Our former Brookings colleague Rebecca Blank, now at the Commerce Department, is today leading the first meeting of the Obama Administration’s Innovation Advisory Board, looking at the innovative capacity and economic competitiveness of the United States.

I applaud the effort.  Nothing is more important to America’s longterm competitiveness than emphasizing innovation.  As the council looks to the private sector and global markets, I urge it to examine how the U.S. government can lead innovation and contribute to economic growth.  The best place to look is new and emerging digital technologies that can make government more accessible, accountable, responsive and efficient for the people who use government services every day.

Here are some of the recommendations I made in a recent paper I wrote with colleagues here at Brookings as part of our “Growth Through Innovation” initiative:

• Save money and gain efficiency by moving federal IT functions “to the cloud,” i.e., using advances in cloud computing to put software, hardware, services and data storage through remote file servers.

• Continue to prioritize the Obama administration’s existing efforts to put unparalleled amounts of data online at Data.gov and other federal sites, making it easier and cheaper for citizens and businesses to access the information they need.

• Use social media networks to deliver information to the public and to solicit feedback to improve government performance.

• Integrate ideas and operations with state and local organizations, where much of government innovation is taking place today. 

• Apply the methods of private-sector business planning to the public sector to produce region-specific business plans that are low cost and high impact.

These improvements in government services innovations in the digital age can help spur innovation and support a robust business climate.  And, as a sorely needed side benefit, they can also serve to eliminate some of the current distrust and even contempt for government that has brought public approval of the performance of the federal government to near historic lows.  

The appointment of new federal chief information officer Steven VanRoekel comes at a challenging time for President Barack Obama. The national economy continues to be weak. Congress plans to cut trillions from the federal budget. And in the time leading up to the 2012 election, American voters remain cynical about the ability of the government to address important policy problems in an effective manner.

In an era of deficit reduction and public cynicism, the tasks facing federal officials are to determine how to do more with less and persuade voters the government can become smarter and more effective. There are going to be fewer dollars for virtually every federal program so it is important to figure how ways to innovate and perform more efficiently.

Former CIO Vivek Kundra sought to do this through encouraging agencies to move software applications to the cloud, consolidating federal data centers, improving transparency, and improving the information technology procurement process. It is important to continue this progress even as agencies are forced to downsize their operations.

As shown in the private sector, government administrators should use technology to cut costs, improve worker productivity, and streamline operations. This is not just a matter of using technology in more innovative ways, but changing the operations and culture of the public sector. Public officials must improve its data mining activities to identify fraud and abuse in Medicare, Medicaid, the Defense Department, and other domestic programs.

New software gives managers better tools to evaluate how money is being spent and whether it is fulfilling intended goals. If it is not, programs need to be modified or eliminated. The most important weapon in Mr. VanRoekel’s arsenal may be the scalpel as he goes through the federal government’s $80 billion IT budget.

“Missed connections” is the personals ads category for people whose encounters are too fleeting to form any union – a lost-and-found for relationships.  I gave that title to my paper on the conversation between the United States and for Europe on data, privacy, and surveillance because I thought it provides an apt metaphor for the hopes and frustrations on both sides of that conversation.

The United States and Europe are linked by common values and overlapping heritage, an enduring security alliance, and the world’s largest trading relationship.  Europe has become the largest crossroad of the Internet and the transatlantic backbone is the global Internet’s highest capacity route.

[I]

But differences in approaches to the regulation of the privacy of personal information threaten to disrupt the vast flow of information between Europe and the U.S.  These differences have been exacerbated by the Edward Snowden disclosures, especially stories about the PRISM program and eavesdropping on Chancellor Angela Merkel’s cell phone.  The reaction has been profound enough to give momentum to calls for suspension of the “Safe Harbor” agreement that facilitates transfers of data between the U.S. Europe; and Chancellor Merkel, the European Parliament, and other EU leaders who have called for some form of European Internet that would keep data on European citizens inside EU borders.  So it can seem like the U.S. and EU are gazing at each other from trains headed in opposite directions.

My paper went to press before last week’s European Court of Justice ruling that Google must block search results showing that a Spanish citizen had property attached for debt several years ago.  What is most startling about the decision is this information was accurate and had been published in a Spanish newspaper by government mandate but – for these reasons – the newspaper was not obligated to remove the information from its website; nevertheless, Google could be required to remove links to that website from search results in Spain. That is quite different from the way the right to privacy has been applied in America.  The decision’s discussion of search as “profiling” bears out what the paper says about European attitudes toward Google and U.S. Internet companies.  So the decision heightens the differences between the U.S. and Europe.

Nonetheless, it does not have to be so desperate.  In my paper, I look at the issues that have divided the United States and Europe when it comes to data and the things they have in common, the issues currently in play, and some ways the United States can help to steer the conversation in the right direction.

[I] "Europe Emerges as Global Internet Hub," Telegeography, September 18, 2013.

Cloud computing is becoming omnipresent in the private sector as companies latch on to this innovation as a way to manage scalability, improve flexibility, and reduce cost. Analysts at IDC predict that, over the next six years, nearly 90 percent of new spending on Internet and communications technology will be on cloud-based platforms. Apple, Google, Amazon, Microsoft, and hundreds of smaller companies are positioning themselves to dominate the estimated $5 trillion worldwide market. While few companies will provide numbers, it is estimated that Amazon and Google may run as many as 10 million servers while Microsoft runs close to one million. In short, it is an innovation that makes a mockery out of Moore’s law.

But, like all innovations, cloud computing has potential pitfalls. Public sector organizations in particular have had difficulty taking advantage of new technologies. The Heritage Foundation keeps a list over 50 examples of government ineptitude including $34 billion in fraudulent Homeland Security contracts, National Institutes of Health renting a lab that it neither needs nor can use for $1.3 million per month, and the Department of Agriculture wasting $2.5 billion in stimulus money on broadband internet. Technological ineptitude received special attention with the failed launch of the Healthcare.gov, the release of classified data from Edward Snowden, and the costly FBI virtual case file debacle.

Cloud computing is far more than just a simple technology change and requires a close examination of governance, sourcing, and security. We sought to understand how well state government is prepared to address the challenges of cloud computing.

The Approach

We have gathered and started to do a content analysis of the IT strategic plans for each state. For each plan, we performed a content analysis, which is looking for certain phrases or text within the IT strategic plan in order to have a structured way to understand the data. Details for our approach can be seen in our previous blog post.

How States Are Implementing the Cloud

We were not surprised to see a number of states preparing to study or embark on cloud computing.

While some states don’t mention it (e.g. Alabama), most states are eagerly exploring it. For example, North Dakota’s plan talks about cloud computing as an integral part of the future and seven of its thirteen major IT initiatives are centered on preparation for transitioning to the cloud “where and when it makes sense”.

Vermont puts itself squarely in the studying period. The plan describes that, “While the risks of enterprise-wide and cloud-based IT must be carefully managed, trends continue to just larger-scale operations.” Wisconsin also clearly lays out its view on cloud computing, writing that, “Flexibility and responsiveness (also) guide Wisconsin’s approach toward adoption of cloud services” and suggests that its version of a private cloud “…offers advanced security and service availability tailored for business needs.” West Virginia provides an equally balanced approach by requiring that only services with an acceptably low risk and cost-effective footprint will be moved to the cloud.

In short, all of the states that are considering cloud computing are taking a thoughtful and balanced approach.

The Good

One of the most critical aspects of cloud computing is security and, without question, states understand the importance of good security. A good example of this is Colorado who designates security as one of its four “wildly important goals” and sets the target of “10 percent reduction in information security risk for Colorado agencies by close of FY15”.

