Economist Tabarrok rebuts Krugman: data centers are not crowding out other investment
sebkrier · x · 2026-10-19
Tyler Cowen amplifies his Marginal Revolution co-blogger Alex Tabarrok's rebuttal to the popular claim (pushed by Paul Krugman and others) that massive data-center spending is crowding out the rest of the economy's investment.
Key points: - The charts underpinning the claim are self-contradictory: $51b of data-center construction can't crowd out $120b of everything else; - In the standard loanable-funds model, crowding out is generically less than 1:1, since higher interest rates also raise savings; - More fundamentally, private borrowing faces the market test, so funds shifting to data centers means capital flowing to higher-valued uses—a benefit, not a cost. The term 'crowding out' properly applies to government borrowing, which lacks that market discipline.
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