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Bitcoin as PAYGO Pension Plan. And Land.

Summary:
Suppose the government starts a Pay As You GO (unfunded) pension plan. What the young pay into the plan today is what the old take out today. The first generation gets lucky; they get a pension paid out, but never put anything in.  And if the plan ever gets wound up, the last generation of old get unlucky; they paid in, but never get anything out. Bitcoin is the same. What the young pay in to buy Bitcoin today is what the old take out when they sell Bitcoin today. The first generation gets lucky; they sell out at a high price, but bought in at a low price when it was just starting up.  And if the young ever stop buying Bitcoin, so the price collapses to zero, the last generation get unlucky; they paid to buy into Bitcoin, but never get anything out. The big difference is that Bitcoin

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Suppose the government starts a Pay As You GO (unfunded) pension plan. What the young pay into the plan today is what the old take out today. The first generation gets lucky; they get a pension paid out, but never put anything in.  And if the plan ever gets wound up, the last generation of old get unlucky; they paid in, but never get anything out.

Bitcoin is the same. What the young pay in to buy Bitcoin today is what the old take out when they sell Bitcoin today. The first generation gets lucky; they sell out at a high price, but bought in at a low price when it was just starting up.  And if the young ever stop buying Bitcoin, so the price collapses to zero, the last generation get unlucky; they paid to buy into Bitcoin, but never get anything out.

The big difference is that Bitcoin is a strictly voluntary PAYGO plan. You don't have to participate in the plan, and if you do choose to participate you can contribute however much you want, and you can pull your money out any time you like.

Now suppose the government starts a fully funded pension plan, that invests in land. If land is the only asset in the economy, and has a perfectly inelastic supply, it's not very different from a PAYGO plan. Or Bitcoin. It doesn't create any new assets for the economy as a whole; it just makes the existing land more valuable. What the young pay into the plan to buy land is what the old take out by selling land. The first generation of landowners gets lucky, because they bought land at a low price and sell it at a high price. And if the plan ever gets wound up, the last generation gets unlucky; they bought land at a high price and sell it at a low price.

At the macroeconomic level, the only difference between funded and unfunded (PAYGO) pension plans is due to the price elasticity of the supply of new assets ("investment"). If it's perfectly elastic, the total physical quantity of assets rises proportionately with a fully funded pension plan. If it's perfectly inelastic, the physical quantity of assets stays the same, but the price of assets rises proportionately with a fully funded pension plan. And you can think of PAYGO pension plans, and Bitcoin, as creating valuable assets ex nihilo, that satisfy the desire to save a stock of assets you can sell later, like a temporary abode of purchasing power.

[Maybe see my old post on the "Junker Fallacy", which isn't a fallacy in an OverLapping Generations model

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