AI Data Centers, Public Resources,and the Conservative Case for the Commons
The Costs the Invisible Hand Cannot See
R Tamara de Silva
Across the United States, AI data centers are draining public water supplies, redirecting public electricity from residential customers, and imposing costs on communities that had no seat at the table when the decisions were made. Adam Smith, the man most often invoked to justify leaving markets alone, warned in 1776 that this would happen.
Peter Thiel, co-founder of Palantir, Stanford philosophy graduate and Stanford law graduate, pays young people $100,000 to drop out of college. Higher education, he has argued, is a bubble, an overpriced credentialing system that produces conformists rather than innovators. His company’s CEO, Alex Karp, recently put it more bluntly: “Everything you learned at your school and college about how the world works is intellectually incorrect.” Palantir has even launched a fellowship program designed to replace the college experience entirely.
I went to the University of Chicago. The Core Curriculum when I attended did not hand you CliffNotes. It did not offer you the two-paragraph summary of Adam Smith that most business schools serve up alongside a PowerPoint about the invisible hand. At Chicago, you are made to read The Theory of Moral Sentiments, the whole of it, not the convenient excerpts. You read all five Books of The Wealth of Nations, including Book V, which is the one that free-market fundamentalists never seem to get around to. You read them because the university’s founders understood something that Silicon Valley’s dropout evangelists apparently do not: that you cannot know what a thinker actually said if you only read the parts that confirm what you already believe.
It was that education, the rigorous, unfashionable, supposedly unnecessary kind, that made me read the final Book of The Wealth of Nations and recognize what I was seeing when a utility company in Nevada decided that 49,000 residents were less valuable than a row of servers.
There is a particular irony in this. The men who dismiss the liberal arts as irrelevant (and who have made clear they have little use for educated women, but that is neither here nor there) are building the very industries whose unchecked externalities the liberal arts would have taught them to see. Thiel holds a philosophy degree from Stanford, though whether Stanford’s philosophy program required him to actually sit with Smith’s complete texts the way Chicago’s Core required it, I cannot say. Not every institution teaches the whole of a thing.
I can write what follows without apology, and without anyone credibly calling it socialism.
The Importance of Reading the Entire Book
There is an irony worth noting here, and I will note it because no one else seems to. If you ask an AI application to summarize Adam Smith’s The Wealth of Nations, it will very likely give you the invisible hand, the division of labor, the self-interest of the butcher and the baker, and perhaps a nod to free trade. It will give you Books I through IV (maybe). It will, in all probability, not take you into Book V. The AI will do what most economics professors do, what most business school curricula do, what most politicians who invoke Smith’s name at podiums do: it will give you the ending it thinks you came for and leave out the part that complicates the story. LLMs are built this way; they go to the middle, give you the most probable answer, and skip the part that complicates the story, because no one optimized for that either.
So the machines built by the men who tell you not to bother with a liberal education will reproduce the same shallower reading that a classical liberal education exists to prevent. There is a lesson in that, if anyone cares to notice.
If you are going to claim Adam Smith as your authority, if you are going to extoll free market capitalism and invoke the invisible hand as though it were a law of physics rather than a metaphor embedded in a larger moral argument, you should probably read what the man actually wrote. All of it. Including the parts that are inconvenient.
The Part of Adam Smith That Nobody Reads
The popular version of Adam Smith goes something like this- the invisible hand of the market, operating through individual self-interest, allocates resources efficiently, and government interference is almost always a mistake. This is the Adam Smith of bumper stickers, news personalities and op-ed pages. It is also a distortion.
Smith published The Theory of Moral Sentiments in 1759, seventeen years before The Wealth of Nations.
He considered The Theory of Moral Sentiments to be the more important work. In it, he argued that human beings possess an innate capacity for sympathy, a faculty for imagining the experience of others, and that this faculty is the foundation of moral life. Commerce, for Smith, was embedded in a moral order. The invisible hand was never meant to operate in a vacuum. It operated within a society of people who could see one another, who felt the weight of one another’s suffering, and who understood that self-interest unchecked by moral sentiment was not liberty but predation.
And then there is Book V of The Wealth of Nations. In it, Smith argues explicitly that the sovereign has a duty to erect and maintain “those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.”
The Gap in the Ledger
Roads. Bridges. Harbors. Education. The administration of justice. Smith understood, writing in 1776, that markets have structural blind spots. Certain goods must be publicly provided because no private actor has sufficient incentive to supply them.
