How Social Security can continue to be paid out without raising the debt limit

Here’s the New York Times reporting on President Obama’s remarks today:

“Treasury would be left to fund the government solely with the cash we have on hand on any given day,” he said, forcing it to choose among creditors, federal contractors, veterans,Social Security and Medicare beneficiaries and the many other claimants to federal dollars.

An enterprising reporter or Republican politician might do well to understand and point out what David Henderson has written on this topic here, where Henderson points to the Huffington Post’s debunking of the Social Security claim:

The Social Security Administration owns bonds that the U.S. Treasury has issued. To make up for a shortfall each month, the SSA could sell some of these bonds to the Treasury. But where would the Treasury get the money to pay for these bonds? By issuing bonds to the public. How could the Treasury do that if the debt ceiling is not raised? The debt ceiling includes the SSA bonds. So for every $1 billion the Treasury pays when the SSA redeems bonds, the Treasury could issue $1 billion in new bonds without affecting the official debt at all.

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Preferential treatment

I like Don Boudreaux’s post on Cafe Hayek entitled Go Arianna! for two reasons.

First, it illustrates that the value of voluntary, mutually beneficial transactions is not just in the money that changes hands.

In this case, writers provide content for Arianna’s (or AOL’s) online Huffington Post (HuffPo) for free.  They must be getting something they value from the transaction.  What could it be?

Second, (paraphrasing Boudreaux) even well intentioned third parties are in a poor position to second guess voluntary acts among consenting adults.  In this case, Boudreaux is responding to an op-ed piece by Michael Walker in the LA Times, who asks Why should writers work for no pay?

We like to impose our own preferences on the voluntary actions of others without bothering to first understand why they choose to participate voluntarily.

Walker provides a great example of this by giving Huffington’s rationale for why she doesn’t pay writers.  But, he didn’t ask any HuffPo writers why they willingly provide free content.

Added: The Onion provides another nice example of the third party preference lesson in its spoof article, Continued Existence Of Edible Arrangements Disproves Central Tenets Of Capitalism.

The authors of the article can’t figure out why folks willingly buy arrangements of fruit that resemble flowers and they commit the same error of omission as Michael Walker.  They didn’t ask any of the customers who do willingly pay for it.

Contrary to the title of the article, Edible Arrangements’ continued existence actually proves the central tenets of capitalism.