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An American Greek Tragedy

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You may have heard. Greece couldn’t adhere to its deficit-reduction targets. Investors want nothing to do with its debt. It takes a 15.7% yield to entice them into Greek bonds. The European Union will have to step in because Greek taxpayers are about as real as ancient Greek mythology. Apparently there is no such thing as the Greek god of bailouts.

Who will bail out America when we become the next Greece? Are we making the tough decisions our grandchildren will live with? President Obama says, “We’ve got to comb through the budget and find every dime of savings that we can. We’ll check under the cushions. Any program that’s not working, we need to eliminate.”

Can the president offer a little more than another sound bite? He can’t be serious, can he? After all, “for the first time since the Great Depression, households are receiving more income from the government than they are paying the government in taxes,” as reported by The Fiscal Times.

It’s not any better at the state level. In Rhode Island, budget analysts are predicting that revenues for the rest of this budget year and the one beginning on July 1 will be $119 million higher than earlier estimates. Governor Lincoln Chafee commented that he wants to “produce a balanced budget that invests (my emphasis) in Rhode Island’s future.” I believe his idea of “investing” is to broaden the sales tax.

In Greece, government was the answer—with its own form of President Obama’s “saving and investing”: work until you’re 40 and retire to the islands—until it wasn’t. I have zero faith in Mr. Obama’s and Mr. Chafee’s idea of “saving” and “investing.” I wish their big government would simply get out of the way.

New England is a Greek tragedy of sorts—especially in Rhode Island where non-profits pay next to nothing in property taxes. In 2010, Brown University paid around a couple of million bucks on its $1 billion property assessment or the equivalence of a 0.2% property tax rate. Let’s not forget that its 4,300 employees take a salary and its grads take to the road since the job market is so terrible. Rhode Island, where unemployment is 11% (much higher than that if you consider those who want to work more), is one of the closest examples in America to what Greece looks like up close and personal. It’s a mecca for public-sector unions.

Every New England state has non-right-to-work rules or has “agency shop” rules that mean workers can be forced to join a union or pay a fee to the union as a condition of employment.

In fact, for proof that the percentage of state and local government employment represented by unions is correlated with “agency shop” rules, take a look at New England. Rhode Island has the largest share of unionized state and local government employment at 71%, followed by Connecticut at 64%, Massachusetts at 61%, New Hampshire at 48%, Maine at 45%, and Vermont at 45%.

Hop a flight from T.F. Green airport near Providence, Rhode Island, to the closest right-to-work state and you’ll have to fly to Virginia. Its union share of state and local government employment is only 11%. Next stop is right-to-work North Carolina at 8% and South Carolina at 9%.

As long as New England is a non-right-to-work region, no business owner is going to willfully move business here. Is it any wonder that Boeing chose South Carolina as the location for its second 787 Dreamliner assembly plant? Not that the National Labor Relations Board will allow it to happen without a fight. The NLRB’s general counsel, Lafe Solomon, has issued a complaint against Boeing. The NLRB, including Obama recess appointee Craig Becker, will do what it can to make life difficult for Boeing on behalf of the Boeing International Association of Machinists (IAM).

New Hampshire is on the verge of becoming the first state in 10 years to become a right-to-work state. Democrat Governor Lynch has promised a veto, but the Senate has the two-thirds majority needed to override it. The House didn’t have the two-thirds majority in the initial vote.

These are the types of hard decisions New England states like Rhode Island need to make. Instead, Rhode Island politicians make promises to union leaders who get them elected. Politicians and their generous giveaways have left the state and municipal public employees’ pension with a $9.4-billion funding deficit. And that’s a generous assessment since the actuaries are using a way too optimistic 7.50% expected rate of return.

The National Education Association put the following on their website, under the heading “Public Pensions Under Attack”:

All working Americans—public and private sector employees alike—deserve a secure retirement. Without adequate retirement income, older Americans will lack the resources that allow them to live independently, afford health care, and contribute to the economy. Public pension plans are not in crisis and are not to blame for the nation’s financial crisis. They should not be the scapegoat.

It’s the same old story. Just ask the Greeks.

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.
E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.