This was not a minor concession. It was central to his architecture. Smith was describing a category of value that voluntary exchange cannot capture, goods and services that benefit everyone but that no individual buyer would pay for because the benefit is diffuse and the cost is concentrated. The harbor serves the entire trading community, but no single merchant will build it. The road connects a thousand farms to a thousand markets, but no single farmer will pave it. The lighthouse keeps every ship off the rocks, but no single captain will fund it. Left to the market alone, these things simply would not exist.
What Smith identified on the supply side, later economists named on the cost side. If certain benefits are too dispersed for the market to produce, certain costs are too dispersed for the market to prevent. When a factory fouls a river, the factory owner bears none of the cost of the fouled water. The fisherman downstream does. The town that drinks from it does. The children who swim in it do. The cost is real. It is measurable. But it is external to the transaction between the factory owner and his customers, and so the market has no mechanism to account for it.
We have a name for those costs. Economists call them externalities. And the critical thing to understand about externalities is that naming them did not solve them. Smith saw the gap in 1776. We formalized it in the twentieth century. But in 2026, this gap is wider than it has ever been.
What the Efficient Market Cannot Price
The Efficient Market Hypothesis, in its various forms, holds that asset prices reflect all available information. It is a theory about price discovery. It says nothing, and I mean nothing at all, about whether the activities that generate those prices impose costs on third parties who are not participants in the transaction.
Consider what does not show up on anyone’s balance sheet. A data center consumes five million gallons of water per day, the equivalent usage of a town of 10,000 to 50,000 people, and the cost of that water depletion does not appear in the data center operator’s cost of capital. A utility redirects electricity from residential customers to industrial clients because the revenue is better, and the loss of power to 49,000 residents goes unpriced. The carbon emissions from AI training represent an output equivalent to the annual emissions of New York City, and that atmospheric cost is not folded into the subscription fee for the AI service.
These are negative externalities. They are costs that are real and measurable and borne by the public, yet external to the transaction that creates them. The efficient market does not address them because the efficient market was not designed to address them. The invisible hand, as it turns out, cannot see what it was never looking for.
So the question becomes, if not the market, then who?
49,000 People Who Do Not Exist
On May 12, 2026, Fortune reported that NV Energy, the Nevada utility that has supplied most of Lake Tahoe’s electricity for decades, informed Liberty Utilities that it will stop delivering power to the region sometime after May 2027. The reason is straightforward. Google, Apple, and Microsoft are building massive data centers in northern Nevada’s Tahoe Reno Industrial Center, and those data centers are projected to demand 5,900 megawatts at peak capacity. NV Energy has decided to redirect the power to serve them. The 49,000 residents of the Lake Tahoe region, the people whose lights, heat, ski lifts, and casinos have been powered by that utility for generations, will need to find electricity somewhere else.
The CEO of a local consumer electricity advocacy group put it simply: “It’s like we don’t exist.” Think about that.
A regulated utility, an entity that exists under a social compact, that was granted a monopoly franchise on the understanding that it would serve the public, has made a rational economic decision to redirect a public resource to private industrial use. It is doing so because data center clients pay more per megawatt than residential customers. By any measure of shareholder value maximization, it is the correct decision. By any measure of the public trust that is the historical foundation of utility regulation, it is a betrayal.
This is not an isolated case. Between March and June of 2025, community opposition led to $98 billion in data center projects being blocked or delayed across the United States. At least 25 additional projects were canceled in response to local objections. People are pushing back, not because they are socialists, not because they oppose technology, but because they can see what the market refuses to price: the loss of their water, their electricity, their air quality, and their community’s capacity to sustain itself.
The Water No One Talks About
The electricity story gets the headlines but the water story is worse.
Large data centers can consume up to five million gallons of water per day for cooling alone. A single major technology company’s self-owned data centers withdrew 29 billion liters and consumed more than 23 billion liters of freshwater for on-site cooling in a single year. Nearly 80 percent of it was potable water. That consumption has been increasing at 17 to 34 percent annually. By 2028, total annual on-site water consumption by U.S. data centers could double or even quadruple the 2023 level, reaching approximately 150 to 280 billion liters.
Roughly 30 percent of data centers currently under construction are located in regions where water scarcity is expected to intensify over the coming decades.
This is not an abstraction. A finite resource, arguably the most important one we have, is being consumed at industrial scale to cool servers, in regions that are already running out of it. The communities adjacent to these facilities have no say in the transaction. They simply wake up one morning to find that their aquifer is lower, their municipal water costs are higher, and the water their children and grandchildren will need has been evaporated into the atmosphere to train a large language model.
ESG Had Its Moment. Why Did It Fail?
Environmental, Social, and Governance investing was, in theory, an attempt to solve this problem through market mechanisms. The idea was elegant: if investors incorporated externalities into their decision-making, if they demanded transparency about environmental impact, labor practices, and governance structures, the market itself could be made to price what it otherwise ignores.
