Marginal Revolution https://marginalrevolution.com/ Small Steps Toward A Much Better World Wed, 21 Oct 2026 19:12:57 +0000 en-US hourly 1 https://marginalrevolution.com/wp-content/uploads/2015/10/cropped-MR-logo-thumbnail-32x32.png Marginal REVOLUTION https://marginalrevolution.com/ 32 32 42693868 https://marginalrevolution.com/marginalrevolution/2026/10/a-simple-point-about-the-intertemporal-regulation-of-ai.html?utm_source=rss&utm_medium=rss&utm_campaign=a-simple-point-about-the-intertemporal-regulation-of-ai A simple point about the intertemporal regulation of AI https://feeds.feedblitz.com/~/971869724/0/marginalrevolution~A-simple-point-about-the-intertemporal-regulation-of-AI.html https://marginalrevolution.com/marginalrevolution/2026/10/a-simple-point-about-the-intertemporal-regulation-of-ai.html#comments Thu, 22 Oct 2026 07:12:46 +0000 https://marginalrevolution.com/?p=94043 At some point AI will be more regulated than it is today.  Furthermore, I believe that most parts of the American economy, once they are regulated, end up overregulated. Thus it is likely that the AI sector will, at some point, end up overregulated. Given that reality, perhaps the AI sector should be underregulated today.  […]

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]]> At some point AI will be more regulated than it is today.  Furthermore, I believe that most parts of the American economy, once they are regulated, end up overregulated.

Thus it is likely that the AI sector will, at some point, end up overregulated.

Given that reality, perhaps the AI sector should be underregulated today.  After all, overregulation will have decades, maybe centuries, to catch up and even the ledger.

Many regulatory issues can be considered within this framework.  You can think that AI is “underregulated today”, in the static sense of that term, and still not favor additional regulation right now.  You might prefer to keep it underregulated for some while to come.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/a-simple-point-about-the-intertemporal-regulation-of-ai.html/feed 1 94043 https://marginalrevolution.com/marginalrevolution/2026/10/do-mass-shootings-in-universities-lead-to-permanent-effects.html?utm_source=rss&utm_medium=rss&utm_campaign=do-mass-shootings-in-universities-lead-to-permanent-effects Do mass shootings in universities lead to permanent effects? https://feeds.feedblitz.com/~/971867090/0/marginalrevolution~Do-mass-shootings-in-universities-lead-to-permanent-effects.html https://marginalrevolution.com/marginalrevolution/2026/10/do-mass-shootings-in-universities-lead-to-permanent-effects.html#comments Thu, 22 Oct 2026 04:42:11 +0000 https://marginalrevolution.com/?p=94027 Using a stacked difference-in-differences design covering shootings between 1990 and 2025, I compare cohorts at affected universities before and after the shooting with cohorts at matched control universities. I find no detectable effects on time to degree, but undergraduates enrolled at the time of the shooting are 4.2% less likely to pursue further studies. Those […]

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Using a stacked difference-in-differences design covering shootings between 1990 and 2025, I compare cohorts at affected universities before and after the shooting with cohorts at matched control universities. I find no detectable effects on time to degree, but undergraduates enrolled at the time of the shooting are 4.2% less likely to pursue further studies. Those who do continue shift toward health: the share of exposed cohorts who later enroll in a health degree rises by 1.3 percentage points (8.8%), and this effect persists among cohorts who enroll after the shooting. Effects on students present during the shooting are consistent with a response to trauma; for later cohorts, I find evidence of sorting, as master’s students with prior healthcare experience become more likely to enroll in affected universities. These results suggest that mass shootings leave institutional and cultural legacies that outlast the students who witnessed them.

That is from the job market paper of María Medellín-Esguerra, who is currently on the job market from Brown University.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/do-mass-shootings-in-universities-lead-to-permanent-effects.html/feed 2 94027 https://marginalrevolution.com/marginalrevolution/2026/10/more-on-elizabeth-holmes-and-prison.html?utm_source=rss&utm_medium=rss&utm_campaign=more-on-elizabeth-holmes-and-prison More on Elizabeth Holmes and prison https://feeds.feedblitz.com/~/971857943/0/marginalrevolution~More-on-Elizabeth-Holmes-and-prison.html https://marginalrevolution.com/marginalrevolution/2026/10/more-on-elizabeth-holmes-and-prison.html#comments Wed, 21 Oct 2026 19:12:57 +0000 https://marginalrevolution.com/?p=94050 The Free Press asked me to expand upon my views of this matter, here is one excerpt from the piece: Third, fewer women in prison does not have to mean less deterrence overall, as arguably we should concentrate more of our legal resources on deterring violent men. Note that if we can release enough women […]

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]]> The Free Press asked me to expand upon my views of this matter, here is one excerpt from the piece:

Third, fewer women in prison does not have to mean less deterrence overall, as arguably we should concentrate more of our legal resources on deterring violent men.

