The Downside Of The Peace Dividend

While Congress weighs new cuts in defense outlays, economist Carol Stone of Nomura Securities International notes that they are already plunging--by $6.1 billion in last year's third quarter and $11.6 billion in the fourth. And these cuts, plus others in the pipeline, she warns, "will offset fiscal stimulus in other sectors." Using an econometric model developed by Laurence Meyer & Associates of St. Louis, Stone estimates that just the drops in defense spending in the last half of 1991 will subtract about half a percentage point from gross domestic product in the next six months as their multiplier effects percolate through the economy.

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