South Carolina echoed the same theme by asserting that security and confidentiality are “overriding priorities at every stage of development and deployment.” Connecticut’s plans explain the need to “continuously improve the security and safeguards over agency data and information technology assets”.

The Bad

Despite the interest in cloud computing, we were only able to find a single state (Georgia) that explicitly links governance to security and, to us, by extension to cloud computing. In Georgia’s plan, they start with the idea that “strong security programs start with strong governance” and then explicitly describe necessary changes in governance to improve security.

We were, however, impressed with the seriousness that New York, North Carolina and Massachusetts took governance but it was difficult to find many other states that did.

The Ugly

Unfortunately the results on sourcing were dismal. While a few states (e.g. Kansas, Ohio, and Massachusetts) specifically discuss partnerships, most states seemed to ignore the sourcing aspect of cloud computing. The most ominous note comes from Alabama where they make a statement that innovation in the state is being stifled by a lack of strong personnel.

While we have great enthusiasm for government to address cloud computing, some of the non-technical issues are lagging in the discussion. Good government requires that these items be addressed in order to realize the promise of cloud computing.

Since 2009 the federal government started the process of replacing local computers with cloud platforms. A recent report from the Congressional Research Service (CRS) provides an interesting view into the progress of these investments. It reveals the benefits that public agencies gain when using cloud services and the barriers they face when making the transition.

Advantages of Cloud Computing

Cloud computers are superior to locally-run data centers for a variety of reasons. The CRS report identifies six specific cloud benefits:

• Cost- Cloud computer platforms use resources more efficiently than local servers. An organization that uses local Information Technology (IT) must invest in the infrastructure to support computer systems at times of peak demand. However, most times companies or government agencies require only a fraction of that computing power. Cloud computing allows organizations to pay for all of the resources they need and avoid costly investments in rarely used local IT systems.
• Energy Efficiency- Cloud computing data centers benefit from economies of scale to run more efficiently than local servers. In some cases this can result in huge energy savings. For a large cloud computing center it also makes economic sense to invest in green energy sources like wind or solar for power.
• Availability- Cloud computing systems make it easy for any device with an Internet connection to access files or software. However, if a facility temporarily loses Internet access the files on cloud system are inaccessible. Alternatively, a locally administered IT system could function without Internet connectivity.
• Agility- Cloud systems can make it easier to upgrade operating systems and applications. The available computing power also means that memory intensive software packages are cost effective.
• Security- Cloud providing companies also have the financial resources to purchase the tools necessary to ensure that networks remain safe.
• Reliability- Cloud systems can save data onto multiple servers. If a single server goes down due to a cyberattack or another issue, the data is available on another server.

Government Investments in the Cloud

Determining the exact size of government cloud computing expenditures is difficult. Government spending on IT has increased every year from 2001 to 2013 when it reached a peak of $81 billion. In the three subsequent years it has decreased. Cloud computing expenditures likely represent a tiny fraction of that total. Market research firms have estimated that the federal government spends between $1.4 billion and $7 billion on cloud computers annually.

Trends in Total Federal Investment in Information Technology

Source: Congressional Research Service

Challenges for Migrating to the Cloud

The federal government has encountered several barriers in its plan to shift more functions to cloud platforms:

• High Federal Security Requirements- The government faces new advanced persistent threats routinely. System-wide security updates are necessary more often than for private sector organizations. The short update cycle provides a unique challenge to cloud providers.
• Adopting New Technologies- Government agencies have ingrained cultures that are slow to change. This shift from locally-based servers to the cloud can be slow and tedious for this reason.
• Ancillary Technologies- Cloud technologies are known for their flexibility. However, government agencies may lack the necessary IT infrastructure or speedy Internet connections that leverage the maximum potential of the cloud.
• Technical Know How- Cloud platforms require specialized knowledge to administer. Many government agencies lack the necessary experts to oversee a migration to the cloud.
• IT Expenditure- Migration to the cloud can involve expensive initial costs. Additional funding is necessary to facilitate the shift to the cloud.

The Future of the Government Cloud

An analysis of the costs and benefits of cloud migration uncover a few specific barriers that the federal government must overcome to earn the full value from new technologies. First, lawmakers must be willing to spend more now to save money later. Cloud systems are cheaper to run than local administered servers but the initial transition costs are high. Current funding levels, which are trending down, are too low to finance such a change. Privacy and security are also major challenges. Government servers host troves of data that Americans expect to remain private. Converting these systems to the cloud will require the government’s full confidence that cloud systems are at least as secure. New legislation is likely necessary to achieve the complimentary goals of privacy and security.

More TechTank posts available here

INTRODUCTION

Influencing the Islamic Republic of Iran has proven to be a perennial conundrum for American presidents. The complexity of Iranian politics and the intractability of the problems posed by Tehran’s revolutionary theocracy may explain why, over the course of three decades, each U.S. administration has been forced to revise its initial approach to Iran in hopes of achieving better outcomes. The overall result has been an American tendency to oscillate between engagement and pressure, with frustratingly limited results.

And so it goes for the Obama administration. After an initial, high-profile effort to draw Tehran into a serious dialogue both to resolve the nuclear issue as well as transcend it, Washington now finds itself pivoting away from diplomatic engagement to a more coercive policy centered around economic pressure. The shift comes amidst a dramatic new context within the Islamic Republic, characterized by historic turmoil on the streets and bitter divisions among the elites, and at a moment when the international urgency surrounding Tehran’s nuclear ambitions has never been greater. This context raises the stakes and heightens the sensitivities of getting U.S. policy on Iran right after so many years of failure.

The turn toward sanctions is a predictable one. Sanctions have proven to be an instrument of American policy toward Tehran for the past thirty years. American use of economic pressure as a means of dissuading Iranian malfeasance began with the freezing of Iranian assets after Iranian students seized the U.S. Embassy in Tehran in 1979 and culminated in the nearly comprehensive ban on trade and investment in Iran that has been in place since the Clinton administration. But, despite the appeal of sanctions, their protracted duration underlines their limitations—particularly when they are unilateral—as a mechanism for categorically revising Iranian policy. Still, many find sanctions attractive because the overall track record of Iranian decision-making demonstrates that Tehran often considers the costs and benefits of its policy options in determining its course. As Iran’s internal strife exacerbates the regime’s vulnerabilities, the prospects for international consensus around new economic restrictions appear more realistic than ever before.

To examine the options and implications for using sanctions to address the multi-faceted challenges of Iran, the Saban Center for Middle East Policy at the Brookings Institution held a half-day symposium in late October 2009. The workshop featured off-the-record panel discussions led by experts on Iranian internal politics and the key actors shaping the diplomatic landscape. The conclusions from that session are presented below.

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Introduction: Despite the launch of indirect, “proximity” talks between Palestinians and Israelis, Palestinian President Mahmoud Abbas continues to resist a resumption of direct negotiations with Israel absent a full settlement freeze. As chairman of the Palestine Liberation Organization (PLO) and president of the Palestinian Authority (PA), Abbas also insists that any new negotiations pick up where previous talks left off in December 2008 and that the parties spell out ahead of time a clear “endgame,” including a timetable for concluding negotiations. While these may seem like unreasonable preconditions, Palestinian reluctance to dive headfirst into yet another round of negotiations is rooted in some genuine, hard-learned lessons drawn from nearly two decades of repeated failures both at the negotiating table and on the ground.

Not only have negotiations failed to bring Palestinians closer to their national aspirations but the peace process itself has presided over (and in some ways facilitated) a deepening of Israel’s occupation and an unprecedented schism within the Palestinian polity. Such failures have cost the Palestinian leadership dearly in terms of both its domestic legitimacy and its international credibility. While it remains committed to a negotiated settlement with Israel based on a two-state solution, the PLO/PA leadership has been forced to rethink previous approaches to the peace process and to negotiations, as much for its own survival as out of a desire for peace.

