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.

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.

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.

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?

China has elevated the reduction of external imbalances to a major national objective in 2007. It intends to boost domestic demand and is committed to moving gradually toward greater exchange rate flexibility.

Subsidizing labor, by contrast, is a pure injection of liquidity. However, for precisely that reason, an employment subsidy is likely to be more effective in boosting demand, which implies that a smaller injection of this kind is likely to boost demand as much as a larger asset purchase would.

As for fiscal policy, Germany continues to resist a much needed stimulus to boost eurozone demand. And Japan seems to be intent on inflicting on itself a second, growth retarding consumption tax increase.

The demand school might respond that, regardless of whether there is fiscal austerity now, increased government spending (financed, of course, by debt) would impart a permanent boost to employment. But Greece s recent experience suggests otherwise.

In both cases, regaining monetary sovereignty allowed a more competitive currency, which in turn increased export demand and assisted economic recovery. Under Grexit, Greece's best hope would be something similar a sharp boost in external competitiveness.

Fortunately, Chinese households relatively low leverage means that the kind of balance sheet damage that occurred in some advanced countries during the crisis, leading to a huge drop in demand, is unlikely, even if real estate prices continue to decline. It also means that there remains some space for expanding consumer credit to boost demand.

On the demand side, exchange rate devaluations made non traditional exports more competitive and helped boost demand for relatively unskilled labor. On the supply side, a sharp increase in years of schooling, and especially in access to higher education, swelled the ranks of professionals and other skilled workers and helped lower their relative wages.

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.

How to Boost Foreign Investment

The US housing boom is due, first, to low interest rates, which mean that large amounts of money can be borrowed for mortgages with moderate monthly payments. Low interest rates strengthen the ability to pay, and thus boost demand.

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When there is sufficient excess supply in the economy, promoting supply side productivity is practically useless without efforts to boost demand. That implies that it was not appropriate to focus on growth until the deflation gap narrowed considerably that is, until now.

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.

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MUNICH With global rebalancing set to be high on the agenda at the next G 7 and G 20 meetings, Germany, with its persistent export surplus, will again come under pressure to boost domestic demand and household consumption. But the German consumer is a sideshow.

According to free market economists, governments should cut taxes, reduce regulations, reform labor laws, and then get out of the way to let consumers consume and producers create jobs. According to Keynesian economics, governments should boost total demand through quantitative easing and fiscal stimulus.

Trust busters argue that such Chinese walls always break down under pressure, owing to huge shareholder demand for universal banks to boost profits at the expense of a sound commercial banking core. And senior executives will still have a legal obligation to maximize profits.

The case for buying gold had several strong components. Ten years ago, gold was selling at well below its long term inflation adjusted average, and the integration of three billion emerging market citizens into the global economy could only mean a giant long term boost to 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.

There are three reasons why the authorities might fail to restore full employment rapidly after a downturn. For starters, unanchored inflation expectations and structural difficulties might mean that efforts to boost demand show up almost entirely in faster price growth and only minimally in higher employment.

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If growth and employment expectations remain dismal, it will be difficult to rekindle demand, particularly private business investment, no matter how low interest rates are, or how many resources banks have for potential lending. ECB President Mario Draghi s message in his speech last month in Jackson Hole, Wyoming, as well as at his September press conference was a clear call for more fiscal support to boost effective demand.

NEW YORK In a world of weak domestic demand in many advanced economies and emerging markets, policymakers have been tempted to boost economic growth and employment by going for export led growth. This requires a weak currency and conventional and unconventional monetary policies to bring about the required depreciation.

In the eurozone, lower long term rates for government bonds are thus unlikely to improve the corporate sector s financing conditions and boost investment demand. By contrast, in the US, a much larger proportion of investment is financed by issuing bonds, which can have a longer maturity than bank loans.

CAMBRIDGE While virtually every country in the world is trying to boost growth, China s government is trying to slow it down to a sustainable level. As China shifts to a more domestic demand driven, services oriented economy, a transition to slower trend growth is both inevitable and desirable.

In the years ahead, technological improvements in robotics and automation will boost productivity and efficiency, implying significant economic gains for companies. But, unless the proper policies to nurture job growth are put in place, it remains uncertain whether demand for labor will continue to grow as technology marches forward.

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However, its effects are clearly visible and boost the local authorities.

Negotiation processes should have been given a boost by the summit.

Energy demand

Demand reduction

Demand reduction

Demand reduction

Prices should pass on to end users the full cost not only of production and acquisition, but also of the damage including air pollution and climate change caused by intensive reliance on fossil fuels. A fairer carbon price will drive energy savings and boost demand for cleaner fuels and greener investments.

But the OMT scheme has not been reinforced by a reduction in key interest rates, which would boost inflation in core countries with external surpluses and thus help to close the competitiveness gap with the periphery. Crucially, monetary policy measures do not address the underlying problem of lack of demand.

Recent fairly generous wage agreements in Germany will help, but are not enough there is also a need to boost domestic demand. More aggressive liberalization of the bloated banking system, network services (especially in energy and transport), and public procurement may contribute significantly over time to raising domestic investment and incomes.

The cause of the latest currency turmoil is clear In an environment of private and public deleveraging from high debts, monetary policy has become the only available tool to boost demand and growth. Fiscal austerity has exacerbated the impact of deleveraging by exerting a direct and indirect drag on growth.

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With all of the rules pointing toward recession, how can Europe boost recovery?