Not In My Cloud (Or Backyard)

Speaker 2

Phil Magnus, the economist. I I've heard both versions of it. ⁓ you know, I'm gonna go with data center for now, although ⁓ that might change tomorrow. So

Speaker 1

So what is a data center?

Speaker 2

There are these giant buildings full of computer servers. And they've been popping up all over the place because ⁓ you know, this is a hot industry right now, especially with AI and similar large language model style computing programs really coming into vogue. ⁓ so there's a lot of ⁓ demand for basically the operational equipment to run these searches and run these algorithms. And data centers, ⁓ although they're could they've come into public attention in pronounced ways pretty recently. They've actually been around for a while. And I just so happened to live ⁓ in what has been called the Data Center Corridor of America. That's northern Virginia, where they have been building these large facilities. They're all out by the Dulles Airport area, ⁓ which is kind of interesting because it gets into one of the other complaints about them, the sound. But the buildings have gone up ⁓ over the course of the last decade, and it's one of the major computing hubs of the East Coast. ⁓ but All of a sudden, as AI has moved into its own as an industry, everyone's paying attention to these new data centers. ⁓ not only the need to build more of them to run the computing capacity, but the fact that more of them are being built leads into NIMBYism. Not in my backyard. And now we have people raising all sorts of complaints about the fact that these facilities are being installed.

Speaker 1

You bring up a really good point, the fact that data centers already exist. You know, what are some of the jobs of a data center as far as what is it computing? Like at this point, like say for example, ⁓ say AI isn't in the picture. What are the old school data centers computing? Well

Speaker 2

They they basically operated to accelerate the speed of access to the internet. ⁓ so that was the main reason to install them. And that's why this corridor emerged in northern Virginia is they put in all these hubs of ⁓ connectivity. They hop house massive servers, and the massive servers have ⁓ computable information on them that's easily accessible right there. And then it could be anything from cached copies of ⁓ What was there on the Google search to ⁓ actual applications? This is where you move into the AI stuff where you're sending a signal to one of those machines in a building and it's running a statistical test for you, or it's searching its database of ⁓ scanned books to find ⁓ content that you're looking for.

Speaker 1

And I guess I mean right now you and I are talking through our computers, which sound I just made it sound like magic. We are speaking through our computers. I have my phone next to me. So I have all of this running data in the in the background. And if anyone is like me, anytime there's even like a hint of buffering, there could be like a second or two. I immediately want to, you know, go to war. And, you know, I guess thanks to data centers, that's kinda not a problem.

Speaker 2

Yeah, yeah. I you've got your Netflix or your Amazon Prime. You want to watch high definition television show. you probably want to be near some sort of data connectivity hub. ⁓ it's a lot easier to do that than ⁓ you know, trying to watch the same thing on the old dial ups that we used to have, the modems that ran through the phone lines ⁓ thirty or forty years ago. Yeah.

Speaker 1

The amount of generations who have no idea what it's like to use dial up. J just so everybody knows, unless you had like multiple phone lines running to your house, if you were trying to use the internet, or in my case it was AIM, you could no longer use the phone at the same time. There was a choice that one had to make. Is this AIM message more important than a phone call coming in or going out?

Speaker 2

And even worse than that, if someone tried to call your line when you were dialed into the internet, it would disrupt and break the connection and then you'd suddenly lose your internet activity. Or or say you're you're sitting there typing on the computer, sending an email in those early rudimentary days of America online and your brother or your sister picks up the phone in the other room, it crashes the whole thing. And I I remember this. I mean, I was in ⁓ I guess it had to been like junior high school when the internet first kinda came commercially online and we had one of those dial-up services ⁓ that I vaguely remember and you know a year or two later the the faster internet lines came in and ⁓ I think it was DSL or something we plugged in and it was just like an overnight upgrade to these things. Well data centers are downstream of all of that. ⁓ they're ⁓ the the next evolutionary step in the technological development ⁓ to get high speed streaming To get access to easy content on the internet, ⁓ well, having regional repositories of server rooms that stores this stuff or stores copies of this stuff is a great accelerator of being able to access things at high speed.

