A statue of George Washington looks over the entrance to the New York Stock Exchange August11, 2011. (STAN HONDA/AFP/GETTY IMAGES)

The growth slowdown is well underway, and the reasons for its arrival in advanced nations are interrelated and complex. Expectations are sinking as the markets reset, and the combination poses even greater challenges for a recovery and employment. Meanwhile, investors and citizens are losing confidence in American and European policy makers’ ability to respond and act decisively. Long-term structural barriers that stand in the way of re-energizing economic growth are also a factor. Expectations that the global economy will rebound or that policy will bring about short-term change have been — and probably still are — too high, but they are converging.

Government deficits are up and public debt levels are rising, making the challenge of simultaneously restoring growth and fiscal balance a formidable one. Policy makers will need to balance the timing of three things if they hope to succeed: reducing deficits, restoring demand and investing in productivity and competitiveness. However, if other major parts of the global economy continue to falter, rest assured, their work will only get harder.

Meanwhile, if America’s growth continues to slow down, expect it to negatively affect Europe and vice versa. And emerging economies will also suffer if either or both the U.S. and European economies remain sluggish.

So, how do we fix this?

A coordinated, real commitment by the G-20 to a growth agenda would reinforce individual country efforts. But we cannot count on that. National agendas dominate now.

The U.S. should have two immediate policy goals:

1. Preserve the fragile recovery by avoiding a rapid withdrawal of government expenditure and investment.

2. Make sure that the burden of restoring a pattern of sustainable growth is shared equally. This can be done by providing income support and access to essential, basic services for the unemployed and their families.

The second goal could be met with a short-lived, deficit-neutral surtax that would likely stimulate consumption, because the unemployed are not in a position to save much. To tackle the structural impediments, we need both political parties to agree that fiscal stabilization, growth and employment are the main economic objectives. And this is nearly impossible if tax increases are taken off of the table.

Second, the slowdown needs to be accurately diagnosed. Growth is falling away because we’re consuming fewer products and services here at home, and the economy is structurally incapable, in the short run, of increasing exports to close the gap. Further, the tradable part of the economy, which includes the manufacturing and agricultural sectors, has not generated employment for two decades. The large, non-tradable part of the economy — think government, health care, construction and retail — is stalled because of deleveraging and the reaction to the asset bubble collapse. Deleveraging in the housing sector isn’t over, and those markets are fragile.

Third, we need time, and a willingness on the part of citizens to defer consumption and invest.

If we do all of these things, expect to see fiscal deficits decline over a five- to seven-year period. Ideally, the pace of that decline would be matched by a restoration of economic growth, which would mean less deficit reduction in the immediate future and an economic acceleration. This is all dependent on lawmakers detaching any policy initiative from the upcoming election and committing to bipartisan support. Delay will cause more damage.

The more difficult but no less essential challenge is making the tradable sector a more powerful growth and employment engine. Business has an important role to play here. Multinational businesses based in the U.S. (and elsewhere) have what amounts to dual citizenship. They have global markets and supply chain opportunities in combination with competitive constraints. But these companies also have a stake in making sure the U.S. economic engine is stable and sustainable. Business needs to engage with the policy process, and it needs to do so with a public interest agenda. Meanwhile government and labor need to collaborate on locating areas in the tradable sector where skills, technology, and productivity investments can combine with wage and income limits to increase competitiveness and employment. A key part of this plan is treating skilled labor as a priority worthy of supporting and preserving through economic downturns. The public sector’s contributions will probably not be as large as they need to be. But that’s due to the excesses of the past, and not much can be done about that.

Any strategy to spur growth will also need to include a major simplification of the tax system, including the elimination of tax expenditures and other features that distort rather than enhance productivity. It would also include an energy policy that creates real incentives to increase the energy efficiency and security of the economy.

No one has a complete formula for restoring growth. We will have to be persistent, determined, pragmatic and experimental — a mindset familiar to policy makers in emerging economies where these complex issues are being dealt with on a regular basis. And time will tell if we are up to this challenge. Skeptics are correct when they note that we are divided on philosophy, gridlocked on policy and probably not in agreement on the ingredients for a proper growth strategy. However, a downturn or persistent under-performance might help break through the impasse, with voters’ displeasure providing the force for change.

Michael Spence received the Nobel Prize in Economics and is the author of the book “The Next Convergence: The Future of Economic Growth in a Multispeed World (FSG 2011).”