This tiny corner of Rhode Island shows us the future of Social Security

Simon Black    February 5, 2018    Sovereign Valley Farm, Chile

The United States Court of Appeals for the First Circuit gave us an interesting glimpse of the future last week when it ruled on an obscure case involving government pension obligations.

Ever since the mid-1990s, police officers and fire fighters in the town of Cranston, Rhode Island had been promised state pension benefits upon retirement.

But, facing critical budget shortfalls over the last several years that the Rhode Island government called “fiscal peril,” the state legislature voted to unilaterally reduce public employees’ pension benefits.

Even more, these cuts were retroactive, i.e. they didn’t just apply to new employees.

The changes were applied across the board; workers who had spent their entire careers being promised certain retirement benefits ended up having their pensions cut as well.

Even the court acknowledged that these changes “substantially reduced the value of public employee pensions provided by the Rhode Island system.”

So, naturally, a number of municipal employee unions sued.

And the case of Cranston’s police and fire fighter unions made it all the way to federal court.

The unions’ argument was that the government of Rhode Island was contractually bound to pay benefits– these benefits had been enshrined in long-standing state legislation, and they should be enforced just like any other contract.

The state government disagreed.

In their view, the legislature should be able to change laws, even retroactively, whenever it suits them.

Last week the First Circuit Court issued a final ruling and sided with the state of Rhode Island: the government has no obligation to honor its promises.

News like this will never make major headlines.

But here at Sovereign Man our team pays very close attention to these obscure court cases because they often set very dangerous precedents.

This one certainly does. Because Social Security is in even WORSE condition that the State of Rhode Island’s perilous pension system.

We talk about this a lot in our regular conversations.

According to the Board of Trustees for Social Security (which includes the US Treasury Secretary, the US Secretary for Health & Human Services, and the US Secretary of Labor), the Social Security trust funds “become depleted and unable to pay scheduled benefits in full on a timely basis in 2034.”

Once again– that’s the Treasury Secretary of the United States saying that Social Security will run out of money in 16 years.

You’d think this would be shouted from the rooftops, especially given how long it takes to save for retirement.

Yet instead the news is ignored or flat-out rejected by people who simply want to believe either that it’s not a problem, or that the government has some magical solution.

The First Circuit just showed us what the solution is: cutting benefits.

And now the government has legal precedent to do so.

They can retroactively slash whatever benefit they want in their sole discretion regardless of what legislation exists, or what promises have been made in the past.

Let’s be smart about this: the clock is ticking. Sixteen years may seem like a lifetime away, but with respect to retirement, it’s nothing.

Securing a comfortable retirement takes decades of careful planning, and a lot of folks are going to have to catch up.

Fortunately there are a lot of options available, but you’re going to have to take deliberate action.

For example, you could set up a more robust structure to help you put away even more money for retirement and invest in safer, more lucrative assets that are outside the mainstream.

A number of our readers, for example, are safely earning double-digit returns in secured, asset-backed lending deals with their properly structured IRA and 401(k) vehicles.

Here are a couple of options to consider.

This problem is completely solvable. But you’re going to have to solve it for yourself. You can’t rely on the government to fix it.

The First Circuit Court affirmed last week without a doubt that government promises aren’t worth the paper they’re printed on.

TRUMP’S WALL, AND THE “GREAT” WALLS OF HISTORY

President Donald Trump is pushing for a wall to be built built to prevent immigration through the southern border of the United States. It was a signature issue of his successful campaign to become president and has stated that he is willing to shutdown the federal government in order to get what he wants. Indeed, a large majority of Americans are opposed to paying taxes in order to provide welfare and free education for foreigners, but is a wall the right solution?

As I have already pointed out, much of the desire of central Americans to come to the US is because of our own War on Drugs. That policy increases the price of illicit drugs and encourages the development of drug cartels to safeguard the transport of drugs from the production countries such as Bolivia, Columbia, and Mexico into the United States. Safeguarding the drugs for the drug cartels results in them using extreme bullying and violence on the local populations along the route, including the police and governments. The only way to prevent this asylum-seeking traffic is to end the war on drugs.

