The companies that stand to benefit from a widespread use of AI are peddling all sorts of justifications  | Photo Credit: GCSHUTTER

Everyone thinks there is only one gorilla in the room, namely, AI. Actually there are two. The second is the absence of policy instruments to tackle the massive unemployment that awaits societies because of AI. But while everyone is hyperventilating over AI, there is pin drop silence over the absence of options before governments.

Meanwhile, the companies that stand to benefit from a widespread use of AI are peddling all sorts of justifications. The most intellectually grounded of these is the Jevons Paradox.

William Stanley Jevons was a 19th century British economist who said that the invention of the steam engine, which used coal more efficiently, would result in higher coal production and consumption, not less. That is, less coal per steam engine would lead to more engines being bought.

Microsoft’s Satya Nadella might not have heard of Jevons until recently but he used the paradox to say that AI would have a similar impact and that unemployment would not increase. Instead, it would increase. Others are recalling Joseph Schumpeter who said this sort of thing was inherent to capitalism and that it was good.

This may well happen, eventually, even though the IT boom of the 2000s didn’t lead to any great and permanent increases in productivity that later led to greater employment. There are several studies that show this.

However, even though the past need not always be an infallible guide to the future, we do need to ask: even if AI increases the efficiency of capital-use and that gives better returns to shareholders, what will it do to, and for, labour, especially in the medium term? If 10 programmers are replaced by one AI application, the cost saving will increase the dividends to shareholders by some amount but what of the 10 people who are now wondering how to pay their bills?

Bye bye, Maynard

John Maynard Keynes, the most influential macroeconomist to have lived after Kautilya, said governments must spend money even if they didn’t have it to create demand that would, in turn, create employment. But country after country gradually has forgotten that Keynes had a very specific situation in mind, namely, that of reviving deficient aggregate demand to utilise installed capacity.

As a result of this amnesia, led by the Left which has co-opted the religious Right, the Keynesian solution for reviving demand has gradually turned into massive welfare spending. This is not something that Keynes ever intended, although he is believed to have said that money should be put in people’s pockets even if it was just for digging holes in the ground.

To cut a long story short, because of this self-serving use of Keynes by politicians, we now have unsustainable levels of government debt in far too many countries. Debt now looms menacingly over the world.

Before 1968, government debt and unemployment were not linked. Now they are. For a while higher government debt did bring down unemployment. But not anymore. The goose that laid the golden egg for politicians has died.

The IMF has therefore been getting horror nightmares. It is mumbling away that there is no paddle to row out of this creek. But as I said above, no government is paying a blind bit of attention to its grumbling.

Finance ministers may occasionally warn the heads of their governments that their goose will be cooked but it’s not having much effect. Deficit financing to win some political advantage over rivals remains very much the go-to solution.

No money left

The most devastating example of this came after the Atlantic financial crises of 2008 (as Rakesh Mohan, former deputy governor of the RBI, rightly calls it). Globally, governments have spent a few trillion dollars that they didn’t have in the name of social security and welfare.

Now even that option has vanished because it’s not going to help. It has become like firing blanks in the air: there’s a lot of noise and smoke but the problem doesn’t go away.

The world has over eight billion people now. Around half of them are of working age. But barely over a quarter of those four billion are employed on a full-time basis. The rest are self-employed earning basically subsistence wages.

Even without AI we are talking of at least two billion people who need income and other forms of support. This is Karl Marx’s “reserve army of the unemployed”. They constitute not only an economic challenge but a social and political one as well. In India, this situation will worsen quickly as we have already fallen below the population replacement rate. That is, India will almost certainly grow old before it gets rich.

To meet these challenges a lot of money is needed. Money that’s no longer available to governments.

If 10 programmers are replaced by one AI application, the cost saving will increase the dividends to shareholders but what of the 10 people who are now wondering how to pay their bills?

Published on June 15, 2026