Haunted by past failures, Palestinian negotiators are now guided, to varying degrees, by six overlapping and sometimes conflicting lessons:

1. Realities on the ground must move in parallel with negotiations at the table.

2. Don’t engage in negotiations for their own sake.

3. Agreements are meaningless without implementation.

4. Incrementalism does not work.

5. Avoid being blamed at all costs.

6. Don’t go it alone.

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In the wake of the U.S. military departure from Iraq and in the midst of Iran’s continued defiance of the international community over its nuclear program, is a new security arrangement for the Gulf in order? If so, is the Gulf Cooperation Council (GCC) capable of such a task, or should other institutions be considered?

In the Saban Center’s newest Middle East Memo, Security in the Persian Gulf: New Frameworks for the Twenty-First Century, Saban Center Senior Fellow Kenneth Pollack examines the possibility of developing a new security architecture for the region.

Pollack analyzes security arrangements in other parts of the world and focuses on two options:  expanding the GCC and turning it into a formal military alliance and creating an arrangement modeled on the Commission on Security and Cooperation in Europe. In weighing each option, Pollack finds that the latter can better furnish a path toward peace and security.

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• Security in the Persian Gulf: New Frameworks for the Twenty-First Century

The potential for confrontation between the United States and Iran, stemming from ongoing tensions over Iran’s nuclear program and western covert actions intended to delay or degrade it, remains a pressing concern for U.S. policymakers. The Saban Center for Middle East Policy hosted a one-day crisis simulation in September that explored different scenarios should a confrontation occur.

The Saban Center's new Middle East Memo, A Series of Unfortunate Events: A Crisis Simulation of a U.S.-Iranian Confrontation, authored by senior fellow Kenneth M. Pollack, presents lessons and observations from the exercise.

Key findings include:

• Growing tensions are significantly reducing the “margin of error” between the two sides, increasing the potential for miscalculations to escalate to a conflict between the two countries.

• Should Iran make significant progress in enriching fissile material, both sides would have a powerful incentive to think short-term rather than long-term, in turn reinforcing the propensity for rapid escalation.

• U.S. policymakers must recognize the possibility that Iranian rhetoric about how the Islamic Republic would react in various situations may prove consistent with actual Iranian actions.

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With violent protests following the second anniversary of the Egyptian revolution, and calls for a new unified government amid dire comments about the stability of Egypt, the world’s attention is again on President Morsi and his country. This follows a tumultuous period last month, when Egyptians went to the polls and ratified a new constitution. The document, criticized as hurried, incomplete, and lacking in consensus is enormously contentious.

In the Saban Center’s newest Middle East Memo, The View From a Distance: Egypt’s Contentious New Constitution, nonresident fellow Mirette F. Mabrouk gives a broad overview of the new constitution, and provides context and analysis for specific sections.

Mabrouk outlines several ways in which, she argues, the document is shaky on the protection of freedoms and rights, particularly those of women, some religious minorities and minors. Mabrouk also encourages analysts to stop viewing this situation as an Islamist/ secular divide, arguing that idea is too simplistic, and lacks the context for greater understanding of Egypt’s domestic politics.

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• The View From a Distance: Egypt’s Contentious New Constitution

The crisis in Syria continues with no end in sight, and in the Saban Center's latest Middle East Memo, Breaking the Stalemate: The Military Dynamics of the Syrian Civil War and Options for Limited U.S. Intervention, Saban Center Senior Fellow Kenneth Pollack argues that until there is a breakthrough on the battlefield, there will be no breakthroughs at the negotiating table.

In his paper, Pollack lays out the military advantages and disadvantages of both the opposition and the regime's forces, and looks at how different opportunities for U.S. intervention can affect those critical dynamics. This analysis provides a much-needed counterpoint to the debate over the possible cost of U.S. options in Syria with an analysis of their likely impact on the conflict.

Highlights include:

• The strengths and weaknesses of the opposition, including: greater numbers, a history of deprivation of political power, the aid of Islamist militias affiliated with the Muslim Brotherhood and Salafist groups, and support from Arab and Western countries.
   
• The strengths and weaknesses of the regime, including: motivation to defend against a determined majority, a geographic advantage, the remnants of the Syrian armed forces, help of foreign contingents like Hizballah, and the support of foreign countries like Iran and reportedly Russia and China.
   
• Options for U.S. interventions to break the stalemate, including:

  • Training and equipping the opposition.
  • Stopping the resupply of the regime in order to diminish its ability to generate firepower.
  • Attacking regime infrastructure targets, such as military bases, power-generation plants and transportation choke points like bridges.
  • Establishing and maintaining a no-fly zone.
  • Engaging in a tactical air campaign against regime ground forces.

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During much of the past three years, the Syrian civil war has been the most prominent item on the Middle Eastern political agenda and has dominated the political-diplomatic discourse in the region and among policy makers, analysts and pundits interested in its affairs. 

Preoccupation with the Syrian crisis has derived from the sense, apparent since its early phases, that it was much more than a domestic issue. It has, indeed, become a conflict by-proxy between Iran and its regional rivals and the arena of American-Russian competition. It has also had a spillover effect on several neighboring countries and has been a bellwether for the state of the Arab Spring.

As the conflict festered it also prompted a broader discussion and debate over the future of the Arab State system. The collapse of Syria, the ongoing fighting in Iraq, and the general instability in the Middle East has led some observers to question whether the very geography of the region will be changed. Robin Wright, a journalist and scholar at the Woodrow Wilson International Center for Scholars, argues that “the map of the modern Middle East, a political and economic pivot in the international order, is in tatters.” Wright also warns that competing groups and ideologies are pulling the region apart: “A different map would be a strategic game changer for just about everybody, potentially reconfiguring alliances, security challenges, trade and energy flows for much of the world, too.”  Similarly, Parag Khanna, a senior fellow at the New America Foundation, argues, “Nowhere is a rethinking of “the state” more necessary than in the Middle East.” He contends that “The Arab world will not be resurrected to its old glory until its map is redrawn to resemble a collection of autonomous national oases linked by Silk Roads of commerce.” Lt. Colonel Joel Rayburn, writing from the Hoover Institution, points out that the alternative may not be new states but rather simply collapse. “If watching the fall or near-fall of half a dozen regimes in the Arab Spring has taught us anything, it should be that the Arab states that appeared serenely stable to outsiders for the past half century were more brittle than we have understood,” warning darkly, “This conflict could very well touch us all, perhaps becoming an engine of jihad that spews forth attackers bent on bombing western embassies and cities or disrupting Persian Gulf oil markets long before the fire burns out.” 

This discussion touches on a key question: Will the collapse of one or several other Arab states produce a new order in the region? 

The regional order has been threatened before, but today’s challenge is unique. Syria is what has prompted the latest reevaluation of the Skyes-Picot borders, but many of the problems predated the Syrian civil war. Ambitious monarchs in the 1930s and 1940s challenged the order after the colonial period. The doctrine of Pan-Arab Nationalism and Gamal Abd al-Nasir’s messianic leadership in the 1950s and by Saddam Hussein in 1990 again posed a threat. Now it is now challenged not by a powerful state or a sweeping ideology but by the weakness of several Arab states that seem to be on the verge of implosion or disintegration.

This paper assesses the situation in Syria, with an emphasis on what might lead to its de facto partition or lasting collapse. It then examines Syria’s neighbors and their prospects for stability. The paper concludes by exploring how the United States, Israel and Iran might affect this tenuous balance.

