# Hard Truths About Global Growth

1 Opinion September 14, 2012 Project-Syndicate ![A. Michael Spence](/sites/default/files/styles/246w/public/assets/images/con_032670.jpg?itok=cxjGfIlv) By Michael Spence, William R. Berkley Professor in Economics & Business and David Brady > The world’s high-income countries are in economic trouble, mostly related to growth and employment, and now their distress is spilling over to developing economies.

NEW YORK – The world’s high-income countries are in economic trouble, mostly related to growth and employment, and now their distress is spilling over to developing economies. What factors underlie today’s problems, and how appropriate are the likely policy responses?

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.

The non-tradable side of any advanced economy is large (roughly two-thirds of total activity). For this large sector, there is no substitute for domestic demand. The tradable side could make up some of the deficit, but it is not large enough to compensate fully. In principle, governments could bridge the gap, but high (and rising) debt constrains their capacity to do so (though how constrained is a matter of heated debate).

Read full piece as published by [Project Syndicate](http://www.project-syndicate.org/commentary/hard-truths-about-global-growth-by-michael-spence). ###  More Opinions from Michael Spence

- ["The Real Challenges to Growth," 1.23.14](/node/7746)
- [ "A Global 'Growth Map' for 2014," 1.21.14](/node/7608)
- ["The Distributional Challenge," 1.9.14](/node/7587)
- ["What's Stopping Robust Recovery?," 11.19.13](/node/7530)
- ["America the Reckless," 10.17.13](/node/7376)
- ["The Blurry Frontiers of Economic Policy," 9.19.13](/node/7236)
- ["Decision Time for the Global Economy," 8.19.13](/node/7123)
- ["China’s End of Exuberance," 7.23.13](/node/7010)
- ["Myanmar’s moment," 7.15.13](/node/6836)
- ["The Sino-American Decade," 5.24.13](/node/6810)
- ["Learning About Growth from Austerity," 5.18.13](/node/6655)
- ["Battleground Budget," 4.15.13](/node/6633)
- ["Europe, Italian-Style," 3.19.13](/node/6497)
- ["Rebalancing the State’s Balance Sheet," 2.18.13](/node/6400)
- ["Technology and the Employment Challenge," 1.15.13](/node/6295)
- ["President Xi’s Singapore Lessons," 11.19.12](/node/6171)
- ["Underinvesting in Resilience," 11.8.12](/node/6010)
- ["West should pay attention to India’s woes," 10.25.12](/node/5977)
- ["Emerging-Market Resilience," 10.12.12](http://www.stern.nyu.edu/experience-stern/faculty-research/michael-spence-emergingmarkets)
- ["Hard Truths About Global Growth," 9.14.12](/node/7586)
- ["Why Are Governments Paralyzed?" 8.15.12](/node/5859)
- ["The Great Debate," 11.16.11](/node/44877)