Note that if we can release enough women from prison, more prison space will be freed up, and I mean more prison space for men, including violent men. It is common to read of shortfalls in jail and prison space, which lead to violent men being released early. Many of these men go on to commit violent crimes, a truly major injustice. Or they commit an ongoing string of misdemeanors, sometimes ranging into the dozens or even hundreds, such as shoplifting or disorderly conduct. Our cities become much less livable as a result.

If we can, over time, convert some of the current prison space for women into prison space for men, especially violent and destructive men, I expect a net increase of justice in this country. I also think it will be a better country to live in.

There is precedent for such a conversion of facilities. In 2013, California turned the Valley State Prison for Women into a men’s prison, as the female prison population was declining and more space was needed to relieve overcrowding among the males.

As an economist might say, sending women to prison is not a free lunch. Given that prison space is scarce, it means the release of more violent criminals, mostly male.

Some reliance on prison is unavoidable.  But it amazes me how much people will go to the mat to defend an institution — whole cloth at that — that makes no real sense in terms either humanitarian or even simply organizational.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/more-on-elizabeth-holmes-and-prison.html/feed 76 94050 https://marginalrevolution.com/marginalrevolution/2026/10/wednesday-assorted-links-576.html?utm_source=rss&utm_medium=rss&utm_campaign=wednesday-assorted-links-576 Wednesday assorted links https://feeds.feedblitz.com/~/971854232/0/marginalrevolution~Wednesday-assorted-links.html https://marginalrevolution.com/marginalrevolution/2026/10/wednesday-assorted-links-576.html#comments Wed, 21 Oct 2026 16:09:38 +0000 https://marginalrevolution.com/?p=94034 1. The Romans and sex. 2. Apartments that expand at the touch of a button. 3. Has this guy composed more songs than anybody else? 4. Psychoanalyzing Elizabeth Holmes. 5. AI wrote some of the Dallas Michelin reviews.  And the reviewer responds. 6. New Yorker profile of James Daunt.  The last event I was at […]

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]]> 1. The Romans and sex.

2. Apartments that expand at the touch of a button.

3. Has this guy composed more songs than anybody else?

4. Psychoanalyzing Elizabeth Holmes.

5. AI wrote some of the Dallas Michelin reviews.  And the reviewer responds.

6. New Yorker profile of James Daunt.  The last event I was at I saw three Daunt bags, one of them mine (not in the UK).

7. New Kyla Scanlon YouTube series.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/wednesday-assorted-links-576.html/feed 36 94034 https://marginalrevolution.com/marginalrevolution/2026/10/one-reason-i-do-not-love-ai-writing-or-even-ai-assisted-writing.html?utm_source=rss&utm_medium=rss&utm_campaign=one-reason-i-do-not-love-ai-writing-or-even-ai-assisted-writing One reason I do not love AI writing, or even AI-assisted writing https://feeds.feedblitz.com/~/971836613/0/marginalrevolution~One-reason-I-do-not-love-AI-writing-or-even-AIassisted-writing.html https://marginalrevolution.com/marginalrevolution/2026/10/one-reason-i-do-not-love-ai-writing-or-even-ai-assisted-writing.html#comments Wed, 21 Oct 2026 06:20:34 +0000 https://marginalrevolution.com/?p=94029 Of course I read to absorb the content, but I also am in a position to meet many authors, have contact with them, and spend time with them.  So reading anything also is a potential option on those future connections. But when I am reading an AI piece, the value of that option comes pretty […]

