Macroeconomic impacts of AI
surviving tech companies to focus on sound business models and profitability. 15 These historical examples highlight a pattern: technological disruption is often painful in the short term but has historically led to net job creation and improved living standards in the long run.
Part IV: government policy and economic debate If AI does reduce the demand for employment, then an alternative solution to fund people’s welfare will be needed. Academic research has explored new ways of funding a UBI (Universal Basic Income) from the profits of AI capital. One working paper explores the scenario in which AI profits could sustainably finance a UBI without additional taxes or new job creation. In a ‘worst-case scenario’ where no new jobs are created, AI systems would need to achieve approximately 5-6 times existing automation productivity to fund a UBI equivalent to 11% of GDP. Raising taxes from 15% to 33% on automation means AI would only need to be 3 times more effective and still deliver the required funds for UBI. The research also suggests that when a small group of firms control most advanced AI systems, the larger economic rents they generate make it easier to fund a UBI through corporation tax. 16 Of the main schools of economic thinking, Keynesian economists support measures such as UBI where stimulating consumption is believed to stabilize the economy in a downturn, theoretically leading to the multiplier effect. The counter view of the Austrian School would say any government intervention in the free market would drive unintended consequences. However, technology-driven economic and social change has always required some level of government action to ensure a safe transition to a new model, e.g. cutting interest rates after the dot com bubble burst. Despite these theoretical arguments and some positive findings from pilot programs UBI faces significant criticism. Critics argue that UBI is prohibitively expensive and that giving every person in the UK £1,000 per month would cost £835 billion a year which is almost four times the budget of the National Health Service. There are concerns that UBI could decrease motivation to work and lead to ‘passive dependency’ with recipients taking more leisure time rather than investing in new skills or starting businesses. 17 Critics such as Robert Greenstein of the Centre on Budget and Policy Priorities argue that UBI could increase poverty by reallocating funds from targeted, means-tested programs to universal payments, thereby ‘redistributing income upward’. 18
Recognizing the challenges associated with UBI, other policy proposals have emerged to address the potential for technological unemployment. One proposal is a robot tax, a use of fiscal policy that would
15 Lessons from Dot-Com Era: Thriving in Today's AI Boom | Intel Ignite. https://intelignite.com/lessons-from-dot- com-era/. 16 An AI Capability Threshold for Rent-Funded Universal Basic Income in an AI-Automated Economy – arXiv https://arxiv.org/html/2505.18687v1. 17 Universal Basic Income Is Not the Answer if AI Comes for Your Job 2025. https://www.cato.org/commentary/universal-basic-income-not-answer-ai-comes-job. 18 Universal Basic Income (UBI) | Pros, Cons, Debate, Arguments, & Income Equality | Britannica. https://www.britannica.com/procon/universal-basic-income-UBI-debate.
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