The budget increase for the military came at the expense of investment in the rest of the economy. Nikolai Leonov, a general in the KGB, described the result as follows:
First there was a visible decline in the rate of growth, then its complete stagnation. There was a drawnout, deepening and almost insurmountable crisis in agriculture. It was a frightening and truly terrifying sign of crisis. It was these factors that were crucial in the transition to perestroika.
The Reagan Administration justifiably gets credit for destroying the Evil Empire, but the irony of it is that the successful strategy arose as a result of a blunder rather than rational decision.
David Stockman tells us that the dramatic increase in the defense budget arose as a result of a mistake. David Stockman was the head of the Office of Management and the Budget (OMB). The OMB practice in putting together a budget was first to make forecasts of the budget figures assuming no change in price levels; i.e., no inflation. An estimate was made of the rate of price increase and the constant price projections would be multiplied by an appropriate factor for inflation. Stockman says that in one year the inflation-adjusted figure for the Defense Department budget was mistakenly reported as the constant price figure. The mistaken figures were released before the mistake was caught. When OMB discovered the mistake the Reagan Administration tried to tell the Pentagon that a correction would have to be made. The Pentagon people said, in effect, "No way! If you adjust that published figure we will tell people that you are cutting the Defense budget."
The political fallout would have been too great so the Reagan Administration sanctioned the accceptance of the published figure and made a second inflation adjustment. This was why there was such a big increase in the Defense budget.