the early retirement subsidy - the undesirability of Too Big To Fail

When the CPP started, life expectancy was 67. Today it is nearly 80, but the CPP continues to pay out as of one`s 65th birthday. Combined with rising health costs, we are paying through the teeth to subsidize our elder's early retirement.

Medical advances, most of which cost a lot of money, allow us to live longer and generally better lives. This gain has largely been transformed into a gain for those who benefit from subsidized early retirement. The solution, as proposed numerous times before, is that retirement ages have to go up. People can still retire when they want, but it should not be seen as a public right that the rest of us should have to subsidize an early retirement.

I don't propose significant changes to health care costs associated with an aging population, rather, that our social safety net should not be set up in a way that encourages people not to plan for their own retirement, all the while encouraging them to go into retirement when they may well continue to fruitfully labor on.

Unfortunately, many people have already made savings decisions that rely on assumptions about the nature of public income provisions beyond the age of 65. As such, any changes to the age where people become eligible for old age income supports, and perhaps also the CPP, should rise fairly slowly. It would be quite unreasonable to suppose that we should say to people who are presently 63 years old that their planned retirement date should move back by 2 or 5 years. A month or two would be much easier to swallow, and if they already had fixed plans then all they would be missing out on would be a couple of months of CPP payments. Perhaps a one month per year over 60years would be reasonable. Given ongoing medical developments and greater public knowledge of lifestyle choices that are conducive to a long and healthy life, presumably the life expectancy in Canada will be higher in 2070 than it is today, making a retirement age of 70 years old reasonable by that point in time.

Until some such changes are put into action, the Canadian tax code will continue to subsidize early retirement at a significant cost to the younger tax-paying generation as well as economic potential. Given concerns about the effects of declining population growth on the labour market, such a policy a) mitigates the undesirable side effects of slowing population growth, allowing society to benefit from the skills and experience that older workers have developed through their careers and b) limits the cost of subsidized early retirement to the tax-paying youth of today.

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I read an argument that Germany's financial sector is at a disadvantage because regulations limit mergers in the sector.

I have one main thing to say. "To big to fail" is not a feature of a desirable market structure.

How desirable has that proven to be? Economies of scale in marketing and synergies in operation aside, it seems that once again, a childhood expression yields insight that persists over the years. Don't put all your eggs in one basket. German banks may, on average, be somewhat less profitable than their more aggregated international peers, but German taxpayers will presumably never not face the burden of hundreds of billions of Euros for bailouts for companies that were too big to fail.

Their smaller banks also face greater incentive to differentiate themselves and experiment in innovative marketing and business methods. It seems to me, particularly when faced with evidence of the enormous failures of the highly aggregated American financial system, that placing limits on bank size carries certain benefits in terms of limiting risks and encouraging banks to become profitable through offering tailored products to market segments.

In short, I am doubtful that the benefits of banks that are "too big to fail" outweigh the costs. Perhaps we could learn something from the German model of financial markets, much like the world could learn something from the Canadian regulatory framework.