Cross-posted from Putanumonit.


Vodka and War

When I was 16 I made the dumbest financial investment of my life. Our family came to live in the US for a few months, and I made $500 giving tennis lessons to the local kids. My individually directed consumption at the time consisted mostly of video games, food, and booze. And so I faced a decision: should I spend this windfall on 4 years of subscription to EverQuest? 166 falafel sandwiches? 104 bottles of Keglevich flavored vodka at the old central bus station in Tel Aviv upon my return?

Despite these immensely appealing options, somehow my dad convinced me that the adult™ and responsible™ thing to do was to invest the money in a yield-bearing instrument. And since at 16 I liked thinking of myself as a responsible adult™ almost as much as I liked cheap vodka and MMOs, I found myself walking out of the local bank branch holding a purchase certificate for a 10-year US treasury bond.

That’s right. Upon coming into possession of more money than I’ve ever held, I lent it out to George W. Bush at ~0% real rate of return. This was right around the invasion of Iraq, which ultimately cost $1.9 trillion over 8 years. And so instead of using the $500 for my own betterment (or, at least, enjoyment), I ended up funding exactly 66 milliseconds of the Iraq War. By the time I redeemed the bond a decade later I was close to graduating business school with a job in finance, and the $1/month it accumulated for the duration didn’t move the needle much for my personal financial situation.

What should I have spent it on? Even if we ignore all consideration of fun and personal taste and focus on the money only, the wisest purely financial investment I could have made with that money was, in fact, vodka. I should have come back to Israel and sponsored a rager for all my high school friends and acquaintances. A party would have transformed my reputation from “weirdo who’s good at math” to “cool and generous weirdo who’s good at math”. Given that my high school classmates went on to become influential professionals, businesspeople, and founders of successful companies, earning their respect with free drinks would surely be worth orders of magnitude more a decade later than $650.

The Value of Friendship

It’s strange, or even profane, to think of friendships in terms of their financial value. If we did, we would likely find ourselves struggling for both money and friends. But it’s also true that one’s friend group has a huge impact on one’s finances. In a lot of communities, this impact is hugely negative.

On one side are groups united around communist-ish ideology (for whom enforcing equality of broke-assedness is at least thematically appropriate). People in those groups valorize poverty and demonize riches, so any member getting ahead financially is scorned and resented. The richer friends in those groups are often aggressively mooched off of (“from everyone according to their ability!”) and then aggressively scapegoated to resolve the cognitive dissonance (“they didn’t deserve their job anyway, and their parents are rich besides!”) As long as people aren’t starving, making money is often not worth to them the social cost they would incur.

There are also groups entirely capitulated to capitalism, egging each other on in contests of conspicuous consumption. I talked to an Uber driver who confided that he and his friends spend slightly more than all of their disposable income on fashion sneakers. He said that anyone discovered to be prudently managing their money instead of keeping up with the latest sneaker offerings is made fun of. He wasn’t particularly happy to be driving 10 hours a day just to fill his small apartment with hideous Yeezy Foam Runners, but didn’t really see a way out.

My nerd friends, however, can’t tell a Yeezy from a yuzu but instead encouraged each other to buy Bitcoin as early as 2011 which made a large (and growing) number of them rich. The community in general is quite remarkable for having people several orders of magnitude apart in income coexisting quite happily wearing the same t-shirts with programming jokes to the same nerdy meetups and being encouraging both of those who make millions and of those who drop out to focus on non-monetary pursuits. There’s also a budding culture of patronage, as exemplified in community-sourced prizes for important work, a norm of posting bounties for tasks and hiring friends, and the respect granted to Effective Altruism donors.

Bottom line: your friend group affects your finances not just in direct ways like job offers but in shaping how people think about money, how they earn and spend it, and how group status interacts with wealth and income. It’s a lot easier to be financially comfortable in a community that’s relatively sane about money. Unfortunately, in the realm of personal finance, sanity is very much the rare exception.

Dollar Derangement

People can be deranged about money as a result of their friend group, but people also manage surprising levels of financial insanity all on their own.

