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Why Are Young People Paying for Wealthy Seniors? · The Missing Middle Podcast

• 0:00
  SPEAKER_02: When you think about how we're setting up Canada for the future, we're sending all these entitlements to seniors versus young people and young families and kids who are really struggling and have skyrocketing poverty rates.
• 0:11
  SPEAKER_00: You know, those that's well outlive all of us.
• 0:13
  SPEAKER_00: It'll outlive you and I through a never-ending series of bonds, you know, just like the circle of life from the lion king.
• 0:20
  SPEAKER_01: Classonomics, hosted by Sabrina Mado and Mike Moffat.
• 0:26
  SPEAKER_02: The federal government of Canada currently spends almost 10% of revenues on servicing public debt.
• 0:32
  SPEAKER_02: And I'm starting to worry that Canada's increasing public debt is burdening future younger generations for the benefit of older Canadians.
• 0:40
  SPEAKER_00: Government spending, tax, and debt decisions, whether they intend to or not, transfer wealth from one generation to the next.
• 0:48
  SPEAKER_00: So the obvious example of this is when governments finance entitlements to current residents using debt.
• 0:54
  SPEAKER_00: The interest on that debt is paid for by future residents who get no gain, no direct benefit from that spending.
• 1:01
  SPEAKER_00: So it's a transfer of wealth when we give money to current residents, we debt finance it, and then future generations, you know, have to pay for the interest payments.
• 1:10
  SPEAKER_00: That's a transfer of wealth from the future to the present.
• 1:14
  SPEAKER_00: And in the case of old age security, that's a transfer of wealth to older, often richer Canadians from future generations.
• 1:22
  SPEAKER_00: And many of those future generations might not get to experience that level of wealth that our current seniors have.
• 1:28
  SPEAKER_02: Yeah, absolutely.
• 1:29
  SPEAKER_02: Old age security or OAS is basically the 800-pound gorilla in an easy chair on top of the Canadian federal budget.
• 1:36
  SPEAKER_02: Because while a lot of people think it's a pension they personally contributed to, like the Canada Pension Plan, the reality is that it's simply massive government spending funded by general tax revenue.
• 1:46
  SPEAKER_02: So it's actually the single largest line item in the federal budget, currently costing more than the Canada Child Benefit, employment insurance, and the Canada Health Transfer combined.
• 1:57
  SPEAKER_02: And as the population continues to age, that price tag is only set to skyrocket with annual spending expected to hit over$100 billion in just a few years, which is insane.
• 2:09
  SPEAKER_00: There was a great article in the globe a few weeks ago.
• 2:12
  SPEAKER_00: We'll link to it in the show notes.
• 2:13
  SPEAKER_00: And one of the things that really struck me when reading it is that the authors did some math and found that a senior couple earning about$181,000 a year can each receive the full benefit from OAS.
• 2:26
  SPEAKER_00: And a couple that's over$75, earning over$300,000, can still receive a partial benefit.
• 2:33
  SPEAKER_00: And that's income.
• 2:34
  SPEAKER_00: And we should keep in mind that seniors aren't working, they're not earning labor income.
• 2:38
  SPEAKER_00: So you could have a senior couple that they're earning$100,000,$150,000, but they could have$10,$15,$20 million in wealth.
• 2:49
  SPEAKER_00: So these aren't exactly people in deep need.
• 2:53
  SPEAKER_02: Not people in deep need at all.
• 2:55
  SPEAKER_02: And when you think about how we're setting up Canada for the future, we're sending all these entitlements to seniors.
• 3:01
  SPEAKER_02: Again, these aren't something like a pension that they've paid into over the years.
• 3:05
  SPEAKER_02: These are from general revenues versus young people and young families and kids who are really struggling and have skyrocketing poverty rates and aren't getting the same type of entitlements, not even close.
• 3:16
  SPEAKER_02: In fact, they're paying for the seniors' entitlements, often wealthy seniors.
• 3:19
  SPEAKER_02: So the fact that we're increasing our government debt levels to pay wealthy seniors while young Canadians are struggling to do things like pay rent is pretty infuriating to me.
• 3:28
  SPEAKER_00: OAS in particular is a great example of intergenerational wealth transfers through debt financing.
• 3:35
  SPEAKER_00: But it's important to point out that not using debt financing in certain circumstances can also be a form of wealth transfer.
