{
  "id": 15597056,
  "title": "No, DataCenters are Not Crowding-Out Other Investments",
  "url": "https://urgent.news/2026/10/19/no-datacenters-are-not-crowding-out-other-investments",
  "topic": "finance",
  "section": "Finance & Markets",
  "published": "2026-10-19T11:16:23.000Z",
  "source": {
    "name": "Marginal Revolution",
    "slug": "marginal-revolution",
    "url": "https://marginalrevolution.com/marginalrevolution/2026/10/no-datacenters-are-not-crowding-out-other-investments.html"
  },
  "original_language": "en",
  "account": "Paul Krugman and many others claim that massive spending on data centers is causing investment in other sectors to decline. However, this argument is not entirely accurate. First, $51 billion in data center construction spending does not necessarily crowd out $120 billion in other investments, as crowding out in the loanable funds model is typically less than 1:1. When additional investment demand is met with borrowing, the higher interest rates that result can reduce investment elsewhere, but savings may increase in response, limiting the extent of the crowding out effect.\n\nAdditionally, Krugman's graph comparing tech investment to other investment as a share of GDP may give the impression of crowding out, but this is misleading since GDP itself is increasing. When the data are presented in absolute terms over a given time period, it becomes clear that real tech investment rose by about 46% from 2023 Q2 to 2026 Q2, while other real investment rose by only 3%. This suggests that other investment has weakened slightly, but it is still above its starting level. It does not definitively prove that crowding out is occurring.\n\nLooking at the real interest rates, most of the increase happened before the AI investment boom. The 10-year TIPS yield rose from -1.00% in late 2021 to 1.49% in late 2022, but the increases in rates over the periods covered by the Krugman and Rattner charts are relatively small – 0.5 and 0.68 percentage points, respectively. Moreover, current real interest rates are around 2-3%, which is not prohibitive for most good projects.\n\nThere are several potential explanations for the rise in real interest rates, including the recovery from pandemic-era low rates, federal borrowing, and changes in technology expectations among investors. However, the fact that real interest rates are up across advanced economies, not just in the United States, suggests that the rise in rates is not solely due to data center borrowing.\n\nIn conclusion, rather than data centers and AI investment crowding out other areas of the economy, it appears that the AI boom has supported overall investment, while other forces such as tariffs, uncertainty, and the fading of certain subsidies have weakened investment outside of AI and tech sectors.",
  "summary": "Based on charts like the one at right, Paul Krugman and many others are arguing that: Massive spending on data centers is crowding out investment in everything else in the economy. Not so fast. Can you see one immediate problem? How is $51b in data center construction spending crowding out $120b in everything else! Indeed, […] The post No, DataCenters are Not Crowding-Out Other Investments…",
  "key_points": [
    "Data center spending of $51 billion does not fully crowd out $120 billion in other investments.",
    "Tech investment rose 46% from 2023 Q2 to 2026 Q2, while other real investment grew by only 3%.",
    "Current real interest rates around 2-3% are not prohibitive for most good projects."
  ],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}