There is a piece of knowledge emerging in which the Republicans are no longer the party of Big Business. Statements of this knowledge can be found in BusinessWeek, National Review, and the Washington Examiner. It is based on the view that the current “crises” — especially the debt ceiling — are (1) being pushed by the GOP; and (2) against the interest of Business. The first view is demonstrably true, as this New York Times report helps document. The second view, however, has not been established as empirically true. Indeed, a closer look suggests the idea that the GOP has abandoned Big Business is probably wrong.
In fact, there is reason to believe the interests of business and the wealthy are being well served during this present period of GOP intransigence.
First, corporate profits are exceptional. Look, for example, at this graph. Corporate profits, after falling sharply in early Fall 2008, have rebounded quite nicely, to say the least. Indeed, corporations are killing it, and have killed it consistently throughout both the rise of Obama and the institutionalization of the crisis-sowing House Republicans.
Second, not only corporations, but wealthy individuals are doing more than well. This famous study by Emmanuel Saez (at least, it should be famous) documents that since the end of the recession, the wealthiest 1 percent have garnered 95 percent of the country’s income gains. 95 percent. Basically every dollar.
We should immediately stop assuming the GOP has abandoned the business elite, and instead ask: How do the business elite and the wealthiest 1 percent continue to prosper right through domestic political and economic dysfunction?
Simon Johnson, a great economist, stumbles in a recent blog post by not raising this question. He argues “really stupid fiscal policy threatens to bring the United States down.” I’m fine with that proclamation, if you have in mind domestically-anchored small business and consumers going “down.” But what comes next is about the business elite, and here, I think, the economist becomes wrong-minded. Johnson provides three assumptions I think miss the point:
1. “The silence of much of the business and financial elite on the debt ceiling — as well as on the sequester and the government shutdown — is somewhat shocking.”
It is not that shocking, given the US and world economy have had five or six years of crisis after crisis, throughout which the business and financial elite have prospered.
2. “The trajectory of current fiscal policy will hurt the pocketbooks of this elite.”
There is not only ZERO evidence for this assertion, there is ample evidence to the contrary, as shown above.
3. “If the business elite cannot speak truth to the Republican Party — and persuade its leadership and enough members of Congress to return to a more moderate stand — there is not much hope for the United States in today’s global economy.”
The crisis-after-crisis-after-crisis political economy of the past few years has hurt the domestic-based sectors of highly leveraged advanced economies. The manufactured crises have not, however, damaged the globe-trotting elite. This is because there are still high-growth emerging economies characterized by middle-class ascension and rising consumer demand. The fact is this: Consumption is still growing, but this growth is not based in the domestic economies of the globe-trotting US elite. It is based overseas.
Now, perhaps it is true that a debt-ceiling breach will damage the world economy in a way political paralysis and government shutdown do not. Perhaps it is true the US elite will thus find it necessary to have the GOP toe the line. Perhaps Paul Ryan’s op-ed in the WSJ yesterday is the first sign of this.
That said, it is hard to escape these empirically-based impressions:
For the business elite,
1. It is the world economy that matters, more than the US domestic consumer economy.
2. Domestically, it is tax rates that matter, not middle-class investment.
3. It is emerging-economy consumers who look so attractive right now, rather than overspent, over-politicized US households.
I think these three impressions, if as true as they seem to be, explain why the business elite is so quiet right now. They view it as in their interests.
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For what it is worth, I put the chance at a debt-ceiling default at 6-10 percent. Unlikely, but not as wild a proposition as it should be. And if you were to ask me, what’s the likelihood of a short, temporary default? I would say even higher, maybe 20 percent. This is because nobody knows what would or will happen in the event of a debt-ceiling breach. Would the US default on its creditors? Would it prioritize payments to bondholders at the expense of, say, social security payments? What effects would these choices have on its creditors, the US economy, the world economy? Nobody really knows. A little data to help some have better knowledge of what would happen in the event of a breach might serve some interests. Not all interests, but a select few. So: A breach is not likely, but as the GOP continues to make clear, and its clients seem ok with: a breach is on the table.