Courtesy of WUSTL ImagesNews of a weakened U.S. economy continues to worry members of the Washington University community.
According to Steven Fazzari, professor of economics, the U.S. is in a recession that may trump the 2001 and 1990-1991 recessions in severity.
Fazzari, who coauthored a Sept. 2007 paper that forecasted a potentially large recession, says that the job market will be weak for the foreseeable future. Students may encounter difficulties in the job market following graduation, but he is optimistic that those with higher skills and education may not be impacted as negatively as those who have lower educational attainment.
“Overall, the job market will be weaker, but whether it’s weaker for people with bachelor’s degrees from a fine institution is less clear,” Fazzari said. “High skills and high education people will do better in the job market. So hopefully there won’t be too big of a downturn in the market that students face.”
According to Fazzari and Murray Weidenbaum, distinguished professor of economics and chairman of former President Ronald Reagan’s Council of Economic Advisers, this recession is unusual compared to those of recent years because the financial sector of the economy has been hit unusually hard and because consumer spending by period may actually experience a net decrease.
Previous recessions have seen consumer-spending level out along with a less severe impact on the financial sector.
“Consumer spending has held up pretty well in the recessions of the early ’90s and early 2001,” Fazzari said. “Consumer spending did fall significantly in the mid ’70s and early ’80s, though, so we may be going back to the kinds of dynamics that we saw 20 to 25 years ago.”
Additionally, the U.S. dollar has continued to depreciate relative to other world currencies. Fazzari says he believes that foreign investors, discouraged by the recession and low interest rates, have invested less in the U.S. economy, reducing demand for the dollar and causing the exchange rate to fall.
However, while the dollar’s deprecation may be in part due to the effects of the recession, Fazzari and Weidenbaum say that people should not immediately interpret the dollar’s depreciation as entirely negative. While a weak dollar makes travel and purchases abroad more expensive, it also benefits U.S. exporters.
“It’s one of the ways to deal with the horrendous trade deficit we have,” Weidenbaum said. “A weak dollar makes imports more expensive and makes exports cheaper. If you look at trade figures for the last half-year or so, our exports have gone up much faster than imports. Americans as producers and consumers are the bread and butter of the economy, and a weak dollar helps.”
In an April 14 round table discussion entitled “Controversies N’ Coffee”, five professors-Weidenbaum, economics professors James Morley and Kevin Kliesen, social work professor Mark Rank and law professor John Drobak-discussed the state of the U.S. economy.
Topics covered at the session included the rise of foreign trade and globalization, the economic proposals of the U.S. presidential candidates, the gasoline crisis and the U.S. tax structure.
Weidenbaum described the round table as well attended and reflective of the student body’s concern about the economy.
Students, including sophomore Laura Kelly, remain concerned about the economy but believe the round table was a good experience.
“I enjoyed it a lot, and I think [it] might have been even too short,” she said. “I’d be interested in seeing something a bit longer.”