Hello ToK Community,

Before I touch on the Job Guarantee proposed by MMT economists, I should briefly go over the concept of "automatic stabilizers" --- I'll use EBT (Electronic Benefit Transfer) --- as an example. EBT has traditionally been referred to as Food Stamps.

Now when asked what "food stamps" are for, people generally say it's to make sure poor people get food. And that's certainly true. But its macroeconomic function is that of an automatic stabilizer. 

Automatic stabilizers can be defined as "...ongoing government policies that automatically adjust tax rates and transfer payments in a manner that is intended to stabilize incomes, consumption, and business spending over the business cycle".

So, for example, say the economy goes into a downturn. Many people lose their jobs, and many of them now qualify for food stamps. Now they take these food stamps to the store and buy food. That spending is simultaneously income for those stores, (which, in turn, can be spent by those stores, becoming the income for others, and so forth).

In short, food stamps help put a floor on spending in the economy. When the economy goes into a downturn, more federal dollars get injected into the economy when needed via this program. That spending becomes income for businesses, which can be used (in part) to start rehiring people. As the economy recovers, and more people go back to work, more people will no longer qualify for food stamps, so less federal dollars are injected into the economy.

In a manner of speaking, people receiving food stamps are "employed" by the federal government as "automatic stabilizers". The "job" is simple: get to the store, and buy food.

Automatic stabilizers are very important to the economy, food stamps being an important example. Automatic stabilizers function to "smooth out" fluctuations in the economy, helping to prevent the economy from spiraling downwards during an economic downturn.

More dollars get injected into the economy during a downturn, less during the upswing --- stabilizing the economy, automatically.

So bear the concept of automatic stabilizers in mind when I write about the Federal Job Guarantee --- which could be thought of as the ultimate automatic stabilizer!

~ Jason Bessey 



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