Sunday, March 24, 2013

Conservative Pension Behavioural Utopianism

Conservatives like to portray themselves as hard-bitten "realists" who look objectively at the world as it really is and shake their heads at silly liberals with our rose coloured glasses.  Yet I often find conservatives pushing policy ideas that are based on Utopian standards of human behaviour.  This is where they make policies that will work only for people who act and behave in certain ideal or near-ideal ways, and fail miserably for people who don't do X, Y or Z where most people realistically will not do X, Y, and Z for whatever reasons.

The prime example would be retirement savings. We have something like a century of real-world experience here in the rich world which shows that when the government does not guarantee a minimum retirement income via some kind of social insurance program like CPP or Social Security, the result is that the majority of the elderly live (or die) in real poverty.

Conservatives frequently argue that without the nanny state looking after them, people will "take responsibility" and make better choices by saving more for their retirement. This is false, we have already tried this "system" of leaving people to freeze in the gutter if they didn't manage to save enough to pay their own freight once too old to work. Here's what one source found to be the case in Canada in 1961 (p154):
Incidence of Low-Income - 1961
All Families: 25.3%
Families with Head 65 or over: 43.9%
Individuals 60-64: 50.7%
Individuals 65-69: 64.1%
Individuals 70+: 72.5%
The steady and alarming progression of poverty as one ages is very clear.  And "individuals" should be understood to mostly mean "widows" since men tend to die first and particularly at that time, women would be very unlikely to have any form of job-related pension of their own.  As the article notes on p152:
At the time, of course, Canada lagged well behind the United States in social policy. In 1947 in Canada a means-tested old age pension was available for the destitute at $30 per month (equivalent to about $289 per month at 2001 prices), but that was all. Not until 1952 was it replaced by Old Age Security (OAS). OAS was a universal payment of $40 per month, worth about $274 per month at today’s prices. With income support at this level, the result was widespread and acute poverty among Canadians over 65. Canada had to wait until 1967 for the introduction of the Guaranteed Income Supplement and Canada Pension Plan.
So this isn't even the pre-1927 days when there was no federal pension program of any sort, but even with the government kicking in $40/month to everyone, the majority of people over 60 were below the "low income" cutoff (what Stats Canada uses instead of "poverty") and for those over 70 it was over 70% of them.

These people had no reason to expect the government would save them if they were destitute in poverty since there were no such government programs in existence, or only very minimal ones that no one would expect to be enough to live comfortably on.  Yet they did not save enough. These were people who had lived through the Great Depression and World War Two, and had seen much greater depths of deprivation than most Canadians today, if despite all that most of them did not save enough, it clearly is not a matter of incentives or desire. Whatever the causes of their lack of thrift, the reality is that governments of that day realized they had a problem to solve and so they solved it by creating the Canada Pension Plan (CPP) and the Guaranteed Income Supplement (GIS) to bolster OAS.

The result today is that old age poverty in Canada is under 7%.  In fact, seniors in Canada are less likely to be in poverty than children and (remarkably) working age people (who generally have less poverty because they can more often work). This drop from a majority in poverty in 1961 to single digit poverty is quite simply because the government's programs successfully ensure most seniors do not end up in poverty.  We don't have to speculate about technological change or other temporal factors because we have a great test comparison with Australia, a very similar rich-world nation with a very similar economy, population and even history as a former British colony.  Here's what the Conference board of Canada reports:
Australia has the highest rate [nb: of the nations in their survey] of elderly poverty—nearly 40 per cent of Australian seniors live in relative poverty. An OECD report notes that the high risk of elderly poverty in Australia is mainly due to the relatively low level of the age pension—which is an income-support payment program. The lead author of the report, Edward Whitehouse, commented: “Australia has a very high rate of old-age poverty and the fiscal room for manoeuvre to address the problem. Public pension spending is only 3.5 per cent of national income in Australia, compared with an average of over 7 per cent of GDP in OECD countries.”
Australia has a less generous old-age pension system and thus has much higher old-age poverty. Australians are not lazier, more irresponsible or worse investors than Canadians.  Their government doesn't ensure (and insure) their retirement security so many fewer of them have it.

Conservatives who insist on a system that relies on individuals taking steps to ensure they have ample retirement savings are in fact quite simply re-creating the 19th and early 20th century baseline where most older people were in poverty.  That would be the real world outcome of such policies.  RRSPs, TFSAs and other individually-driven retirement savings vehicles are a general failure and waiting for working people of today to behave differently than working people did 50 or 100 years ago with respect to retirement saving is simply utopian idealist nonsense.

In fact, as private pensions for the last generation have largely moved away from defined benefit payments to defined contribution systems, these problems will be worse for most current workers since very few of them will have access to guaranteed sufficient income via a defined benefit pension.

There's an old joke that said of communism "nice idea, wrong species."  This criticism easily applies to conservatives for the same reason.  Maybe somewhere there's a planet with intelligent life where in the absence of a government program to guarantee minimum retirement income, most or nearly all people save enough money and invest wisely to ensure they have a comfortable income after their working years are done, but that species is not homo sapiens and the planet is not Earth.

We need policies that work for Earth, for the real people we have, not some fantasy version of humans that are better than we really are.

None of this is to ignore the very real likelihood that many conservatives who make arguments like this simply do not care if most seniors shiver in the dark eating catfood because they are too poor for light, heat or adequate nutrition.  It does allow us to call them out as callous and immoral and prevent hiding behind unsupportably optimistic rationalizations.  Humans with normal functioning empathetic capacities simply cannot tolerate the majority of their elders suffering before going to early graves and will react to solve such problems through the vehicle of government, and those policies will inevitably look a lot like CPP, OAS and GIS.  These are the realistic "hard-bitten" policy results of real-world hard-taught experience, rather than the fever dreams of free market totalitarian ideologues.

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