In my now infamous article “Are Canadians Money-Stupid?” I contended that money-stupidity is not correlated with education. BCM of CanajunFinances claimed, on the other hand, that Canadians’ money-stupidity is caused by their lack education about money.
A for-real picture from out front of my for-real condo building, where over 10 units went up for sale as soon as the building was registered.
Last Friday, Erin Trafford of News957 tweeted an interesting article from the Globe and Mail at me. It was interesting to me because it definitively proved me wrong. There is a correlation between education and money-stupidity. But it’s counter-intuitive. People with more education are actually more money-stupid.
I think that we Canadians have dug ourselves into a very deep hole of money-stupid. Call me a pessimist, but I think our hole is so deep that a “financial reckoning” is now inevitable. Evidence of impending doom is painfully obvious. Since I wrote my Magnum Opus on stupidity, the Big Six banks have started publicly feuding with the federal government.
At this point, our government should try to reduce the impending damage of our slow-mo national train wreck. This may seem to be a cynical approach at first brush. It has, nevertheless, become essential. There’s no way to resolve the problem without at least somebody losing. There’s no longer any win/win scenarios. We need to make sure that the ‘big loser’ is not taxpayers.
What, then, should the financial crisis harm-prevention strategy entail? I don’t have a fulsome answer. I do have a lot of ideas. Some of my ideas would prove very unpopular.
For example:
- A mandatory retirement age should be re-imposed and lowered to 60 to (1) make way for younger workers and the upward mobility of middle-aged workers, (2) decrease the supply of labour and increase the median wage, and (3) put the fear-of-god into people about saving for retirement because they won’t be able to work for a wage until they’re 80.
- Canada should float a “non-petro” dollar currency for provinces that have to rely on complex value-added manufacturing (rather than taking oil out of the ground in buckets).
- A large infrastructure building stimulus program needs to be centered on real “have-not” provinces like Ontario; investing government dollars in booming provinces like Alberta simply heats inflation and squeezes-out private investment.
- Corporate taxes should be increased, but companies should be able to claim their deductions for wages at more than 100% of their actual wage expenditures (e.g. 125%). This would make hiring people more attractive than offshoring or even contracting-out.
- All 400-series highways should be converted to toll roads with higher rates charged during rush hours.
If you recoiled in horror at one of those ideas, why? It was because the idea would stand to harm your personal self-interest in some manner. But violated self-interest does not a bad idea make. My modest proposals would improve the function and performance of the economy. Your revulsion just makes the ideas unpopular. The problem is that “unpopular ideas” translate into “lost elections”, so no government wants to enact them, no matter how sound they may be.
I can, nevertheless, recommend one idea that would prove popular – if it’s not popular now, it’ll be very popular when the housing market stalls. The idea is a very low-hanging fruit. We should take a bite out of it, before it takes a huge bite out of us. It’s related to the CMHC (Canada Mortgage and Housing Corporation). This idea would save us from the worst of our stupidity in the reckoning that cometh. It’s the ounce of prevention that will save a pound of cure.
I recently read an open letter addressed to the Honourable Minister of Finance Jim Flaherty by way of CanadaBubble. It’s a great letter. It points out many problems with the CMHC. It even proposes good ideas. I, however, don’t think the writer’s ideas are quite extreme enough to resolve the problems that we face. The author of the letter encourages people to write their own letters. Tomorrow, I’m going to do just that. I’ll share my idea with all of you and Mr. Flaherty, too. Try not to recoil in horror. And yes, this article was just a really long introduction.
Hmm… can you get two controversial posts in a row with this?
If anyone wants to work, they are contributing to society and should be encouraged (that statement will come back to me when I’m bathing in interest coupons every morning and hoping to achieve Warren Buffet’s level of tax advantages). Increasing the number of retirees just to substitute less experienced people for them will not do anything good for our capacity to support said retirees through government programs which are already showing warning signs because they originated at a time when life expectancy at retirement was 5 years or less.
The only jobs that should have a mandatory retirement age are the unionized high-pay low-work ones. The more they rely on seniority the lower the retirement age should be. It’s basically an admission that it’s not a competitive job so everyone should have their turn at it.
You’re right that they contribute. Most older people that I know are smarter than me, and a lot are more spry. But the choice to work past age 60 definitely comes at the cost of squeezing out younger workers and lower wage rates – that’s a matter of simple supply/demand. Perhaps we could incentivize OAS/CPP to encourage early retirement, rather than mandate it?
Imagine there’s two young people who are unemployed because there are no older people to hire them. One learns to grow vegetables, the other learns carpentry and builds shelters. They trade and everything is good.
