Free market failure

Around the country, Americans can expect to start paying a lot more for electricity— and it won’t be due to the transition to renewable forms of energy. The rise in the installation of enormous data centers, which are popping up like mushrooms after a rain, is fueling an astonishing growth in electricity demand that threatens to spike the cost of power as well as derail efforts to electrify our energy system to address climate change.
Data centers are essentially vast warehouses, filled floor to ceiling with computer servers that provide the computing power to facilitate artificial intelligence, store vast amounts of data that we all collectively accumulate “in the cloud,” or generate crypto-currencies, like Bitcoin.
These facilities operate more or less autonomously, producing few jobs, yet the amount of electricity they consume is staggering, often the equivalent of a medium-sized city. By 2030, these centers by themselves could be consuming close to 20 percent of all electricity produced in the country, according to the U.S. Department of Energy.
Utilities are already straining to meet the demand, and some are now maintaining or reopening old coal-burning power plants that had been scheduled for shutdown just to feed the rising demand from data centers. Microsoft recently announced that it planned to acquire and restart the nuclear reactor at Three Mile Island that didn’t melt down to feed its exploding power needs.
And it isn’t just electricity that’s being consumed. As an alternative to cooling fans, some of the newer centers are now using water as a coolant, but that can require millions of gallons of water every day, which can put incredible demand on municipal water systems or local aquifers. And the vast quantities of warm water generated by these facilities creates other challenges as well. State and federal regulators fear that the costs associated with upgrading power and water infrastructure is going to be felt by average consumers — and soon.
The explosion in the development of data centers and all of the costs that we will collectively pay is a classic example of a failure of the free market. While we all know that market incentives are remarkably effective at motivating many humans, the notion that “the market” is all-knowing and always leads to the best outcomes for society has been thoroughly discredited.
What’s missing in the data center explosion is any public discussion of the costs and benefits to society. Let’s think for a moment about what it is that is being created through this vast appropriation of scarce resources for the construction of data centers. Much of the growth is now fueled by the rush to develop artificial intelligence, even as many of those involved in the rush secretly fear that AI ultimately has the potential to destroy human civilization or eliminate millions of jobs that Americans depend on. So, when do we as a society have the discussion about the merits of AI and the relative costs versus benefits? Market mechanisms focus on profit, while ignoring the far more fundamental questions of why, or who benefits and who is harmed?
While AI is potentially dangerous, most of the other digital flotsam stored in data centers consists of the roughly four trillion cat videos posted to social media, not to mention the hundreds or thousands of selfies that so many Americans retain on their phones, all of which ends up in “the cloud,” which is the plush-sounding euphemism for data centers.
Of course, not all of this “data” is merely inane. We’ve seen how social media is being increasingly used to undermine our democracy through the systematic posting of disinformation, much of it generated by foreign adversaries, which has become the political currency of much of the far-right in this country.
Perhaps the stupidest use of data centers is for the creation of crypto-currency like Bitcoin, a type of unregulated currency prone to fraud and used widely to facilitate criminal activity. Clearly, not much social benefit there, either.
The “market” says that building more and more data centers is a good thing, because certainly someone is making money from these facilities. Yet, it is easy to argue that society as a whole is a loser in this calculation. Those who live close to these centers suffer from the constant hum of cooling fans. Average citizens are almost certain to pay more for electricity and water in the future as utilities are forced to make expensive upgrades to facilitate the demand from data centers in their service territories. And from the 10,000-foot view, these centers and their incredible power demand is creating a significant roadblock in our fight against climate change. And it’s all to facilitate dangerous new technologies, undermine our democracy, create social anxiety among our youth, and generate currency designed for criminals. We, as a society, are clearly failing to ask the right questions.