It's a great time to be in the electricity generation business. You can’t open any major news site without reading about the nation’s insatiable demand for electricity to power artificial intelligence (AI), cryptocurrency mining, self-driving cars, and all the other marvelous new technologies of tomorrow. Getting this electricity to where it is needed will be monstrously difficult, because—unlike generation—the power transportation business is not very attractive. The solution is simple, but it flies in the face of market dogma: use public funds only to satisfy truly public needs, even if the resulting resource allocation is not “efficient” in the academic economic sense.
Public infrastructure is a losing investment strategy. Why should anyone pay to build a new highway or power transmission cable if everyone else can use it free of charge? The government is supposed to represent us as a group in situations like this, but we feel the same way about paying the taxes needed to make that work: Why should I pay for services that are free to all the bums out there? If you’re rich, this argument seems even more persuasive, because you can afford your own private everything, from parks to police to healthcare. Classical economic theory assures us that this is fine so long as no one is made worse off by allowing a few people to be made better off. If I build a private park your kids can’t play in, it’s perfectly reasonable if I don’t bulldoze your public park to do it.
Source: Openverse
Economic theory also tells us that any product can be placed into one of four squares in a two-by-two matrix. Along one axis we find rival versus nonrival goods. If I buy a car, it is no longer available for anyone else to purchase. Cars have high rivalry. On the other hand, any number of people can subscribe to a newspaper and receive the same product for an identical fee. Newspaper subscriptions have low rivalry. Along the second axis of the grid are excludable versus nonexcludable goods. I can buy a house and prevent you from living there by locking the door. Houses are excludable goods. It is, however, difficult to prevent anyone from fishing in the ocean, no matter who claims the place on a map. Fishing rights are nonexcludable goods.
The transportation sector makes extensive use of toll-based financing. Roads have low rivalry and low excludability. There are only so many ways to get from Point A to Point B, and the government is forced to use eminent domain to seize private property for most new road projects. The same can be said for power transmission cables, and our demand for electricity is growing so much faster than our demand for mobility that land use conflicts for power projects have become a serious issue. No one wants infrastructure in their backyards. Renewable electricity production is land-intensive—roughly an order of magnitude greater than for fossil fuel power generation. Large renewable power plants are thus built farther away from population centers and require correspondingly longer transmission systems.
A fast-growing trend is to solve this power transmission problem by co-locating renewable power generation and high-demand power consumption, especially in remote areas where land is cheap. Servers for AI training and meme coin mining can connect to the cloud using the best new technology money can buy. The rest of us can make do with our old, fraying cables and coal plants for mundane matters like keeping the lights on and the refrigerator cold. What was formerly a nonexcludable good has now been made private. And the public is paying for that privatization in the form of tax incentives for data center expansion. Thirty-six states currently have such legislation on the books.
A more just allocation of public resources is to incentivize power production and transmission projects that benefit all citizens by meeting their most critical needs. We need more robust power networks to combat demand surges occurring during more frequent heat waves. We need to replace oil and gas furnaces with heat pumps. We need more reliable Internet service for home education and remote work. What we do not need is to pay for an energy-hogging bot that helps your kid cheat at school. We might actually need him/her to make rational judgements and informed decisions someday—even if the power goes out on our rickety public grid.