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A governor’s data-center about-face… welcome to the “Messy Middle”… a sixth Prisoner’s Dilemma?… Luke’s 2028 countdown and how we’ll track it
As we reported here in the Digest last Wednesday, New York Gov. Kathy Hochul became the first governor to sign a law pausing the construction of new hyperscale AI data centers.
And yet, the very next day, The Verge reported that Hochul said her administration is using AI to review “every single rule, regulation, and policy” on New York’s books – a process she says would have taken five years but can now be accomplished in just a few months.
If you’re sensing a contradiction, you’re not alone.
New York wants AI’s productivity – just not the infrastructure required to produce it.
Now, Hochul isn’t confused, and she isn’t unusually hypocritical.
She’s standing at the edge of an enormous, uncharted AI-based transformation. So, she’s trying to hold two things at once that both sound reasonable, yet don’t fit together.
She’s not alone – the coming months and years will usher in a wave of elected officials forced into that same impossible split.
I don’t think we’ve felt this kind of vertigo before. But history has.
Imagine a weaver in Manchester, England, in 1820…
He’s spent 20 years mastering his craft – like his father and grandfather before him.
Then a factory opens down the road. Inside, a machine – tended by a worker with none of his skill – produces more cloth in a day than he can make in a month. It’s not long before his trade is worthless.
He can’t compete with the machine, so he goes to work in the factory that replaced him, for wages that barely keep his family fed, in a town that grew too fast to build proper housing, sanitation, or anything resembling the life he had before.
He’s watching, in real time, the thing that economists will spend the next two centuries calling “an extraordinary leap forward in human productivity.” But from where he’s standing, it’s hell.
This Industrial Revolution transition in Britain continued for roughly 50 years – the entire working life of a generation, and then some. Wages stagnated even as output surged. Riots broke out as displaced workers turned their anger on the machines themselves.
Only after this period – after enough dislocation had run its course, after society slowly built the institutions and norms to absorb the shock – did wages finally start rising alongside productivity again, and quality of life improved.
Economic historians call that gap “Engels’ Pause.”
Yes, the optimists of that era were eventually proven right – industrialization did, in time, lift living standards.
But not for workers in that 50-year messy middle.
Are we standing at the start of our own Pause?
Not a repeat – the specifics will look nothing alike. And its length could be shorter.
Still, the shape of it might rhyme. Real gains from AI could arrive on one timeline, while the mess of displacement, backlash, and adjustment arrives on a completely different one.
I’m calling this stretch “The Messy Middle.”
We’ve spent plenty of Digests arguing about the destination – whether AI ends in abundance or disaster. We’ve spent less time discussing what’s right at our doorstep today – the in-between part that we’ll live through no matter which ending turns out to be right.
Over the coming months, I’m going to dive into this – not on a fixed schedule, but whenever a real-world story presents a clean example of the trade-offs this transition is forcing on us.
And that’s really what the Messy Middle is about: when competing priorities collide, what do we choose – and are we ready for what that choice costs us?
The reality of what Hochul chose
Economist Thomas Sowell famously observed, “There are no solutions, only trade-offs.”
Today, we want cheaper energy, community stability, lower living costs, and all the ways technology promises to make life better.
But we can’t have them all, right now, in equal proportion. Some must be prioritized above others.
New York just showed us which side of that collision it’s willing to sacrifice. It gave up the potential for the longer-term productivity gains, jobs, and tax-base increases that the data centers would have delivered in exchange for the short-term benefit of preventing disruption and higher electricity prices.
The moratorium’s own architects effectively stalled a proposed $19.4 billion data center project in Genesee County. This is a real, named example of what “potential productivity gains” means in dollars.
Not right or wrong – simply a prioritization.
But Hochul isn’t the only one making this choice…
Democratic Pennsylvania Gov. Josh Shapiro – a 2028 presidential hopeful – initially embraced the data center boom in his state. When the public pushback mounted, he reversed course:
We need to be selective about the projects that get built here.
But it’s not confined to blue states. Texas Gov. Greg Abbott, a Republican who governs the most data-center-friendly state in the country, has separately called for a ban on data centers in rural parts of his state.
(To be fair, Abbott’s targeted ban focuses strictly on keeping facilities out of residential and rural neighborhoods, but it leaves the door open for continued massive development in more suitable, high-capacity industrial corridors).
Hochul, Shapiro, Abbott. Both parties. Three states. Not identical moves, but the same direction – within months of each other.
That’s not a “just New York” story. That’s a pattern.
How your portfolio might be affected right now
New York isn’t a major data-center market today, especially compared to Virginia or Texas. But more than 12 gigawatts of future data-center capacity is sitting in line waiting to connect to the state’s grid – and that pipeline just got a lot less certain.
The immediate investment implications are fairly narrow. Analysts have already flagged Equinix (EQIX) and Digital Realty (DLR) for their meaningful exposure to New York’s data center market.
But that’s not the bigger takeaway. The bigger question is whether this becomes the first domino…
If permitting, environmental opposition, and electricity concerns begin slowing AI infrastructure projects across multiple states, investors will have to reassess how quickly portions of the AI buildout can proceed.