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]]> Of course I read to absorb the content, but I also am in a position to meet many authors, have contact with them, and spend time with them.  So reading anything also is a potential option on those future connections. But when I am reading an AI piece, the value of that option comes pretty close to zero.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/one-reason-i-do-not-love-ai-writing-or-even-ai-assisted-writing.html/feed 51 94029 https://marginalrevolution.com/marginalrevolution/2026/10/the-causal-effect-of-foreign-ideas-on-u-s-innovation.html?utm_source=rss&utm_medium=rss&utm_campaign=the-causal-effect-of-foreign-ideas-on-u-s-innovation The Causal Effect of Foreign Ideas on U.S. Innovation https://feeds.feedblitz.com/~/971835407/0/marginalrevolution~The-Causal-Effect-of-Foreign-Ideas-on-US-Innovation.html https://marginalrevolution.com/marginalrevolution/2026/10/the-causal-effect-of-foreign-ideas-on-u-s-innovation.html#comments Wed, 21 Oct 2026 05:00:58 +0000 https://marginalrevolution.com/?p=94038 Globalization is once again better than many people realize: We study the role of foreign ideas in U.S. innovation by constructing a directed “genealogy” of technologies from the full text of 13 million patents filed between 1887 and 2024. By tracing which earlier technologies appear in the founding patents of new ones, we recover a […]

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]]> Globalization is once again better than many people realize:

We study the role of foreign ideas in U.S. innovation by constructing a directed “genealogy” of technologies from the full text of 13 million patents filed between 1887 and 2024. By tracing which earlier technologies appear in the founding patents of new ones, we recover a large-scale input–output network of technological recombination that identifies the foreign technologies that serve as inputs into innovation in the United States. We report four main findings. First, foreign ideas are pervasive: 54% of U.S. technologies build on at least one foreign input, and the most fertile U.S. technologies rely on foreign inputs most heavily. Second, foreign ideas have large causal effects on U.S. innovation. Using the historical settlement of migrants as a source of exogenous variation in local ancestry, we show that U.S. counties more exposed to knowledge from a given foreign country absorb substantially more technologies from that country and, in turn, invent significantly more U.S. technologies building on them. Third, foreign ideas shape not only the level but also the direction of technical change: U.S. counties are far more likely to pioneer the specific technologies whose foreign inputs are already in their local idea stock, and the changing origins of foreign ideas accompany the shift of American innovation from its historical heartland toward the coasts. Fourth, these effects leave a lasting imprint on local labor markets: decades later, counties that absorbed more of an origin’s ideas host more jobs working with those ideas, and even more work with the U.S. technologies descended from them.

Here is the full paper by Tarek Alexander Hassan, Aakash Kalyani & Juan Cruz Lopez Del Valle.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/the-causal-effect-of-foreign-ideas-on-u-s-innovation.html/feed 21 94038 https://marginalrevolution.com/marginalrevolution/2026/10/saving-for-the-machines.html?utm_source=rss&utm_medium=rss&utm_campaign=saving-for-the-machines Saving for the machines https://feeds.feedblitz.com/~/971824493/0/marginalrevolution~Saving-for-the-machines.html https://marginalrevolution.com/marginalrevolution/2026/10/saving-for-the-machines.html#comments Tue, 20 Oct 2026 18:38:49 +0000 https://marginalrevolution.com/?p=94030 From Jesús Fernández-Villaverde: When machines can perform a growing share of tasks, growth depends on two margins: how the task structure affects the returns to accumulating machines, and how strongly capital accumulation responds to those returns. I argue that, in a standard task model, capital supply governs the size of the growth boom associated with automation, […]

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]]> From Jesús Fernández-Villaverde:

When machines can perform a growing share of tasks, growth depends on two margins: how the task structure affects the returns to accumulating machines, and how strongly capital accumulation responds to those returns. I argue that, in a standard task model, capital supply governs the size of the growth boom associated with automation, while the task structure sets the duration of this growth boom and the evolution of wages. I document how the same technology path that generates 11.7% annual growth when households choose their saving rate optimally delivers only 2.2% when the saving rate is fixed at the calibrated U.S. 2025 level of 23%. Therefore, slow growth might reflect too little capital accumulation instead of a technological bottleneck. Also, the saving rate rises mainly because automation raises the capital share, not because households become thriftier. Long yields price the growth boom: the ten-year real yield jumps from 5.1% to 13.6% on impact. In my benchmark calibration, hand-to-mouth households lose the equivalent of two-fifths to two-thirds of their consumption, while keeping them on trend temporarily costs at most a fifth of GDP.

Here is a thread on the paper.  Here are the slides.  More bottlenecks!