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• The End of Sykes-Picot?: Reflections on the Prospects of the Arab State System

A fair assessment of the budget deal signed by President Obama last week would allow for only at most two cheers. Its biggest achievement is raising the debt limit by enough to last until 2017, thereby at least temporarily eliminating the threat to the nation's credit worthiness. The deal also provides funding levels above the Spartan caps established by the 2011 Budget Control Act so that both domestic discretionary spending and military spending can avoid reductions against a baseline that was already low by historical standards. In addition, the deal avoids a cut in benefits in the Social Security Disability Insurance (SSDI) program that was about to have its trust account run dry, as well as a big increase in payments by a significant minority of Medicare beneficiaries.

That's a lot of good policy, achieved despite the partisanship that has been so characteristic of budget negotiations in recent years. So what's not to like? Two shortcomings of the deal are especially notable. The first is that the solution to the pending SSDI shortfall is disappointing. It would be hard to support the imposition of reduced benefits on recipients of a government insurance program for the disabled, but Congress has known for some years that SSDI was running out of money. Congress should have been working on solutions that involved less spending or more revenue, or perhaps both. Instead, the reforms that Congress passed provided a very minor adjustment in the way both initial and continuing eligibility are determined and ignored more basic reforms. A non-partisan group assembled by former House members Jim McCrery and Earl Pomeroy under the auspices of the Committee for a Responsible Federal Budget (CRFB) produced a host of proposals that would address the underlying problems of the SSDI program such as how to emphasize work to control the rising caseload, but they were virtually ignored. Taking the easy way out, Congress transferred nearly $120 billion in funds from the Social Security Trust Fund into the SSDI Trust Fund. Unfortunately, this action will preserve the SSDI Trust Fund only until 2021 or 2022, at which time it will likely be back in the perilous situation it was in until this temporary fix was put in place.

The second problem is that the lubricant Congress used to enact the deal was money it doesn't have. Thus, according to CRFB, all the spending in the deal cost $154 billion but the offsets in the bill amounted to only $78 billion. Thus, the true net cost of the bill, excluding budget gimmicks, was $76 billion. As always, the money will be obtained by additional borrowing, thereby increasing the nation's debt.

Increasing the nation's debt is the most important shortcoming of the bill. Due to improvements in the economy coupled with spending cuts and revenue increases achieved by previous budget deals reached since publication of the Simpson-Bowles Commission report in 2010, the fiscal outlook for the nation has improved. But the long-term debt problem has not been solved. The Center on Budget and Policy Priorities, based on figures from the Congressional Budget Office (CBO), projects that the ratio of the national debt to GDP will fall slightly from its current 74 percent to 73 percent by 2017. However, the ratio will then rise to 92 percent by 2040. This projection contrasts with the Center's 2010 projection in which the debt-to-GDP ratio increased by more than 200 percent.

Granted, this is good news. But not so fast. The assumptions built into the projections are likely to be too optimistic. The CRFB projects that under a more reasonable set of assumptions, the debt will rise to over 150 percent of GDP by 2040. As CRFB argues, the debt path under these more reasonable assumptions is, though improved, nonetheless "unsustainable."

Equally important, the big picture on the nation's budget shows that future spending increases in Social Security, Medicare and other health programs, and net interest will eat up all future increases in revenue. CBO projects that compared to average spending in these three budget categories between 1965 and 2014, spending as a percentage of GDP by 2040 on Social Security will increase by 55 percent, on federal health programs by 220 percent, and on interest on the debt by well over 100 percent. As a result, spending on everything else will decline by around 40 percent. No wonder a recent report from the Urban Institute shows that the share of federal spending on children has already begun to decline and will fall by nearly 30 percent between 2010 and 2024.

Despite the modest achievements of the latest budget deal, long-term budget prospects continue to look bleak and present spending priorities still emphasize programs for the elderly and interest on the debt while squeezing other programs, including those for children. Perhaps two cheers for the deal is one too many.

Editor's Note: this post first appeared in Real Clear Markets.

“Social security is not going broke,” said Carolyn Colvin, acting commissioner of the Social Security Administration, at a Brookings Retirement Security Project event this week. She was joined by Consumer Financial Protection Bureau Director Richard Cordray to discuss retirement planning and to unveil a new retirement calculator. “Social Security is the only guaranteed monthly income for a majority of older consumers,” Cordray said.

After their keynote addresses, a panel of retirement security experts moderated by Guest Scholar Joshua Gotbaum discussed efforts to improve retirement planning and what knowledge the average American needs to make retirement planning achievable. Ted Gayer, VP and director of Economic Studies at Brookings, introduced the event.

Here are 10 facts about Social Security and retirement planning mentioned during the event. Full video is available below and on the event’s page.

1/3 of U.S. households spend all of their available resources in every pay period

60 million people received Social Security benefits in September 2015

For the average worker, Social Security replaces only about 40 percent of pre-retirement earnings

45 million people are already 65 or order, and 10,000 people are turning 65 each day

The average American now spends about 20 years in retirement
(in 1950, the average was about 4 years)

4 in 10 Americans aged 51-59 are reaching retirement with limited or no savings,
and are projected to face a saving shortfall

~2/3 of the 40 million Americans 65 and older who receive Social Security benefits
depend on those benefits for ½ or more of their retirement income

It’s about 70 percent or more of income for those 80 or older

Only 60 percent of people who retire claim to have done any retirement planning at all

Delaying claiming Social Security “buys” people 6-8 percent more real benefits per year once they do take it

Olivia Mitchell, a professor at the Wharton School, University of Pennsylvania, explained this last point, noting that if a person stopped working at 62 but waited to claim benefits until 70, he or she would receive a benefit 76 percent higher in (real) dollars per month for life. “When to claim Social Security is many older Americans’ most important financial decision they will ever make in their lifetimes,” according to Mitchell.

Learn more about the event here and watch the video:

Video

• Helping America plan for retirement: Keynote remarks

Government spending on the elderly continues to climb.  Fueled by rapid growth in the number of Americans over age 65 and increased spending on benefits per person, public expenditures devoted to the elderly continue to edge up. A crucial question for future policy making is whether rising outlays on programs for the aged will squeeze out spending on programs for children, especially investments in their schooling. Many pessimists think this outcome is inevitable, and they urge us to reduce government commitments to the elderly to make room for spending on the young.

Federal spending is especially concentrated on the elderly. The Urban Institute publishes annual estimates of federal outlays on children and adults over 65. The estimates inevitably show a huge imbalance in spending on the two groups. In 2011, federal spending for the elderly amounted to almost $28,000 per person over 65.  In the same year, per capita spending on Americans under 19 amounted to just $4,900 per person. This means aged Americans received $5.72 in federal spending for every $1.00 received by a child 18 or younger.

The Urban Institute’s latest estimates show that federal spending on youngsters has trended down in recent years.  After reaching a peak of about $500 billion in 2010, expenditures on children fell 7 percent by 2012, and they have remained unchanged since then.

Future prospects are not encouraging. Urban Institute analysts predict that from 2014 to 2025, only 2 percent of federal spending growth will go to children. Almost 60 percent will be swallowed up by additional outlays on Social Security, Medicare, and Medicaid. Spending on many federal programs that provide benefits to children are financed out of discretionary programs. In contrast, big public programs for the aged seem to run on automatic pilot, with spending linked to changes in the cost of living and the size of the population past 65. Spending on most domestic discretionary programs is expected to be severely constrained as a result of Congressionally imposed budget caps. This is bad news for many federal programs targeted on children.

Focusing solely on federal government spending gives a misleading picture, however. While federal spending is heavily concentrated on the elderly, state and local spending tilts toward programs that help children, notably, through public school budgets.  Whereas aged Americans receive $5.72 in federal spending for each $1.00 received by someone under 19, those under 19 receive $10.11 in state and local spending for each $1.00 received by someone who is 65 or older. To be sure, total federal spending is considerably greater than that of state and local governments, but the imbalance of public spending on the young and the old is less extreme than federal budget statistics suggest.

