What the latest U.S. budget crisis means for the future of defense.

• Author: Farrell, Lawrence P., Jr.
• Position: President's Perspective

An 11th-hour deal was reached, and a government shut-down was averted last week. This should finally put to bed the debate about the 2011 fedeal budget--which has $78 billion less than the president's original 2011 submission.

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But it is just be beginning. Now the debate shifts to the 2012 budget. Many of the "compromise" areas and social issues of the 2011 budget standoff will resurface. But the next round will cast a broader net.

If there is a lesson for the White House and Congress from the recent crisis is that even the threat of a government shutdown has lasting consequences, many of which are deterimental to the nation's economy. For government employees and contractors dependent on the government, the ramifications were all over the map, depending on whether some employees were "essential", and what contracts were in place.

Some functions that are deemed vital would continue in a shut-down, such as security and fighting the nation's wars. But, ironically, the government workers that would have to perform those functions wouldn't be paid during shutdown, even though they were required to come to work. This is a disturbing outcome, especially so for deloyed military troops with families at home trying to make mortgage and rent payments, plus putting food on the table. And even though the shutdown didn't occur, the worry and stress were considerable, and one would guess have not dissipated.

The uncertainty that comes with the threat of a shutdown also is debilitating for government workers and contractors, as some part of the federal government actually canceled important activities that involved thousands of participants who had already made travel and hotel arrangements. Even without a shutdown, the effect was the same for these previously scheduled and important events. The inefficiency of all this will add considerable cost to downstream tasks and programs.

As to what this means for defense spending, there are a number of concerns.

The president's 2012 budget marks a high point for defense and the beginning of a down. Defense received $692 billion in 2010 (base and war budgets) and budgeted $708 billion for 2011, which is likely to be slightly less based on the latest agreement. The proposed budget is $675 billion for 2012. The baseline increases from $530 billion in 2010 to $553 billion in 2012. Overseas contingency operations funds drop to $117 billion in 2012, which explains part of the decline in overall...