• 3:42
  SPEAKER_00: So I'll give you an example.
• 3:44
  SPEAKER_00: You know, if we look back to the 1920s, the government of Ontario invested in a massive hydroelectric plant in the Niagara Fall regions that's still in use today.
• 3:54
  SPEAKER_00: This was a huge, huge investment, lots of uh money involved.
• 3:58
  SPEAKER_00: Now, let's suppose that the government of the day hadn't debt financed any of it, that they still paid for the whole thing up front.
• 4:05
  SPEAKER_00: So this would mean that, you know, the entire plant was paid for by a small cohort of Ontario taxpayers in the 1920s, but is used by Ontarians for over 100 years, including today.
• 4:18
  SPEAKER_00: You know, and I'm old, but you know, I certainly wasn't around in the 1920s.
• 4:23
  SPEAKER_00: So, you know, I'm getting the benefits of this hydroelectric plant, but I didn't pay a dime for the capital cost of the project.
• 4:31
  SPEAKER_00: So if you don't debt finance a project like that, you're actually transferring wealth from the past to the future.
• 4:38
  SPEAKER_02: Sure, you don't have to pay, but your grandparents and great-grandparents would have, though.
• 4:41
  SPEAKER_00: Here's the thing, though, that that's true for some people, but many of us uh didn't pay either uh because we didn't have relatives living in Ontario in the 1920s.
• 4:51
  SPEAKER_00: You know, in my case, most of my family was in Saskatchewan at the time.
• 4:55
  SPEAKER_00: So most Ontarians are like me, that they either are only partially or not at all descended from people who lived in Ontario in the 1920s.
• 5:04
  SPEAKER_00: So it's a different cohort of people who live here than you know, had grandparents or great-grandparents here in the 1920s.
• 5:13
  SPEAKER_00: So it wouldn't have been fair to ask people in the 20s to pay for the full construction costs so they could subsidize future generations, particularly when those future generations might not even be related to them, because those future generations moved here from Sweden or Saskatchewan or were somewhere else well after the plant was built.
• 5:31
  SPEAKER_00: So by not debt financing that infrastructure, current generations are subsidizing future ones, something they may not want to do.
• 5:39
  SPEAKER_00: So what happens is that if they have to pay for it up front, they may not make that investment at all.
• 5:46
  SPEAKER_00: And we're worse off for it.
• 5:48
  SPEAKER_00: But if we debt finance the power plant or the useful life of the asset, we can better align who gets the benefit from that asset and who actually pays for it.
• 5:59
  SPEAKER_02: And it's interesting because that would apply equally well today, like the Gordy Howe Bridge, that new bridge connecting Windsor to Detroit, which will cost Canada over six billion dollars.
• 6:09
  SPEAKER_02: That's another asset that Canada is buying and is something that future generations will get the benefit of.
• 6:14
  SPEAKER_00: Yeah, exactly.
• 6:15
  SPEAKER_00: There's no reason why you and I should pay for the full cost of this bridge.
• 6:20
  SPEAKER_00: So the people 50, 60 years from now can, you know, benefit from that, that those people should, you know, pay some of the capital costs as well.
• 6:30
  SPEAKER_00: And, you know, again, you and I might have kids or grandkids that live here 50 or 60 years, but they could live somewhere else.
• 6:38
  SPEAKER_00: And a lot of the folks who live in Canada 50 or 60 years from now might not have ancestors living here today.
• 6:45
  SPEAKER_02: Right.
• 6:46
  SPEAKER_02: But if we debt finance it, then those future generations, even if they don't have ancestors living here today, will have to pay off that debt.
• 6:53
  SPEAKER_00: Well, sort of.
• 6:54
  SPEAKER_00: I wouldn't exactly say that.
• 6:56
  SPEAKER_00: And I I think our political class and our media tends to mislead Canadians on this, either willingly or in an attempt to simplify what's a pretty complex issue.
• 7:06
  SPEAKER_00: And, you know, before I start with an explanation, I have to give an apology to any of my Ivy students.
• 7:13
  SPEAKER_00: I've had I've taught this subject to about 3,000 different students, and they're probably hearing it again.
• 7:20
  SPEAKER_00: And, you know, leave a leave a comment if you're one of my former students and let me know that yes, you you have heard this uh before.
• 7:27
  SPEAKER_00: Because the reality of the situation is it's actually really rare for debt to be paid off in any kind of meaningful sense.