Government spending on the aged is high because legislators (and voters) decided to establish government-backed pensions—through Social Security—in the 1930s and government-guaranteed health insurance for the elderly—through Medicare—in the 1960s.  In view of the overwhelming and enduring popularity of these two programs, most voters appear to think this was a sensible choice.  One implication of the policies is that Americans past 65 derive a sizable percentage of their retirement income, and an even bigger share of their health care, from public budgets.

The nation has not made an equivalent commitment to support the incomes or guarantee the health insurance of Americans under 65, except in special circumstances.  Those circumstances include temporary unemployment, a permanent work disability, and low household income.  Families headed by someone under 65 are expected to derive their support mainly from their jobs and from their own savings.  If non-aged families prosper, government spending on them falls.  If instead breadwinners become disabled or lose their jobs, government spending will increase as a result of higher disability payments, unemployment and food stamp benefits, and public assistance rolls.

Nearly all children are raised in families headed by someone under 65.  The government benefits they receive, except for free public schooling, increase in bad times and should decline when the unemployment rate falls.  The Urban Institute’s numbers are instructive.  Between 2007 and 2011, real federal spending on children increased 27 percent, or more than 6 percent a year, as the unemployment rate soared in the Great Recession. Federal spending on children then fell as unemployment—and outlays on government transfer payments—shrank.  For many categories of public spending on children, we cannot assume that lower spending signals a weaker commitment to children’s well-being. Instead it may signal a healthier private economy, a lower unemployment rate, and faster improvement in breadwinner incomes.

Of course, some components of government spending on children do not automatically rise in a slumping economy or shrink when breadwinners’ earnings improve.  Public investments in children’s preschool and K-12 education should be adjusted to reflect the needs of children for compensatory instruction and the expected payoff of added investment in schooling.  Statistics on public school budgets show that spending per pupil has increased considerably faster than inflation and faster than GDP per person over the past seven decades (see Chart 1). Whether spending has increased as fast as warranted is debatable, but rising government spending on the aged has not caused per-pupil spending on K-12 schools to shrink.

Government spending on children’s health has also increased over time as public insurance for children has been expanded.  In 2014 just 6 percent of Americans under age 19 lacked health insurance for the entire year.  The only age group with higher health insurance coverage was the population past 65, which is covered by Medicare (see Chart 2).  The main explanation for rising insurance coverage among children is that federal and state health insurance programs have been expanded to cover most low-income children.  Insurance coverage of children can and should be improved, but a sizeable expansion of public insurance has occurred despite the increase in public spending on the elderly.

The presumption that rising outlays on programs for Americans past 65 must come at the expense of spending on children rests on the unstated assumption that voters will zealously defend programs for the aged while tolerating cuts in programs that fund education, income protection, and health coverage for the young.  The trend toward higher public spending on the elderly has been underway for at least five decades, but the predicted cuts in spending on the young have yet to materialize.

Editor's Note: this op-ed first appeared in Real Clear Markets.

For decades, we have been hearing that the baby-boom generation was like a pig moving through a python–bigger than the generations before and after.

That’s true. But that’s also a very misleading metaphor for understanding the demographic forces that are driving up federal spending: They aren’t temporary. The generation born between 1946 and 1964 is the beginning of a demographic transition that will persist for decades after the baby boomers die, the consequence of lengthening lifespans and declining fertility. Putting the federal budget on a sustainable course requires long-lasting fixes, not short-lived tweaks.  

First, a few demographic facts.

As the chart below illustrates, there was a surge in births in the U.S. at the end of World War II, a subsequent decline, and then an uptick as baby boomers began having children.

Although the population has been rising, the number of births in the U.S. the past few years has been below the peak baby-boom levels, possibly because many couples chose not to have children during bad economic times. More significant, fertility rates–roughly the number of babies born per woman during her lifetime–have fallen well below pre-baby-boom levels.

Meanwhile, Americans are living longer. In 1950, a man who made it to age 65 could expect to live until 78 and a woman until 81. Social Security’s actuaries project that a man who lived to age 65 in 2010 will reach 84 and a woman age 86.

Put all this together, and it’s clear that a growing fraction of the U.S. population will be 65 or older.   

The combination of longer life spans and lower fertility rates means the ratio of elderly (over 65) to working-age population (ages 20 to 64) is rising. As the chart below illustrates, the ratio will rise steadily as more baby boomers reach retirement age–and then it levels off.  

Simply put, this doesn’t look like a pig in a python.  

So what do these demographic facts portend for the federal budget?  In simple dollars and cents, the federal government spends more on the old than the young. More older Americans means more federal spending on Social Security and Medicare, the health insurance program for the elderly. On top of that, health care spending per person is likely to continue to grow faster than the overall economy.

The net result: 85 percent of the increase in federal spending that the Congressional Budget Office projects for the next 10 years, based on current policies, will go toward Social Security, Medicare and other major federal health programs, and interest on the national debt.

Restraining future deficits and the size of the federal debt mean restraining spending on these programs or raising taxes–and probably both. One-time savings or minor tweaks won’t suffice. Nor will limiting the belt-tightening to annually appropriated spending.

The fundamental fiscal problem is not coping with the retirement of the baby boomers and then going back to budgets that resemble those of the past. The fundamental fiscal problem is that retirement of the baby boomers marks a major demographic transition for the nation, one that will require long-lived changes to benefit programs and taxes.

Researchers have long known that the rich live longer than the poor. Evidence now suggests that the life expectancy gap is increasing, at least here the United States, which raises troubling questions about the fairness of current efforts to protect Social Security.

There's nothing particularly mysterious about the life expectancy gap. People in ill health, who are at risk of dying relatively young, face limits on the kind and amount of work they can do. By contrast, the rich can afford to live in better and safer neighborhoods, can eat more nutritious diets and can obtain access to first-rate healthcare. People who have higher incomes, moreover, tend to have more schooling, which means they may also have better information about the benefits of exercise and good diet.

Although none of the above should come as a surprise, it's still disturbing that, just as income inequality is growing, so is life-span inequality. Over the last three decades, Americans with a high perch in the income distribution have enjoyed outsized gains.

Using two large-scale surveys, my Brookings colleagues and I calculated the average mid-career earnings of each interviewed family; then we estimated the statistical relationship between respondents' age at death and their incomes when they were in their 40s. We found a startling spreading out of mortality differences between older people at the top and bottom of the income distribution.

For example, we estimated that a woman who turned 50 in 1970 and whose mid-career income placed her in the bottom one-tenth of earners had a life expectancy of about 80.4. A woman born in the same year but with income in the top tenth of earners had a life expectancy of 84.1. The gap in life expectancy was about 3½ years. For women who reached age 50 two decades later, in 1990, we found no improvement at all in the life expectancy of low earners. Among women in the top tenth of earners, however, life expectancy rose 6.4 years, from 84.1 to 90.5. In those two decades, the gap in life expectancy between women in the bottom tenth and the top tenth of earners increased from a little over 3½ years to more than 10 years.

Our findings for men were similar. The gap in life expectancy between men in the bottom tenth and top tenth of the income distribution increased from 5 years to 12 years over the same two decades.

Rising longevity inequality has important implications for reforming Social Security. Currently, the program takes in too little money to pay for all benefits promised after 2030. A common proposal to eliminate the funding shortfall is to increase the full retirement age, currently 66. Increasing the age for full benefits by one year has the effect of lowering workers' monthly checks by 6% to 7.5%, depending on the age when a worker first claims a pension.

For affluent workers, any benefit cut will be partially offset by gains in life expectancy. Additional years of life after age 65 increase the number years these workers collect pensions. Workers at the bottom of the wage distribution, however, are not living much longer, so the percentage cut in their lifetime pensions will be about the same as the percentage reduction in their monthly benefit check.

