The business elite is letting GOP put domestic economic sabotage on the negotiating table

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.

*    *    *

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.

This entry was posted in 2007-2012, debt, democracy, economic recovery, macro-economics, political sociology, politics, qualitative sociology of economics and politics, sociology, The End of the GOP, the great contraction, the great contraction 2007-2012. Bookmark the permalink.

2 Responses to The business elite is letting GOP put domestic economic sabotage on the negotiating table

  1. I think what this current crisis shows is that the Business Elite are not so much against the Republicans as they are incapable of acting in a unified manner to help resolve big social issues. This is precisely the argument Mark Mizruchi makes in his new book, The Fracturing of the American Corporate Elite. Even as corporations have grown more powerful individually, they have become relatively less effective at coordinating their political activity on large issues. So, even if the shutdown crisis is bad for business (which I think is not so far-fetched), there’s no longer the capacity for big business to act together (even if the current GOP would listen, which at least some of it would not).

  2. markaustenwhipple says:

    I think you are right to raise the issue of “coordination.” And also to cite Mizruchi’s book. I can agree big business is either incapable or unwilling to solve “big social issues,” as you put it. But evidence suggests big business is neither incapable nor unwilling to act on issues directly related to bottom-line: taxes, profits, bailouts, regulation, etc. On these issues, the outcomes are inarguably in favor of big business and at least suggest, if not prove, that big business is still quite capable and willing to act with some level of coordination and shared interest.

    Also, because more than ever big business profit is based overseas, and not in the domestic US, it is arguable that big business does not act to solve “big social issues” here at home simply because the investment, from their eyes, is not a worthy one. They have billions of new consumers in other parts of the world. Why re-invest in the American middle-class?

    The shutdown hurts the domestic economy, I agree. But it doesn’t have the world-wide effect that a debt-ceiling breach would most likely have. My overall thesis is its the world economy, not the US domestic economy, that is the proper context in which to analyze big business action and interest.

    Thanks for the thoughtful comment and reminding me about the Mizruchi book! Best wishes.

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