Speaker 1

Yeah, and let us not forget that dial up was the source of many family arguments. We didn't make it out of the nineties. Without some scrapes and bruises over ⁓ I don't know how many people can ⁓ relate to this, but the first time that I really had even a real email address was when I went to college. Right. That became my primary email address that I would end up sharing with people.

Speaker 2

Ha ha ha. Yeah, you got it through the university system. You show up in your dorm room and one of the big perks of the dorms of the time w and they tell you this on the tours, Well we have high speed internet in your dorm room. And you know, the kids are going there, ⁓ this is better than anything I could get at home and it was usually tied to a server in that building. So

Speaker 1

It kind of seems like look with the growth of artificial intelligence and all of our other needs, it's kind of inevitable that we are going to need data centers to keep up with all this stuff, but we still have to deal with criticisms that people have, and I think quite a few of them are, you know, legit criticisms. So one thing that you often hear is with data centers come massive electricity consumption and grid strain. Well

Speaker 2

You know, this often comes from the environmental left in particular, because you know, what have they been emphasizing for the past several decades? We must reduce our global warming contributions. We need to cut our our CO2 output. And oftentimes one of the biggest ⁓ contributors to CO2 output is electricity generation, especially the old school ⁓ fossil fuel-based electricity generation. So part of this move toward ⁓ adopt wind and solar for everything. has been premised on the idea that ⁓ you take existing power plants from fossil fuels and put them out of commission, get rid of the coal and the oil and the natural gas plants and replace them with wind and solar. Well, it turns out wind and solar, they don't they aren't as reliable as ⁓ some of these older technologies for generating power. So the shift has been, well, you now you need to change out your light bulbs to less energy consuming light bulbs. And ⁓ All these little window dressing things that we've been hearing. Now you throw data centers into the mi mix of it, ⁓ or data centers, it have been how you want to pronounce it, ⁓ you throw that into the mix of it, you've got a new strain on energy consumption. And, you know, someone from the environmental left will look at it and say, Well, okay, you're ⁓ you're working against our end goal, which is to reduce energy consumption by entering in this new thing that we see as frivolous. And it's not the first version they made of this argument. About four or five years ago, ⁓ people on the left started making the same complaint against Bitcoin mining. ⁓ it consumes a lot of energy and just puts out heat, all to do these calculations for cryptocurrency, and that's just sprebilis, and this is gonna cause global warming. So there were even like major publications, ⁓ national newspapers.

Speaker 1

Remember that, yeah.

Speaker 2

They ran stories about how Bitcoin was going to cause all the glaciers to melt. There's always an alarmist element whenever anything anywhere uses energy, ⁓ uses power consumption. And I think this is just the latest iteration of that. Now, what they're missing is the economic side of it. ⁓ the fact that there's new energy demand, it it doesn't mean that ⁓ they were just gonna sit here and twiddle our thumbs and not do anything else to the grid because there's suddenly all these new buildings or factories essentially being set up that require power. ⁓ this is actually a market signal. Build more power plants. Invest more in your grid. And ⁓ you know, if you have more consumers in that grid, ⁓ and data centers are a consuming entity for energy, ⁓ you know, that's generally a good thing. That's a market signal because it makes the grid ⁓ essentially more profitable. ⁓ there's an opportunity there to sell electricity to somebody. So ⁓ you know, if the the power company in the region is not doing that, then you know, that's kind of on them. There's ⁓ something wrong in the way that they're evaluated the the situation. And I

Speaker 1

Imagine that since a data center is so reliant on a power source, it's in their best interest to make sure that that power source is consistently generating power. Like it's not in their best interest to say for example, be dealing with a a faulty grid. It actually might be in their best interest to say, hey, we'll actually help with the infrastructure upgrade.

