Should Business Embrace the Tea Party?

As the election results pour in today, it remains a little unclear how significant an impact the Tea Party will have. Some estimates predict that its candidates could win as many as seven seats in the Senate and more than 30 in the House. That might not sound like a lot, but there are also some mainstream Republicans that sympathize with many of its causes. Should business in the U.S. be excited that this libertarian-leaning group will have a new role in Washington? It depends on the issue -- and the business.

Defining the Tea Party's platform is quite difficult, since it isn't the most organized political movement. Yet there are some general principles that it's pretty easy to attribute to most of its candidates and supporters. Here are several, and how they might affect business.

No More Bailouts

There's probably no principle that the Tea Party more clearly stands for than its hatred for bailouts. Indeed, "No More Bailouts" has been something of a rallying cry for the movement. Is this good or bad for business?

In theory, it's good. If businesses don't have the promise of government bailouts, then they'll behave more prudently and competition will thrive. In practice, however, an inflexible unwillingness by the government to assist an ailing industry could have disastrous consequences. For example, imagine if the worst-case scenario occurred during the financial crisis, and the government hadn't stepped in. Imagine if cascading failures struck all of the big banks like JPMorgan, Citi, and Bank of America? Imagine a period of several months as the FDIC struggled to put the pieces back together and credit cards and ATMs stopped working. That's scary stuff.

Of course, we can't be sure that would have happened. Bailout opponents argue that everything would have been just fine without the financial rescue. But while it's unclear whether or not forbidding bailouts is good or bad from an economic perspective, it's pretty clearly bad from the viewpoint of the large firms that had come to expect a bailout if they run into trouble since they were "to big to fail." So bigger firms might fear this stance more than smaller ones.

No Politics as Usual in Washington

Another belief generally attributed to the Tea Party is that things need to change in Washington. In particular, the cozy relationship of big business and Congress needs to end. Lobbying shouldn't be put first; the American people should be the priority.

This is probably the kind of talk that scares the Hermes socks off executives of large corporations like General Electric who have a huge influence in Washington. While the Tea Partiers are fans of business, they aren't on board with the government subsidizing big business. So this is another case where big business might worry about the movement's influence, while small business might embrace it.

Austerity Ambitions

Another thing that the Tea Party talks a lot about is the deficit. Its candidates want to shrink it and begin paying down the debt. They mostly intend to do this by cutting government spending, since they also like low taxes.

While deficit reduction is almost indisputably a good goal in the long-term, some economists worry that short-term austerity could be very dangerous. As the U.S. economy continues to struggle to recover, cutting more federal spending would lead to fewer government jobs and more unemployment.

So this is a complicated issue. If the Tea Party seeks austerity immediately, then it could be harmful to business. But if it acts prudently and delays significant deficit reduction until the economic recovery has strengthened, then the U.S. economy will ultimately be stronger.

Lower Taxes

Since the Tea Party prefers smaller government, it also wants lower taxes. It's hard to see how businesses would have any qualms with this principle. As explained above, it just depends on how the movement manages to push down taxes while reducing the deficit, and the timing.

Political Idealism

As mentioned, the Tea Party hopes to change Washington. In doing so, it doesn't intend to be swept away by the political culture that often envelopes starry-eyed freshmen in Congress. They soon learn that you have to play ball in Washington to get things done, so they quickly sacrifice their ideals to ensure their political survival.

If the Tea Party is stubborn to compromise, then gridlock may be even stronger than usual. It's unclear whether President Obama will try to compromise his principles to work with a more right-leaning Congress. But even if he does, Tea Partiers could derail any attempts at legislation that he and mainstream Republicans agree on.

On this issue, again, it depends on the legislation and the business. A cap and trade policy is a good example. If the President somehow manages to convince Republicans to support some carbon trading system, then certain big businesses would likely benefit, since expensive environmental regulation would stifle competition and hurt smaller firms more than larger ones. Gridlock preventing that would be good for smaller businesses but bad for larger firms.

So at this point, it's a little unclear how the Tea Party's influence would affect business on a whole. Of course, for the next two years its influence will likely be muted anyway. No legislation its supporters create will be written into law, because even if they find sympathetic mainstream Republicans, the President will surely veto it. But if their movement grows over the next two years, and a Republican president takes office in 2013, then its influence could be much more significant.