Steven Fazzari

Professor of Economics
Washington University

Steven Fazzari is Professor of Economics and Associate Director of the Weidenbaum Center on the Economy, Government, and Public Policy at Washington University in St. Louis.  He received his PhD in economics from Stanford University in 1982.  His published articles appear in a wide variety of academic journals and books. Fazzari’s co-edited 2013 book from Cambridge University Press investigates the sources and responses to the U.S. “Great Recession” that began in late 2007.  His research and commentary on economic conditions has been highlighted in the national and international media, with significant recent attention to the link between rising income inequality and slow growth.   

Fazzari teaches macroeconomics, from introductory freshman courses to PhD seminars.  His teaching awards include the Missouri Governor’s award for excellence in university teaching and Washington University's distinguished faculty award.  Fazzari served six years as chair of the Department of Economics, three years as a member of the Arts & Sciences Advisory Committee on Tenure and Promotion, and is now in his second term as a member of the Arts & Sciences Academic Planning Committee.  

My Content

We develop adjustments to align the NIPA measures of key household flows with cash flow concepts that better reflect household budgets and demand. The adjustments significantly change important macroeconomic time series and give different perspective on household spending and saving. Furthermore, household income aggregated from micro data sets like the CPS, SCF, and PSID differs significantly from NIPA personal income. But the micro survey data likely reflect cash flow concepts rather than NIPA imputations. Indeed the adjusted cash flow measure of income eliminates most of the shortfall of CPS, SCF, and PSID of CPS income relative to NIPA household income.
Rising inequality reduced income growth for the bottom 95 percent of the income distribution beginning about 1980, but that group’s consumption growth did not fall proportionally. Instead, lower saving led to increasing balance sheet fragility for the bottom 95 percent, eventually triggering the Great Recession. We decompose consumption and saving across income groups. The consumption- income ratio of the bottom 95 percent fell sharply in the recession, consistent with tighter borrowing constraints. The top 5 percent ratio rose, consistent with consumption smoothing. The inability of the bottom 95 percent to generate adequate demand helps explain the slow recovery.  
Rising inequality reduced income growth for the bottom 95 percent of the income distribution beginning about 1980, but that group’s consumption growth did not fall proportionally. Instead, lower saving led to increasing balance sheet fragility for the bottom 95 percent, eventually triggering the Great Recession. We decompose consumption and saving across income groups. The consumption- income ratio of the bottom 95 percent fell sharply in the recession, consistent with tighter borrowing constraints. The top 5 percent ratio rose, consistent with consumption smoothing. The inability of the bottom 95 percent to generate adequate demand helps explain the slow recovery.
This paper considers a puzzle in growth theory from a Keynesian perspective. If neither wage and price adjustment nor monetary policy are effective at stimulating demand, there is no endogenous dynamic process to assure that demand grows fast enough to absorb the production of a growing labor force. Yet output grows persistently over long periods, occasionally reaching approximate full employment. We resolve this puzzle by invoking Harrods’s instability results. Demand grows because it follows an explosive upward path that is ultimately constrained by resource constraints. Downward demand instability is contained by introducing an autonomous component to aggregate demand.
We investigate the effects of government spending on U.S. economic activity using a threshold version of a structural vector autoregressive model. Our empirical findings support state-dependent effects of fiscal policy. In particular, the effects of a government spending shock on out- put are significantly larger and more persistent when the economy has a high degree of underutilized resources than when the economy is close to capacity. This evidence is consistent with an underlying structure of the economy in which insufficient aggregate demand often constrains the level of economic activity.

My Video Content

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Economic bubbles and the corresponding speculation that accompany them inevitably end in a financial bust. Depending on multiple factors, the consequences of these popped bubbles can be grave or transient.

When specuation infects the credit system that fuels the economy, particularly when its object offers no prospect of increased economic productivity, the outcome of the collape is almost always unequivocally negative, and possibly catastrophic. But when the damge of speculation is limited to the market for equity and debt securities, the adverse economic consequences may be muted.

My Grants

Steven Fazzari of Washington University was awarded a grant by Institute for New Economic Thinking for a project to elaborate an original model of Keynesian demand-led growth and to better communicate Keynesian macroeconomic insights to a broad and diverse audience.