A Wall Street Journal editorial downplayed the economic consequences of looming across-the-board government spending cuts and even claimed they will “help the economy.” But the Journal's own MarketWatch agrees that the cuts, commonly referred to as the “sequester,” would greatly harm the economy: it could halve U.S. economic growth and lead to one million lost jobs.
The Journal editorial, headlined, “The Unscary Sequester,” claimed that "[t]he most disingenuous White House claim" about the sequester is that it “will hurt the economy.” The editorial continued, “Reality check: The cuts amount to about 0.5% of GDP,” and went on to claim that the sequester will actually help the economy “by leaving more capital for private investment.”
Yet the Journal's own MarketWatch noted on Tuesday that the Congressional Budget Office has estimated that the sequester “will halve U.S. growth in 2013.” MarketWatch explained:
U.S. economic growth in 2013 will be 1.4%, the Congressional Budget Office estimated on Tuesday, up from a previously estimated decline of 0.5% pinned on the so-called fiscal cliff. CBO said however that growth would be about 1.5 percentage points faster in 2013 if not for fiscal tightening including the so-called budget sequester.
The Bipartisan Policy Center has also estimated that the full sequester would cause approximately one million job losses.
The editorial also supposes that the sequester would help economic growth, which ignores the fact that the 2012 fourth-quarter decline in GDP was largely due to a steep drop in government spending. While the report on the GDP decline showed that private sector investment had increased, it was not enough to lift GDP growth into positive territory because of the large drag on the economy imposed by lowered government spending. This discredits the Journal's claim that if government spending were decreased through the sequester, private capital would be able to sustain positive economic growth.
Indeed, while the Journal editorial dismisses the effects of the potential cuts by claiming that affected programs “are hardly starved for money,” the threat of the sequester alone has already contributed to economic slowdown and negatively impacted government agencies. Experts have noted that the decline in government spending -- particularly in defense -- that contributed to the recent economic contraction was likely due to uncertainty caused by the sequester.