Built-in stabilizers are a type of toolkit designed to forestall the "overheating" of the economic system with an uncontrolled increase in performance. In addition, this economic mechanism allows to avoid or reduce the negative consequences during a recession, without requiring any active action on the part of political or economic management. Often considered on the example of fiscal policy, but may include other types of tools. With some support from the state and proactive actions, it is possible to avoid a situation in which a budget surplus is valid, but economic indicators are declining.
Cycle of economic fluctuations and the place of built-in stabilizers
Perhaps even a person far from economics has heard of Kondratyev’s “long waves”. According to this theory, a constant upward movement, that is, an increase in economic indicators, a reduction in the budget deficit, and an increase in the rate of production, is possible only up to a certain point (peak or upper extremum on the line of economic fluctuation). After this comes the recession. Factories make more than consumers buy, in terms of contentment, labor efficiency is reduced, progress is slowed down. There is a fall, then a recession and a bottom, from which a new rise starts after that. The wave is between the two extremes of this function and can last 60 years, 8 or 2 years, depending on its length.
Where in this circuit is the same "lever"
An automatic stabilizer exists regardless of the position of the political system or the course of the state apparatus. It prevents the acceleration of the onset of "overheating" and softens the fall, which allows to reduce fluctuations to a less acute phase. In practice, this turns an economy with sharp leaps of 8-10 years into a calmer model. However, this is possible only if there is a kind of "feedback" between the selected model of development of the state economy and built-in stabilizers.
Score correlation
That is, such a brake exists regardless of the actions of the government, but its effectiveness and course are in direct correlation. At the same time, it is important to avoid the policy of "tightening the screws", since it contradicts other goals of fiscal tools, stimulating the variability of supply and production volumes.
Budget policy as a “standard” response
What is a budget surplus in plain language? In fact, we are talking about a positive balance of state balance. That is, the country spends less than it receives, because of which a certain supply of money appears. This seems like a very nice indicator, but only up to a point. Without the appropriate redistribution of funds, for example, for benefits, social security, state-owned enterprises or subsidies, it is simply a withdrawal of money from economic circulation, a dead load that will be useless at the stage of inflation. Delay in the decision on this issue will lead to the fact that counterparties will pay taxes, but they will not be spent. In fact, companies simply lose huge capital.
Tax issue
The task of an effective state budget policy is to eliminate the risk of such a scenario. For example, the most simple and successful internal stabilizer is taxation. You can say: "How so, because taxes are set by the state, where is the automatism here?" However, we are talking about a progressive rate, which is considered one of the most effective. If there is a risk of excessive surplus, such a system automatically increases the rate of acquisitions from key players and weakens it during the fall phase in the economic system.
Types and differences of internal stabilizers
There are at least three main categories of leverage for slowing down the economy, namely:
- Taxation. The complex wording “non-discretionary fiscal policy” means only what we have already stated: higher taxes during the rise, and lower taxes during the fall. To this should be added options for retraction, depending on sales, as well as the profits of individuals and corporations.
- Unemployment benefits. It has many options. Returning to the question of what the budget surplus is in simple terms, we can say that this is the unwillingness of the unemployed to work. During the rise, such subsidies are reduced, including the limitation of consumer potential and demand during "overheating," and when they fall, they increase. People receive more from the state, spend more often, which ultimately contributes to the productivity of counterparties, and the goals of fiscal policy are met.
- Budget rules. It makes sense only if the corruption of the state apparatus is at a low level. Such rules are designed to redistribute the budget during various phases of the cycle of economic fluctuations. For example, before the peak state, part of the funds goes to the reserve fund, which will provide a "soft pillow" in the event of a fall. This is possible if capital does not settle in the private sector before the very recession.
Built-in economic stabilizers are designed to bring order to the chaos of any model that is larger than a small household. But if the apparatus does not use such tools to its full potential, then inappropriate expenses appear during the economic recovery, theft of capital, the creation of preferential taxes for key corporations, which must pay more.
The essence of state countercyclical policy
In the year 1862, Clément Jouglard, having analyzed the situation in France, came to the conclusion that the crisis should be regarded as something natural. That is, a decline in the economy will occur in any case, the question is whether the state will be ready for it, and how hard it will affect the state of the model as a whole. Countercyclical policies are designed to increase the effectiveness of internal stabilizers. For example, the abolition of bureaucratic red tape around taxation and the transfer of workflow to virtual space. The efficiency and effectiveness of internal stabilizers will increase. As the money goes to the budget faster, the speed of its distribution also increases. However, directly the anti-cyclical policy itself implies much more various instruments, including those aimed at the elimination of corruption. However, it is impossible to cover all of them within the framework of one article.
Benefits of supporting such a mechanism
The state’s fiscal policy is becoming more efficient and timely - this is the key advantage of supporting internal stabilizers. Instead of downtime, money returns to the economy and makes a profit, and the model starts to work better. The remaining advantages of the "brakes" can be described as follows:
- Efficiency While the bill goes through several readings and adjustments, a progressive tax rate is already working. The device only analyzes the position of key “whales” in the market, and the budget is already being replenished due to a higher connection with “replenished” corporations.
- Wide coverage. The stabilizer corrects the situation as a whole. With effective work, the poor, in conditions of economic decline, do not find themselves in an even more deplorable state, but spend the funds of the reserve fund, which was raised from an excess of capital several years ago.
- No negative effects. In contrast to the double-edged policy of "tightening the screws", stabilizers can correct the situation without critical consequences. Yes, corporations will pay more, but due to increased demand from subsidized consumers, profits will be significantly higher (in the long run).
As you can see, with an effective model for building the policy of the state apparatus, stabilizers can extend the rise and reduce stagnation, which almost always leads to a satisfactory result.