Simple statistics have led to assertions that the artificial intelligence industry’s need for more data centers is the major force for economic expansion in the economy today—with the implication that without them, we’d be in trouble. SPGlobal reported, “Adding up the components outlined above, current estimates suggest that 80% of the growth in final private domestic demand — GDP less net exports, government and inventory — in the first half of 2025 came from data centers and high-tech-related spending.”

Jason Furman of Harvard made the same point, but with a wise addendum: “To be clear, this is not a counterfactual. Absent the AI boom we would probably have lower interest rates & electricity prices, thus some additional growth in other sectors. In very rough terms that could maybe make up about half of what we got from the AI boom.” In fact, we could go much further on what would likely be different without the AI boom.

The money for the AI development and data center construction has come primarily from venture capital—but where would that money have gone without AI? What was the second-best opportunity that VCs would have invested in absent the AI boom? Alternative investments might not have funded data center construction but rather something else. Whatever that something else might have been would stimulate the economy.

In the aggregate, data center development has supported non-residential construction in an otherwise-weak period. Office construction has slumped with soaring vacancy rates. Industrial construction was overblown by a post-pandemic warehouse boom. Retail construction softened on the belief that no one would go to stores anymore. But construction is more local than national in scope. The areas with good electricity availability have attracted data centers with so great a boom that alternative projects have been crowded out. Boise, Idaho, is a good example. Meta’s massive data center project coincided with development of a new Micron chip fab, sucking up skilled electricians and plumbers. Other projects in the region became more expensive and took longer to build. Without the two big projects, other small projects would have been undertaken.

Electricity usage of AI data centers is huge, with construction more concentrated in areas with much available electricity. The ability to locate data centers in specific locations has really helped smooth out the demand. But the electricity supply curve has the usual upward slope: to get more juice, we need to squeeze harder. That raises costs to all users. (The complicated regulatory structure for electricity prices makes this less direct than in a competitive industry, but the truth remains that higher prices are needed to cover higher marginal costs.) Without the AI demand, other electricity users would enjoy lower prices, stimulating more economic activity.

Furman’s tweet noted that without the AI boom, we would probably have lower interest rates. That could have come from a more aggressive Federal Reserve decision to ease. Even without the Fed taking action, though, interest rates tend to drop when the economy softens, as loan demand falls. Similarly, rates rise in a stronger economy.

This is not to say that the total economy would have behaved identically without AI. The end of World War II offers a useful example. Servicemen left the military and flooded the labor market at the same time that defense industries downsized. Many economists and business observers expected a depression. Others thought that pent-up demand would spur appliance production and housing construction. In fact, there was a brief boom with inflation, then a short recession followed by substantial growth. Some government stimulus occurred, but on a much smaller scale than we are used to today. In short, the economy adjusted to the change in underlying demand for goods and services.

The economy has a strong self-correcting tendency, but it does not produce a perfectly stable environment. We may well have had a weaker economy without the AI boom, but it would not have spiraled into disaster. Instead, other sectors would have grown as entrepreneurs found opportunities—opportunities that are not present as the AI sector absorbs resources.