Many think the U.S. needs another government-sponsored enterprise like it needs another Katrina. The Freddie Mac and Fannie Mae debacles and the ongoing capitalization worries in the Federal Home Loan Bank system have seemingly exhausted the risk-tolerance of taxpayers and lawmakers. But venerable economic theorist and 2006 Nobel laureate Edmund Phelps believes there's room for the government to create a new entity that could help revive the country's storied knack for "ideas, experimentation and exploration."

Phelps, along with Columbia University economist colleague Leo Tilman, argued in a recent paper published in the Harvard Business Review that the U.S. needs a "First National Bank of Innovation" - a federally chartered GSE that could help reverse what they see as a critical decline in private-industry investments in entrepreneurism and "bottom-up" economic dynamism.

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