Our results and other researchers' findings suggest that low-income workers have not shared in the improvements in life expectancy that have contributed to Social Security's funding problem.

It therefore seems unfair to preserve Social Security by cutting future benefits across the board. Any reform in the program to keep it affordable should make special provision to protect the benefits of low-wage workers.

Editor's note: This piece originally appeared in The Los Angeles Times. 

Open any magazine aimed at the upper middle class and you’ll find lots of ads about retirement planning: financial firms fighting over which one will ‘advise’ you and get you to invest your money with them.

But, for most people, that isn’t the most important part of retirement planning. In fact, most people don’t have significant retirement savings, so arguing about who or how to invest them is irrelevant. Their “financial planning” is more likely to be about whether and when to pay the credit card bill.

So what kind of retirement planning really matters? There are lots of answers, but here are two of the most important: How long you work and when you apply for Social Security. For most people, these matter far more than whether your savings are invested in stocks or bonds.

Working Longer Requires More than Wishful Thinking. One of the great blessings of modern medicine is that people are living longer. But one of the consequences of that blessing is that unless people work longer and/or save more while they’re working, they’re more likely to run out of money in retirement than ever before. (The decline of traditional pensions, which paid lifetime income benefits, hasn’t helped either.) Most folks know this and are responding. According to a recent survey, 65 percent of baby boomers expect to work past 65.

But those expectations may not be met. Currently, about half of workers stop working before age 65: some are wealthy enough; more often they’re just not healthy enough.

Flexible retirement is more slogan than fact. Moreover, the job market isn’t as flexible as some may hope. Yes, an increasing percentage of seniors are working at least occasionally (~35 percent of men over 60, ~25 percent of women), but that doesn’t mean they’re doing their dream job on their chosen schedule. Increasingly, most of those who do work past 65 work full-time. Twenty years ago about 60 percent of workers over the age of 65 worked part-time; today about 60 percent work full-time.

It’s not clear why part-time work has declined, but one reason may be that employers still haven’t adjusted to the idea. A recent Transamerica Survey found that 66 percent of age 55+ US workers expect they will enter retirement flexibly -- but only 25 percent report that their employer offers the opportunity to move from full-time to part-time. However, the best way for employers to change is for their employees to ask (or have a union that does).

Retirement planning involves more than wishful thinking. If you want a flexible or a phased retirement, you need to know what your options really are – and the time to find out is long before you’re on the verge of retirement.

Defer Applying for Social Security? The other step that matters for most people is when they choose to apply for Social Security. Many apply as soon as they legally can do so, generally at age 62. For most people, that’s a mistake, because it means they will get reduced payments for the rest of their lives. Most others claim their Social Security benefits by the time they reach the “normal retirement age”, which for baby boomers is 66 years. (The normal retirement age is gradually being raised; for those born after 1959 it’s age 67.) For many people, that’s a mistake, too, because your lifetime benefit increases each year that you delay from 62 up to age 70.

How much more will your Social Security be if you start taking it at 70 instead of claiming benefits at the earliest possible age? A lot. For baby boomers, waiting till 70 increases the annual benefit by about 8% or each year of delay. That means instead of taking an annual payment at 62 of $10,000 a year, waiting 8 years means your annual payment will rise to $17,600 – inflation indexed for life. (If you keep working after age 62, then the math can be even more compelling, because Social Security is based on your highest 35 years of earnings.) If you are married, delaying also increases payments to your spouse after you die.

Of course, lots of folks have justifications for taking the lower payment at 62. Some say, “I won’t live long enough to make up the difference” – but in fact most people do live that long and many live longer. Others say, “I need the money to pay my bills.” But if you have savings or home equity, it’s worth using those first and taking Social Security later.

So the next time someone approaches you about moving your 401k money over to them, consider the option they won’t tell you about: spending it first and deferring Social Security. After all, Social Security gives you a guaranteed 8% return for waiting – and an 8% guaranteed return is hard to beat. (But they probably won’t tell you that, either.)

Editor's note: This piece originally appeared in Inside Sources.

Critics of the nation's retirement system regularly complain that the system is in crisis. Too many private companies fail to offer their employees a retirement plan. Many employees who are covered by a plan fail to make contributions to it. Those who do make contributions may contribute too little or invest their savings unwisely. The end result: Many of us will reach retirement age with miniscule pensions or too little savings to enjoy a comfortable old age.

The argument that our retirement system has gaping holes is well founded. The notion that it faces an imminent "crisis" is nonsense. If the system currently faces a crisis, it has faced the same one for the past 40 years. While elderly Americans have seen their incomes and living standards improve in recent decades, the median working-age family has experienced little improvement in its real income. Nonelderly families that depend solely on the earnings of breadwinners who have below-average schooling saw a drop in their incomes.

In recent research with Brookings colleagues, I tracked the real incomes of families headed by aged and nonaged Americans. In the 34 years ending in 2012, the median real income of working-age families climbed a little more than 2 percent (in other words, by less than one-tenth of a percentage point per year). The median real income of families headed by someone past 62 increased a little more than 40 percent. The numbers suggest our retirement system is doing a decent job improving the living standards of the aged. Unfortunately, the labor market is doing a much worse job boosting the living standards of middle-class wage earners.

Critics of the retirement system might worry that it succeeds in protecting the incomes of the middle class elderly but fails to protect the incomes of the poor -- a concern not supported by the evidence. Income inequality has gone up among the elderly as it has among the nonelderly. But older low-income Americans have fared much better than low-income working-age adults. In the late 1950s, by far the highest poverty rate of any age group was that for people over 65. Even in the late 1980s, the elderly had a higher poverty rate than adults between 18-64. Since the middle of the last decade, however, the elderly have had the lowest poverty rate of any age group.

People who warn us of a retirement "crisis" are nonetheless correct in pointing to sizeable holes in the current system. Too few companies, especially small ones, offer their workers a retirement plan. According to recent government estimates, only about half of workers in companies with fewer than 100 employees are offered a retirement plan. Offer rates are higher in bigger companies and in government agencies, but about 30 percent of all employees are not offered any pension or retirement savings plan where they work. When retirement plans are offered, however, workers are very likely to participate in them -- even if they must make a voluntary contribution out of their pretax wages.

What is crucial for a retirement savings plan's success is automatic payroll withholding. Dollars that are withheld from workers' paychecks are harder for workers to spend on something other than retirement savings. A crucial improvement in our current system would be to require all employers to establish automatic payroll withholding for voluntary retirement savings in an IRA (individual retirement account). Companies that already offer a qualified pension or retirement savings plan should be exempt from any extra obligation.

The harshest critics of the current retirement system would go much further than this. Many want to bring back traditional retirement plans that guaranteed workers a specific monthly pension linked to their job tenure, final pay, and age at retirement. The advantages of such a plan for workers are that their employer is typically responsible for funding the plan and for ensuring that pensions are paid, regardless of the ups and downs of financial markets. A big disadvantage is that the promised benefits are not worth much if the worker's career with a company is cut short, either because of a layoff or quitting.

People who are nostalgic for old-fashioned pensions may be right that workers would prefer to be covered by such a plan, despite their disadvantages for short-tenure workers. I'm less persuaded that traditional pensions offer better protection to typical workers than modern 401(k)-type plans. Regardless of the pros and cons of the two kinds of plan, it is wildly unrealistic to think small employers or new employers will want to take on the risks and administrative burdens connected with an old-fashioned pension plan.

All U.S. workers are covered by a traditional, defined-benefit pension: it's called Social Security. It has worked well over the past four decades in protecting and even lifting the incomes of the retired elderly. It may not work as well in the future if benefits are cut substantially to keep the program solvent. Boosting workplace retirement savings is a sensible way to insure future retirees will have adequate incomes, even if Social Security benefits have to be trimmed. An essential first step to boosting savings is to require companies to put a retirement savings plan in every workplace.