Speaker 2

Yeah, up upgrade the grid because they're they're such a big entity in a local or regional economy that ⁓ essentially the rest of the ⁓ community can free ride on them. ⁓ the rest of the community gets a grid upgrade because the data center has invested in ensuring that its power supply is stable. ⁓ so these are the kind of spellover effects that we could ⁓ reasonably expect. It's the same thing. Like ⁓ when they started installing ⁓ high speed internet wires, it wasn't because they were trying to reach every little house and farm and cul-de-sac and ⁓ whatever in the community. It was often the case that they were installing those for ⁓ major businesses that had a need for high speed internet, but because it's nearby, anyone and everyone else can tap into it. ⁓ so we get a ⁓ a major upgrade in the in that infrastructure grid. ⁓ I'd say think of data centers basically the same way and think of their effects on the tower grid the same way.

Speaker 1

Yeah, so in Pennsylvania, Governor Shapiro, Josh Shapiro, he signed an executive order on August eighteenth of ⁓ this month, ⁓ actually. And it's requiring data center projects with a peak demand over twenty five megawatts to build, buy, or bring online their own new electric capacity. And ⁓ I mean, that seems like a like a positive and I it kinda leads into a question I wanted to ask you, being in Virginia where, you know, these data centers are all over the place, ⁓ has that meant higher elec electric bills for for you as a resident or?

Speaker 2

No none that I've noticed. And in fact, ⁓ the electricity supply is much more stable. The outages seem to be fewer. And ⁓ the repairs when the power does go down jumped to me about a week ago. Power went out and it was back online and 30 or 45 minutes later, there's a major thunderstorm. And I'm not gonna say, hey, thank you, data centers, for ensuring this is the case, but the fact that I'm in the vicinity of a data center. Probably means there's an incentive to the ⁓ power company to get the power back on for the entire region.

Speaker 1

You using AI to ask like what to do. Something had happened to me a few weeks ago. My HVAC unit went kaput. And we had like two days where it was ⁓ oppressively hot in my in my home. And for me oppressively hot is 76 degrees. We like to keep it very cold in the Perez household. And when it went out, it was over the weekend, so I wasn't able to to really call somebody to to come. ⁓ I was using Grok. Yeah. I took a picture of the control panel that I have. It basically walked me through all these different things to check. I went outside. It told me how to, you know, turn off the breaker to make sure that, you know, I didn't get electrocuted. I checked everything and then eventually went upstairs and it said to check a very tiny sensor. That sensor was a little wet that the whole thing shut down. So I went and I dried it. And then the next morning I was ready to call a professional just to have them come and check it out. And I said, ⁓ why don't why don't I see if I can turn it on again? And wouldn't you know, it came right back on. So I don't know how much carbon my very helpful conversation with Grok burned, but I'll tell you it's it's been well worth it. Yeah. Yeah.

Speaker 2

I know it's the same thing. Cause it used to be well well in the old days you had to dig up the PDF manual of your HVAC unit or whatever you happen to be using. And then it got to the point that sometimes people were uploading YouTube videos how to repair the ⁓ windshield wiper on your car. ⁓ where where's the the motor for that? And you you could look it up and you could often find useful information, but then you Then you discover, wait, this is for the 2011 model and I have a 2015 model. And it turns out they changed where the motor was located or something. But now you can give very, very precise data and it's like a high-end search engine rather than having to scroll through pages and pages and find, ⁓ well, there's the 2015 models instruction. Grok or your other AI will find that for you in a matter of seconds. Because it's just going over and reading hundreds of websites at really high speed. And that's like, ⁓ well, here's the one that tells you for the two thousand fifteen model.

Speaker 1

Another criticism we we've heard quite a bit when it comes to data centers is they use too much water. The water that they do use might be polluting. With with some of these criticisms, I was thinking like, are people mixing up data centers with fracking? Because the water thing in pr in particular I find really funny because it seems like they don't use all that much water.

