in previous expansions, so perhaps we just need to invest more. unfortunately, it does not seem to be that simple. standard reasoning holds that capital - per - worker drives productivity. while we have had slower capital accumulation of late, we have also had slower growth in labor supply - - hours worked. thus, capital per worker, according to some analysis, has continued to increase roughly at its pre - recession trend. in this view, the productivity problem is not simply one of inadequate investment. 9 researchers have proposed several reasons why, even if the quantity of investment has kept up, recent investment may be leading to smaller productivity advances than in the past. the more optimistic analysts argue that we may be in a productivity lull while businesses work to realize the full benefit of advances that are embedded in recent investment. 10 others suggest that productivity - advancing ideas are inherently harder to find and exploit than in the past, implying that slower productivity growth may be with us for the long haul. 11 this debate is unlikely to be resolved anytime soon. in the meantime, we should look for policies that will create an environment in which productivity can flourish. see fernald and others, “ disappointing recovery, ” in note 4. for example, brynjolfsson, mitchell, and rock ( 2018 ) highlight the need to make complimentary investments in intangibles to take advantage of artificial intelligence and other emerging technologies ( see erik brynjolfsson, tom mitchell, and daniel rock ( 2018 ), “ what can machines learn and what does it mean for occupations and the economy? ” aea papers and proceedings, vol. 108 ( may ), pp. 43 - 47 ). and mokyr ( 2014 ) argues that the vast array of computers and other relatively new tools will usher in a new wave of progress just like the invention of barometers and microscopes and other tools propelled the technology in the 1700s ( see joel mokyr ( 2014 ), “ the next age of invention, ” city journal, winter ). bloom and others ( 2017 ) as well as thompson and spanuth ( 2018 ) discuss how it has become more costly to make technological advances. see nicholas bloom, charles i. jones, john van reenen, and michael webb ( 2017 ), “ are ideas getting harder to find? ” available at https : / / web. stanford. edu / ~ chadj / papers. html ; and neil thompson and svenja spanuth ( 2018 ), “

. the ultimate objective is improvement in the credit conditions faced by households and businesses. in this respect, the federal reserve has focused on improving functioning in the credit markets that are severely disrupted and that are key sources of funding for financial firms, nonfinancial firms, and households. figure 1 graphs the asset side of the federal reserve balance sheet, which has expanded substantially since the end of the third quarter of 2008. federal reserve initiatives with regard to the expansion of the asset side of its balance sheet can be grouped by the markets those initiatives are intended to help : ( 1 ) targeted actions to prevent the failure or substantial weakening of specific systemically important institutions, which are shown by the red area ; ( 2 ) liquidity programs for financial institutions, which are shown by the light blue area ; lending to support the functioning of key financial markets, which are shown by the green area ; and ( 4 ) large - scale purchases of high - quality assets, which are shown by the pink area. 1. targeted actions aimed at specific systemically important institutions. targeted actions to prevent the failure or substantial weakening of specific systemically important institutions include the first maiden lane transaction in march 2008, which extended support to facilitate the merger of bear stearns and jpmorgan chase. it also includes loans and facilities supporting american international group ( aig ). these actions were driven by concerns that the disorderly failure of a large, complex, interconnected firm would impose significant losses on creditors, including other financial firms, dislocate a wide range of financial markets, and impede the flow of credit to households and businesses. 2 to be sure, in no sense were these actions taken to protect the affected firms'managers or shareholders from the costs of past mistakes. although i was not present for the bear stearns transaction, i can tell you that the decisions regarding loans to aig were extremely difficult and uncomfortable. but at the time, the federal reserve was the only government entity with authority to act, and the tremendous risks to the financial system and the real economy implied by the failure of a large, complex, interconnected firm made the option of not acting unthinkable. 2. liquidity programs for financial institutions. since the onset of the crisis, the federal reserve has also modified existing facilities and implemented a number of new ones to provide liquidity to sound financial institutions in an environment in which interbank funding markets and repurchase agreement, or repo, markets ( for securities other than treasury securities