July 12th, 2012
12:25 PM ET

Tax and spend

By Fareed Zakaria for TIME

In general, I accept the notion that a country needs to have a structure of taxes and incentives that reward growth. But what, specifically, would help? U.S. tax rates are relatively low, compared with what they were in the past or with those of other rich countries. Regulations haven't changed much in the past few years, so that can't explain the current slowdown. The crucial question is, rhetoric aside, What specific changes on the supply side would make a difference?

One of America's best businessmen has an answer. Fred Smith, the founder of Federal Express, argues that the key to job growth is stimulating private spending on capital goods and services. "There is only one statistic that is almost 100% correlated with job creation," he says, "and it is private investment in equipment and software." But what makes companies spend on equipment and software? More orders from customers or a better climate for business? The two are related. Sometimes businesses will simply create products, which then creates demand. Nobody asked for the iPad; Apple just created it. But most of the time, businesses hire workers once they see that customers are ordering their products again.

Read more of the column at TIME

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Topics: Economy • United States

soundoff (24 Responses)
  1. Leftcoastrocky

    How about tax incentives for hiring, Fareed?

    July 12, 2012 at 7:28 pm | Reply
    • AB

      even better penalties for laying off

      July 13, 2012 at 11:50 am | Reply
      • Gary Dee, Portland, Oregon

        Disincentives to firing actually form blockages to hiring. Such is the case in Europe; companies won't take on extra staff right at the uptick of business, for fear that business could tick down and it would be expensive to release some or all of the extra staff.

        The key is to create demand, like in the Apple iPad example, and that usually means entrepreneurs with innovative start-ups.

        July 14, 2012 at 4:53 pm |
      • Bill

        Do you read the news? That has worked REAL well for Spain.

        July 16, 2012 at 2:23 pm |
  2. chris

    Why not invest in government? Because while many of the infastructure projects are needed government has no track record to be proud of of controlling wasteful spending. The government is not in the business of creating a profit..only spending.

    July 13, 2012 at 9:03 am | Reply
    • AB

      the government has had periods of 0 deficit and surplusses. it just depends on who you have running the show. if it is republicans . recent history which is etched in stone says you will have deficits.

      July 13, 2012 at 11:51 am | Reply
  3. GOPisGreedOverPeople

    The GOP solution: Borrow and Spend.

    July 13, 2012 at 9:07 am | Reply
  4. Aaron Chaney

    Romney vs. Frankenstein (Obama)

    Put simply, better the devil you don't know. Vote Romney.

    July 13, 2012 at 12:31 pm | Reply
    • Hahahahahahahahahaha

      You must be rich!!! You think the GOP represent you!!! I'll bet you have a "double wide"!! Hahahahahahahahahahaha

      July 13, 2012 at 2:10 pm | Reply
      • alliya

        hehehehehehehehehehehe q hasi a rahi hai ap ko nj.von hain??????

        July 15, 2012 at 8:45 am |
      • Johnathan

        Do not be shy, speak English so that we may understand your rantings.

        July 15, 2012 at 11:27 am |
  5. Nathan Kyle

    'The key to job growth is stimulating private spending on capital goods and services'

    This does not make any sense! Those who talk like this, speak as if it is the final inescapable, unavoidable,
    absolute truth! But it is not.
    Innovation, is the key. And there are countless ways of creating jobs!

    It is impossible to have continuous, perpetual economic growth! One should think very, very carefully before answering this prop'.

    July 13, 2012 at 5:55 pm | Reply
  6. mardjan

    It is amusing that Fareed and the other losers are so dismissive of Beirdnake, who is the ultimate expert on stimulating the economy and has certainly the means to do it, but they hang on to the words of any businessman who says something remotely serving their own interest. Still more amusing is that he goes on week after week giving these analysis of the situation which of course proves o be completely of the Mark the week after, yet he still insists on coming up with more ridiculous ideas. He never stops!

    July 13, 2012 at 8:10 pm | Reply
  7. j. von hettlingen

    Fareed, I agree, private investment will boost growth and create jobs. Right now the private sector dithers, although American companies sit on cash in trillions. Indeed government could also invest too, renewing the country's creaky infrastructure, but the government will have to borrow to realise their project. Unfortunately the Keynesian economic policy doesn't seem to win general support.

