A Touch of Economicare

With Medicare for oldsters, college loans and classrooms for youngsters and a bag of subsidies for everyone from migratory workers to mass-transit riders, President Johnson's welfare programs will have marked effects on American society. Less discussed but equally significant will be their effect on the U.S. economy. At a time when the economy is doing very well but may need new stimuli in the crucial months ahead, Johnson's flurry of social legislation is bound to have a special economic impact. Part of the Great Society is something that could be called Economicare. More than the Old. The first mean ingful impact of the new social programs will come early next month when 20 million people begin receiving the 7% higher social security benefits recently voted by Congress. The average monthly hikes seem modest--$5 for individual recipients, $8 for couples--but they will channel $1.2 billion more into the economy this year and $117 million a month thereafter. Because the increases are retroactive to Jan. 1, each recipient will collect eight months of bonus in one swoop--amounting among couples in the top bracket to a lump-sum extra of $492. Though the average American habitually spends 93% of his income and saves the rest, federal economists expect that some 95% of the social security bonuses will quickly be spent, chiefly on food, clothing, recreation, services and travel. Reason: couples over 65 have an average income of only $3,376 a year, just half the median for all Americans, therefore usually lay out their entire incomes. Their spending power has risen from $18 billion a year in 1960 to nearly $23 billion today--and will rise further with the new payments. In approving his third medical-assistance bill in as many weeks, the President last week highlighted another major area that will provide stimulus to the economy. The $280 million appropriation for federal health facilities, like the earlier Medicare bill and the $117 million bill for community hospitals and health centers, is, in Johnson's view, "just good business." All three programs will increase sales of medical equipment and drugs and increase the demand for services, notably hospital and physicians' care, Additional hospitals and nursing homes will have to be built, thus affecting the construction industry. Medicare, for its part, is likely to affect more than just the old folks. Freed from the burden of paying the medical expenses of parents and older relatives, thousands of couples are expected to divert their earnings to new cars and new houses. Bigger Salaries. Thanks to the Housing Act of 1965, which Johnson also signed last week, millions of Americans will find it easier to buy a new house.. The act not only authorizes $7.5 billion more in federal housing expenditures over a four-year period, but creates a whole new FHA loan program for veterans on terms as easy as $500 down for a $20,000 house and lot, lowers FHA down payments for all buyers on higher-priced homes, lets the Government underwrite land-purchase and development loans for builders. The Government will provide urban-renewal payments to individual low-income families that want to fix up their own places, will also give low-income families rent supplements that it hopes will encourage the creation of as many as 375,000 new apartments. The construction industry, now running 3% ahead of last year, will get an additional stimulant to order steel, concrete and lumber and to hire craftsmen. And, of course, more homes and apartments inevitably mean more money spent on furniture and durables. The new legislation will generate economic results in two other areas. An education bill to be signed soon will extend federal school-construction aid to secondary and elementary levels, opening the way for up to $1 billion more in new construction. It will also raise teacher salaries--and spending power --and provide more funds for the textbooks, audio-visual aids and laboratory equipment that already constitute a major part of the $1.7 billion a year school-equipment-and-supply business. Similarly, the $375 million mass-transportation subsidy, conceived to save strangling cities, will pour adrenalin into the economy. Impressed by increasing Government-financed mass-transit spending and anxious to get a chunk of the $8 billion equipment market, U.S. Steel last week introduced a new steel and glass car that can be adapted to both bus chassis and rails. Bigger Bites. There is, of course, another big side to the effects of welfare legislation. Higher social security payments mean bigger bites from both business and workers; the raises will cost corporations at least $2.5 billion more annually, and wage earners who make at least $550 monthly will face an annual tab of $277 instead of $174. Increased spending also creates problems for state and local governments, which in most cases must provide some funds in order to receive federal grants, and therefore will need to seek new sources of revenue. The Economicare principle, however, is that what is fed in is multiplied before it comes out.

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