Looking beyond the motivation of immigration, let us take a look at walls. Typically, they are a signature piece of civilization. Walls are the key part of “permanent” societies. Archeologists and anthropologists study the remainder of walls in order to interpret what societies were, what they did, how they lived, and what they valued. In the modern context, walls and room size are a measure of our standard of living as bigger rooms and taller walls are a sign of success and improvement whereas sleeping in the rafters in a small cabin on the American plains is a sign of relative impoverishment. Having a big corner office with big windows is a sign of accomplishment, whereas the cubicle and the open office concept is the equivalent of eating your Christmas dinner at the child’s table.

In contrast to these walls, we have historically important governmental walls that archeologists and historians also study and write about.  These walls have the exact opposite connotation. They are symbolic of isolation and decline — they are supposedly a last-ditch effort to “save” a civilization from the marauding horde of savage people. In reality they have never worked and only contribute to the decline of various empires because of cost and the resulting isolation. This is the type of wall that President Donald Trump wants to build.

The first historic wall was the Great Wall of China. Spanning more than five thousand miles from east to west in northern China, the Great Wall is one of the most marvelous structures of early human civilization. It is often taught that the wall was built to prevent the invasion of Mongol hordes, but the actual purpose was to prevent immigration and trade and to help consolidate the Chinese Empire. Eventually there were invasions and wars, but they were more about pent up demand for immigration and trade then they were about territorial expansion.

The second historical wall is Hadrian’s Wall. This wall was built across northern England by the late Roman Emperor Hadrian shortly after he came to power in 117 AD. We typically learn that the wall was built by Hadrian to prevent invasion by various barbarous tribes to the north.  We do know that Hadrian built the wall because of his policy of defense and consolidation, rather than continual expansion so his wall marks a historical turning point towards the demise of Rome. There were already various rebellions in the Empire, including England and this new policy was designed for dealing with this new reality of decline.

There are various theories why the wall was built, including the prevention of invasion, but some scholars are dubious that preventing invasion was a cost-effective priority. More likely, the reason for the wall was to regulate immigration, to prevent smuggling and cattle theft, and to collect custom fees on trade. Therefore, the wall provided the Roman legion in northern England with something to do and also a means of generating government revenue to feed and fund the troops.

The third historical wall in the Berlin Wall and the Iron Curtain. At the end of World War II Germany and Berlin remained divided into zones of control by the Soviet Union, Briton, France, and the United States. The three allied zones were consolidated into West Germany and West Berlin while the Soviet zones became East Germany and East Berlin. The problem with this arrangement was that while all of Germany was devastated by WWII, West Germany would soon become one of the fastest growing economies of the world, thanks in no small part to the policies of the liberal economist Ludwig Erhard, a friend of Ludwig von Mises. He eliminated price controls, deregulated the economy and enacted effective monetary reform. Meanwhile in East Germany the economies of the Soviet zones quickly fell behind.

As a consequence of the diverging economic performance, Germans from the eastern zones began migrating to the western zone for jobs, opportunity and freedom.  This migration was intolerable to the communists as the most visible sign of the failures of socialism and the successes of free market capitalism. In response East Germany began to build the Berlin Wall and the Soviet controlled states began constructing the Iron Curtain to prevent migration of eastern Europeans into western Europe. These barriers were fairly successful in preventing migration and many people were shot and killed trying to escape Communism for life in capitalist Europe.  Then in 1989 the German people— East and West —tore down the war and signaling the failure of communism.

I know that most people do not really care about the practicalities of a  wall, some may be wondering why the Congress doesn’t just give him the funds and so they can get on with the holidays without all the drama of a government shutdown. The proper view of government walls argues against such apathy and, more importantly it should wake us up to the larger picture that the United States is a modern empire. We need to all think about what can be done to prevent us from making the same mistakes as China, Rome, and the Soviet Union.

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