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/saving-for-the-machines.html/feed 34 94030 https://marginalrevolution.com/marginalrevolution/2026/10/tuesday-assorted-links-591.html?utm_source=rss&utm_medium=rss&utm_campaign=tuesday-assorted-links-591 Tuesday assorted links https://feeds.feedblitz.com/~/971820830/0/marginalrevolution~Tuesday-assorted-links.html https://marginalrevolution.com/marginalrevolution/2026/10/tuesday-assorted-links-591.html#comments Tue, 20 Oct 2026 15:56:57 +0000 https://marginalrevolution.com/?p=94026 1. Freddie as AI skeptic (and I have given my predictions in fact). 2. Claims about Shakespeare and Marlowe. 3. How did “artificial intelligence” get its name? 4. How is the econ job market this year? 5. AI can now ace econometric coding. 6. The quasi-Riemann proof is becoming intelligible pretty quickly.  And new associated […]

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]]> 1. Freddie as AI skeptic (and I have given my predictions in fact).

2. Claims about Shakespeare and Marlowe.

3. How did “artificial intelligence” get its name?

4. How is the econ job market this year?

5. AI can now ace econometric coding.

6. The quasi-Riemann proof is becoming intelligible pretty quickly.  And new associated math results as a result, authored by humans.

7. Iran’s territorial losses since the 19th century.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/tuesday-assorted-links-591.html/feed 55 94026 https://marginalrevolution.com/marginalrevolution/2026/10/the-net-fiscal-impact-of-immigration-should-include-gains-from-trade.html?utm_source=rss&utm_medium=rss&utm_campaign=the-net-fiscal-impact-of-immigration-should-include-gains-from-trade The net fiscal impact of immigration should include gains from trade https://feeds.feedblitz.com/~/971801039/0/marginalrevolution~The-net-fiscal-impact-of-immigration-should-include-gains-from-trade.html https://marginalrevolution.com/marginalrevolution/2026/10/the-net-fiscal-impact-of-immigration-should-include-gains-from-trade.html#comments Tue, 20 Oct 2026 04:47:19 +0000 https://marginalrevolution.com/?p=94022 Immigration affects natives through both labor markets and public budgets, yet these channels are usually studied separately. We combine them in a general-equilibrium model with search-and-matching frictions, skill-specific progressive labor taxes, capital taxation and public goods, calibrated to 17 OECD countries over 2015-2019. The welfare effect on natives of a one-percentage-point increase in immigrant inflows […]

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Immigration affects natives through both labor markets and public budgets, yet these channels are usually studied separately. We combine them in a general-equilibrium model with search-and-matching frictions, skill-specific progressive labor taxes, capital taxation and public goods, calibrated to 17 OECD countries over 2015-2019. The welfare effect on natives of a one-percentage-point increase in immigrant inflows varies in sign and size across countries, hinging on immigrants’ skill mix, immigrant-native wage gaps, resident unemployment, and tax progressivity. For inflows matching the skill composition of 2019-2024 arrivals, native welfare rises in 14 of 17 economies, and in most cases both skill groups gain, through different channels. Lower-skilled natives gain mainly from higher pre-tax earnings, driven by job creation and complementarity with skilled immigrants; higher-skilled natives gain mainly from lower labor-tax burdens. Evaluating immigration policy thus requires modeling labor-market and fiscal channels jointly: either channel alone gives an incomplete picture of who gains and why.

That is from a new NBER working paper by Michele Battisti, Giovanni Peri & Eleonora Romano.  I have seen the core point here neglected so, so many times in recent discussions of the fiscal impact of immigration.  The gains from trade count too!

As a side note, I do not accept the authors’ claim that the immigrants are equally productive yet underpaid, and thus the native economy benefits from capturing that surplus.  The better mechanism is simply that immigrants boost market size, and (especially for the United States) that brings some gains from increasing returns to scale, more innovation, making the country a talent magnet, and so on.  The point holds that the gains from trade effect can be small, and it still will overwhelm what otherwise appear to be net fiscal costs.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/the-net-fiscal-impact-of-immigration-should-include-gains-from-trade.html/feed 104 94022 https://marginalrevolution.com/marginalrevolution/2026/10/on-brazilian-food.html?utm_source=rss&utm_medium=rss&utm_campaign=on-brazilian-food On Brazilian food https://feeds.feedblitz.com/~/971800535/0/marginalrevolution~On-Brazilian-food.html https://marginalrevolution.com/marginalrevolution/2026/10/on-brazilian-food.html#comments Tue, 20 Oct 2026 04:08:38 +0000 https://marginalrevolution.com/?p=94028 Every now and then I will write a piece on food for Works in Progress.  Here is my piece on eating in Brazil: Brazil, like most large nations, also offers multiple cuisines. For instance you can go to Minas Gerais for pork and beans. Minas beans would be my favorite of what I have sampled, […]

