By Gerry Everding
For much of this century, economists such as
John Maynard Keynes have argued over what conditions encourage firms to invest
in new plants, hire more employees and expand operations that fuel economic
growth. And, conversely, what brings these processes to a grinding halt in a
recession?
Steven Fazzari, Ph.D., professor and chair of
the Department of Economics in Arts & Sciences, began arguing these same
issues long before he'd heard much about the great British economist Lord
Keynes. As a high-school kid in the 1970s, Fazzari spent summers working with
his father in the grit and grime of a gray iron foundry along Lake
"It was the classic Midwestern
smokestack industry, and in those days the industry wasn't doing very
well," Fazzari said, recalling the monotony of days spent grinding castings,
breathing noxious fumes and sweating alongside crucibles of white-hot molten
iron.
While pundits blamed the recession on high
interest rates, high taxes, low-cost imports and an overvalued U.S. dollar,
Fazzari heard much more emotional opinions on the foundry floor. There,
grizzled union veterans talked of wage concessions, mass layoffs and plant
closings. No one knew for sure if the industry would ever come back.
Against this backdrop Fazzari escaped to
begin freshman studies at
"I started out in economics as a
skeptic," Fazzari said. "I don't think the mainstream perspectives on
economics are necessarily wrong, but they're not as obvious, clear or well
supported as some people think."
Like Keynes, Fazzari has spent his career
challenging the conventional wisdom of mainstream economists. Keynes' ideas on
the causes of unemployment revolutionized macroeconomic theory in the late
1930s and profoundly altered government's involvement in the economy.
Similarly, Fazzari's ideas also have begun reshaping the consensus on some
basic tenets of economic thought.
In 1988, for instance, Fazzari and fellow
In 1993, Fazzari published a study suggesting
that lower interest rates might not spur long-term business investment nearly
as much as many mainstream economists claim. His research, which tracked the
investment behavior of 4,000 firms over two decades, found that investment was
most influenced by a firm's sales growth and cash flow, regardless of interest
rates. The study had important implications for a then-hotly-contested
In a current working paper,
he assails the long-held economic truism that high rates of individual savings
are critical to the growth and expansion of the economy. Fazzari contends that
robust economic expansions are fueled, at least in part, by the antithesis of
personal savings -- prolonged spurts of enthusiastic spending and consumption.
"It's clear that individuals become
wealthy by saving more, but in the aggregate, it's also clear that less
spending may not be good for the economy," Fazzari said. "As a
nation, we might actually hurt ourselves by saving more. That's not to say that
business doesn't need capital for investment, but savings is not the primary
source of business capital. To use an extreme example, if everybody saved all
their income, businesses would sell nothing and the economy would
collapse."
A member of the faculty here since 1982,
Fazzari became a full professor in 1996 and department chair in 1999. It is the
latest milestone in a career path that, like the economies he studies, has been
riddled with hard-to-predict influences.
Romance, it seems, played a substantial role
in Fazzari's decision to pursue economics at
Even as a teaching assistant, Fazzari's
skills in the classroom were evident. In 1981, the Stanford economics
department honored him as a distinguished teaching fellow. His research efforts
were less universally appreciated. His early work was so unconventional that it
left even him unsure whether it could be categorized as macroeconomic research.
In 1982, as he neared completion of his
doctorate in economics, Fazzari called the economics department here to check
on his application for a junior faculty position. When a helpful secretary
began reading his rejection letter over the phone, departmental chair Laurence
Meyer overhead the conversation and offered to explain the decision to Fazzari.
The department needed someone to teach macroeconomics, and no one was sure
Fazzari fit the bill.
"Then, Larry Meyer talked to me about my
research and came to the conclusion that what I was doing really was
macroeconomics," Fazzari said. "They still weren't sure about my
background, but they had faith in me and hired me anyway."
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In
1989, Fazzari was named an associate professor with tenure. Shortly after his
promotion, he headed out on one of his frequent backpacking trips, this one a
challenging hike through the Swiss Alps with fellow economics professor and
then-departmental chair Wilhelm Neuefeind (at left, above, with Fazzari in
Colorado). "I just about killed myself," recalled Fazzari. "I slipped and tumbled down a steep snowfield, breaking my right ankle. Wilhelm was wonderful. He had to hike across the snow for about 45 minutes to the next trail hut to bring back help. I survived, but for a long time the joke around the department was that this was no accident - that it just showed how far Neuefeind would go to get rid of a faculty member with tenure." |
Fazzari rose to the challenge, preparing
himself to teach by delving more deeply into the fundamentals of Keynesian
economic theory. He read it, taught it, studied it relentlessly, and from this
experience, the foundation of his research emerged.
"It was my need to truly understand
macroeconomic theories for teaching that led to much
of my whole program," Fazzari said.
A key influence on Fazzari's career was Hyman
Minsky, a prominent
"He was a real source of support for
me," Fazzari said of Minsky. "He was a primary contributor to my work
and to my success."
Fazzari's intellectual debt to Minsky might
explain his own diligence in providing a helping hand to his students. Fazzari
routinely receives top marks in student evaluations, especially for his
willingness to entertain any question and his availability for one-on-one
counseling.
"I learned more from working with Steve
on our various projects than I did in all my other classes put together,"
said Andrew Meyer, a 1997 doctoral graduate who co-published with Fazzari and
now works with the Federal Reserve Bank of
Fazzari and his wife now have two children.
His daughter, Renee, is a sophomore at
Fazzari manages to escape for annual
backpacking trips, usually to the mountains of the western
"I played the accordion in wedding bands
during high school and always wanted to play the piano," Fazzari said.
"I decided to start taking lessons as a present to myself when I got
tenure."
Although his daughter has yet to buy his
pitch, Fazzari has no qualms about selling students on attending the
University. He is convinced that the undergraduate experience here in Arts
& Sciences is among the nation's best, and that an economics major is an
increasingly wise option.
"Economics offers all the benefits of a
broad liberal arts education, but it also provides a firm grounding in
technical analysis skills that are becoming essential to advanced work in many
other disciplines," he said. "People in business, law, public policy
and government use economic principles to explain how things work. Economic
concepts are becoming critical to the understanding of new thinking in the
social sciences. They have become the basis for some of our most interesting
and important interdisciplinary research."