In his remarks yesterday at the Peterson Institute, Under Secretary Nathan Sheets noted that while there is broad agreement within the G-20 that both demand-side and supply-side factors have hindered global growth, there are still varying views regarding the appropriate policy response.  The U.S. Treasury has encouraged countries to pursue strong stimulative policies to address weak demand.  Below we highlight the five core observations outlined by Sheets as the analytical and intellectual foundation for this position.


 Photo by Jeremey Tripp, PIIE


First, demand-side policies have played a powerful role in the United States: “Such measures helped prevent an even more severe downturn and have fueled a recovery that has outpaced those of many other advanced economies, and which now appears to be gaining steam.”

Second, the demand-side and supply-side of an economy are vitally interlinked: “Measures to stimulate demand during periods of weakness are necessary both to ensure favorable economic growth today and to safeguard the vibrancy of the economy and its capacity to produce tomorrow.”

Third, the appropriate measure of debt sustainability is not the amount of debt owed but the amount of debt relative to the ability to repay.  Sheets emphasized that prolonged periods of cyclical weakness “impede the economy’s capacity to generate tax revenues and, more generally, limit the resources available to service the debt.”

Fourth, Sheets observed that “the burdens of the prolonged downturn have fallen disproportionately on the young.”  This is particularly the case for the euro-area periphery, as shown in the chart below: “These data highlight a striking irony.  Those who oppose calibrated stimulus measures in the name of not leaving debt for future generations may inadvertently be intensifying headwinds facing the younger workers they aim to protect.”    

*Workers under 25 years old.  Sources: U.S. Bureau of Labor Statistics and Eurostat​.

Finally, Sheets underscored that “strong demand is the ultimate driver of confidence.”  Nothing is likely to boost business and consumer confidence more than actual evidence of rising demand and strong growth of real GDP.

Sheets concluded his remarks by noting that policies aimed at supporting domestic demand not only are beneficial to individual economies but the global economy more broadly.

“Finally, the arguments that I have made are not only important for individual countries as they seek to frame their economic policies, but they are also the key to realizing the G-20’s goal of lifting global growth.  As policymakers take appropriate steps to support demand in their own economies, positive spillovers flow to the rest of the world.”

Robert Sockin is the Special Assistant to the Under Secretary for International Affairs at the U.S. Department of the Treasury.