The Sequester is Implemented- Small Government Conservatives Rejoice

As predicted, no deal has been reached on the Sequester, and it will now go into effect.  This means that discretionary spending, including the military, will be cut very heavily- there will be furloughs, layoffs, contracts cancelled, and government bureaucracies unable to operate at full capacity.

But one way to look at this is a big win for fiscal conservatives, particularly for those who sneer at Keynesian economics and see the path to prosperity paved only with balanced budgets.  Liberal economists universally note that this will be bad for the economy as a whole in the short term, as it is fundamentally anti-stimulative.

So we have the beginnings of a natural experiment here.  If Freshwater Economists are right, then the recovery should continue apace and even accelerate now that government spending is down so much.  And if Saltwater Economists are right, then this will drag down growth.  Of course there are so many factors in economies, and we'll probably end up somewhere in the middle, but maybe not.  Certainly a big boom in the next year with the Sequester in place would have to make fools of the Keynesians. 

Another point here is who gets the credit/blame for the economy now.  I know the Republicans will continue to try to pin continued slow growth solely on Barack Obama, but fiscally they've just gotten what they want- austerity policies including no tax hikes.  The fact that half those cuts were to the military, which most Republicans don't like, is immaterial in terms of economic growth.  If the US is successfully invaded by a foreign country due to our weakened military, we can blame liberals.  But if unemployment ticks north of its current position in the next year, we need to acknowledge that it's because of conservative fiscal policies.