By stabilizing expenditure, such funds would help to stabilize relative prices and aggregate demand.

Many influential economists are now worried that the US faces anemic growth and secular stagnation, owing to a persistent gap between aggregate demand and full employment. Stagnant middle class incomes imply weak aggregate demand, which in turn means slack labor markets and stagnant wages for most workers.

Summers emphasizes the inadequacy of aggregate demand, exacerbated by the inability of central banks to reduce nominal interest rates below zero. The reasons for weak aggregate demand include aging populations that consume less and the growing concentration of wealth among the very rich, whose marginal propensity to consume is small.

But the opposite of the excessive consumption model excessive reliance on investment to generate aggregate demand is also a self limiting growth pattern. When the private and social returns of investment diminish too much, growth cannot be sustained indefinitely, even though rising investment rates can sustain aggregate demand for a while.

Moreover, public investment works on both the demand and supply sides. It not only boosts aggregate demand directly it also expands potential output by increasing the stock of productivity boosting capital.

However, to the extent that public investment grows, aggregate demand increases correspondingly, generating some growth and creating a cushion against recession.

With a global recession a near certainty, deflation rather than inflation will become the main concern for policymakers. The fall in aggregate demand while potential aggregate supply has been rising because of overinvestment by China and other emerging markets will sharply reduce inflation.

Managing aggregate demand is governments job. While Say s law the view that supply creates its own demand is false in theory, it is true enough in practice that entrepreneurs and enterprises can and do depend on it.

Debt drove growth, creating aggregate demand that would not have existed otherwise. (The same is true of the United States and Japan, though the details differ.)

But, apart from the political impossibility of nationalizing the whole economy peacefully, this approach suffered from the fatal flaw of ignoring the role of aggregate demand. It assumed that demand would always be sufficient if profits were eliminated.

In short, the world should not expect China to shore up global aggregate demand in 2015. If anything, there will be an even bigger hole to fill.

Accumulating excessive debt usually entails moving some part of domestic aggregate demand forward in time, so the exit from that debt must include more savings and diminished demand. The negative shock adversely impacts the non tradable sector, which is large (roughly two thirds of an advanced economy) and wholly dependent on domestic demand.

Why continue building when you can neither finance your investment nor sell real estate? Russian consumers are already scared and will cut their consumption, causing aggregate demand to contract.

There are no psychological preferences, natural resource constraints, or technological factors that make investing in private enterprises riskier than it was five years ago. Rather, the risk stems from governments refusal, when push comes to shove, to match aggregate demand to aggregate supply in order to prevent mass unemployment.

First, Kicillof attributed Argentina s rapid economic growth in the years between its 2001 debt default and the 2008 global financial crisis to a Keynesian reflation of domestic aggregate demand. Keynes made a tremendous intellectual contribution in showing that supply in a market economy does not necessarily create its own demand, and that demand shortfalls can cause avoidable recessions.

The economy is depressed and unemployment is high not because of slack aggregate demand generated by a collapse in spending, but instead because structural factors have produced a mismatch between the skills of the labor force and the distribution of demand. The structure of demand by consumers is different from the jobs that workers are capable of filling.

The pessimists believe that there has been a large decline in the will to invest, something like the loss of animal spirits described by Keynes. Even with very low interest rates, according to this view, investment demand will remain low, and therefore aggregate demand will remain insufficient.

Aggregate economic developments

In principle, the answer is straightforward. If a central bank has two policy targets, then it needs two instruments monetary policy to influence aggregate demand, and regulatory policy to limit financial risks.

Some suggest that, given the economic slowdown, we should put global warming on the backburner. On the contrary, retrofitting the global economy for climate change would help to restore aggregate demand and growth.

But this was just the flip side of what Keynes had worried about insufficient global aggregate demand. The search for return contributed to the reckless leverage and risk taking that underlay this crisis.

That approach might have worked had the US economy been afflicted by a cyclical disease a temporary shortfall of aggregate demand. In that case, countercyclical policies both fiscal and monetary could eventually be expected to plug the demand hole and get the economy going again, just as Keynesians argue.

