Bill Robson and the Future of Capitalism

On the eve of the Whitehorse meeting of Finance Ministers in December, the Howe released a report co-authored by Bill Robson which charged that the federal government’s pension plan liabilities on behalf of its own employees are greatly under-stated – to the tune of $58 billion. This sum  should, he argued, be added to the federal public debt.

As was, no doubt, intended, this intervention set off alarm bells about taxpayers being on the hook for supposedly over generous pension plans for public sector workers, and distracted attention from how to fix the major problems in the private part of our pension system.

It turns out that the main difference between Robson and federal government actuaries and accountants is the assumption about future real rates of return on invested assets. The current assumption is a 4.2% real rate of return (identical to the assumption of the Canada Pension Plan and many private sector plans), while Robson says it should be the rate of return on inflation indexed long term government bonds, currently less than 2%.

Robson argues that “theory and evidence have discredited a widespread view that long-term investors can count on equity instruments yielding a sizeable premium over lower risk debt instruments.”

It is true that rates of return on investment have fallen in recent years and have, in combination with very low interest rates, caused funding problems for all kinds of pension plans. Some actuaries have, as a result,  become a rather gloomy lot.

Still, it is somewhat surprising that Bill Robson, who can I think be fairly described as a fan of free market capitalism,  would endorse the view that we live in a world where rates of return on private capital will be nothing short of dismal for the foreseeable future. If he is is right, we surely face much bigger problems than unfunded pension liabilities.


  • Nice catch. Now get ready for the next long propaganda war against public sector unions.

  • Nick Rowe made this point over here, along with the point that if liabilities are to be calculated using a lower discount rate, then so are assets (i.e., future tax revenues).

    The point should be that there are no immediate policy implications from this study.

  • The unthinkable has happened!
    John Baird the vociferous Transport Minister who frequently steps outside of his domain to attack has been rendered almost mute on the Toyota safety issue. When the US govt and even the Japanese government is seriously investigating the complaints, where does Baird’s confidence come from? Ralph Nader made a trip to Canada to highlight the safety issue, yet the pitbulls at home have turned into Toyota puppies.

    Toyota Republicans Should Cut Their Own Pay

    Alumni from Toyota are well entrenched in the political and across corporate board scene in Japan, but that has not stopped their government from reprimanding the company for its safety issues and criticising its recall practices.

    Toyota’s Influence Looms Over Japan

    What is disconcerting at home is how quick the special interests come together almost in a unison to attack autobusiness’ with unionised workforce and will make comparison with the Asian autoindustry. And now there is no challenge from those quarters instead there is a deafening silence.

    As one Soothsayer from the East said: “One Viper does not burrow itself under the hood of another Viper”.

    Profound words of wisdom.

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