• 7:34
  SPEAKER_00: That did happen a little bit in the 1990s and 2000s, and our debt went down, but that's the exception.
• 7:40
  SPEAKER_00: It's not the rule.
• 7:42
  SPEAKER_00: Now, when we look at government debt, it's mostly in the form of bonds issued by governments.
• 7:47
  SPEAKER_00: And various types of bonds exist, but the most common ones are essentially a contract that says, you know, if you lend me, the government of Canada,$100 right now, I'll pay you, say,$5 every year for the next 10 years.
• 8:02
  SPEAKER_00: And then at the end of that 10-year period, I'll give you your$100 back.
• 8:06
  SPEAKER_00: Anyhow, when that 10-year period is over, those bonds expire, and the government needs to pay back that$100.
• 8:12
  SPEAKER_00: Well, where do they get it from?
• 8:14
  SPEAKER_00: Chances are they don't have it.
• 8:16
  SPEAKER_00: So they're gonna have to borrow to get that$100.
• 8:20
  SPEAKER_00: And they borrow by selling another bond.
• 8:22
  SPEAKER_00: So that debt isn't repaid in any real sense.
• 8:26
  SPEAKER_00: It's basically just a new bond replacing an old bond, a new debt replacing an old debt.
• 8:31
  SPEAKER_00: So government debts aren't really rarely paid off in any kind of literal sense.
• 8:36
  SPEAKER_00: Instead, they exist in perpetuity through this rolling over effect.
• 8:40
  SPEAKER_00: You know, those debts will outlive all of us, it'll outlive you and I through a never-ending series of bonds, you know, just like the circle of life from the Lion King.
• 8:49
  SPEAKER_02: You're speaking to my childhood right now.
• 8:51
  SPEAKER_02: But so are you saying that the increasing debt levels of Canada are actually no big deal?
• 8:56
  SPEAKER_00: No, so that debt still matters because every year governments make interest payments on that debt to debt holders.
• 9:03
  SPEAKER_00: And that interest is money we could be spending on education or healthcare or tax cuts.
• 9:08
  SPEAKER_00: Now, it's easy to think, you know, big deal.
• 9:11
  SPEAKER_00: We can just pay for those interest payments by issuing even more debt.
• 9:14
  SPEAKER_00: So we don't have to worry about it.
• 9:16
  SPEAKER_00: But those people who are collecting those interest payments, those bondholders, they just don't sit on that money.
• 9:22
  SPEAKER_00: They go out and spend it.
• 9:24
  SPEAKER_00: That raises the demand for goods and services faster than they're produced, uh, causing inflation.
• 9:29
  SPEAKER_00: So governments don't have a get out of jail free card here.
• 9:32
  SPEAKER_00: You know, the bigger these debts get, the bigger the interest payments, the more they have to worry about inflation.
• 9:38
  SPEAKER_00: And, you know, historically speaking, when those pressures get too big, a couple of things happen.
• 9:42
  SPEAKER_00: You know, either they start printing money to pay off those debts, and you end up with uh what I've got here, a$500 million bill, or they simply default on those debts.
• 9:52
  SPEAKER_00: They're like, well, we're not, we're not gonna pay them.
• 9:54
  SPEAKER_00: They refuse to pay them.
• 9:55
  SPEAKER_00: So when those debts start to get large, investors start worrying about whether they'll get paid back at all.
• 10:01
  SPEAKER_00: So they're less likely to loan governments that money in the first place.
• 10:05
  SPEAKER_00: And this isn't just a theoretical concern.
• 10:08
  SPEAKER_00: Back in the late 1980s and early 1990s, there were real concerns that the province of Saskatchewan might default on their debts because the debts had gotten so large.
• 10:18
  SPEAKER_00: There was government that spent a lot of money.
• 10:20
  SPEAKER_00: There was a collapse in uh product prices back then.
• 10:24
  SPEAKER_00: The government was in real trouble.
• 10:26
  SPEAKER_00: So investors were reluctant to lend the province of Saskatchewan much money that forced the province to pay higher interest rates than other provincial governments uh because they were seen as being riskier.
• 10:39
  SPEAKER_00: So, in short, you know, debts still matter and they they matter a lot, even if they're not paid off in any kind of literal sense.
