The United States is slowly climbing out of one of the worst economic recessions in its history. As the economy begins to turn a corner, Steven M. Fazzari, PhD, professor of economics in Arts & Sciences, will examine how we got here and where we are headed in a series of three lectures beginning Jan. 30.
Fazzari, associate director of the Weidenbaum Center on the Economy, Government, and Public Policy, will present “Rising Financial Fragility in the ‘Consumer Age’ — Seeds of Collapse” at 7:30 p.m. in Anheuser-Busch Hall, Room 204.
“Anatomy of a Historic Recession” and “Challenges to Recovery: Why is it so Slow? What Can Policy Do?” will be presented at the same time and location on Feb. 13 and Feb. 27, respectively.
“The challenge that the U.S. economy faced by the beginning of the Great Recession were, in my opinion, broadly underestimated,” Fazzari says. “From the mid 1980s through 2007 much of our growth was driven by a household spending boom that ultimately turned out to be unsustainable.”
“There were two big problems with this situation,” he continues. “First, household could not keep spending at the level needed to keep us close to full employment without taking on more and more debt. When the debt-driven bubble collapsed, household spending plummeted and we got the recession. In recent research, I estimate that the unsustainable piece of household spending was about eight percent of the economy.
“When we lost it, we got a nasty recession.”
The second problem, Fazzari says, is that following the spurt of unsustainable household borrowing, the United States doesn’t have the spending growth in the system to pull the economy back to its long-run trend.
Some of the policy changes in the recent fiscal cliff deal will likely weaken the economy in 2013, Fazzari says, particularly the increase in payroll taxes. Should the spending sequester go into effect, the problem will be magnified.
“We should start looking at the long-term policy changes to stabilize government debt, but this is a bad time to make big spending cuts. It's also a bad time for big tax increases, especially if those tax increases lead to lower household spending,” he says.
For more information on the lecture series, visit wc.wustl.edu/events.