Now imagine there’s two people who are too old to work and can’t take care of themselves because there are no young people around to support them. They can trade stories but where does that get them?
The second problem seems a lot harder to solve even without taking steps to make it larger. You could hire young people to be caregivers. But with forced retirement that’s essentially the same as hiring people to dig holes and then fill them. Surely there must be productive needs out there to fulfill!
I don’t hear about the OAS and CPP having a problem of how to get rid of all the extra cash that’s lying around
If you’re concerned about all the good jobs going to the wrong people (who probably need it to build their assets for retirement) they could always be taxed more. The taxes then make them work longer and contribute more to society. Later retirements and higher tax receipts would get a lot of policymakers out of a bind right now.
Very compelling argument. Unfortunately, I think it mischaracterizes the reality of Canada’s presently bleak economic realty. For each elderly person standing around, there’s 1, perhaps 2, equally capable (likely better-educated because of how long we now go to school) young persons standing around unemployed. While older workers have had decades to prepare for retirement, the young person may not ever get the chance to properly prepare because of the new structural realities of our economy.
You mentioned earlier that you’d find it easier to stomach forced retirement in positions that are unionized and ‘high-wage, low-value’. I assume you’re referring to government jobs, like teachers, nurses, etc. While I strongly disagree with your assessment of the wage/value ratio, I do think you’re on to something re: the feasibility of forced retirement. The conditions of employment are set by collective agreements but potentially by the government itself. A certain amount of political interference to institute forced retirement for civil servants might be completely acceptable to the general public. Would you be more comfortable with the proposal if I said that all government and public body employees should be forced to retire at age 60?
As a side note, I’m surprised that everybody seems to be cool with all of the other proposals except forced (amended to be “Pigovian-incentivized”) retirement lol.
Now I’ll prove your theory by agreeing with that since I’m not one of them
I don’t know enough to point to any particular jobs as being highly overpaid but I’m sure there’s more than a few of them. If you’re referring to something like that there’s nothing wrong with forced retirement. But in general anyone who chooses to work for someone else is creating value (in a system with enough competition and regulation to discourage useless or harmful work). And there are many areas with a shortage of workers.
I don’t want to retire at 60!!
God that would be so boring what the hell would I do all day??
lol are you asking me to prepare an itinerary? It depends on how much money you have. Maybe it’s all shuffleboard and Euchre. I plan on spending it in Miami.
While I cringe at the thought of paying every time I use the 401 even though it isn’t that frequent I think it is even more terrible that people that don’t even drive are having to pay taxes towards the maintenance of it.
Exactly. Even people who are economically conservative have a surprising propensity to reserve criticism of government interventions that benefit them personally, despite the fact that society is worse off (overall) as a result of the inefficiency.
While I agree that turning Canada’s highways into toll roads in intriguing, I’m not sure a mandatory age 60 retirement would meet your higher productivity goals. Especially in customer service and knowledge-based jobs, older workers have much they can teach younger people about managing workflow and clients. Instead of using this knowledge base, you’d flush it down the toilet. Plus, the amount of health care concerns you’d have from a stagnant older population would create unintended cost increases.
Very thought provoking post.
The health care issue is something that I didn’t think of; good point. There are always unintended consequences of policies and we need to be careful. Freakonomics and The Filthy Lucre are two fantastic books that give examples of this, whether it’s the fact that drug wars subsidize cartels or that cutting down trees to make paper actually REDUCES our carbon footprint (so long as you regrow trees).
I just commented on a similar response re: the contributions of older workers. You’re right that it’d be a shame to lose their contributions, but I’m definitely correct that their job market participation squeezes out Gens X/Y, lowers wages, reduces retirement savings rates (b/c they don’t face a limited earnings frontier so the risk of not saving enough is lower and pay-off of procrastination further perverts this incentive). I’m thinking that rather than a hard-line Soviet-esque ban, an incentive structure (e.g. CPP/OAS) would be better. I’m a huge fan of Pigovian taxes and subsidies.
I applaud you for presenting new ideas. The more decision the better in my opinion. Many of your theories and ideas however are quite flawed and lacking in research.
To discuss forcing people to retire at 60, I would have liked you to reference countries that have actually tried this. Denmark comes to mind. They tried that in the recession of the late 1970′s early 1980′s. It did not work and more younger workers were not hired.
