As students of economics, we often study the idea of negative externalities in theory — pollution, congestion, overuse of scarce resources — but this article made me realise how real and complex those ideas become in practice. It explains how major tech companies, in their race to build massive AI data centres, are consuming millions of gallons of water every day for cooling. In places already facing drought, this has led to shortages for nearby communities. However, what makes this topic so fascinating is the dilemma it presents. These same companies — Meta, Google, Microsoft — are also at the heart of the AI revolution, developing innovations that could bring long-term benefits for society: better healthcare, automation, education, and jobs. Their data centres also create employment in regions that were previously struggling economically. So, while they’re creating negative externalities for the environment, they’re also generating positive externalities for human progress.
It made me think about how difficult it is, even for policymakers, to decide where the balance lies. Should governments regulate and restrict water use to protect the environment or allow firms to expand in the name of innovation and growth? It’s not a simple question of “right or wrong.” In many ways, this represents the trade-off between allocative efficiency (using scarce water resources wisely today) and dynamic efficiency (investing in technology for the future).
Source: Business Insider
