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.
