Minor political rant.

[velvetpage]

Fallacy: "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.

Comments

[neebs.livejournal.com]

Just for the record, I flunked my Finance class.

But my basic understanding is that the more people that invest, the lower the rate goes in order to keep some money circulating in the economy. Conversely, the more spending, the less money there is to lend (for company start-ups, mortgages, whatever) so they raise the interest rate as incentive for people to invest.

I could also be totally wrong on this.

[dornbeast.livejournal.com]

Economic problem: the assumption that everybody has the ability to invest in a fashion that will produce three times what the government did.

Somebody will invest in Enron, or a borderline dot-com, or make some sort of poor decision. Even professional brokers aren't immune to mistakes, so picking the wrong broker could mean losing money.

It isn't about having a government-provided retirement plan; it's about having a government-provided we-hope-this-will-keep-you-from-starving-on-the-streets plan.

[velvetpage.livejournal.com]

Yes, I missed that one. :)

It's actually a similar argument to the one I make about supporting government-funded early childhood education. While I am quite capable of providing my children with a rich home environment, possibly richer than what they'd get in a preschool, a fairly large percentage of people are not, and helping their children to enter school with a reasonable level of preparedness is in everyone's best interests - because the kids who aren't prepared for kindergarten have a better chance of still being under-prepared for high school, a higher chance of dropping out, and a higher chance of eventually costing society a whole whack of cash.

[purplkat.livejournal.com]

This is the problem I have with the idea of privatizing social security in the US. 90% of people, if given their SS money, would buy a really awesome new car stereo and eat out every night for a year, then blow through the money and eat cat food when they're old.

And it's not just a matter of taking care of people because they can't or won't take care of themselves. If there are people who are old and have no money, they're going to put a further strain and burden on the state when they turn up at hospitals with health problems and no way to pay for treating them. It's better for everyone in society to try to lift as many people out of poverty as possible and keep them there.

[pthalo]

Me again :)

I'm curious as to why returing to one's country of origin for retirement where they live rich off their pension is abuse of the system? How would this affect Canada as a whole if large numbers of people were doing it? I've never seen it from a large country's perspective and I'm curious now. :)

I know some Hungarians who have come gone abroad (to England generally) to make money so that they can come back to Hungary and buy a flat and a car and be upper class. (Hungary does not have a middle class. You are either very poor, mostly able to keep your head above water, or rich) And my best friend is gone half the year on a boat in Germany or in Holand working, because of this, her whole family is able to get by. And my older Hungarian friends are always asking when my mother is going to return to Hungary from the states (she's lived there most of her life, left as a young child), and I think she would, if she had a retirement nest egg, which she doesn't.

It's not terribly common (I think "going abroad for a year and then coming back" is much more common than "going abroad for a really long time, long enough to get a pension and then coming back"), but those who do it live well when they get back here and are able to help the society they come from. So now I'm curious about the effects it has on the society they left.

[velvetpage.livejournal.com]

The issue was with people working in Canada to collect CPP, and then taking that income back overseas - I believe the original example was Portugal - and spending the money there. The only way it hurts Canada is that it prevents that money from then going back into the Canadian economy. A person who is living off CPP in Canada is living hand-to-mouth, which means every cent they're paid is going back into the local economy for rent, food, transportation, whatever. I suspect you could live a lot better on that amount in Portugal, and that leaves Canadian businesses short the money.

I don't think it's particularly horrible, especially since I don't gather it happens very often. Most of the elderly immigrant grandparents of my friends stayed in Canada when they retired, because - surprise, surprise - their families and everything they wanted out of their retirement was here, not in Italy or Portugal.

Of course, this highlights one other fallacy of the original post: CPP payments aren't disappearing into the ether, they're supporting the Canadian economy. Government money is not a simple in-out balance sheet; it's a continuing circle on which large segments of society float.

[pthalo]

Oh, okay. That makes sense. Thanks for the explanation. :)

And you're right about CPP payments supporting the economy. That's an important point.

Another reason it probably doesn't happen as much is that people get used to the culture and the standard of living in a country like Canada or America or Britain.

Elderly people with disabilities would find it hard coming back to their home country (again, I can only speak for the situation in Hungary), where curb cuts aren't the norm, and there aren't signs in Braille posted and 90% of the housing isn't wheel chair accessible. (Things are improving slowly, usually some money is thrown in that direction in election years.)

They'll have gotten used to stores being open at later hours. (This city is dead on weekends and on weekdays after 6pm) They'll be used to many conveniences, used to a higher standard of living.

Though, I don't know. I like the slower pace of life here. I like being able to walk to the places I need to go in the city (or rollerblade. I'm nowhere near retirement age). And I like hearing people talk in Hungarian on the streets.

[velvetpage.livejournal.com]

I suppose it depends a lot on whether or not they have a support system in place back home. One of their daughters decided not to emigrate and has a family to help take care of them? That's a big pull. But without something like that, they're more likely to stay in Canada where they're familiar with the services and have recent friends and family.