    July 15, 2012 at 6:09 am | Reply
  8. Bob Graham

    I have yet to hear a full discussion on the effect of big business outsourcing the manufacturing job base to foreigh low wage labor (no benefits, no retirement, no healthcare). The container shipping business are booming, providing the vehicle to distroy a segment of the American job base. Singapore has a record market share of container processing. Jobs have also moved to Fedex and UPS moving jobs to lower wage States such as Alabama, Georgia and other "Right to Work states" which makes low wages, low pensions, and minimum wage employment the norm and a model for other progresive states.
    GPS Please discuss this issue.

    July 15, 2012 at 12:59 pm | Reply
  9. dpompo

    Fareed, It is amazing to me how such knowledgeable people who you speak with will take a political position over common sense. To suggest that a business won't invest in producing or procuring a product to sell unless they have lower taxes is absurd. If a business thinks there is a demand or need for a product that the targeted demographic can afford and that they can provide with a reasonable profit, they will invest in building a plant and hiring people to supply that profitable opportunity. That has nothing to do with tax rates. If the business gets tax breaks, that won't make that product any more affordable or more in demand than if they don't get tax breaks. What does drive demand is whether the demographic can afford a product that they may have a need or want for, but only if they have the discretionary income to pay for it. This revolves around the economic concept of supply and demand, that not only drives selling prices of products, but determines whether a business invests in supplying a product. The only way that a demographic is going to have the discretionary income to afford those products that perpetuates the economic engine and the economy is if they have a job with a reasonable salary that generates discretionary income. The business isn't going to hire people or build more factories if their product isn't affordable or there isn't a high enough demand regardless if they pay reasonable higher taxes. So if the business isn't going to hire more people in advance to demand because their taxes are lower (at the expense of the government; thus the people who pay taxes), then the only way to stimulate the economy is for the government to invest in education and the infrastructure throughout our country of hiring teachers, repairing old or building new roads, bridges, transportation systems, buildings, etc.; that are construction and educational projects that hire large numbers of workers that will provide discretionary income to the working class population so they can afford to go out to eat, buy groceries, buy clothes, have clothes dry cleaned, buy computers and phones, entertainment systems, go on vacation, etc. Of course the government invests that money to put people back to work to earn incomes that they pay taxes on to spend on products that further produce sales taxes, which will ultimately provide a return on investment to the government. If people are taking cuts in pay and losing their jobs, and staying out of work then they aren't spending discretionary income and paying taxes, and if the government doesn't invest in the country's infrastructure then our roads, buildings, bridges, and etc are deteriorating and not progressing and our children are not being educated and stimulated to drive our future economic growth. Why haven't I heard anyone speak to this logic on your program?

    July 15, 2012 at 3:01 pm | Reply
    • EVO555

      I TOTALLY AGREE WITH YOUR STATEMENT. I FEEL THAT SOME, NOT ALL, BUSINESSES MIGHT JUST BE BITING A LITTLE TOO MUCH OFF OF THE PROVERBIAL "PROFIT PIE" WHEN SOME OF THAT PROFIT COULD BE USED TO HELP THEIR EMPLOYEES, WHO ARE THE CONSUMER, HAVE MORE BUYING POWER BY IMPLEMENTING MORE RAISES FOR THE DESERVING AND GIVING MORE FAIR WAGES IN THE FIRST PLACE. Also, in my honest opinion, I feel strongly that EMPLOYERS KNOW THAT THE PRESIDENT HAS NO CONTROL OVER WHO THEY HIRE OR FIRE AND HOW MUCH YOU PAY FOR LABOR. What I do know is that since I have been out of the military, every JOB that I have had lead me to believe that it gave promotions and raises. These statements led me to take the job, sometimes at a slightly lower hourly rate as a show of faith that I am MOTIVATED AND WILLING TO EARN A BETTER SALARY. When the time came for talk about a raise, the manager has amnesia and dodges the subject or JUST FLAT OUT LET'S YOU KNOW THAT IT IS OUT OF THE QUESTION ONCE YOU ARE HIRED. TO ADD INSULT TO INJURY, MOST JOBS I KNOW OF BREAK A JOB POSITION UP TO MINIMIZE THE PAY FOR THE POSITION, THEN TACK THE PIECES BACK TOGETHER ONCE YOU ARE IN THERE IN THE DISGUISE OF "TEAMWORK". To me this is a common business tactic that has slowly taken it's toll on the middle class. EVEN OUR JOBS ARE NICKEL AND DIMING US TO DEATH.

