Much of the media, including outlets revered by the Left, has declared war on the data centers powering the artificial intelligence revolution.
The Left says that the data centers will enable superintelligence, which could end life on Earth. And that AI will create mass unemployment. Most immediately, the Left says that data centers are responsible for rapidly rising electricity prices, which are harming American household wallets.
The truth is more nuanced. To paraphrase, Robert Oppenheimer, a father of the first nuclear bomb, when dealing with advanced science, observed that risk cannot be completely eliminated. Still, the wisest men and women are unconcerned about the existential threat of AI. As for mass unemployment, never has a technological revolution caused lasting unemployment. Witness the agriculture sector in the United States when farming was mechanized. Farm labor moved to the factories, which made the U.S. the manufacturing giant of the global economy in the first half of the last century. Most damning to the Left about the evils of data centers, new research demonstrates that AI data centers are not the primary driver of rising electricity prices.
Across the U.S., retail electricity prices vary widely from state to state. Over the past five years, electricity prices are up almost 20% in New Jersey, where few data centers are located. But in Northern Virginia, Texas, and North Dakota, three geographies with clusters of data centers, electricity prices are rising in line with overall inflation and, in some cases, are trending below consumer price inflation.
Northern Virginia, one of the country’s data center hubs, has had a 14% increase in demand and a price drop of 1 cent per kilowatt-hour since 2019. North Dakota has experienced an almost 40% increase in electricity demand, thanks in part to an explosion of data centers, but this state saw inflation-adjusted prices fall by around 3 cents per kilowatt-hour over the past five years. As for Texas, which has experienced a 15% increase in electricity demand since 2019, largely because of AI data centers, kilowatt per hour electricity prices have increased only 2% over the past five years.
The data says that the greater the throughput of electrons through the electricity grid of a state or region, the smaller the increases in electricity prices. Electricity is an atypical economic market. Most of the cost of electricity is not from the flow of electrons, a variable cost. The most important costs are capital expenditures, fixed costs. The cost of maintaining poles, wires, and transformers is expensive.
In certain states such as California, capital spending was deferred. Now the state’s consumers are paying the price as California’s utilities deal with wildfires and upgrading the grid. In California, Maine, New Jersey and Maryland renewable energy requirements have raised prices above the overall level of inflation. For example, generous subsidies for rooftop solar have increased electricity prices. If customers install rooftop solar panels, demand for electricity shrinks. But fixed costs remain the same, shared by fewer customers.
What’s most frustrating about the Left’s distortions is that the AI revolution is already showing real gains in productivity. Over the past three years, productivity growth has averaged 2.4%. That is the fastest sustained rate since the internet age. Faster productivity growth drives higher GDP growth. When the economy is growing faster, more revenues are generated for the federal government. The data centers, which are at the heart of the AI revolution, can stabilize the federal deficit.
The data centers at the heart of the AI revolution aren’t a threat to America — they’re an asset.
James Rogan is a former U.S. foreign service officer who has worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be followed on X and reached at [email protected].
