to get people to understand is, okay, there's only one asset that you understand intuitively that's a home. Once you make that impossible for people to afford, yeah, you have shot entire generations in the face because they're just never going to be able to get ahead. And so the other thing is that to your point, all of these problems are man made. Therefore we can unmake them.

[Morgan Housel]

Yes. This is not a. This is not a problem of physics. Correct. That there's a law of nature that prevents us from doing this. And our proof of that, as you pointed out, are areas such as Tennessee, Texas, Tokyo, that have done what I think is a much more sane approach of letting the demand fulfill itself rather

[Tom Bilyeu]

than they let entrepreneurs take the risk. Part of, if an entrepreneur can go broke by building too many houses, it's like, yeah, tough luck. That's how that works. A hundred percent.

[Morgan Housel]

Do a better job next time. Part of the issue of why I think this persists is because the problem is out of sight, out of mind. And I'll. I'll show you what I mean. If you build a nuclear power plant and it melts down in the middle of town, people tend to see that, you notice it. You don't notice the homes that were not built. You don't notice it. You don't notice the communities that never got developed, because right now it's just a forest. It shouldn't be a forest. It should be a big, beautiful community, but it's not. So you don't. It's hard. It's harder to wrap your head around what wasn't done. We pay attention to the things that were done that we can look at, and that's one of the reasons that it persists. The other thing I would say is I think back to a lot of social problems being downstream of housing. I noticed this, that when I, when I was a renter, I had no interest in local politics at all. I was just, I'm transient. I might live here for a year or two and then I'm going to move to the next city. Whatever happens, I don't really care. I'm just a tourist in the city. Basically, as soon as I owned, bought a house and owned a house, I felt a much more profound and I think really good sense of being part of the community. I'm literally invested in this now. And I think to the extent that there are more extreme political views in either direction these days, at least part of that puzzle comes from a young generation basically feeling like they're tourists in their own lives without any sense of ownership of what they have.

[Tom Bilyeu]

That's.

[Morgan Housel]

And then another element of this is, look, there has always been inequality. There's always been, at times extreme inequality. If you go back to the 1920s, about equal to what was today, but it was much more out of sight, out of mind. You really didn't see how, how other people were doing and so if you lived in, you know, you shared a bedroom with your three siblings in your house, didn't have air conditioning and didn't have, didn't have much of anything, you still felt like you lived a great life because by and large that's what your neighbors were doing. But now that person in that, you know, sharing a bedroom with their siblings in a very modest house is on Instagram and TikTok all day. And your view into how the other half lives is very extreme. And that's a very new phenomen. I always talk about the show MTV Cribs. We all grew up watching it as a great show. And that was our view into how the other half lives. That was pretty much one of the only views into how the other half lives. But you knew those were not peers. That's Master P. He's not a peer. That's Shaq. I'm not supposed to be like him. And so you could watch that and you're like, wow, that's cool. But I know I'm not supposed to have that. But now with social media, you are, you are drowning in a feed of people who you think should be peers. And so you scroll through and you're like, they're all prettier than me, they're all happier than me, they're richer than me, they're all having more fun than I am. And these are supposed to be peers. And then you immediately, no matter how well you're doing, even if like objectively you're doing pretty well, it's so easy to feel like you're falling behind by comparison.

[Tom Bilyeu]

Yeah, no doubt. Okay, so right now I feel like the K shaped economy, the very important for people to distinguish between inequality is God tested, God approved. Like for whatever reason, whatever you believe

[Morgan Housel]

you inequality in nature. Nature, yeah. Like it watches the Discovery Channel shows on the the hunter prey things. There's inequality in nature. Yeah.

[Tom Bilyeu]

Not only that, look at Michael Jordan's physical abilities and mine. It's like they, they are very or more contemporary LeBron or whoever's big right now. It's like you see people that are capable of doing things you're just not capable of. There's no amount of training that's going to make me as good as Michael Jordan at basketball or LeBron. It's there we just all get dealt a different hand of cards. And as long as you have an unequal distribution of potential, you're going to have an unequal distribution of outcomes. So that, that is just. People need to get over that one because you create so much more madness when you try to get an unequal distribution of talent and potential to have the same outcome. You crush all the things that make us human. The desire for pursuit, to chase dreams, to try to become more. You've said something which I think is incredible, which is life really is a competition for scarce resources. Yes, yes, I think that's a wonderful admission.

