Abstract

The next St Catharine’s Political Economy Seminar in the series on the Economics of Austerity, will be held on Wednesday 19th March 2014 – Steven Fazzari will give a talk on ‘Inequality, the Great Recession, and Slow Recovery’. The seminar will be held in the McGrath Centre at St Catharine’s College from 6.00-7.30 pm. All are welcome.

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 Ph.D. in economics from Stanford University in 1982. Professor Fazzari’s research explores two main areas: the financial determinants of investment and R&D spending by U.S. firms and the foundations of Keynesian macroeconomics. 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. A recent search found more than 1,800 citations to Fazzari’s publications in the Research Papers in Economics database (over 8,000 in Google Scholar). In addition, his research and commentary on economic conditions and public policy has been highlighted in the national media. Steven Fazzari teaches macroeconomics, from introductory freshman courses to Ph.D. seminars. His teaching awards include the Missouri Governor’s award for excellence in university teaching, the Emerson Award for teaching excellence, and Washington University’s distinguished faculty award. He has been active on University committees and task forces throughout his career.

CONTENT : In this seminar, Professor Fazzari will discuss recent research on the effect of rising US income inequality on the macroeconomic dynamics that led to the Great Recession. In a paper co-authored with Barry Cynamon, Steven Fazzari shows that rising inequality reduced income growth for the bottom 95% of the income distribution beginning around 1980, but that group’s consumption growth did not fall proportionally. Instead, lower saving put the bottom 95% on an unsustainable financial path of rising debt that eventually triggered the Great Recession. An original decomposition of consumption and saving across income groups shows that the consumption-income ratio of the bottom 95% fell sharply in the recession, consistent with tighter borrowing constraints. The top 5% ratio rose, consistent with consumption smoothing. In the recession’s aftermath, the inability of the bottom 95% to generate adequate demand helps explain the slow recovery. This problem makes the decision to pursue fiscal austerity by the government especially damaging because higher government spending, or lower taxes on middle-class households, could mitigate the demand drag caused by rising income inequality. But instead, austerity has magnified the problem. Although this research focuses on the US case, Professor Fazzari will discuss similar dynamics in the UK economy over the same period.

Please contact the seminar organisers Philip Arestis (pa267@cam.ac.uk) and Michael Kitson (m.kitson@jbs.cam.ac.uk) in the event of a query.