ESG had its moment. That moment appears to have passed. It has been politicized, litigated, defunded, and mocked. Some of the criticism was fair. ESG scoring had too many disparate lexicons and metrics leading to inconsistency. It was also easily gamed, and prone to greenwashing in part due to not having a universal system of measurement or lexicon.
But the deeper reason ESG failed is structural. It attempted to impose long-term thinking on a system that operates on quarterly earnings cycles. It asked investors to voluntarily accept lower short-term returns in exchange for the preservation of resources they would never personally need. That is a hard sell in any market. In a market that rewards short-termism with promotion and punishes long-term thinking with underperformance, it was probably not going to hold.
The failure of ESG does not mean the problem it tried to address has gone away. It means the problem has no institutional home. The market will not address it. The regulatory apparatus is captured or paralyzed. And the political conversation about it has been reduced to a binary that makes serious discussion nearly impossible.
The Word That Ends Every Conversation
Here is what happens, reliably, when anyone raises the question of negative externalities in American public discourse- someone calls it socialism.
This is not an argument. It is a conversation-stopper, designed to foreclose analysis by associating any concern about public resources with an ideology that most Americans reflexively reject. And it works, not because the association is accurate, but because the accusation carries enough social penalty that most people would rather drop the subject than defend themselves against it.
But let us be precise about what we are actually talking about. Observing that a private company is consuming a public water supply at a rate that threatens the community is not a demand for state ownership of the means of production. Noticing that a regulated utility has chosen to serve corporate clients over residential customers is not an argument for central planning. Asking who bears the cost when private profit depends on public resources is not Marxism. It is, in fact, the most basic question in economics.
If anything, it is a conservative question, conservative in the strict, original meaning of the word. To conserve is to preserve, to protect, to maintain for the future. Public resources like clean water, breathable air, a functioning electrical grid, the stability of the natural systems on which communities depend: these are wealth that belongs to generations that have not yet been born. To allow that wealth to be consumed for private gain, without accounting, without compensation, and without limit, is the opposite of conservatism. It is the liquidation of a shared inheritance.
Edmund Burke would have understood this. Adam Smith did understand it. The question is whether we still can.
Who Takes the Other Side?
The people of Lake Tahoe are taking the other side, one utility rate case at a time. Communities in Indianapolis, Memphis, and across the country blocked $98 billion in data center projects in a single quarter because they could see what was coming for their water, their electricity, and their air. Seventy-eight percent of Americans, not a partisan figure but a supermajority, say they are concerned that new data centers will increase their energy bills.
These are not radicals. They are people doing the math.
But what they lack is a coherent language for talking about the commons, one that is neither socialist nor libertarian, that takes markets seriously while insisting that markets are not the entirety of human life, and that treats the conservation of shared resources as a matter of intergenerational responsibility rather than ideological affiliation.
I am suggesting that this language already exists. It is embedded in the tradition that its loudest modern advocates have forgotten or never read. It is in Book V of The Wealth of Nations. It is in The Theory of Moral Sentiments. It is in the foundational understanding that commerce is a human activity, conducted within a society, and accountable to the moral sentiments of the people who make up that society.
The invisible hand was never supposed to operate in the dark. Adam Smith assumed it would operate in the light, in a society of people who could see one another, who felt obligated to one another, and who understood that the wealth of a nation is not the sum of its private profits but the shared capacity of its people to build and sustain a common life across generations.
The AI boom has made this conversation urgent. The data centers are being built now. The water is being consumed now. The power is being redirected now. And the costs are being absorbed by people who had no seat at the table when the decisions were made.
That is not a market failure in the technical sense. The market is working exactly as designed. What has failed are the institutions and the moral imagination that were supposed to govern what the market cannot.
If we cannot have this conversation without reaching for the word “socialism” every time someone asks a question about who pays and who profits, then we have lost something more valuable than any resource a data center could consume. We have lost the ability to think clearly about the world we are making, and the one we are leaving behind for generations to come.
Sources
Fortune, “Lake Tahoe doesn’t know where its power will come from after next ski season,” May 12, 2026. fortune.com/2026/05/12/lake-tahoe-data-center-49000-residents-power-source/
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Book V, “Of the Revenue of the Sovereign or Commonwealth.” Available at econlib.org/library/Smith/smWN.html
Adam Smith, The Theory of Moral Sentiments (1759).
R Tamara de Silva is the Managing Attorney of De Silva Law Offices, LLC, a financial regulatory law firm in Chicago. She writes on law, markets, foreign policy, and current events at rtamaradesilva.com.