[Morgan Housel]

The other thing is a lot of that inequality of talent is cultural. And China is better at manufacturing simple items than Americans are. They just are. They're better at it. They're much more efficient at it. They're much more culturally adept at doing it. America's much better at technology and entrepreneurism than China is. We're just, we're just better at, it's more in the culture. So a lot of that isn't even the Michael Jordan, LeBron inborn talent. That's just what it is. It's a cult. There's a cultural aspect to it. And New York is better at finance than Alabama and, and Ohio is better at agriculture than, than Oregon. You know, there's a, there's a, there's some of that is natural resources, but some of it's cultural too. It's cultural know how. And my family's been doing this for, for 70 years. And so it's kind of in the blood. So that exists too. But invariably in that you're going to have differences in outcomes. When you're going through a financial bubble, New York's going to be crushing it. When you're going through an agricultural boom, Iowa is going to be crushing it. Technology boom, California is going to be crushing it. At the expense, at least by comparison, of other people, no doubt.

[Tom Bilyeu]

So if we can get people on board with that, that is going to happen. I also want them to understand. But there is such a thing as toxic inequality where it gets to the point that it is truly intolerable going. Looking at history, you will see over and over there's just a cycle where the inequality gets to the point where people get so resentful, a third of

[Morgan Housel]

society wakes up and says, scre this. I, I don't, I, I, I, I don't care about your talents. I don't care that you're, that you're LeBron. I don't care. It's not fair. I'm not putting up with it anymore. And those people in big enough numbers can cause successful revolts and have, yeah, successful, violent revolts. Violent and sometimes, and sometimes less than violent. The 1950s was by and large, that amazing. Inequality in the 1920s, the Great Depression burns everything down. Tremendous amount of, of anger, a lot of it rightful. And then World War II kind of brought everyone together with a shared sacrifice. And in the 1950s, it was kind of like, no, we're not going to go back to what it was. It's. It was, it was a brief era of togetherness. Now there's also a lot of overt racism and whatnot. It was not perfect by any means, but relative to what existed before or since, there was a sense of the pendulum had swung way too far and on its way to swinging in the other direction, it found a happy medium for a period of time. I think that's. That tends to be true. And if there any legitimacy to people having nostalgia for that era, I think it, it, it tends to be that.

[Tom Bilyeu]

That's really interesting. Taking a short break. But there's more impact theory after. Stay tuned.

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[Morgan Housel]

Now.

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[Tom Bilyeu]

Thanks for staying tuned. Now let's get back to it. All right, so if we agree that right now is not that moment of togetherness, that we are in toxic inequality, what do we do? So I look at the Democrat party being co opted by left leaning fascism. So you've got them headed down the socialism route. And then you've got the Republican Party being co opted by the right leaning conservative flavor of fascism.

[Morgan Housel]

Right.

[Tom Bilyeu]

And it's like they're just spiraling away from each other.

[Morgan Housel]

The horseshoe theory that the extremes of either party actually like it's a horseshoe and they meet together at the end of kind of very similar policies.

[Tom Bilyeu]

They are both soda. They're just different flavors of soda.

[Morgan Housel]

So. And, and sometime Coke, Pepsi. It's barely a different flavor.

[Tom Bilyeu]

Exactly. Too true.

[Morgan Housel]

Right.

[Tom Bilyeu]

So we're in that reality. I will be interested to see by the end of the interview if you. I don't think you share my level of paranoia.

[Morgan Housel]

No.

[Tom Bilyeu]

So it'll be good to navigate through that. But what do you see as the way to begin backing out of that? What I see as really increasingly racing away from each other. Getting into Civil war territory.

[Morgan Housel]

Yeah.

[Tom Bilyeu]

How do we back out of it?

