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April 1993, Vol. 116, No. 4
Norman C. Saunders
P urchases of goods and services for defense activities (in 1987 dollars) fell to $180 billion in 1976, the trough of the defense spending drawdown following the Vietnam conflict.1 After that, defense spending began to increase during the 1970's and accelerated during the 1980's, peaking at $292.1 billion in 1987, up from 5.3 percent of gross domestic product in 1976 to almost 6.5 percent by 1987.
Accompanying the spending surge was an increase in jobs generated by that spending. Over the 1977-87 period, the lion's share of the new jobs were in the private sector of the economy, as employment related to defense expenditures rose by nearly 2.1 million jobs in response to the increased spending on more advanced hardware and on the research and development which went into the creation of that new hardware. In addition, civilian employment in the Defense Department rose by 160,000 jobs, and the level of the Armed Forces increased by 93,000.
In the late 1980's, however, the changed world political situation, which signaled a decrease in the potential threat to peace from Soviet Bloc countries, combined with increasing concern over the burgeoning Federal budget deficit, led to plans to begin cutting back on defense spending and on military force levels. Budget plans were developed which would lead to annual reductions in defense spending in real terms through 1997, accompanied by cutbacks in military force levels over that same span.
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1 The DRI Comprehensive model of the U.S. Economy is fully described in Model Documentation: Theory, Properties, and Coverage, March 1990. The model was fully re-estimated in early 1992 to take account of later data and the benchmark of the National Income and Product Accounts released in January of that year. The modifications to the model are described in Mark Lasky, Chris Probyn, and Joyce Yanchar, "Introducing the 92A Version of the DRI/McGraw-Hill Model of the U.S. Economy," DRI/McGraw-Hill U.S. Review, August 1992, pp. 34-40.
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