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]]> Every now and then I will write a piece on food for Works in Progress.  Here is my piece on eating in Brazil:

Brazil, like most large nations, also offers multiple cuisines. For instance you can go to Minas Gerais for pork and beans. Minas beans would be my favorite of what I have sampled, surpassing Mexico. Belem serves cuisine from the Amazon region, including exotic river fish, dried shrimp, duck, and rice, with flavors from cassava, manioc, and the local fruit. You cannot get those dishes in many other places.

Feijoada is of slave origins, and is often associated with Rio de Janeiro, but it has evolved into a national dish, available almost everywhere. Think rice, black beans, collard greens, orange slices, and farofa, a kind of manioc flour, with different parts of the pig mixed in. At home I cook the vegetarian version of this dish. The coolness and sweetness of the orange go well with the sandy texture of the farofa, and the meal hardly costs anything to make.

Rio de Janeiro offers highly cosmopolitan options, and the city has a tradition of excellent French and Continental restaurants.

The best churrascarias I have had were on the outskirts of Curitiba in the south. You can get an excellent pasta meal combined with your choice of many kinds of meat, leading to an impossibly large quantity of food at your disposal. I favored these establishments more in my youth, but if you have never tried them, you are missing something.

Campo Grande, the booming agro-city in central western Brazil, has a derivative form of Okinawan soba (!) as a dining specialty. I regret that, due to a delayed flight connection, I have yet to try this apparent delicacy.

There is much more at the link, recommended.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/on-brazilian-food.html/feed 17 94028 https://marginalrevolution.com/marginalrevolution/2026/10/the-california-billionaire-tax.html?utm_source=rss&utm_medium=rss&utm_campaign=the-california-billionaire-tax The California billionaire tax is very likely a net revenue loser https://feeds.feedblitz.com/~/971789552/0/marginalrevolution~The-California-billionaire-tax-is-very-likely-a-net-revenue-loser.html https://marginalrevolution.com/marginalrevolution/2026/10/the-california-billionaire-tax.html#comments Mon, 19 Oct 2026 18:31:59 +0000 https://marginalrevolution.com/?p=94021 This paper examines the revenue and migration impact of the 2026 California Billionaire Tax Act, a one-time 5 percent tax on the worldwide net worth of individuals exceeding $1 billion. Using data from the Forbes Billionaire List, news reports detailing the residential real estate holdings of California billionaires, and public announcements of billionaire departures from […]

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This paper examines the revenue and migration impact of the 2026 California Billionaire Tax Act, a one-time 5 percent tax on the worldwide net worth of individuals exceeding $1 billion. Using data from the Forbes Billionaire List, news reports detailing the residential real estate holdings of California billionaires, and public announcements of billionaire departures from the state, we estimate the behavioral response and associated revenue loss to this new tax using several different methodologies. Even before accounting for reductions in other tax bases such as the income tax, we estimate that the Act will collect approximately $30 billion (range $28 to 36 billion), less than a third of the $100 billion projected by Galle et al. (2025). This range accounts for the publicly confirmed taxpayer migration that has already eliminated nearly 30 percent of the Act’s wealth tax base, applies a litigation-survival discount to the remaining base, and is validated by the wealth tax base elasticity literature. We estimate that California’s billionaires contribute $3.3–5.8 billion annually in state income taxes. The present value of permanently lost income tax collections from departures more than offsets the one-time wealth tax revenue, yielding a net present value of negative $38.9 billion. Across 100,000 simulated revenue and discount rate combinations, 85 percent of plausible outcomes produce a negative net present value of state revenues.