• 10:45
  SPEAKER_02: And I just want to hone in on something you said there because it's been contentious in the media.
• 10:49
  SPEAKER_02: Through this process, the government can essentially print money without printing physical money like you showed.
• 10:56
  SPEAKER_00: Yeah, no, no, absolutely.
• 10:57
  SPEAKER_00: That the most of the money in the money supply is is not uh, you know, pieces of paper like this.
• 11:03
  SPEAKER_00: This actually is only a small portion of Canada's money supply.
• 11:08
  SPEAKER_00: Most of our money is kind of digital.
• 11:10
  SPEAKER_00: There is, you know, the whole kind of process of money creation and involving the central banks and and other banks.
• 11:17
  SPEAKER_00: That'd be a really good topic for another episode.
• 11:20
  SPEAKER_00: But yeah.
• 11:20
  SPEAKER_02: We'll get back on track.
• 11:22
  SPEAKER_00: Yeah, this is another one where we shouldn't take take this too literally.
• 11:26
  SPEAKER_00: That when we talk about printing money, it's not necessarily, you know, some guy at the mint printing out big, big sheets.
• 11:33
  SPEAKER_00: It's a little bit more digital than that.
• 11:35
  SPEAKER_02: So, but debts and deficits do matter then.
• 11:38
  SPEAKER_00: Yeah, they absolutely do.
• 11:39
  SPEAKER_00: And they're particularly problematic when they're being used to finance entitlements to current generations, like old age security.
• 11:46
  SPEAKER_00: So, you know, it matters and matters a lot.
• 11:49
  SPEAKER_00: And a nerdy economist like me could say, like, hey, could we stop doing that?
• 11:54
  SPEAKER_00: But ultimately, this is a political decision.
• 11:58
  SPEAKER_00: And you know, you have more political experience than I do.
• 12:01
  SPEAKER_00: So, how do we deal with that?
• 12:02
  SPEAKER_00: How do we get governments to at least start to reduce this intergenerational wealth transfer?
• 12:08
  SPEAKER_02: Well, in my opinion, the reality is that Canada does need to rethink old age security.
• 12:13
  SPEAKER_02: It's not just a question of fairness between generations.
• 12:15
  SPEAKER_02: I mean, younger Canadians are already facing huge costs.
• 12:18
  SPEAKER_02: At the same time, the federal government has committed to major increases in military spending and the very real need to fund major infrastructure upgrades.
• 12:26
  SPEAKER_02: And the average worker is at, if not past their limit with income and sales taxes.
• 12:32
  SPEAKER_02: So it's really not an option to add any extra taxes right now.
• 12:35
  SPEAKER_02: So as a result, Ottawa's total debt is projected to climb from 2.3 trillion, about 72% of the economy, to more than 3 trillion or roughly 78% of GDP.
• 12:47
  SPEAKER_02: And now we could raise the age at which you can start receiving OAS or we could reduce the benefit.
• 12:53
  SPEAKER_02: But Canada needs to keep its spending in check.
• 12:55
  SPEAKER_02: And doling out money to rich seniors just isn't sustainable.
• 12:59
  SPEAKER_02: We don't have that luxury.
• 13:01
  SPEAKER_02: And if we continue to do it at the expense of younger generations, that's only going to lead to more generational resentment and anger than we have already.
• 13:10
  SPEAKER_00: Yeah, I really worry about that anger and younger Canadians uh basically giving up on the country because they're not getting as much from Canada as older generations did when those generations were those ages, when those generations were in their 20s.
• 13:25
  SPEAKER_00: So to deal with the transfer element, you know, either old age security could be made less generous or programs that benefit younger generations could be made more generous, you know, like spending on higher education or child benefits or things like that.
• 13:39
  SPEAKER_00: But, you know, that starts to get expensive quite quickly.
• 13:42
  SPEAKER_02: Yeah, it's all still a lot of spending.
• 13:44
  SPEAKER_02: But if we left OAS the way it is and increased benefits to younger Canadians, how would we pay for that?
• 13:50
  SPEAKER_02: Plus the military spending, plus infrastructure, plus healthcare, plus housing, all these things.
• 13:55
  SPEAKER_02: There's a never-ending list.
• 13:58
  SPEAKER_00: Yeah, there really aren't a lot of great options here.
• 14:00
  SPEAKER_00: You know, the the first option is we spend less on something else, but we're quickly running out of options there because you basically listed like everything the federal government spends money on.
