Defense is a regrettable expenditure. Like law enforcement and insurance, defense spending may be necessary but intrinsically it does not make us feel better off in the same way as, for example, housing, transportation services, and education. Thus the reductions in East- West tensions that enable us to allocate more dollars to items that directly improve living standards should be welcome.

Nevertheless, adjustment to a lower level of defense spending has costs. Reduced demand for defense services will cause disruptions for defense-oriented companies and their workers. Concern is especially high in New England, which is home to a disproportionate share of the nation's defense contractors. This article examines New England's economic costs from lower defense spending. The author finds that while the reduced expenditures on defense will have a noticeable negative effect on the region's output, this will not be as great as in past cutbacks. However, the coincidence of defense reductions with other economic problems in New England will tend to magnify the difficulty of adjustment.