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Aug. 15th, 2007
Minor political rant.
Aug. 15th, 2007 10:51 amFallacy: "If the government hadn't taken all those Canada Pension Plan payments over the last forty years (read: Social Security) and instead had left the money in the hands of the people who earned it, those people could have gotten three times the return on it over the course of their lifetimes, compared to what CPP will pay out to them. Ergo, the government does a poor job of investing and should get out of the business of retirement funding, because obviously, individuals could do it better."
Logic problem #1: Most people don't save as much as they should. The majority of people, faced with a tax break of some kind (or a tax that was never implemented to begin with) will not invest the money thus kept in their pockets. They'll spend it. What's more, most of them will not even realize they've spent it. If that payroll tax was 6%, it's estimated that 60% of people wouldn't increase their savings at all, 20-30% would increase their savings by a fraction of that amount, and perhaps ten percent would increase their saving by the same proportion as the tax break they were given. End result: 90% of the population would be less prepared for retirement than they needed to be.
Logic problem #2: If fifteen million working Canadians suddenly invested 6% more of their income in RRSPs, the rate of return would not be the same as it is now; it would likely be substantially lower. (I don't really understand how this works, but my brother-in-law with an economics degree says it's true. If anyone can elaborate on it, I'd be interested to figure it out.) Judging prospective earnings of the past forty years based on the earnings of the people who actually DID invest is a "what-if" exercise at best. My history profs always slammed me for writing "what-ifs" into my essays. I can only assume the same would be true of economics profs.
Logic problem #3: Just because some people abuse the system (for example, moving back to their country of origin for retirement, where they live rich off their CPP) doesn't mean it's a bad system. It means there are loopholes that perhaps could use some closing.
Sociology problem #1: Just because some, or perhaps even many, people are capable of doing for themselves something that the government is offering to help them do, doesn't mean the government is wasting its effort or its money by helping. It is reasonable, in our nearly-post-scarcity society, to ensure a minimal level of prosperity for all citizens. That's a fancy way of saying there is no excuse for allowing people to starve or live in squalor when the rest of us are (comparatively) rich. The Canada Pension Plan is not like pension plans through companies or private RRSPs. It's not an investment in your own future as much as it is a method of paying it forward through taxes. It's a fundamental element of the social safety net, and I am unwilling to risk finding out what our society would be like without it.
Logic problem #1: Most people don't save as much as they should. The majority of people, faced with a tax break of some kind (or a tax that was never implemented to begin with) will not invest the money thus kept in their pockets. They'll spend it. What's more, most of them will not even realize they've spent it. If that payroll tax was 6%, it's estimated that 60% of people wouldn't increase their savings at all, 20-30% would increase their savings by a fraction of that amount, and perhaps ten percent would increase their saving by the same proportion as the tax break they were given. End result: 90% of the population would be less prepared for retirement than they needed to be.
Logic problem #2: If fifteen million working Canadians suddenly invested 6% more of their income in RRSPs, the rate of return would not be the same as it is now; it would likely be substantially lower. (I don't really understand how this works, but my brother-in-law with an economics degree says it's true. If anyone can elaborate on it, I'd be interested to figure it out.) Judging prospective earnings of the past forty years based on the earnings of the people who actually DID invest is a "what-if" exercise at best. My history profs always slammed me for writing "what-ifs" into my essays. I can only assume the same would be true of economics profs.
Logic problem #3: Just because some people abuse the system (for example, moving back to their country of origin for retirement, where they live rich off their CPP) doesn't mean it's a bad system. It means there are loopholes that perhaps could use some closing.
Sociology problem #1: Just because some, or perhaps even many, people are capable of doing for themselves something that the government is offering to help them do, doesn't mean the government is wasting its effort or its money by helping. It is reasonable, in our nearly-post-scarcity society, to ensure a minimal level of prosperity for all citizens. That's a fancy way of saying there is no excuse for allowing people to starve or live in squalor when the rest of us are (comparatively) rich. The Canada Pension Plan is not like pension plans through companies or private RRSPs. It's not an investment in your own future as much as it is a method of paying it forward through taxes. It's a fundamental element of the social safety net, and I am unwilling to risk finding out what our society would be like without it.