Editor's note: This piece originally appeared in Real Clear Markets.

The long-term finances of Social Security are in bad shape. Its reserves are expected to run out in less than 20 years, and under current law that will force cuts in benefits.

Some experts argue that the best way to get the system’s finances back in shape would be to raise the full retirement age above the scheduled 67. That would bolster the program’s finances in two ways. First, by increasing payroll tax revenues, because people would work longer. And second, by reducing the period each American would collect benefits.

That approach might seem fair, since on average Americans are living longer. Life expectancy is more than 15 years higher than when Social Security began in 1937.

But we are not all average. Lower-income Americans have not seen much increase in life expectancy, while more affluent people have. Thus raising the retirement age would cut total lifetime benefits proportionately more for those on the bottom rungs of the income ladder.

But let’s think differently about Social Security. Right now, monthly checks are linked to a person’s earnings during their working years. So, better-paid workers get bigger checks. True, lower-paid workers pay much less in Social Security payroll taxes and usually get back much more than they paid in taxes – even counting in interest on their tax contributions. Upper-income workers typically get back a lot less than they paid in, despite larger checks.

But low-wage workers still get smaller Social Security checks to try to meet their monthly needs in retirement. Many end up falling below the poverty line and have to apply for means-tested assistance from Supplementary Security Income (SSI), another part of the Social Security system.

What if we were to recast regular Social Security as true insurance? Insurance is something that pays out only when things go wrong. If you don’t have a car crash, or your house doesn’t burn down, you don’t get your premiums back later in life. What you do get is protection and peace of mind.

So imagine Social Security as insurance protection against being financially insecure in retirement. If it were that, it would be very different from today.

For one thing, we would want the lowest-income retirees to get the largest regular check – assuming they had dutifully paid their payroll tax “premiums” when working – and also enough to keep them comfortably out of poverty without having to rely on SSI. Some retirees with a modest income from, say, an IRA, might still need a small Social Security “insurance payout” to maintain a reasonable standard of living.

In a true insurance model like this, retired Americans with healthy income from assets would get no Social Security check at all, rather than getting the largest checks as they do today. If Social Security is seen as insurance against financial insecurity then Warren Buffet clearly doesn’t need a check. Nor do other older Americans for whom a monthly Social Security check is just a little bit more icing on an already rich cake.

If we reformed Social Security to make it more like real insurance, we’d need to do it gradually so people could plan, with the changes only fully affecting workers who are perhaps in their early 40s today. There would be a significantly higher basic benefit check for the least well-off. For retired singles with retiree income over, say, $25,000 in today’s dollars, the check would be reduced according to income until for a retiree with, say, $100,000 in other income there would be no check at all.

With this reform, regular Social Security would more efficiently protect the elderly against economic insecurity and from poverty without the stigma of applying for SSI “welfare.” And it would help put the program on a more secure footing. To be sure, some would say it’s not fair that many Americans would pay Social Security taxes and get nothing in return. But that misses the point that Social Security should be insurance. And what’s really not fair is that many today pay high payroll taxes for a check that doesn’t keep them out of poverty.

Some other critics might argue that without checks for all, the coalition needed to preserve Social Security would unravel. I doubt that very much. Social Security has an iconic status in America and there is no public support for ending it.

So let’s not allow Social Security’s deteriorating finances to make it a steadily worse deal for those who need it most. It’s time instead to look at a reform that refocuses its mission on insuring financial security for seniors.

Editor's note: This piece originally appeared in Real Clear Markets.

Recently, Brookings has posted two articles commenting on proposals to raise the full retirement age for Social Security retirement benefits from 67 to 70. One revealed a fundamental misunderstanding of how the program actually works and what the effects of the policy change would be. The other proposes changes to the system that would subvert the fundamental purpose of the Social Security in the name of ‘reforming’ it.

A number of Republican presidential candidates and others have proposed raising the full retirement age. In a recent blog, Robert Shapiro, a Democrat, opposed this move, a position I applaud. But he did so based on alleged effects the proposal would in fact not have, and misunderstanding about how the program actually works. In another blog, Stuart Butler, a conservative, noted correctly that increasing the full benefit age would ‘bolster the system’s finances,’ but misunderstood this proposal’s effects. He proposed instead to end Social Security as a universal pension based on past earnings and to replace it with income-related welfare for the elderly and disabled (which he calls insurance).

Let’s start with the misunderstandings common to both authors and to many others. Each writes as if raising the ‘full retirement age’ from 67 to 70 would fall more heavily on those with comparatively low incomes and short life expectancies. In fact, raising the ‘full retirement age’ would cut Social Security Old-Age Insurance benefits by the same proportion for rich and poor alike, and for people whose life expectancies are long or short. To see why, one needs to understand how Social Security works and what ‘raising the full retirement age’ means.

People may claim Social Security retirement benefits starting at age 62. If they wait, they get larger benefits—about 6-8 percent more for each year they delay claiming up to age 70. Those who don’t claim their benefits until age 70 qualify for benefits -- 77 percent higher than those with the same earnings history who claim at age 62. The increments approximately compensate the average person for waiting, so that the lifetime value of benefits is independent of the age at which they claim. Mechanically, the computation pivots on the benefit payable at the ‘full retirement age,’ now age 66, but set to increase to age 67 under current law. Raising the full retirement age still more, from 67 to 70, would mean that people age 70 would get the same benefit payable under current law at age 67. That is a benefit cut of 24 percent. Because the annual percentage adjustment for waiting to claim would be unchanged, people who claim benefits at any age, down to age 62, would also receive benefits reduced by 24 percent.

In plain English, ‘raising the full benefit age from 67 to 70' is simply a 24 percent across-the-board cut in benefits for all new claimants, whatever their incomes and whatever their life-expectancies.

Thus, Robert Shapiro mistakenly writes that boosting the full-benefit age would ‘effectively nullify Social Security for millions of Americans’ with comparatively low life expectancies. It wouldn’t. Anyone who wanted to claim benefits at age 62 still could. Their benefits would be reduced. But so would benefits of people who retire at older ages.

Equally mistaken is Stuart Butler’s comment that increasing the full-benefit age from 67 to 70 would ‘cut total lifetime retirement benefits proportionately more for those on the bottom rungs of the income ladder.’ It wouldn’t. The cut would be proportionately the same for everyone, regardless of past earnings or life expectancy.

Both Shapiro and Butler, along with many others including my other colleagues Barry Bosworth and Gary Burtless, have noted correctly that life expectancies of high earners have risen considerably, while those of low earners have risen little or not at all. As a result, the lifetime value of Social Security Old-Age Insurance benefits has grown more for high- than for low-earners. That development has been at least partly offset by trends in Social Security Disability Insurance, which goes disproportionately to those with comparatively low earnings and life expectancies and which has been growing far faster than Old-Age Insurance, the largest component of Social Security.

But even if the lifetime value of all Social Security benefits has risen faster for high earners than for low earners, an across the board cut in benefits does nothing to offset that trend. In the name of lowering overall Social Security spending, it would cut benefits by the same proportion for those whose life expectancies have risen not at all because the life expectancy of others has risen. Such ‘evenhandeness’ calls to mind Anatole France’s comment that French law ‘in its majestic equality, ...forbids rich and poor alike to sleep under bridges, beg in streets, or steal loaves of bread.’

Faulty analyses, such as those of Shapiro and Butler, cannot conceal a genuine challenge to policy makers. Social Security does face a projected, long-term funding shortfall. Trends in life expectancies may well have made the system less progressive overall than it was in the past. What should be done?

