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13 Nov 08
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the only way to create economic growth is by increasing productivity – and productivity can only be increased through more labor or capital, or technological advancement. Because stimulus does nothing to change these fundamentals, he suggested, it cannot create any real economic growth. Riedl explained that stimulus is based on the theory that government can stimulate demand; however, he argued, government cannot create money – only redistribute it.
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She argued that demand could be boosted somewhat, and that there would be a psychological benefit to stimulus. MacGuineas also suggested that stimulus was a political inevitability. However, she outlined a number of risks attached to any package. First, stimulus might be overly expansionary, loosening credit beyond where it should be. Second, stimulus might “rebalance the economy” incorrectly, propping up industries and sectors which should either fail or be restructured. Third, stimulus might be executed poorly, and include too many pork barrel projects and unrelated expenditures. Finally, stimulus could involve too much borrowing, which might lead to a federal debt bubble.
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“We have been,” he said, “living off of grandpa’s investment in infrastructure for a while,” and we now face an “infrastructure deficit.” Furthermore, he argued that even if our aging infrastructure has so far mostly remained functional, we are still “paying” for our underinvestment—for example, time lost through traffic congestion on too-crowded highways.
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stronger government intervention in the auto industry sounds great, but you still have to get consumers to buy the more efficient cars
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the crisis had provided further evidence that “people are not rational economic beings,” and that “the availability of data does not lead to being informed.”
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the recent financial crisis was caused in part by “both parties [in financial transactions] not having equal access to information.” He cited two sources of costly misinformation: over-reliance on rating agencies and outdated or irrelevant financial modeling tools.
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the money from the $700 billion dollar bailout package was not being efficiently allocated, because banks were taking the equity they were given and “sitting on it” to fulfill regulatory requirements, rather than feeding it back into the economy.
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Rosner hoped that the practice of securitization itself would not be blamed for the financial crisis, calling securities a vital instrument in modern financial markets. He also called for industry-wide standardization of terms like “subprime” and “default,” because the complexity of modern markets had caused their exact meanings to become less clear.
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First, he recommended that the SEC be made into a self-financed institution like the Fed, so that it is less susceptible to outside influence. Second, citing the decline in professional standards among “gatekeepers” for public corporations, Longstreth thought that bolstering these standards could restore integrity to the system. Third, he claimed that an audit of public corporations by federal regulators might restore transparency and root out abuses. Fourth, Longstreth contended that government should create a new entity or empower a existing entity to explicitly advocate for the interests of investors. Finally, Longstreth asserted that the US should “appoint highly qualified people to head regulatory agencies.”
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