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, crowding out in the standard loanable funds model is generically less than 1 to 1 –that is, $51b of additional spending will crowd out less than $51b of other investment spending. The standard analysis is that increased investment demand/borrowing increases interest rates–the higher interest rate reduces investment demand elsewhere (that’s the crowding out) but the higher interest rate also increases savings so investment elsewhere falls by less than the increase in tech investment. Here’s the classic graph from our textbook, Modern Principles .…