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What are Automatic Stabilizers?
Malcolm Tatum
Malcolm Tatum
An automatic stabilizer is some element of the economy that can help to counter some activity of the business cycle that threatens to bring the national economy off balance in some manner. They are often used by governments to maintain a balance in the internal economy, though they can also be used to keep a company on an even keel.
It should be noted that automatic stabilizers are more or less employed without any direct intervention by the government. Instead, they function as a means of adjusting governmental expenditures when the current business climate calls for some sort of a change. For example, increased receipts related to the function of welfare programs would result in an adjustment to the government expenditure for this line item in order to maintain the program properly. At the same time, decreasing receipts from the employment rate within a country would mean the increase of unemployment compensation that is paid out, in order to deal with the tendency of the economy to go into a recession.
Automatic stabilizers are built into the governmental structure. As such, they do not require any action on the part of the government to enact any new laws or pass a bill through a governing body in order to obtain the desired result. This natural response to current economic conditions helps to ensure that necessary adjustments can happen in a timely manner, and not be bogged down by the sometimes long process of obtaining authorization to transfer funds in order to meet an immediate need.
For the most part, automatic stabilizers go unnoticed by the general public, although those who are assisted by the shift certainly are aware that their situation is not as deeply affected by a change in the economy. By allowing for this automatic adjustment in tax revenues and governmental operations, automatic stabilizers make it possible for the vast majority of citizens to weather the change will relative ease.
Automatic stabilizers do not successfully combat extreme changes in the economy. The main function of automatic stabilizers lies in the range of minor shifts that could negatively impact one section or another of the economic classes represented among the populace. In the event of a major shift in the economy, governments generally respond with legislation that provides for more severe cuts of government funding in some areas in other to meet the challenges that have appeared in other areas.
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
Learn more...
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
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Discussion Comments
Crispety- These are different times that we live in and we have to be more careful about the people we elect to office.
With the record deficits that we have many Democrats are still having trouble with the concept of slashing the budget and reducing costs.
We can not continue to spend the way we do with no consequences. The Chinese are holding significant amounts of our debt and what would happen if they suddenly called our debt and wanted payment?
We really have to take control of our countries finances and solve this debt problem immediately because most Americans are worried about the future of our sovereignty and nation as a whole.
The American people are also worried that our children and grandchildren will not have much of a future if we don’t reign in spending.
It also think that for the first time people that were normally too busy to follow politics are now realizing how important politics is and I don’t think that they will be making that mistake again.
GreenWeaver-I have heard of the quantitative easing and I am uncomfortable about it. Glenn Beck had a show the other day talking about this very thing.
He detailed what things would cost in the future if we get hyperinflation. He added that the interest rates go through the roof making it very expensive to borrow money.
He explained that America will have to offer higher interest rates to bond holders so that they will buy our debt and the only way to entice them is to raise the interest rate significantly enough.
Also, he added that the inflation that we would see would be unprecedented. For example, a Hershey’s chocolate bar might cost $15.00, for a single bar.
A container of Foldgers coffee could cost $62.00 and a quart of milk could be $48.00. With prices like these Glenn Beck stated that about a fourth of people in the United States would not be able to afford food and riots may ensue. It was a really scary scenario and one I hope does not happen.
Oasis11- I agree with you that 99 weeks of unemployment insurance is way too much. But I think that the government is trying too many economic stabilizers and actually making the economy worse.
The other day the Federal Reserve pumped $550 billion dollars in the economy as a monetary policy referred to as quantitative easing of the money supply.
This was in efforts to revive the economy; however it actually destabilizes the dollar and devalues it. When that happens inflation is inevitable because the value of the dollar is substantially less.
This is already happening today. The cost of sugar, coffee, orange juice, milk have gone up from 20% to 50% over the few months. This additional printing of money will cause hyperinflation. In the early 70’s there was hyperinflation and a small bag of sugar was $5.00 back then.
Anon17440-I do not know the answer to your question but I have to say that while economic stabilizers are a good idea to a degree, they can be overused.
To date we are offering unemployment compensation for up to 99 weeks. That is almost two years!!! While the economic times are dismal and many companies are not hiring, there are jobs available.
It may not be the jobs that one would like to take, but nonetheless they are available. A lot of people are waiting until the end of their unemployment in order to seek work. The government is essentially paying people to stay home.
Also, the longer you remain unemployed the harder it is to look for work because future employers will want to understand the gap in employment. However, knowing that you will be paid for 99 weeks does not give you the incentive to go out and look for work.
Are automatic stabilizers affected by an economy's increased spending on imports sold at a lower price? If so, how?
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