Speaker 2

And again, it's an infrastructure signal that's being sent here. So data centers, yeah, what do they do? Water is a coolant, apparently. And ⁓ you got these big server rooms, and what do they do? They generate heat. ⁓ so here's a way to cool it down. Well, yes, water's also a scarce good, especially in certain parts of the country, but we've had this problem in the discussion of water politics for ⁓ at least a couple of decades now, again, tied to the environmental movement. is what they'll do is they'll point out, well, there's a drought in somewhere like Arizona that's well known for its droughts, or there's a ⁓ drought on the West Coast, which is known not only for droughts, but also for terrible water policies that mismanage public resources. In other words, too much government. And then they'll say, well, therefore we need a nationwide policy that says the shower heads that you can install only can have a trickle coming out of them because we all need to save water. And yet If you live somewhere on the east coast that regularly hit gets hit by thunderstorms and that has massive reservoirs and rivers overflowing with water, you're like, well, why are we doing this? ⁓ because someone in California had a ⁓ water shortage. Well, that's been transmitted over into the data center politics. It's like, well, it consumes water. And then you you get this blurred line that ⁓ then they they think fracking, fracking also consumes water. Water must come out dirty. But what they're missing here is you have a data center that has a new water demand. It's just like the electricity. This is a positive market signal to build more infrastructure, to find a new source of water, to ⁓ invest in getting that water to the location that this ⁓ facility is being installed. ⁓ and when you do that, you know, spending money on upgrading the ⁓ the water system that's in place. ⁓ is a net positive, you know, spillover effects for the entire community or region. And the great thing about water is is it basically it renews itself. It goes up into the air and then it falls out of the sky and refills the the previous tank that you you depleted. It's not like it's ⁓ one and done you use water and it goes away forever. No, it it flows into the ocean and then it comes back in another cycle.

Speaker 1

Yeah. And ⁓ there are all these comparisons with, you know, things that you that also use waters, whether whether they be golf courses or the almond industry uses an incredible amount of water and critics and proponents are pointing that out, you know, to to make one argument or the other. And as far as I'm concerned, ⁓ I'm fine with having all of them. I'm fine with keeping the almonds. I love my I love myself a good sprouted almond. I don't play golf, but I'm I'm more than happy that, you know, others enjoy playing it. And ⁓ And yeah, I like I like all the data that I am consuming on the ⁓ on the regular. Exactly. You had brought up ⁓ earlier on the problem with noise. ⁓ apparently they're noisy. I don't live next to next to a data center, ⁓ as far as I know, unless it's a very, very quiet one. Y what is the the deal with noise? And ⁓ that seems like something that would be able to be fixed, right? With some kind of insulation or

Speaker 2

Yeah, yeah. So so the claim is made, and and you know, I watch these videos and you hear about it on the internet that ⁓ especially the really, really large facilities and these are like the giant building that takes up an entire block. Well, you fill it with computers and there are fans in the computers and there are all sorts of other electronic cooling things in the computers, it j it generates kind of like this white noise hum in the background. And yeah, you go to a very large data center and stand right next to the building, you can hear a hum. ⁓ so that's one thing. You know, there are other industries, plenty of other industries that make noise. If you build a steel mill next to the town, that makes noise. If you build a paper plant, that makes noise. You build a car manufacturer, that makes noise. And we don't say, ⁓ well, we're gonna ban the ⁓ automobile factory because it's too noisy. In fact When an automobile factory comes to a town and the ⁓ Ford or someone decides, hey, we're gonna break ground, it's usually the local politicians are up there celebrating. ⁓ we've got this wonderful new factory in our town and it's gonna bring all these jobs and ⁓ and commerce to us. ⁓ turns out it'll be a noisy factory, but ⁓ it has economic good. A and then they switch over to data centers. It's like, ⁓ well, it's creating noise and humming. Now I'm thinking you're just finding things to complain about. And the data centers, again, you know, I I go back to this reference in the the Northern Virginia corridor. It's all built up around Dulles International Airport. So you have these humming noises and they're complaining about that. And yet you got you got an airplane going over every 10 seconds, and that's normal. ⁓ so this tells me it's selective NIMBYism that's playing out here on the Dulles complaint.

Speaker 1

I'd like to see a kind of a Venn diagram. I remember there was like some article, I don't know if it was in the Atlantic or something like that, but it was something like silence or quiet is an expectation of like white supremacy. Right. The natural like hum and sounds of the city. And you know, I would bet quite a bit of money that the same person who wrote that is against data centers.

Speaker 2

That's exactly it. It's it's selective aesthetics.