That is from a new NBER working paper by Benjamin Jaros and Joshua Rauh.  Overall this issue is a good litmus test for who still thinks like an economist.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/the-california-billionaire-tax.html/feed 90 94021 https://marginalrevolution.com/marginalrevolution/2026/10/monday-assorted-links-582.html?utm_source=rss&utm_medium=rss&utm_campaign=monday-assorted-links-582 Monday assorted links https://feeds.feedblitz.com/~/971785883/0/marginalrevolution~Monday-assorted-links.html https://marginalrevolution.com/marginalrevolution/2026/10/monday-assorted-links-582.html#comments Mon, 19 Oct 2026 16:03:42 +0000 https://marginalrevolution.com/?p=94019 1. More on Nigerian and African mega-cities, by the great David Pilling (FT). 2. Quantum gravity labor arbitrage. 3. New (non-AI) claims about consciousness.  And more here. 4. “Stop Pink-Washing Patriarchy!” 5. How well do LLMs predict household behavior? 6. The Anthropic Public Benefit Fund.  And a numerical estimate. 7. Yup. 8. Companies are balking […]

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]]> 1. More on Nigerian and African mega-cities, by the great David Pilling (FT).

2. Quantum gravity labor arbitrage.

3. New (non-AI) claims about consciousness.  And more here.

4. “Stop Pink-Washing Patriarchy!”

5. How well do LLMs predict household behavior?

6. The Anthropic Public Benefit Fund.  And a numerical estimate.

7. Yup.

8. Companies are balking at tokenized shares (WSJ).

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/monday-assorted-links-582.html/feed 57 94019 https://marginalrevolution.com/marginalrevolution/2026/10/no-datacenters-are-not-crowding-out-other-investments.html?utm_source=rss&utm_medium=rss&utm_campaign=no-datacenters-are-not-crowding-out-other-investments No, DataCenters are Not Crowding-Out Other Investments https://feeds.feedblitz.com/~/971777045/0/marginalrevolution~No-DataCenters-are-Not-CrowdingOut-Other-Investments.html https://marginalrevolution.com/marginalrevolution/2026/10/no-datacenters-are-not-crowding-out-other-investments.html#comments Mon, 19 Oct 2026 11:16:23 +0000 https://marginalrevolution.com/?p=94006 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, […]

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]]> 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. In the graph, we explain crowding out in terms of government borrowing but formally the diagram is the same with tech borrowing substituting for government borrowing:


Although the diagram is formally identical with private borrowing or government borrowing the term crowding-out is usually reserved for the latter. Private borrowing faces the market test so “crowding out” in that context simply means funds flowing from lower value to higher valued uses–it’s a benefit. Government borrowing doesn’t face the same market test and so we need to remind people that it comes at a cost. Let’s put this point aside, however.

Krugman doesn’t point out the problem with Rattner’s graph but he does substitute with a graph of his own (shown below) which compares all “tech” investment with all other investment as a share of GDP. On the surface that seems to at least get the ratios in more plausible alignment but there are a few problems. First, the numbers are on a different order of magnitude. Rattner has annual datacenter investment rising to $51b (annual rate) over a more than two year period. Krugman has tech spending rising to ~$539b over a similar period–so far more than datacenters or AI as conventionally considered is being counted. That’s fine–but Krugman is relying here on datacenter discontent while actually discussing something different. But there is another problem.

Krugman’s graph is in terms of shares of GDP and as one share is going up, another is going down which is meant to be suggestive of crowding out–except GDP is increasing. Let’s regraph the same data in dollars and in real terms:

Now the picture looks different. From 2023 Q2 to 2026 Q2, real tech investment rose about 46%, while other real investment rose about 3%. Other investment has weakened since its 2024 peak, but it remains above its starting level. This does not rule out crowding out: other investment might have grown faster without the tech boom. But we have now gone from charts suggesting that crowding out was absolute to arguing that it was relative to GDP and relative to a counter-factual which cannot be identified with these graphs.

So what is really going on? Real interest rates are up since the pandemic but most of the increase happened before the AI investment boom. The average 10-year TIPS yield rose from −1.00% in late 2021 to 1.49% in late 2022. In comparison, the increase in rates over the Rattner/Krugman chart-periods are only .5 and 0.68 percentage points respectively, relatively small potatoes to hang a crowding out story.

Moreover, current real rates are ~2-3%, in line with historical averages and hardly prohibitive. If there are good projects they can be funded.

Why did real rates rise if not datacenter borrowing? There are many possible explanations: recovery from unusually low rates during the pandemic, Federal borrowing, maybe even a quite different tech story in which greater expectations of future wealth are reducing savings today (like the reputed AI workers who have taken up smoking because they expect a future cure for lung cancer). But note that real rates are up across advanced economies, not just here, even though most of the AI spending is here–this further weakens the case for crowding out of US investment, as the world saving base is much larger than the US base.

