The ‘Bazooka’ Strategy: A Reuters Analysis on How Government Policy Could Fend Off an AI Jobless Crisis

The tone of the artificial intelligence debate has changed in both policy offices and trading floors. What started out as a well-known tale of increased productivity now has a tinge of fear. Market data illuminates screens as analysts discuss a scenario that seems both far-fetched and strangely real: a wave of white-collar displacement that is coming more quickly than governments can react. Though the suggested solution, sometimes referred to as a fiscal “bazooka,” sounds dramatic, the anxiety that underlies it stems from something commonplace: the worry that paychecks will disappear before new employment is found.

Early tremors are suggested by recent labor data. Unemployment has increased more dramatically in industries that are implementing AI the most aggressively, such as software services, publishing, and telecommunications. Even though the increases are small, they are noticeable enough to frighten investors who are already beginning to fear that demand will collapse. Markets seem to be afraid of the spending void that could result from widespread job losses rather than the technology itself. Reductions in household spending result in lower profits, slower investment, and a vicious cycle.

The “lump of labor fallacy,” which holds that labor is not a fixed pie, is a common argument made by economists. Automation has historically reduced expenses, freed up income, and eventually produced new jobs. Employment persisted despite the replacement of typists by computers and artisans by textile mills. History, however, rarely goes as planned. When observing the current shift, it’s difficult to ignore how rapidly software is replacing once-secure tasks like writing code, editing videos, and drafting legal memos. Even though the destination might not be different, the pace feels different.

An “underconsumption” spiral, in which demand declines, wealth concentrates among capital owners, and displaced workers spend less, is what some analysts warn of. Although evidence from previous technological revolutions indicates that productivity gains typically increase output rather than decrease it, the theory echoes earlier criticisms from the early critics of industrial capitalism. Real incomes could increase even for people who never use the technology directly if AI significantly lowers the cost of services like accounting, design, and diagnostics. But that promise hinges on managing the shift rather than enduring it.

The bazooka strategy is based on the straightforward finding that money can be produced more quickly than jobs. Governments gave trillions of dollars to economies that had all but collapsed during the pandemic. Demand increased again. Companies reopened. At the time, the lesson was apparent: policy can fill the void left by spending collapse. A completely different question is whether political systems still have the desire for such intervention.

The mood was altered by inflation. Following the price spike in 2022, deficit spending lost its political appeal. Despite signs of a softening labor market, central banks maintain high interest rates because they don’t want to make the same mistakes again. Officials emphasize credibility and stability in their carefully worded remarks. Whether they would use aggressive stimulus to counter a slow, diffuse AI shock, which lacks the urgency and visual drama of a pandemic lockdown, is still unknown.

Within the circles of central banking, a philosophical split is also beginning to form. According to some policymakers, unemployment brought on by increases in productivity might not necessarily indicate a weak economy. Demand-side stimulus may run the risk of rekindling inflation without creating jobs if output increases while fewer workers are required. The implications of that seemingly technical argument are stark: society may have to choose between maintaining price stability and protecting jobs.

The discussion feels more visceral outside of policy circles. Professionals experiment with AI tools that generate reports in seconds in suburban kitchens and coworking spaces. Both productivity and unease increase. One feels both excitement and a silent reassessment of one’s own value as they watch this play out. Like income, work has a long-standing structured identity. A disturbance affects both.

Governments have some authority. While the economy adjusts, wage subsidies, retraining programs, public works projects, and targeted tax relief could lessen shocks. If implemented properly, these steps could even hasten the development of new sectors centered on ethics, human-machine cooperation, and AI oversight. If done incorrectly or too late, they run the risk of escalating social tension and inequality.

Investors appear to be torn between hope and fear. Markets have historically benefited from productivity booms, but abrupt changes in employment can lead to political backlash and regulatory disruption. In this way, the bazooka strategy aims to maintain economic confidence in general as well as worker protection.

The story of the AI job apocalypse may eventually give way to a more subdued reality of changing roles and increasing productivity. However, it is unclear if policymakers are ready for the human pace of the transition as they pass office towers with fewer lights burning late into the evening. Technology advances rapidly. Trust is the speed at which livelihoods, demand, and confidence move.