How exactly would per-user encryption help? You can encrypt your emails if you want, but if Google does it per user, they still have the key.
The fact that currently, encryption would have to happen at Google smells to me like a gigantic flaw in the whole "web apps for everything" mantra. I can not only encrypt when I run my own mail client with standard protocols, but I even get to choose whether I want to go S/MIME or PGP. Neither is an option in the webmail space unless I want to delegate crypto to the service provider.
(Depending on your conspiracy bent, you could also say this constitutes a non-flaw from Google's perspective.)
There is very little future in being right when your boss is wrong.