• 14:10
  SPEAKER_00: So there's not a whole lot left.
• 14:12
  SPEAKER_00: Uh, the second thing is we just allow deficits to increase, but that doesn't really solve the intergenerational equity problem uh because you know, those debts and deficits have to be finance and future generations that are paying for those interest rates.
• 14:28
  SPEAKER_00: So it doesn't really address the core problem.
• 14:30
  SPEAKER_00: Or the third one is that taxes go up.
• 14:33
  SPEAKER_00: And that's really it.
• 14:34
  SPEAKER_00: You know, there's no free lunch here.
• 14:36
  SPEAKER_00: Everything has a trade-off, and you know, we're looking at a series of uncomfortable options.
• 14:42
  SPEAKER_00: So, Sabrina, like how well do you think uh the general public, particularly younger people, understand these trade-offs and you know, the intergenerational wealth transfers that are going on?
• 14:54
  SPEAKER_02: I think younger people get it more than ever before because they're living the consequences of it and they're thinking about it for their futures.
• 15:02
  SPEAKER_02: But I don't think older generations always get it because they've basically been allowed to have their cake and eat it too.
• 15:08
  SPEAKER_02: And yes, they did work hard.
• 15:10
  SPEAKER_02: That's not taking that away from them.
• 15:12
  SPEAKER_02: But they tend to not see how many advantages are given to them by the government.
• 15:16
  SPEAKER_02: You know, so many younger people, because of that, don't feel well served by the system and would actually likely prefer fewer entitlements and much lower taxes because they just don't believe when they pay taxes that they're ever going to see a return on that.
• 15:29
  SPEAKER_02: And they just see it being funneled to older generations and programs that don't benefit them at all.
• 15:34
  SPEAKER_02: So they say, well, why can't I just keep more of my hard-earned paycheck government, stay out of it, and then maybe I can buy a house one day, right?
• 15:42
  SPEAKER_02: But it's difficult for any political party to really offer this proposition because of the baby boomers.
• 15:49
  SPEAKER_02: It's such a toxic thing when they are such a huge voting cohort to even suggest, even though it would be a very naturally conservative position to say, let's make major tax cuts.
• 16:00
  SPEAKER_02: Instead, we see a lot of these like tinkering around the edges.
• 16:03
  SPEAKER_02: But there hasn't been any proposal from any leader to have major income or sales tax reform in a way that doesn't just result in like an extra$42 a month in your bank account, like something that would result in 10,000 or tens of thousands more in your bank account.
• 16:20
  SPEAKER_00: Yeah, I agree.
• 16:21
  SPEAKER_00: And it does seem that even when there is a tax cut or what you call a tax tweak, I think more often than not is structured in a way to disproportionately benefit seniors.
• 16:31
  SPEAKER_00: So, you know, it doesn't really necessarily solve this intergenerational equity problem uh if those tax changes or tax measures aren't really targeted to younger people who are struggling the most.
• 16:45
  SPEAKER_02: But to sum up everything, not all debt is bad debt, and countries can carry much more debt than the average household.
• 16:51
  SPEAKER_02: And borrowing can make sense when it's used to invest in things that create long-term value to future generations.
• 16:57
  SPEAKER_02: Now, taking on debt to build roads, bridges, transit systems, or housing means future citizens will also benefit from what's being paid for today.
• 17:05
  SPEAKER_02: But the problem is when debt is increasingly used to preserve old spending commitments that may no longer fit today's realities.
• 17:13
  SPEAKER_02: Debt can be a useful tool to ensure that an asset that lasts for, say, 75 or 100 years will be paid for by the people using it 50 years from now.
• 17:20
  SPEAKER_02: But it becomes much harder to justify when we're borrowing money to send extra checks to seniors who, on average, are already among the wealthiest groups in Canadian society.
• 17:30
  SPEAKER_02: So that's really something we need to see change soon.
• 17:33
  SPEAKER_02: Thank you so much, everyone, for watching and listening.
• 17:35
  SPEAKER_02: And to our producer, Meredith Martin, and our editor, Sean Forbes.
• 17:39
  SPEAKER_00: If you have any thoughts or questions about the economic history of Saskatchewan, please send us an email to missingmiddlepodcast at gmail.com.
• 17:47
  SPEAKER_02: And we'll see you next time.