What's the difference between discretionary and automatic stabilisers?

Discretionary stabilisers are deliberate government policies to manage the economy, while automatic stabilisers work without any intervention.

Discretionary stabilisers are economic policies that are intentionally implemented by the government to manage and stabilise the economy. These policies are usually in the form of fiscal or monetary measures, such as changes in government spending, taxation, or interest rates. For example, during a recession, the government might increase its spending to stimulate economic activity, or it might cut taxes to increase households' disposable income and encourage consumption. These actions are 'discretionary' because they require conscious decisions by policymakers and are not automatically triggered by economic conditions.

On the other hand, automatic stabilisers are mechanisms that are built into the economy and operate without any deliberate intervention by the government. They are designed to offset fluctuations in economic activity without the need for policymakers to take any specific action. Examples of automatic stabilisers include unemployment benefits and progressive taxation. When the economy goes into a downturn and unemployment rises, more people will automatically receive unemployment benefits, which helps to maintain their income and spending levels. Similarly, in a progressive tax system, when people's incomes fall during a recession, they automatically move into lower tax brackets, which reduces their tax burden and leaves them with more disposable income.

In essence, the key difference between discretionary and automatic stabilisers lies in the level of government intervention. Discretionary stabilisers require active decision-making and policy changes by the government, while automatic stabilisers work on their own to smooth out economic cycles. Both types of stabilisers play crucial roles in managing the economy and mitigating the impacts of economic fluctuations. However, they also have their limitations and potential drawbacks. For instance, discretionary policies can be subject to political influences and may take time to implement, while automatic stabilisers may not be sufficient to counteract severe economic downturns.