Stronger automatic stabilizers
can be thought of as decreasing the coefficient c in the AD relationship.
As a consequence, the automatic stabilizers
that are in place can function as intended.
A prudent 2002 budget including automatic stabilizers
to control spending in the face of revenue shortfalls would also be seen positively.
7 percent-of-GDP increase in the budget deficit was the result of the economic downturn, as the automatic stabilizers
Another strong reason to improve cyclically adjusted net lending as the economy approaches a normal and an expansionary phase is to provide a greater margin both for so-called automatic stabilizers
and for active measures to counter the next economic downturn.
The Stability and Growth Pact was designed so that countries would be able to let automatic stabilizers
Among other things, the focus on the reduction in the deficit brought about by legislative action, rather than the level of the deficit per se, eliminates the need for policy adjustments to offset the effects of changes in economic conditions and thus allows the automatic stabilizers
to function as intended.
Fortunately, this year's budget has included automatic stabilizers
and the government has cut expenditures consistent with these provisions, thereby buttressing investor confidence.
Keynesian economics worked: if not for stimulus measures and automatic stabilizers
, the recession would have been far deeper and longer, and unemployment much higher.
Finding a way through this thicket of adhering to medium-term fiscal discipline while allowing not only the automatic stabilizers
but maybe even some deliberate counter-cyclical short-term fiscal policy to operate is very difficult.
Moreover, the usual automatic stabilizers
of unemployment benefits and reduced income tax collections will do nothing to offset this fall in demand, because it is not caused by lower earnings or increased unemployment.
We tend to think of automatic stabilizers
in textbook Keynesian terms, but a new automatic stabilizer
for the United States is the interaction between long-term interest rates and mortgage refinancing.