On top of that, increasing encryption definitely helps for mass surveillance - it's impractical to break all the keys for all the messages all the time.
Maybe they will still be able to spy on a select few individuals (just like they can order a locksmith to open a safe, or just blowtorch through). But then again, there are much cheaper and old school ways to spy on a select few individuals
Also, while politics sometimes trumps cryptography, the opposite happens just as often. All the police force is useless if they don't know where to point their guns (see Silk Road)