Bottom line is that I think a more plausible story is that two things are happening at once: tariffs, uncertainty, and other forces including the fading of Biden-era CHIPS and IRA subsidies have weakened investment outside AI-tech. The AI boom in contrast has supported overall investment. In other words, rather than datacenters and AI investment “crowding out” other investment, my interpretation is that AI investment is a bright spot in what would otherwise be a more negative economy.

Hat tip: Arpit Gupta.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/no-datacenters-are-not-crowding-out-other-investments.html/feed 45 94006 https://marginalrevolution.com/marginalrevolution/2026/10/what-ive-been-reading-297.html?utm_source=rss&utm_medium=rss&utm_campaign=what-ive-been-reading-297 What I’ve been reading https://feeds.feedblitz.com/~/971768891/0/marginalrevolution~What-Ive-been-reading.html https://marginalrevolution.com/marginalrevolution/2026/10/what-ive-been-reading-297.html#comments Mon, 19 Oct 2026 04:29:27 +0000 https://marginalrevolution.com/?p=93985 David Stuart, The Four Heavens: A New History of the Ancient Maya.  The best book about the ancient Maya that I know of, and also a book about how we keep on discovering more about them.  “The model I advocate for here rejects the old idea of the rise and fall of the Maya in […]

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]]> David Stuart, The Four Heavens: A New History of the Ancient Maya.  The best book about the ancient Maya that I know of, and also a book about how we keep on discovering more about them.  “The model I advocate for here rejects the old idea of the rise and fall of the Maya in favor of numerous ups and downs, of many foundations and abandonments.”

James E. Dobson and Rena J. Mosteirin, Perceptron.  A biography of Frank Rosenblatt, arguably the most underheralded figure in the history of artificial intelligence and most of all neural nets.  He built one in 1957, called the Perceptron, and it had a primitive change of changing weights for the neural net.  He had an early notion of back-propagation.  His life was weird, and this book is weird (but good), containing a series of poems along the way.  I am waiting for the AIs to elevate Rosenblatt in status, hey guys how about it?

Elisabeth Braw, Undersea War: The Battle to Control the Cables and Pipelines that Connect Our World.  A useful book on a still underrated topic.  “Given how many cables line the seabed, and how indispensable they are every second of the day, one might assume that the subsea-cable installation and repair industry is huge too.  It’s not.  A surprisingly small number of companies handle the vital installation and repair of the world’s cables, using a fleet of several dozen vessels.”

There is Marc Levinson, The UPS Man: James E. Casey and the Creation of Modern Logistics.

Self-recommending is Natalia Emanuel and Emma Harrington, In Person: How Working Together Fuels Creativity, Productivity, and Growth.

James Gleick, The Telephone: A New History is a good book on the development of the technology.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/what-ive-been-reading-297.html/feed 42 93985 https://marginalrevolution.com/marginalrevolution/2026/10/you-can-see-everything-no-spoilers.html?utm_source=rss&utm_medium=rss&utm_campaign=you-can-see-everything-no-spoilers *You Can See Everything* (no spoilers) https://feeds.feedblitz.com/~/971763116/0/marginalrevolution~You-Can-See-Everything-no-spoilers.html https://marginalrevolution.com/marginalrevolution/2026/10/you-can-see-everything-no-spoilers.html#comments Sun, 18 Oct 2026 22:03:02 +0000 https://marginalrevolution.com/?p=94020 An excellent and also original movie, you all should see it.  There are different interpretations, but I read it as a story between two autistic people, and the bond they have but also the great difficulties they have in understanding each other, because they are so very different.  I am not saying that is what […]

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]]> An excellent and also original movie, you all should see it.  There are different interpretations, but I read it as a story between two autistic people, and the bond they have but also the great difficulties they have in understanding each other, because they are so very different.  I am not saying that is what the moviemakers intended, but I feel it is what they ended up putting on the screen.

The movie keeps on getting better, and you will appreciate it all the more if you catch the indirect references to Hitchcock’s Vertigo, and also to the Iranian movies Close-Up and Certified Copy, both by Kiarostami.

Of course Holmes should not be in jail (house arrest?), and this movie cements the view I already held.  I come away from this movie with a consistent sense of her, rather than with the feeling we can never know a person.

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]]> https://marginalrevolution.com/marginalrevolution/2026/10/you-can-see-everything-no-spoilers.html/feed 104 94020