[Morgan Housel]

In modern American history, there have been two distinct points where things got real bad and real nasty. And I think in many ways Much worse and nastier than they are right now. Sort of the 1930s and kind of the 1970s era, where a lot of people, you know, you probably had. During those eras, you had a third or more of the country waking up every morning saying, to hell with this. This sucks. I'm really upset about this 1930s. Everything collapses. Interesting about the 1930s is that fascism was not the dirty word that it is today. Now, we learned that it's a dirty word after Hitler and World War II, but back then, people are like, let's give it a shot. Sounds. Sounds good. Democracy, capitalism didn't work in 1932, most people would have agreed with that, even if we have a different view in hindsight. But in 1932, most people woke up and were like, fascism, let's give it a shot. Let's give it a whirl. And people were so upset with the current system that they're willing to try anything. And we tried a lot, the New Deal, and there was a lot of new. Trying new things in. In that era, but I, you know, but a lot of. Of extreme views and a lot of anger and whatnot. And it would have sounded preposterous if in 1932, I said, hey, I'm from the future. And by the 1950s, you guys are all going to love each other and have amazing faith in government, and it's going to be very calm and peaceful. People said, you're out of your mind. And in the 1950s, if I said, I'm from the future. Future. And by the 1970s, between Vietnam and Watergate, trust in government is going to collapse and we're going to be hanging on by our fingernails to a shred of legitimate government. People said, what? No federal government. That would have sounded preposterous if in the 1970s, I said, hey, I'm from the future. By the 1990s, we're gonna have balanced budgets and peace and tranquility. Said, you're full of it. That's. But that's what happened. And in the 1990s, if I said, by 2026, we're going to be in whatever we describe this era as today, maybe back to hanging on by our fingernails, that would have seemed preposterous. And so I think if you become familiar with the cycles of politics now, that's not. I just gave you, you know, four examples. This is not a very deep history, so it's a small sample size, but politics is cyclical, and this is more of a hope than a forecast. I'm not a forecaster but it would not surprise me historically on that cycle trend that if in 20 years we look back at this era as an era that we a generational bottom from which we grew out of. And I think a lot of these things are self correcting and it stems from the fact that when times are good you become complacent and nobody cares about good governance. You just think the system runs itself, you don't really care anymore. And when times are bad, people say to hell with this, we don't have to put up with this is democracy. We can, we can vote other people in to do this, we can kick these bums out and do it. And that's what happens. And so, so look, the, the nightmare scenarios that maybe you are more, more tuned into are possibilities. I'll never discount that. And you can't because it's happened to a lot of countries that really went over the edge. Germany, Italy, that really latched onto it and went straight over the edge and destroyed themselves in the process that's happened. It could happen here. Of course it would not be my first guess of what's most likely to happen. I think what's most likely to happen are several more years of this kind of. However you want to define that. Whatever side you're on, you're unhappy about it. And in 20 years you look back and say look, we actually kind of got our act together after that and things calmed down a little bit. I could think of several examples of why that would not happen. Social media makes it much more difficult to happen now than it did in the 1970s. Etc. In the 1970s everybody got their information from Walter Cronkite. Now everybody gets their information from their own little custom bugs bubble. So it's a very different era, right? And so. Or impact theory. So it's a very different era. But I think the general idea that it's very difficult to foresee that the same forces that are causing a lot of problems plant the seeds of their own demise, plant the seeds of pushing in the other direction to move things in the other direction. That's a, that's a powerful trend over history.

[Tom Bilyeu]

You say that these things are self correcting, but every self correcting mechanism has a mechanism, a movement mover. There's.

[Morgan Housel]

Yeah, FDR was a mover.

[Tom Bilyeu]

So what When I look at this moment right now, the thing that I would just point everybody to is look at the debt to GDP ratio. So every country with the exception of Japan, Japan as we record this, is in extreme trouble. But every country with the exception of Japan that has spent more than, I think 18 months over 130% debt to GDP has gone into internal strife so severe that they basically have some sort of economic collapse or they just tear the country apart. So we are 123 and climbing. So given our debt, what do you see as the mechanism for this to self correct?

