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Fiscal Cliff Notes

2:05 PM, Dec 18, 2012 • By VICTORINO MATUS
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With the fiscal cliff looming, readers and lawmakers (and the readers who happen to be lawmakers) can get a better grip on the crisis by checking out Government Policies and the Delayed Economic Recovery, edited by Lee Ohanian, John Taylor, and Ian Wright (Hoover Institution Press). At a recent lunch discussion in D.C., Ohanian, a Hoover senior fellow and economics professor at UCLA, explained how government policies such as the stimulus checks, the home-buyer tax credit, emergency unemployment compensation, and Cash for Clunkers are delaying economic recovery.

When Ohanian looked back at the New Deal, he realized recovery had been delayed 5-10 years. He figures that today we've lost about three or four years' growth. Certainly corporations and businesses are recovering and productivity is up, but job creation is trending downward. "We're at risk of a permanent underachieving economy," said Ohanian, who pointed to Europe as an example—there are fewer workers in Germany, France, and Belgium today than there were some 50 years ago (yes, there is a correlation with the lessening of working hours per week). There is also a correlation to higher tax rates.

When asked if he doesn't think the rich can afford to pay more in taxes, Ohanian replies that his concern is not their ability—of course they can afford it—but rather how that affects their business decision-making. In fact, he challenged one reporter to go out and ask factory workers if they are in favor of the rich paying more followed by the question of whether their factory owner specifically should pay more. Unexpectedly the reporter called Ohanian back to let him know that while the workers supported higher rates for the rich, they were less inclined to have their plant owner pay more—they feared the consequences such as shorter work hours and possible layoffs.

While this is anecdotal, the book itself has enough charts and graphs to bolster the position that less government intervention will mean better economic prospects.

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