The idea of a ‘non petro’ dollar is one that confounds me. The mechanics would be baffling. I am guessing you want to have a ‘non petro’ dollar yet enjoy the issuing debt rating of the “petro” dollar? The biggest issue is that the link between oil prices pushing our loonie around is not what is was like 5 years ago. All natural resources play a huge role in our currency but it is not a one for one, tick for tick ratio. Currency trading and currency issues are far more complex than that. If our fiscal situation in Canada was that of Italy, I can assure you, oil at $150 would not keep us at par. The fact that Quebec is the biggest province for mining and Saskatchewan controls most of the Potash in the world, I see no need for Ontario to blame Alberta for this “petro” dollar. A ‘non petro’ dollar idea is a subsidy and subsidies only work when a situation is temporary. The issues of manufacturing in Ontario show no signs of being temporary and all economic forecasts show that sector has minimal to no growth prospects.
Re: petro dollar. You’ve presented a flawed theory that does not withstand empirical scrutiny. The Canadian dollar is a petro dollar. Its movement is heavily correlated with oil. Oil isn’t a huge part of our GDP – BUT IT IS A HUGE PART OF NX (Net Exports); Y = C+I+G+NX. The last I remember, our currency was about 4/5ths correlated with the quarterly price movements of oil. It seems that remained the case into at least last year http://www.dailyfx.com/forex/market_alert/2011/02/23/Canadian_Dollar_Correlation_with_Oil_Remains_Strong.html and, in lieu of you actually proving your claims, I’ll assume the correlation continues.
All Canadian provinces have resources; this is a straw-man argument. These are nowhere near as proportionately revenue-generating nor profitable as oil. At least in our Hubbert-esque world.
As for the mechanics, I’m sorry that you’re baffled. It would involve the issuance of two currencies by the Bank of Canada. One would be for use in Alberta and the Maritimes, the other in the rest of Canada. Two debt issuances is simple enough; we wouldn’t need to be issuing as much under my plan because net exports would increase (if not nominally then certainly in real terms) since Ontario wouldn’t be strangled by the Petro Buck. Having two currencies would facilitate free exchange and, perhaps most importantly, different interest rate policies thus buffering the non-oil economies against the petro dollar. Right now, the oil dollar is a subsidy for Alberta. Eliminating this subsidy would be reinstating a free market, NOT introducing a subsidy.
Transfer payments would probably become a bit more complex because of the elimination of the subsidy to Alberta. Importantly, however, Alberta does not even pay its share anyway. After we built their province, their oil revenue is exempt. Talk about dining and dashing.
Re: mandatory retirement: I’d need to see the statistics that you’re talking about that demonstrate the failure of this policy. I took a brief try at Googling for these, and only found that the mandatory requirement ended sometime between 04 and 08, in relation to legislation that prohibited age discrimination.
My idea would reduce labour supply. http://en.wikipedia.org/wiki/Supply_and_demand Not to be patronizing, but I’d highly encourage you to look at the example where Supply is reduced. Cateris paribus, wages go up. Your policy, albeit generally accepted, depresses wages in the same way that high rates of immigration place downward pressure on wages. This might not comply with the hegemonic PC thinking enforced by our society’s social engineers, but it’s economic reality.
If you think my other theories and ideas are flawed, then please present further arguments.
I’m appalled by the mandatory retirement age of 60. My parents are immigrants to Canada (30 years ago) seeking a better life for them and their children. They worked many menial jobs in order to support us and them and probably won’t be ‘able’ to retire at 65. It’s great to say that they should of learned more about planning for the future, but where they came from it was day to day survival (Cambodia during the Pol Pot Regime). Granted my parents aren’t the best with money but they are learning and working hard to pay off their mortgage/consumer debt, a forcible retirement age would just cripple them. I certainly don’t make enough to support them, which cause another generation of recycled poverty.
Or were you just referring to the people with ‘good’ jobs?
Well, I’m sorry to appall you.
The supply and demand argument that I’ve presented elsewhere is simply true and I encourage you to further review it. This simple advantage has not yet been refuted. The idea would benefit younger workers and support the equilibrium wage rather than depressing it, which is the result of your proposed status quo policy.
Further, having no firm retirement age encourages people to engage in an extraordinarily risky game of chicken. It supports procrastination with the possibility that one will be able to work into one’s old age. For the majority of people, this simply isn’t the case. Would your parents have made the same financial decisions over the past 30 years ago if they’d known there was a line-in-the-sand retirement age?
If there’s a clear economic choice to be made, with one outcome to the benefit of the broader society and the other to the benefit of a segment of immigrants, what’s the right choice? I think it’d come down to a very utilitarian analysis, requiring statistics that are well beyond the reach of my collection ability.
The case that you present, however, is probably one of the hardest to argue against – the case of refugees. Obviously, the horrific genocide of the Pol Pot regime ranks among the worst of mass atrocities committed by communists – and that list is the longest of any ideology. From this perspective, there’s a clear moral imperative to accept refugees, regardless of age, and allow them to build their lives again regardless of age.