Of course, political resistance in one state doesn’t stop AI. It often just pushes investment somewhere else. The bigger question – the one for us to watch – is whether isolated pushback eventually becomes a broader national movement.
The longer-term way your portfolio might be affected
This broader dynamic reminds me of something we discussed here in the Digest back on April 6…
Regular Digest readers may recall how I laid out five Prisoner’s Dilemmas running through the AI economy – cases where every individual actor makes the locally rational choice, yet the sum of those choices produces an outcome that nobody wants.
Hochul, Shapiro, and Abbott just handed us a sixth.
To be fair, it’s not a clean Prisoner’s Dilemma – plenty of states, Texas and Virginia among them, still see the economic upside as worth the cost and keep building. But that’s exactly what makes this worth watching…
Blocking data centers is becoming the more politically rewarding move.
No governor will be viewed as wrong to protect their own constituents from a real, immediate cost. But if enough of them start to, the country ends up under-building the very infrastructure necessary for the long-term payoff.
It’s the same logic as April’s dilemmas, just wearing a political mask instead of a corporate one.
This is why, in response to Hochul’s decision, Pennsylvania Sen. John Fetterman wrote on X, “China wins.”
Of course, choosing data centers isn’t painless either…
If every governor welcomes them with open arms instead, it will be their own constituents who absorb the higher bills, strained water supplies, and the general disruption.
Someone, in some way, must bear the cost.
Remember – there are no solutions, only trade-offs.
Which brings us to Luke Lango’s countdown clock
Luke – our technology expert and the editor of Innovation Investor – has been tracking this dynamic from a much broader perspective.
As we’ve discussed here in the Digest, Luke believes the biggest long-term risk to the AI boom isn’t a technological failure, demand collapse, or even a recession.
It’s politics.
Specifically, he believes a populist backlash against AI will steadily build as rising electricity bills, AI-related job displacement, and widening wealth inequality become more visible – ultimately reaching a tipping point around the 2028 election cycle.
Here’s Luke:
The force that will derail the AI Boom is not a technological failure, demand collapse, or even a recession.
It is politics – specifically, a populist backlash against AI that is already building momentum, fueled by the growing economic pain hitting American households right now.
Hochul’s decision doesn’t prove Luke’s timeline, but I do think it’s the sort of evidence worth keeping a running tally of.
Three governors. Two political parties. The same underlying tension has emerged within months.
That’s not proof, but it’s not random either.
To be clear, none of these changes affect Luke’s investment outlook today. In fact, he remains firmly bullish on the next several years:
This trade will not last forever. Like everything, it has an expiration date.
Make your money now. The window for transformational wealth creation in this AI cycle is the next two to three years.
But his countdown clock is ticking.
So, here are the two investment lenses I’ll keep returning to when we explore aspects of this Messy Middle…
Lens 1: Which side of the productivity/disruption tradeoff is a given state or company protecting – and does your portfolio have exposure to the side that just got harder?
Lens 2: Is the news of the week pushing Luke’s political clock earlier, or giving it more breathing room?
This isn’t hypothetical anymore
So far in today’s Digest, the disruption we’ve covered is electricity hikes and permitting delays. Not exactly 1820s Manchester.
Or is it? Just earlier in the cycle?
This June, federal prosecutors charged five people with conspiracy to commit murder over a foiled plot targeting a UFC event on the White House lawn. Investigators say the group cited data centers “taking up all the water in communities,” among their grievances.
In April, a man threw a Molotov cocktail at OpenAI CEO Sam Altman’s home, then walked to the company’s headquarters and threatened to burn it down.
And in Indianapolis, a city councilman had 13 rounds fired into his home after voting to approve a data center in his district – with a note reading “No Data Centers” left under his door.
Researchers who track political violence are now studying this directly. One analyst told Newsweek the shift from corporate executives to local officials is a “substitution effect” – as CEOs gain security details, the anger doesn’t disappear; it moves toward softer, more exposed targets: city council members and township officials with no protection and a public home address.
Compare that to the weaver in Manchester…
Displaced anger aimed at whatever stands closest to the machine. Same mechanism, new machine.
Now, keep one thing in mind…
This is all happening as this Messy Middle is barely becoming visible, and unemployment is still historically low.
What might this suggest for what lies ahead?
Welcome to the Messy Middle
I don’t know exactly where AI ends up. Neither does anyone else, honestly, no matter how confidently they say otherwise.
But I do think the next few years – the journey, not the destination – is what will matter most for your portfolio. That’s what this series is for.
So, every time AI forces two legitimate values into conflict – jobs versus productivity, electricity versus innovation, privacy versus convenience – we’ll use the Messy Middle framework to think through what matters for your portfolio.
One twist…
I’d like you to be a part of it with me – sharing your own thoughts, insights, and perspectives. If you have any on today, send them to me at ipdigestfeedback@investorplace.com.
Have a good evening,
Jeff Remsburg
(Disclosure: I own DLR)
