ECONOMIC STABILIZER

any of the institutions and practices in an economy that serve to reduce fluctuations in the business cycle through offsetting effects on the amounts of income available for spending (disposable income). The most important automatic stabilizers include the progressive income tax, unemployment compensation and other transfer payment programs, farm price supports, and family and corporate saving. Income tax collections, for example, decline automatically with gross taxable income during a recession; the effect is even stronger under a progressive tax system in which tax rates go down or up as the individual's income falls or rises. Unemployment insurance benefits and other public-assistance payments, which rise automatically as unemployment increases during recessions, help maintain purchasing power. Farm price supports similarly help maintain farm income when farm product prices are falling. The reluctance of families to reduce their living standards also acts to maintain consumer demand during recessions, provided they are able to draw upon savings. Corporations also tend to maintain their ordinary dividend payments out of savings. Some stabilizers are considerably more effective on the downswing than on the upswing. There is little evidence, for example, that consumers hesitate to increase spending in good times. Also, government payments that increase in time of recession do not always decline after economic recovery. any of the institutions and practices in an economy that serve to reduce fluctuations in the business cycle through offsetting effects on the amounts of income available for spending (disposable income). The most important automatic stabilizers include unemployment compensation and other transfer payment programs, farm price supports, and family and corporate savings. The ultimate objective of research into the problems of economic instability (including fluctuations in output, employment, and prices) is to provide the foundation for stabilization policythat is, for the systematic use of fiscal and monetary policies to improve an economy's performance. The main tasks, therefore, are to explain how levels of prices, output, and employment are determined and, on a more applied level, to furnish predictions of changes in these variablespredictions on which stabilization policy can be based. Additional reading Good introductions to the study of business cycles include Erik Lundberg (ed.), The Business Cycle in the Post-War World (1955, reprinted 1986); R.C.O. Matthews, The Business Cycle (1959, reissued 1967); Robert Aaron Gordon, Business Fluctuations, 2nd ed. (1961); Alvin Harvey Hansen, Business Cycles and National Income, expanded ed. (1964); and Henri Guitton, Fluctuations et croissance conomiques, 3rd ed. (1970). Famous surveys of business cycle theories are Joseph A. Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, 2 vol. (1939, reprinted 1982); and Gottfried Haberler, Prosperity and Depression, 5th ed. (1964). J. Tinbergen, Statistical Testing of Business-Cycle Theories, 2 vol. (1939, reissued 2 vol. in 1, 1968), attempts to verify by econometric analysis the theories surveyed in Haberler's work. The nontheoretical approach to business-cycle research is set forth in Arthur F. Burns and Wesley C. Mitchell, Measuring Business Cycles (1946); and further developed in Geoffrey Hoyt Moore, Business Cycle Indicators, 2 vol. (1961). Important articles are collected in American Economic Association, Readings in Business Cycle Theory (1944, reprinted 1980), and Readings in Business Cycles (1965). History and politics are dealt with in Vivian Walsh and Harvey Gram, Classical and Neoclassical Theories of General Equilibrium: Historical Origins and Mathematical Structure (1980); Dennis C. Mueller, Public Choice II (1989), which provides equilibrium-model-based analyses of the intersection between politics and economics; and James E. Alt and Kenneth A. Shepsle (eds.), Perspectives on Positive Political Economy (1990).The basic principles of the modern theory of income analysis, often called macroeconomics, may be found in any contemporary textbook of economics. Two good introductions to this subject are George T. McCandless, Jr., Macroeconomic Theory (1991), neoclassical in approach; and Joseph Stiglitz, Economics (1993), Keynesian-oriented. At the intermediate level, the two competing alternatives for reaching a sound understanding of national income theory are Robert J. Barro and Vittorio Grilli, European Macroeconomics (1994), which applies the intertemporal equilibrium approach to macroeconomic analysis; and Rudiger Dornbusch and Stanley Fischer, Macroeconomics, 6th ed. (1994), which follows an IS-LM approach. Three advanced textbooks in macroeconomic theory which exhibit the high degree of formalization that has become characteristic of the macroeconomic literature since the 1970's are Thomas J. Sargent, Macroeconomic Theory, 2nd ed. (1987), and Dynamic Macroeconomic Theory (1987); and Olivier Jean Blanchard and Stanley Fischer, Lectures on Macroeconomics (1989).More specialized or intensive treatments of macroeconomics are John Maynard Keynes, The General Theory of Employment, Interest, and Money (1936, reissued 1991), the classic theoretical work in the field; Seymour E. Harris (ed.), The New Economics: Keynes' Influence on Theory and Public Policy (1947, reprinted 1973), a collection of early essays on Keynes and his ideas, representing the thinking of its time; and Gardner Ackley, Macroeconomic Analysis and Theory (1978), an introductory text. Later evaluations by leading economists of the significance and influence of Keynesian ideas may be found in Roy F. Harrod, The Life of John Maynard Keynes (1951, reissued 1982), offering insight into the genesis of Keynes's ideas; H.G. Johnson, The General Theory After Twenty-five Years, The American Economic Review, 51:117 (1961), providing a retrospective survey from a monetarist point of view; Robert Lekachman (ed.), Keynes' General Theory: Reports of Three Decades (1964); Axel Leijonhufvud, On Keynesian Economics and the Economics of Keynes (1968), an interesting but difficult appraisal of the development of Keynesian ideas; and Herbert Stein, The Fiscal Revolution in America, rev. ed. (1990), examining the relationship between Keynesian thinking and governmental policies in the United States.Some important perspectives on the successes and failures of economic strategies that have resulted in fluctuations are John Kenneth Galbraith, Economics and the Public Purpose (1973), and Economics in Perspective: A Critical History (1987); and Douglass C. North, Institutions, Institutional Change, and Economic Performance (1990). Two other works that offer perspectives on economic theory and its applications are Neil de Marchi and Mark Blaug (eds.), Appraising Economic Theories (1991); and Mark Blaug, The Methodology of Economics; or, How Economists Explain, 2nd ed. (1992). Henri Guitton The Editors of the Encyclopdia Britannica