Speaker 1

So like moving on to the real economics of these data center center projects, I know ⁓ West Virginia seems like they want to make themselves a hotspot for ⁓ for data centers. And one of the pitches is basically using data centers as a way to bring down and eventually eliminate state income taxes.

Speaker 2

And here's the idea. You you it's the same as if you were to bring a factory to the town. Well, that factory pays property taxes. And it means what was previously like barren farmland taxed at the absolute lowest rate because it's there's nothing on it, ⁓ now has a giant factory on top of it. ⁓ well the real estate value's gone up and you know, there's a way to supplement your your local tax base. And ⁓ Kami had this, I'd say I I'm generally against local taxes. Just as I am state and federal taxes. I don't think taxes are good, but the fact that they exist and the fact that we have to have them to fund certain aspects of society means I want a tax system that is the least burdensome overall on ⁓ people in my community as it can be. And if you have a company that's willing to bear that tax burden ⁓ in exchange for building a new factory or a new data center. ⁓ in the town, knowing that they're going to be a profitable enterprise. ⁓ they can absorb some of that taxation. Yes, some of it'll get passed on in prices and other ways to their customers. But you know they're they're they're creating a massive amount of economic value through private enterprise that can sustain a larger tax base and the local community benefits to an extent that they can cut taxes on other things.

Speaker 1

And like I said earlier, it just seems like ultimately the data centers are going to be built. It's just a question of where they are going to be built. And if you're having a lot of states kind of waving bye bye to what is the future, it's gonna I I think it's gonna be a a mistake that they look back on and just feel like idiots. You know, something I wanted to talk about.

Speaker 2

Mm.

Speaker 1

Two, you know, there's a lot of ⁓ conspiracy out there. The idea that either the anti data centers or the pro data center people are kind of running psyops. Yeah. I've I've heard quite a bit that the anti data center people are kind of running psyops, either funded or definitely in favor of China. And because ⁓ China's trying to do you know, similar things and I'm very doubtful there's there's anyone standing in the way of China in China doing what they want to do in China. But I think it brings up just questions about which nation is going to be at the helm in the in the future and then what does that mean for national security?

Speaker 2

And I think there's an interesting set of questions here. I'll I'll preface this by noting, you know, whenever you hear a conspiracy theory, it's a good instinct to be skeptical. In other words, don't attribute to conspiracy that which can be explained by general human incompetence. ⁓ that's a recurring theme. And yet conspiracy theories exist. And I think there's a reason why, a couple of reasons why they've emerged around the data center ⁓ universe at the moment. And the first is, well, it's a it's a relatively new thing on people's radar, even though they had been popping up for a while as a part of the outgrowth of the internet. ⁓ the fact that they're now suddenly everywhere, ⁓ people are like, ⁓ well, this is weird. This has changed. This is something that makes me uncomfortable. ⁓ and so therefore a conspiracy must be afoot. The one area where I think the conspiracy theorists have a little bit of a leg to stand on, well, one of the uses of these data centers ⁓ is Connected to the collection of data. Right. ⁓ and you and you start having all these like license plate reader flock cameras that are popping up everywhere, and surveillance cameras. Well, yes. so one of the services that ⁓ some of these facilities are providing is a ⁓ a storage basis for the information that's coming in from those. And people that are concerned about privacy and civil liberties, I think they do have a legitimate grievance and say, well, wait a minute, well, what's this being used for? Is it To sustain Netflix and make sure Chat GPT answers me quickly? Or is it because there's a license plate reader on every major intersection and it's tracking me as I go around town? ⁓ that latter is a legitimate area of concern, I think, for most people. And it turns out that, well, yeah, if they're providing a government service to surveil us, ⁓ then you start getting into civil liberties concerns. Yeah, you know, search and seizure type things. We can have that discussion, but it doesn't mean that the data center itself is the cause of the cameras. It's often the local government that's doing that. The flip side of it is, you know, you have you raised the national security concern. I think what this is a case of is ⁓ it's a newly emergent industry that has very significant technological upsides to it. And the question is, well, what do you do with that? ⁓ do you try to become competitive in that industry by getting into it on the ground floor? Or do you erect policy obstacles that impede your ability to enter into it? And that's when you start getting these blanket BMs on data centers. This is kind of like blood reaction. I don't think we should build data centers just because China's doing it. I think we should build data centers because I want my internet to be faster. I want AI searches to have greater capability. I want the products that they provide. And that in itself is enough of a market incentive ⁓ to draw firms into the data center industry as we're seeing all over the place. You don't need the federal government to decree we need data centers now. But what we do need is to get federal, state, and local governments out of the way, especially when they're susceptible to some of these stupid reasons for ⁓ not building a data center. ⁓ it's gonna attach the local grid or it's gonna consume too much water or it's making the humming noise. ⁓ these are not sound economic reasons to prohibit a data center. And insofar as some of them are starting to carry the day overlaid with conspiracy theory, ⁓ it's like, well, yeah, you're shooting yourself in the foot and your community in the foot. Because if you ban this in Texas, well, Arkansas, all they have to do is say we're not going to ban them. And suddenly data centers are over.