      July 15, 2012 at 7:24 pm | Reply
  10. Alexandra Hopkins

    I believe that statistics would show that the root causes of the trend towards slow job recovery (relative to GDP) after recent recessions are: 1) Growing income-inequality - the Middle Class, with stagnant wages, splurges on borrowing before the recession and then is left with an overhang of debt that must be paid off before they can resume consumer spending after the recession. This has certainly been the case in the 2008 recession. Less consumer spending = less jobs for their neighbors. Whereas GDP can recover quicker through exporting abroad. Solution? Business, in its own self-interest, takes the Henry Ford route and pays workers so that they can buy the products that they make. Also, increase tax rates on the wealthy to 1950 or 1960 rates.

    2) Increasingly, the jobs lost during a recession are no longer needed after a recession. They are robotized or sent abroad. There are fewer jobs to return to. Solution? Our economy must innovate faster to create the jobs of the future and educate better so that we have the employees which can fill those jobs. The Middle Class needs and wants LOTS of services that are not currently available or affordable and can't be manufactured in Vietnam - education that really works (maybe based on KhanAcademy.com), healthcare that cures diabetes, counseling that gets families through times of stress, etc. Creating affordable services of this type would take basic research by the government. Private enterprise won't invest in this type of research. This could be part of the solution that Fareed suggests - increased government investment on research and infrastructure.

    July 16, 2012 at 1:00 pm | Reply
  11. Alexandra Hopkins

    Fareed, would you post on this website the chart that goes with this text? It was on your GPS broadcast of July 15 - the lag in months between GDP recovery and jobs recovery for each recession since 1945. BTW, this is a great article.

    Thanks, Alexandra

    July 16, 2012 at 1:07 pm | Reply
  12. Richp

    What business is it of the governments to do any of that, they need to get back to what they were chartered for, defense, etc. All the other stuff they get their noses in is hogwash and designed of one thing, more growth of government employment. I liked the quote that if we put the federal government in charge of the Sahara desert we would have a sand shortage in 5 years just from regulations.

    July 16, 2012 at 4:20 pm | Reply
    • Edict

      Having fun at the expense of the government that allows you to stay here?
      That makes you a total jerk.

      July 16, 2012 at 6:19 pm | Reply
  13. JP

    Having constant insecurity in the world, job insecurity, declining wages, less spending power, declining real estate values, reduced consumption and more automation of work. To grow again, there needs to be a sense of security, positive feelings about the world at large, hope for the future, stability, job security, confidence in the economic system and in leaders addressing societal problems. There needs to be a very comprehensive deliberate plan to repair the economy. Inaction and paralysis will not solve the economic problems.

    July 17, 2012 at 7:08 am | Reply
    • Patrick

      We need to stop islamists from trying to create the Caliphate.
      All the global problems in the 21st century specifically have been created by islam.

      July 17, 2012 at 12:04 pm | Reply
  14. clearick

    The economic system is dysfunctional only because too much wealth is being siphoned off by the wealthy and the government! America still produces goods and services efficiently and still has quality workers in virtually every field. But the basis for economic vitality is the CONSUMER. Most workers in America would like to be better consumers, but cannot afford to because they aren't paid enough! The only thing that stimulates a business to hire workers is the realization that there is opportunity for the business to grow and become more profitable. The only way that happens is if the Consumers have money to spend. So all government policy should be shifted to support the consumer. Companies where the wealth is squandered by management, i.e. CEO's paid 400 times what the average worker and what's killing the American economy and lowering the standard of living. This is greed, pure and simple and the government aids and supports this, which is exactly the opposite of what is in the people's best interests! The first job of Government should be to protect the little guy, make sure he's paid a decent wage, be sure he can buy healthy food and know what's in it, make sure that he can make ends meet so he has time to enjoy his life with other activities besides work.

    July 17, 2012 at 1:58 pm | Reply

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