[Morgan Housel]

It'll get to a point where I think what's important is that in financial markets, the stock market and importantly the bond market market, you can't threaten the bond market. You can't scare the bond market, you can't arrest the bond market. It's its own beast that's going to do whatever it wants to do. Even outside the control of the Federal Reserve, the bond market is a very gigantic market and it's going to react however it wants to react. The reason why deficits have gotten this bad and persisted for so long is because the bond market has not pushed back at all by and large. And so politicians will run any deficit that the bond market will tolerate. And I think there's virtually no exceptions to that. And so the correcting mechanism will be when interest rates rise to a, to a meaningful degree and politicians are forced, they will never act until they're forced to do it, but they will eventually. And so what does that mean? It could mean catastrophe. It could mean interest rates go to 20% and it gets, it's Great Depression too, that could happen. It could also mean that interest rates, you know, the interest rate on the 10 year bond, if it's, you know, 4%, if it went to 7%, that's worse, it's not catastrophic. It'd be a bad recession, people would lose their job, inflation would go up. All that's true. But interest rates were 7, 8% in the 1990s. You know, we got in the last. Interest rates have been so preposterously low for the last 25 years that we forget what any sense of normal is. So right now I think we kind of have a view that like if interest rates go to 5 or 6%, that's terrible. I mean they, from the nineteen nineteen sixties to the nineteen nineties, they, they were never anywhere near that low. And the 1970s, early 1980s, they were 15, 17 and it sucked. But we survived and we had a lot less debt than we did back then. But there are scenarios in which you muddle through that are not catastrophic. And we actually did that at the end of World War II when debt was about as high as it is right now. I think we're a little Bit higher right now, but as a percentage of GDP about what it is right now. And if you go back and you read what they said about that in 1945, 1946, they were shitting their pants about, about it. And true to your, your forecast, the prevailing view was there's nothing we can do about this. It's a, it's just, it's just too much and this is the end of the empire. That was the prevailing view. And you mix that with, you had a tremendous amount of stimulus from World War II that was immediately being withdrawn and so tons of debt and the economy is going to slow no matter what. Not a good scenario. Everyone's freaking out. In hindsight, we know how the story end, which is what? The story ended pretty well. Well like there, there was recessions in 1946 and 1952 like there were. So it wasn't pure, pure roses back then, but by and large we did pretty well and we didn't pay the debt off. And this is one, you know, quirk that I think people get, get wrong. Individuals have to pay their debt off. There will come a time in the future, whether that time is death or before that when you have to pay your debt off. Countries are not like that. Countries can be in debt for perpetuity. They can be in debt forever, ever. And what matters is that you can afford the carrying cost of that debt. You can afford the interest on that debt. But the US is never going to have zero debt. They just keep issuing more to pay off the old stuff. You know, Ford Motor has been in debt for 100 some odd years and it'll, it'll be in debt 100 years from now if it's still around. It's a perpetual company. And so the way that we did it after World War II and the way that we could do it now, whether we will or not, I'm not saying we will, but the way you could do it now, I don't want to get too technical here, but if the deficit as a percentage of GDP is smaller than the growth rate of the economy, then debt to GDP goes down. The amount of debt you have goes up every year, but debt to GDP goes down. So for example, if the economy were growing by 5% per year, the government could run a deficit of 4% per year and debt to GDP would go down. So when people talk about paying off the debt and balancing the budget, you don't have to, and we probably never to want will. And you can still come to a scenario where it gets much more manageable. Now, it could also be catastrophe. And you mentioned there's numerous examples of that. So you, you, that's, that's always the case. But all of this is like, what are the odds? Catastrophe is a, is a, is a chance. Is it the highest, is it the most likely outcome? I don't think so. I think the most likely outcome is muddle through. And what muddle through means are periods of very high interest rates and very high inflation that people are sick of and tired of, of and hurts a lot of people.

[Tom Bilyeu]

That's it for part one. Make sure you are subscribed so you do not miss part two. Coming up soon.

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