And that leverage much of it the result of monetary expansion in most of the world s advanced economies is not even serving the goal of boosting long term aggregate demand. After all, accommodative monetary policies can, at best, merely buy time for more durable sources of demand to emerge.

There is thus a subtle but important difference between my debt driven demand view and the neo Keynesian explanation that deleveraging (saving by chastened borrowers) or debt overhang (the inability of debt laden borrowers to spend) is responsible for slow post crisis growth. Both views accept that the central source of weak aggregate demand is the disappearance of demand from former borrowers.

But, for individual economies, relative productivity versus income levels determines the share of global tradable aggregate demand that is accessible. Unlike the non tradable side of the economy, the domestic component of global tradable demand is not an absolute constraint on growth nor is the rate of growth of global tradable demand an absolute constraint, given the possibility of increasing share.

But solidarity begins at home. And that means beating back the populists and nationalist barbarians within by supporting aggregate demand and pro growth reforms that ensure a more resilient recovery of jobs and incomes.

Some countries are making consistent efforts to revamp exhausted growth models. In China, for example, this involves less reliance on exports and public investment, and more on the private components of domestic aggregate demand.

With higher interest rates depressing housing prices, the game is over. As America moves to, say, a 4 savings rate (still small by normal standards), aggregate demand will weaken, and with it, the economy.

Total demand and its growth do matter, but so does market share. Given the growth patterns across advanced and developing countries prior to the crisis, and then the large negative shock, it is likely that there is a shortfall of tradable global aggregate demand, impeding an important component of global growth.

So when you look online at the way people aggregate, they don't aggregate around age, gender and income.

The aggregate numbers are overwhelming.

Aggregate figures can be misleading.

Aggregate procurement value and trends

It also means getting the balance between domestic and external demand right, and appreciating the sensitivity of medium and long term growth to the composition (and size) of domestic aggregate demand. Against this background, monetary policymakers must be cautious, because low interest rates can shift the growth model back toward leverage and domestic consumer demand, stalling the structural shift to the tradable side that is underway.

America s profligacy  the fact that the world s richest country could not live within its means was often criticized. But perhaps the world should be thankful, because without American profligacy, there would have been insufficient global aggregate demand.

The US is adjusting structurally and generating real (inflation adjusted) GDP growth (though well below its potential annual rate of 3 3.5 ). The tradable sector is expanding and is not dependent on leverage to generate aggregate demand.

Indeed, for ten years, north to south income transfers and lending financed excessive aggregate demand, making the eurozone seem stable. As markets underpriced risk in order to lend to increasingly indebted countries, pressure on interest rates diminished.

America s profligacy the fact that the world s richest country could not live within its means was often criticized. But perhaps the world should be thankful, because without American profligacy, there would have been insufficient global aggregate demand.

The eurozone crisis did not derail recovery it is the result of a lack of recovery. It is the natural, predictable, and (by many) predicted result of the main European countries deliberate policy of repressing aggregate demand.

However, over zealousness on the part of policymakers to further decrease already low rates of inflation can lead to high interest rates that discourage investment and curb aggregate demand and that may affect private sector balance sheets.

In theory, by depressing aggregate demand, the combination of increased real debt and higher real interest rates could lead to further price declines, leading to even larger negative inflation rates. As a result, the real interest rate would rise further, pushing the economy deeper into a downward spiral of falling prices and declining demand.

Properly targeted public investment can do much to boost economic performance, generating aggregate demand quickly, fueling productivity growth by improving human capital, encouraging technological innovation, and spurring private sector investment by increasing returns. Though public investment cannot fix a large demand shortfall overnight, it can accelerate the recovery and establish more sustainable growth patterns.

The first key factor is deleveraging and the resulting shortfall in aggregate demand. Since the financial crisis began in 2008, several developed countries, having sustained demand with excessive leverage and consumption, have had to repair both private and public balance sheets, which takes time and has left them impaired in terms of growth and employment.

China s leaders should aim to accelerate and build upon these trends, rather than pursuing additional fiscal and monetary stimulus. Public investment is high enough expanding it now would shift the composition of aggregate demand in the wrong direction.

But this economic logic does not apply in the case of increases in oil prices. Although high oil prices look like a tax on business activity that depresses aggregate demand, they also raise inflation, both directly and indirectly.