WSJ Celebrates Destructive Shutdown That Costs Economy Billions
The Wall Street Journal misleadingly praised the government shutdown, suggesting it could help the economy. In fact, the shutdown has already cost the economy billions and is predicted to harm economic growth even further.
WSJ Suggests Shutdown Is Helping The Economy
WSJ: “Maybe The Shutdown Is Helping The Economy.” A Wall Street Journal editorial suggested that because the government shutdown, which began October 1, had resulted in a decreased number of new federal rules, it had removed some “burdens on the private economy,” and was potentially “helping”:
[O]ne benefit of the shutdown is that it has reminded the country that it can function well without the dozens of federal bodies that exist solely to layer more burdens on the private economy.
Consider the evidence in the Federal Register, which is the record of new government rules that Washington is imposing on the rest of us. Here are the number of pages published on certain recent days in the Register: 498 pages on September 11, 193 on September 17, 369 on September 20, and 401 on September 30. But after the shutdown, the number falls to 12 pages on October 7 and all of six on October 9. And yet our glorious Republic still stands.
Maybe the shutdown is helping the economy. [The Wall Street Journal, 10/10/2013]
Government Shutdown Has Already Cost The Economy Billions
Bloomberg: “The Shutdown Cost $1.6 Billion Last Week In Lost Economic Output.” An October 8 article from Bloomberg highlighted the severity of economic losses due to the shutdown that spread well beyond the federal workforce, and cited the fact that it has already “cost 1.6 billion last week in lost economic output.” From Bloomberg:
The shutdown cost $1.6 billion last week in lost economic output, according to IHS Inc. (IHS), a Lexington, Massachusetts-based global market-research firm. As the showdown enters its eighth day, the office closures are now draining an average of $160 million each workday from the $15.7 trillion economy.
Two more days of the Washington-made calamity would put the shutdown's financial harm on par with a natural disaster last month. September's heavy rains, flash floods and mudslides across 17 Colorado counties caused at least $2 billion in economic damages, according to Equecat Inc., an Oakland, California-based catastrophe-risk modeler. Based on the IHS estimate, the shutdown costs will surpass $2 billion on Oct. 9.
Yet the economic impact of the shutdown goes beyond the federal workforce.
The National Association of Government Contractors found in an Oct. 1 survey of 925 members that 29 percent planned to delay hiring because of the stalemate and 58 percent said it will have a negative effect on business. [Bloomberg, 10/8/2013]
CNN Money: A $1-Billion-A-Week Loss Is Only “Tip Of The Iceberg.” In a CNN Money article from October 1, CNN reported that if the shutdown lasts three to four weeks, it could “cost the economy about $55 billion,” roughly “equal to the combined disruption caused by Hurricane Katrina and Superstorm Sandy”:
A government shutdown could cost the still-struggling U.S. economy roughly $1 billion a week in pay lost by furloughed federal workers. And that's only the tip of the iceberg.
First, there are the estimated 800,000 federal employees who will be off the job. That's roughly the same number of workers employed by all the auto assembly lines and auto parts factories across the country.
But economists say the impact will come not just from those lost wages, but also from related businesses cutting back or halting their operations. That will lead to a pullback in spending by employees of affected companies.
Then, there's the impact from increased business uncertainty that trims investments and disrupts financial markets.
The total economic impact is likely to be at least 10 times greater than the simple calculation of wages lost by federal workers, said Brian Kessler, economist with Moody's Analytics. His firm estimates that a three to four week shutdown will cost the economy about $55 billion.
That would mean that the economic impact from a month-long shutdown would be roughly equal to the combined disruption caused by Hurricane Katrina and Superstorm Sandy, not counting the property damage that accompanied those storms. [CNN Money, 10/1/2013]
Shutdown Is Predicted To Harm Economic Growth, Could Increase Deficit
Bloomberg: Moody's Analytics Estimates Shutdown Could Cut Growth By 1.4 Points. A September 27 Bloomberg article reported that Moody's Analytics estimated a three-to-four-week shutdown could cut growth by 1.4 points:
Mark Zandi of Moody's Analytics Inc. estimates a three-to-four week shutdown would cut growth by 1.4 points. Zandi projects a 2.5 percent annualized pace of fourth-quarter growth without a shutdown. A two-week shutdown starting Oct. 1 could cut growth by 0.3 percentage point to a 2.3 percent rate, according to St. Louis-based Macroeconomic Advisers LLC.
A shutdown would slow the expansion because output lost when workers are furloughed subtracts from gross domestic product. The combined prospect of a budget standoff between the White House and Congress and haggling over the debt ceiling could have a bigger impact on the economy as businesses hold off on investment and households delay spending. [Bloomberg, 9/27/2013]
Business Insider: “Each Day The Government Is Closed, The More Growth Will Shrink.” Business Insider reported that “each day the government is closed, the more growth will shrink,” and cited Goldman Sachs' Alec Phillips' estimate that beyond “the direct effect on federal consumption,” the shutdown could harm growth with added uncertainty:
“Compensation of federal employees is counted as federal consumption in the national accounts, so each day that federal employees do not go to work and are not paid results in a reduction in federal consumption,” added Phillips. “For every day of shutdown, federal compensation in Q4 is reduced by $400 million, or $1.6 billion at an annual rate.”
Phillips' estimates don't account for some of the collateral damage the shutdown could have.
“Beyond the direct effect on federal consumption, if the shutdown continues for an extended period, the uncertainty it creates could also lead to downward pressure on growth, at least temporarily,” added Phillips.
For now, each day the government is closed, the more growth will shrink. [Business Insider, 10/2/2013]
NYT: Shutdown Could Have Negative Effect On Deficit, “Due To Shutdown Costs And Reduced Revenues.” The New York Times reported that according to a Bank of America Merrill Lynch report, “the shutdown is likely to 'put upside risk' on the budget deficit”:
A BofA Merrill Lynch Global Research report says that the shutdown is likely to “put upside risk” on the budget deficit because of the threat it poses to the collection of government revenues, shutdown costs and other demands:
"Inside the Beltway this may look like a 'zero-sum game' where one party's win is the other party's loss. However, outside the Beltway, we believe this is very much a negative-sum game: the odds of a major shock to the economy and a full-blown correction to the stock market have risen.
Ironically, we think this also puts upside risk to the budget deficit - due to shutdown costs and reduced revenues - and it does not slow implementation of the Affordable Care Act - it is funded outside of the appropriations process." [The New York Times, 10/2/13]