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macro economics Allah shmoop automatic stabilizers Yeah it's a fancy

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phrase All right You're on a long road trip Your

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foot is cramping your butts falling asleep You just want

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to find a different sitting position for a while right

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Well it's a straight road No one else is in

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sight So you turn on cruise control Whether you know

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it or not you just activated some automatic stabilizers Yeah

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a long winded way to get there right Well the

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cruise control works by letting the car make little micro

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corrections to its speed all the time It doesn't turn

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your late nineties Honda into a driverless car All that

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way I could do that would just crash Eventually you

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still need to hold on to the wheel You still

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need to watch the road You still need to avoid

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the temptation to curl up in the driver's seat and

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take us news but it's not necessary to work the

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break or the gas or the engine keep the car

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going at your chosen speed either Right Well automatic stabilizers

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in the economy works much the same way Their policy

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conditions that make tiny adjustments that work against the main

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economic trends right there Stabilizing them well were generally talking

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about things here like in a welfare payments and tax

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policy and stuff like that Well those little nano economic

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movements help ease the way when bad things happen Like

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fake soften the upside when all is humming along and

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they softened the downside when you know everything from the

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bed Well surprise recession surprised Bad economic news Automatic stabilizers

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Goto work How well they go there in the form

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of transfer payments and taxes that more or less kick

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in automatically All right Example time the economy hit the

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skids but food stamp payments automatically go up Why Well

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because Mohr people in bad times need them than that

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Down Shock gets mollified and people get a little bit

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more comfy in their new position Begin spending money again

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And then that old multiplier effect kicks in throughout the

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economy And then things were turned around We're going the

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other direction Well Additionally unemployment compensation helps lessen the fall

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of an otherwise you know crappy economy Right More people

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apply for it They get insurance payments more money they

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start spending and the multiplier affecting does its thing Well

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the bump in the road is less likely will become

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a major recession then because the additional government payouts known

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as transfer payments basically from the wealthy to the poor

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provide some demand support for business right It's a self

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fulfilling spiral of unemployment that then gets avoided and we

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didn't have those in the thirties and well this is

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what a soup line look like And this was fashion

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in the barrel motif that was the original Ralph Lauren

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barrel Automatic stabilizers can have the opposite effect as well

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The economy is doing great maybe too great like we're

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afraid of inflation The growth machine is pumping so strong

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that well money is getting float around the mall choir

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facts and all kinds of dangerous things are happening and

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financial bubbles are becoming a real possibility Well never fear

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Automatic stabilizers come to the rescue in the form of

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progressive taxation to draw money out of the system Taxes

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hit The rich are hardworking or talented way more than

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they hit the poor Those progressive taxes take a bigger

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percentage bite out of those doing well in a good

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economy versus those doing just so So in a good

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economy right We'll automatically those progressive tax payments reduce the

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money supply and put a partial break on the economy

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when income and GDP are on a tear Well these

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policies aren't necessarily put into place to become stabilisers when

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politicians passed unemployment laws or welfare plans Their gold doesn't

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have to be to counter act some future economic downturn

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like they might just do it to be quote nice

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unquote or to you know keep getting elected We'll leave

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their motives up to you But politicians are politicians Yeah

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well once these policies air in place they work without

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any human intervention to counter act the prevailing trend in

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the economy So let's just bring it back to that

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road trip for a minute You start heading down a

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hill with your cruise control on somewhere in the car's

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computer Well something tells the breaks toe firm up of

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it The courage just to the added gravity and well

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keeps the car speed constant Well when you start heading

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up the next hill the gas automatically than edges into

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action keeping things on even keel as you push upward

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well there's a limit to the effect of automatic stabilizers

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you can't count on cruise control to make the right

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decision If you run into a big curve or you'll

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end up flying over the edge of a cliff like

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that guy to avoid trouble there well you'll have to

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get back in the action there Hit the break in

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steal the car yourself well Similarly automatic stabilizers aren't going

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to prevent a major meltdown or a massive sudden overheating

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of the economy If conditions get way out of whack

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Policy makers politicians or the Federal Reserve then probably have

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to step in to prevent things from getting worse And

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well they just mitigate the fallout by manually adjusting those

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automatic stabilizers well over the normal course of things Straight

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road No other cars ahead The automatic stabilizers keep things

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more or less on track and otherwise when weird things

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happen you know mankind has to get back involved in

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managing the economy Good luck with that

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