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

A major contributor to this divergence has been ultra loose monetary policy, which, by flooding financial markets with liquidity, was supposed to boost growth. But it remains unclear whether elevated asset prices are supporting aggregate demand or mainly shifting the distribution of wealth.

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.

Policymakers initially resorted to government spending and low interest rates to boost demand. As government debt has ballooned and policy interest rates have hit rock bottom, central banks have focused on increasingly innovative policy to boost demand.

How fast this happens partly depends on the private sector s flexibility and dynamism. But it also depends on the ability and willingness of government to provide a bridging function for the deficiency in aggregate demand, and to pursue reforms and investments that boost long term growth prospects.

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.

Fifth, structural reforms are still occurring at a snail s pace, holding back potential growth. And, while structural reforms are necessary, some measures for example, labor market liberalization and pension overhauls may boost the eurozone s savings rate and thus weaken aggregate demand further (as occurred in Germany following its structural reforms a decade ago).

This rising tide of illiberalism makes avoiding a break up of the eurozone or the EU ever more vital. But, to ensure this, macro and structural economic policies that boost aggregate demand, job creation and growth, reduce income and wealth inequality, provide economic opportunity to the young, and integrate rather than reject refugees and economic migrants will be needed.

Given that affluent households spend a smaller share of their incomes and wealth, greater inequality translates into lower overall consumption, thereby hindering the recovery of economies already burdened by inadequate aggregate demand. Today s high levels of inequality also impede the structural reforms needed to boost productivity, while undermining efforts to address residual pockets of excessive indebtedness.

It is hard to believe that any increase in aggregate demand will boost the housing market which, remember, was buoyed by visions of steady price appreciation that few seem likely to hold today sufficiently to re employ all these workers. Hurst estimates that this structural unemployment may account for up to three percentage points of total unemployment.

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.

The essential economic problem is clear there is an almost desperate need for more fiscal space in the eurozone to boost aggregate demand, including more investment in Germany. But there is also a persistent need for deep structural reforms on the supply side, so that fiscal stimulus translates into sustainable long term growth, not just temporary spurts and further increases in countries debt ratios.

BERKELEY We hear from surprisingly many quarters these days that governments in Europe and North America, and their central banks, should give up on the expansionary policies they have pursued to try to create jobs. The high unemployment currently afflicting the North Atlantic, critics of government stimulus maintain, is not cyclical but structural, and thus cannot be alleviated by policies that boost aggregate demand.

The economy is also set for a boost from surging demand for British goods thanks to the weak pound, which will offset some of the lower consumer spending.

A vicious circle, it seems, is at work. The way to break it, according to Summers, is to sustain monetary stimulus and boost demand aggressively through fiscal policy.

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.

To be sure, one can reasonably argue that austerity in the eurozone has been excessive, and that fiscal deficits should have been much larger to sustain demand. But only governments with access to market finance can use expansionary fiscal policy to boost demand.

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

Many leading economists and policymakers are forecasting continued economic gloom. Stephen Roach has suggested that in the post crisis global economy relapse is the rule economist Brad DeLong, speaking of the consequences of our lesser depression, argues that the pretense of a eurozone recovery has collapsed and European Central Bank President Mario Draghi has acknowledged the need not only for structural reform, but also fiscal expansion to boost aggregate demand.

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.

So, like Paul Krugman, Martin Wolf, and others, I would expand fiscal deficits, not try to shrink them. I advocate this for the old fashioned Keynesian reason that we are suffering from a deficiency of aggregate demand, that the multiplier is positive, and that the most effective way to reduce the private and public debts a year or two down the line is by taking steps to boost growth in national income now.

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.

But even these measures, which foreign observers have largely overlooked, have failed to boost consumer demand. So what more could the German government do to wean the Germans off their abstemious habits?