For starters, one needs to recognize that for those in successive age cohorts who retire at any given age, rising life expectancy does not lower, but rather increases their need for Social Security retirement benefits because whatever personal savings they may have accumulated gets stretched more thinly to cover more retirement years.

For those who remain healthy, the best response to rising longevity may be to retire later. Later retirement means more time to save and fewer years to depend on savings. Here is where the wrong-headedness of Butler’s proposal, to phase down benefits for those with current incomes of $25,000 or more and eliminate them for those with incomes over $100,000, becomes apparent. The only source of income for full retirees is personal savings and, to an ever diminishing degree, employer-financed pensions. Converting Social Security from a program whose benefits are based on past earnings to one that is based on current income from savings would impose a tax-like penalty on such savings, just as would a direct tax on those savings. Conservatives and liberals alike should understand that taxing something is not the way to encourage it.

Still, working longer by definition lowers retirement income needs. That is why some analysts have proposed raising the age at which retirement benefits may first be claimed from age 62 to some later age. But this proposal, like across-the-board benefit cuts, falls alike on those who can work longer without undue hardship and on those in physically demanding jobs they can no longer perform, those whose abilities are reduced, and those who have low life expectancies. This group includes not only blue-collar workers, but also many white-collar employees, as indicated by a recent study of the Boston College Retirement Center. If entitlement to Social Security retirement benefits is delayed, it is incumbent on policymakers to link that change to other ‘backstop’ policies that protect those for whom continued work poses a serious burden. It is also incumbent on private employers to design ways to make workplaces friendlier to an aging workforce.

The challenge of adjusting Social Security in the face of unevenly distributed increases in longevity, growing income inequality, and the prospective shortfall in Social Security financing is real. The issues are difficult. But solutions are unlikely to emerge from confusion about the way Social Security operates and the actual effects of proposed changes to the program. And it will not be advanced by proposals that would bring to Social Security the failed Vietnam War strategy of destroying a village in order to save it.

The past few months have seen a flurry of reports on discouraging trends in life expectancy among some of the nation’s struggling populations. Different researchers have emphasized different groups and have tracked longevity trends over different time spans, but all have documented conspicuous differences between trends among more advantaged Americans compared with those in worse circumstances.

In a study published in April, Stanford economist Raj Chetty and his coauthors documented a striking rise in mortality rate differences between rich and poor. From 2001 to 2014, Americans who had incomes in the top 5 percent of the income distribution saw their life expectancy climb about 3 years. During the same 14-year span, people in the bottom 5 percent of the income distribution saw virtually no improvement at all.

Using different sources of information about family income and mortality, my colleagues and I found similar trends in mortality when Americans were ranked by their Social-Security-covered earnings in the middle of their careers. Over the three decades covered by our data, we found sizeable differences between the life expectancy gains enjoyed by high- and low-income Americans. For 50-year old women in the top one-tenth of the income distribution, we found that women born in 1940 could expect to live almost 6.5 years longer than women in the same position in the income distribution who were born in 1920. For 50-year old women in the bottom one-tenth of the income distribution, we found no improvement at all in life expectancy. Longevity trends among low-income men were more encouraging: Men at the bottom saw a small improvement in their life expectancy. Still, the life-expectancy gap between low-income and high-income men increased just as fast as it did between low- and high-income women.

One reason these studies should interest voters and policymakers is that they shed light on the fairness of programs that protect Americans’ living standards in old age. The new studies as well as some earlier ones show that mortality trends have tilted the returns that rich and poor contributors to Social Security can expect to obtain from their payroll tax contributions.

If life expectancy were the same for rich and poor contributors, the lifetime benefits workers could expect to receive from their contributions would depend solely on the formula that determines a worker’s monthly pensions. Social Security’s monthly benefit formula has always been heavily tilted in favor of low-wage contributors. They receive monthly checks that are a high percentage of the monthly wages they earn during their careers. In contrast, workers who earn well above-average wages collect monthly pensions that are a much lower percentage of their average career earnings.

The latest research findings suggest that growing mortality differences between rich and poor are partly or fully offsetting the redistributive tilt in Social Security’s benefit formula. Even though poorer workers still receive monthly pension checks that are a high percentage of their average career earnings, they can expect to receive benefits for a shorter period after they claim pensions compared with workers who earn higher wages. Because the gap between the life spans of rich and poor workers is increasing, affluent workers now enjoy a bigger advantage in the number of months they collect Social Security retirement benefits. This fact alone is enough to justify headlines about the growing life expectancy gap between rich and poor

There is another reason to pay attention to the longevity trends. The past 35 years have provided ample evidence the income gap between America’s rich and poor has widened. To be sure, some of the most widely cited income series overstate the extent of widening and understate the improvement in income received by middle- and low-income families. Nonetheless, the most reliable statistics show that families at the top have enjoyed faster income gains than the gains enjoyed by families in the middle and at the bottom. Income disparities have gone up fastest among working-age people who depend on wages to pay their families’ bills. Retirees have been better protected against the income and wealth losses that have hurt the living standards of less educated workers. The recent finding that life expectancy among low-income Americans has failed to improve is a compelling reason to believe the trend toward wider inequality is having profound impacts on the distribution of well-being in addition to its direct effect on family income.

Over the past century, we have become accustomed to seeing successive generations live longer than the generations that preceded them. This is not true every year, of course, nor is it always clear why the improvements in life expectancy have occurred. Still, it is reasonable to think that long-run improvements in average life spans have been linked to improvements in our income. With more money, we can afford more costly medical care, healthier diets, and better public health. Even Americans at the bottom of the income ladder have participated in these gains, as public health measures and broader access to health insurance permit them to benefit from improvements in knowledge. For the past three decades, however, improvements in average life spans at the bottom of the income distribution have been negligible. This finding suggests it is not just income that has grown starkly more unequal.

Editor's note: This piece originally appeared in Real Clear Markets.

No. We should exempt workers earning the lowest wages.

Social Security faces a serious funding problem. The program takes in too little money to pay all that has been promised to future beneficiaries. Government forecasters predict Social Security’s reserve fund will be depleted between 2030 and 2034. There are two basic ways we can eliminate the funding gap: cut benefits or increase contributions. A common proposal is to increase the age at which workers can claim full retirement benefits. For people nearing retirement today, the full retirement age is 66. As a result of a 1983 law, that age will rise to 67 for workers born after 1959.

When policymakers urge us to raise the retirement age, they are proposing to increase the full retirement age beyond 67, possibly to 70, for workers now in their 30s or 40s. This saves money, but it also cuts monthly retirement benefits by the same percentage for every worker, unless workers delay claiming benefits. The policy might seem fair if workers in future generations could all expect to share in gains in life expectancy. However, new research shows that gains in life expectancy have been very unequal, with the biggest improvements among workers who earn top incomes. Life expectancy gains for workers with the lowest incomes have been small or negligible.

If the full retirement age were raised, future retirees with high lifetime earnings can expect to receive some compensation when their monthly benefits are cut. Because they can expect to live longer than today’s retirees, they will receive benefits for a longer span of years after 65. For low-wage workers, there is no compensation. Since they are not living longer, their lifetime benefits will fall by the same proportion as their monthly benefits. Thus, “raising the retirement age” is a policy that cuts the lifetime benefits of future low-wage workers by a bigger percentage than it does of future high-wage workers.

The fact that low-wage workers have seen small or negligible gains in life expectancy signals that their health when they are past 60 is no better than that of low-wage workers born 20 or 30 years ago. This suggests their capacity to work past 60 is no better than it was for past generations. A sensible policy for cutting future benefits should therefore preserve current benefit levels for workers who have contributed to Social Security for many years but have earned low wages.

Editor's note: This piece originally appeared in CQ Researcher.