From Volume 4, Issue Number 18 of EIR Online, Published May 3, 2005

U.S. Economic/Financial News

Projected Social Security 'Deficit' Caused by Globalization

A report issued by the Economic Policy Institute on April 26 echoed the analysis of Social Security's connection to the real economy in EIR articles, and in LPAC's Congressional testimony (see InDepth this week). The EPI report shows that stagnating real wages in the U.S. economy, in most of the period of the floating-exchange-rate globalized economy, are responsible for most of the "projected deficit" Social Security is supposed to have over the next 75 years.

In 1983, when the present Social Security payroll tax rates were set, the Social Security Administration began by assuming that real wages would rise by an average of 1.5% per year, over coming decades, based on the U.S. economy's history since World War II. Instead, real wage growth since then has been averaging only 1% annually (based only on comparison with the Consumer Price Index inflation measure, which is vastly understated and does not measure workers' real purchasing power). Such "real wages" now are falling, since 2003.

According to the EPI's analysis of Social Security reports since 1983, the impact of this "real wage" drop on the taxable payroll for Social Security, combined with the related, growing inequality of wages and incomes in the United States, account for nearly 70% of the so-called "long-term actuarial deficit" of Social Security as projected today. The impact of lower wages already in the past period, 1983-2005, accounts for 10% of that deficit; the SSA's current, lowered assumption that real wages will grow no more than 1% in the future, accounts for 25% of the projected deficit; and the loss of taxable payroll because of the growing income disparity between the upper 20% and lower 80% of households, accounts for another 30% of the projected deficit. This last effect is simply because more of the nation's total payroll is concentrated among upper-income people whose incomes go far "above the cap" of $90,000 a year in income that Social Security taxes. The portion of national wages taxed by Social Security has fallen from 90% in 1985 to 85% in 2004, and is projected to fall to 82% in the next few years.

In direct contradiction to the standard claptrap of the privatizers, EPI found that "demographics changes" have actually improved the projected long-term solvency of Social Security since 1983—because of higher-than-expected immigration, and a rebound in birth rates.

Pelosi: Privatization Would Hurt Hispanics

House Minority Leader Nancy Pelosi (D-Calif.) issued a press release April 28 showing that Bush's plan to privatize Social Security would cut benefits to Hispanic families by 40%. Her statement also outlines how Social Security provides retirement and economic security for nearly 2.3 million Hispanics, of whom 75% rely on it for the majority of their retirement income. Her press release also outlines how the Republican cuts in disability benefits to young Hispanics—who are 40% more likely to become disabled—would also be cut by 40%.

Durable Goods Orders Tumble

Order for durable goods fell by 2.8% in March, the largest drop since September 2002, as aircraft orders fell sharply, the Commerce Department said April 27.

Housing Bubble Continues To Inflate

Defying analysts (as well as gravity), who had forecast a decline in home sales, due to rising interest rates, a report from the U.S. Commerce Department says that sales of new homes increased at a "seasonally adjusted annual rate" of 1.43 million units during March, this in addition to a report from the National Association of Realtors, that sales of existing homes, which represents 85% of the market, increased by 1% to an annual rate of 6.89 million homes. The average price of a home also rose, for the third-consecutive month, to $195,000.

According to USA Today April 26, some economists are warning that markets are becoming "seriously out of whack" on the East and West Coasts. Analysts are doubly confounded, since "consumer confidence" levels have begun to slip again, the "expectations index," which measures the populations estimate of the future, sliding to its lowest level since July 2003.

20 Million in U.S. Workforce Without Health Insurance

A study released April 27, commissioned by the Kaiser Commission on Medicaid and the Uninsured, indicates that 20 million working Americans are without health insurance. The study, using data from the U.S. Centers for Disease Prevention and Control, also found that George Bush's Texas has the highest number in the country: 27% of working adults in Texas have no insurance. Texas also has the highest rate of uninsured overall in the U.S. (30.7% of its population). Another finding was that 41% of uninsured adults were unable to see a doctor when needed in the past year, because they couldn't afford it. Nationally, one in five (20%) of the uninsured have poor health, compared to 12% of those with insurance.

Public Hospitals Can No Longer Invest in Infrastructure

The nation's public hospital profit margins are so low, according to a recent survey of the National Association of Public Hospitals and Health Systems (NAPH), that investment in new medical infrastructure is impossible. For fiscal year 2002, margins for public hospitals were at -0.3%, compared to 4.5% of all hospitals nationally. NAPH says this is far below what experts say is necessary to reinvest in infrastructure and technology. The hospitals have capital needs that can no longer be postponed, including safety measures, all of which require significant investment in systems and equipment.

Right now, public hospitals draw over 71% of their revenue from Medicaid, Medicare, and state and local governments, all of which have been shrinking their budgets for years. State Medicaid inpatient hospital payments were cut or frozen in 31 states in 2004; and in 27 states in 2005. This, on top of previous state hospital cost-cutting measures. But, the hospitals are hit again each time states remove people from Medicaid. These uninsured people join 45 million other uninsured, who seek their health-care needs, often at public hospitals, which treat everyone, regardless of their ability to pay, regardless of their medical condition. Public hospitals treat huge numbers of medically vulnerable patients whom no insurer will cover, like the 323,000 people with HIV/AIDS, diabetes, mental illness, and others about to be dropped from TennCare, Tennessee's extended Medicaid program.

All rights reserved © 2005 EIRNS