If the country avoids breaching the debt limit in the next few months, you may not have Wall Street volatility to thank. Or even respected conservative economists who are struggling to convince House Republicans to extend the federal government’s ability to borrow. Instead look to Main Street.
A late April survey of small business owners by Goldman Sachs found that 90% think it is important that the federal government doesn’t default on its debt and two-thirds say their own businesses would be hurt if it does.
A separate CNBC poll of small business owners taken in January found that 86% were concerned about the U.S. government reaching its debt ceiling, with 61% reporting they were “very concerned.”
Enormous Influence
Those Main Street businesses have enormous influence on their members of Congress. It is especially true for old-style economic conservatives who like low taxes and small government. But don’t underestimate the clout of these business owners with many Democrats and even some new wave populist, Trumpist Republicans.
Most GOP member of Congress get campaign contributions from their local business owners and probably know them socially. And when Main Street asks how on earth Congress could let the U.S. default on its debt, those lawmakers will listen.
After all, those businesses will be some of the biggest losers if the U.S. defaults, interest rates rise even faster than they have been, and the economy craters. The Goldman survey found three-quarters of Main Street businesses already worry about their ability to access capital. A year ago, only one-quarter were concerned.
Imagine what a spike in interest rates will do to car sales. Or what it will mean for home sales, which already are slumping in many markets under the weight of rising interest rates. Or how it will hit local bankers reeling from recent high-profile community bank failures. They will be among the first to stumble into the swamp of unprecedented economic uncertainty.
Seeking An Off-Ramp
I suspect many traditional House GOP conservatives, especially those just elected in swing districts, are anxiously looking for an off-ramp from the coming debt crisis.
They have yet to work up the courage to buck their party leadership. Similarly, the big national business lobbies, such as the U.S. Chamber of Commerce and the Business Roundtable, remain reluctant to publicly demand quick action on the debt limit. But local Chamber members may be different.
Sure, many on Main Street will cheer GOP calls for less government spending, lower taxes, and fewer regulations. Some undoubtedly believe the biggest threat to their business is the federal debt rather than breaching the debt limit. Many instinctively are attracted to the House GOP’s Limit, Save, Grow Act that promised to cut spending by roughly $4.5 trillion over 10 years without ever quite saying how. And most probably want to see government both restrain spending and pay the bills it already has run up.
In the Goldman survey, about 80% of small business owners thought it was important to enact spending cuts along with a debt limit hike. Even that is complicated, however. For example, Goldman’s February survey of small business owners found strong support for modernizing the Small Business Administration. But that could cost money and the SBA could be caught in the across-the-board spending reduction plan House Republicans passed in April.
Making A Choice
The bottom line: Will Main Street be willing to pay the price of default to slightly improve the odds of shrinking government the way they prefer? Seems unlikely.
Business owners will have to choose. It will be impossible for Congress and the White House to agree to specific spending cuts in the next few weeks. Perhaps they will agree to a framework for future deficit reduction talks. That won’t be enough for GOP hardliners, but what about those lawmakers who listen to their local businesses? With cover from their business communities, would they be willing to work with Democrats to find a way out of the debt limit mess?
As the nation closes in on a default, interest rates could rise in anticipation of a breach as they did the last time we did this, in 2011. And that may be when moderate Republicans begin to hear from their local business owners whose interests are more commercial than ideological.
It is too soon to know if enough of those local business owners will push Congress to reach a debt limit deal. But if you want to know how this will all come out, watch Main Street, not Wall Street.
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