Speaker 1

Yeah, I definitely think the people trying to build the data centers can do a better job just on the PR front. And you know, when it comes to to PR, it doesn't always for the most part, people aren't as rational as they think they are. It's the right smile sometimes that that that could do it. But I think like a couple of things that they could do on the the PR side would be bribing people. And I don't mean I don't mean bribing politicians or lobbying, but I mean, you know, actually looking at the communities where you're looking to build and seeing what you can offer those communities. Cause if you can offer a beautiful park, a library or scholarships or or any number of things that you can afford. Or jobs. Or jobs. Yeah. Yeah. Exactly. I think that would go over really well. And and I think also just kind of from like an aesthetic standpoint, the the data centers that I've seen, some of them I'm not sure if they're real or they're AI generated because they look kind of dystopian. They're just kind of these boxes.

Speaker 2

⁓ the giant built

Speaker 1

Yeah, and I think you know there's a way to beautify them, you know, to just to change people's perceptions about what these things are going to look like in whatever environment or in outside of town.

Speaker 2

You know, go back to another of these Venn diagrams. We have a large segment of our ⁓ at least political class is celebrating efforts to try to reinvigorate steel mills and these big industrial factories around America. And they have ribbon cutting ceremonies and they dump in all these subsidies. Somehow steel mills. I mean, these are some of the ugliest buildings in the existence of human humanity. ⁓ they're just giant factories with smokestacks and and melted metaling out. That there's no way to make a steel mill beautiful. And yet they have what this presence in the American psyche is if well, if your town gets a steel mill, that's great. And data centers, which you know, the the they're aesthetically un unpleasing in the sense that they're like a giant box that maybe hungs a little bit, but i you know, it's not like it's dumping smog into your local neighborhood like the steel mill. And yet they have this terrible reputation. And the then diagram between people who think steel mills are great and should be subsidized and built everywhere and people who want to ban data centers is almost a complete circle, it seems.

Speaker 1

I would also like to see the Venn diagram of people who were anti data centers who were also pro net neutrality. For those of you who don't who don't remember, net neutrality was supposed to save us from utter doom. You know, it was like, ⁓ you're gonna have to spend a dollar for every email you send out. And ⁓ it turned out nothing happened with ⁓ with net neutrality not being ⁓ not being passed.

Speaker 2

Yeah, and part of that, a big part of that is the fact that ⁓ you know, there are spillover effects of a high consumer demand for a large capacity in speed on the internet. You know, if you you provide that as a service, pretty much everybody benefits from the major corporation that has a need for data flowing into it to local condominium complex to the house around the corner. That can now tap into a high speed data line. And it's often led by the fact that that, yeah, there are large demands for data from a major factor in the local economy, but again, spill over to everybody else. And yeah, and the net neutrality story is exactly that. It was doom saying about how this is going to wreck the internet and it's going to be unfair for everybody within a couple of years. We're always a few years away from the net neutrality apocalypse. Then it never happens. Yeah.

Speaker 1

Yeah. We're still waiting. We hope you enjoyed this episode of Happy Hour Econ. However you're getting it, one day you could get it faster, but until then you're gonna have to wait a whole week for a new episode. We'll see you next week.