I’ve seen successful entrepreneurs and professionals so averse to dealing with personal finance they’d procrastinate for months on basic tasks like setting up a payment for a loan, watching a stack of unopened envelopes from the bank pile up on their desk. I’ve seen people get literal anxiety attacks around the tax deadline, the one time a year the threat of jail forced them to peer into the money abyss.

I’ve seen a professional with a $500,000 salary who didn’t know if she spent $200,000 or $800,000 the previous year. I’ve seen another careful budgeter who had multiple years of runway saved up stay at a job he hated because he couldn’t bear the thought of a month with no income.

I’ve seen people with seven-figure net worth stake it all on a speculative ICO or angel investment. I’ve seen people with $100 to invest spend months researching how to earn an extra 0.2% in some crypto yield-farming scheme, “earning” a few cents per hour of labor.

I’ve seen people on the verge of homelessness be too proud to ask their family or friends for a small loan to tide them through a crisis. I’ve seen others who were doing quite well who still demanded that their parents pay for their expenses.

I’ve seen a classmate’s family burn $8,000 a year just to avoid talking about lending each other money. I’ve seen a friend talk about the complex emotions he dealt with upon receiving a large gift from his parents, and I’ve seen thousands of people telling him he’s a piece of shit for daring to mention it and in the same breath asking him for charity.

I’ve seen turkeys in the jungle.

I think I’ve maintained roughly the same phlegmatic attitude about money as my circumstances changed from being financially dependent, to independent and broke, to employed and in debt, to comfortable. To me, money is instrumental — a resource to put a number on, trade off against time and effort and risk, and manage with basic math. But to other people it seems to be a measure of their character, a core part of their identity, and a leading cause of their derangement.

American culture demands total hypocrisy about money at all times. If you’re broke you must pretend to have money so people don’t judge you, but if you have a lot of money you must pretend to have less for the same reason — unless you’re very rich in which case you pretend to be much richer than you are yet again. If you don’t care about money and slack off you’re a bum, if you are motivated by money you must pretend (even to your employer) that you’re not, but you must also act as if everyone else is motivated only by money or you’re naïve. Everyone agrees that money should be divorced from morals except everyone believes either that rich people are immoral because they’re greedy materialists, that poor people are immoral because they’re lazy moochers, or both at the same time.

This isn’t just a Rationalist complaint about some part of social reality being less than perfectly legible. The problem is that money, which is measurable and legible, gets tangled up in the parts of social reality that are anything but, like status and tribal affiliation. The irreconcilable contradictions that result from this derange people’s brains, their bank accounts, and national politics.

Redistributions

Here’s anthropologist Xiang Biao talking about what happens when money and social status become too entangled:

From an anthropological viewpoint, [China] is something of a special case. Does competition exist in other societies, especially primitive societies? Yes, but there are a couple of things worth noting. The first is that people’s lives are often made up of two parts: the sphere of prestige and the sphere of subsistence. Subsistence refers to hunting and farming, in which people usually cooperate rather than compete so that everyone can be fed. However, competition still exists in this kind of society — usually between leaders and heads of tribes or families. They’re typically male, and they have competitive relationships with leaders in other villages. What are they competing for? Prestige. So, competition exists when it comes to prestige. Perhaps the best-known example is potlatch, in which these tribal heads compete for prestige by distributing their accumulated wealth with others, or by destroying their own wealth in public. This is interesting, because this vying for prestige is directly related to redistribution. Leaders get prestige by sharing their wealth, so competing for prestige is done through material redistribution which then contributes to equality.

In terms of subsistence, however, there is no competition. This is where things can be complicated. For example, everyone has different abilities at hunting. Let’s say you are skilled and killed a deer. Everyone will recognize you in terms of prestige, and they will praise your courage and hunting skills. But the meat must be evenly distributed. In China’s case, this kind of differentiation no longer exists. Competition is total.

In wealthy societies like the US, people are aggressively trying to redistribute prestige to themselves while talking only about redistributing sustenance to others. This is the root cause of a lot of political dysfunction and mutual hatred.

The number of people in rich nations struggling for basic material sustenance like food and shelter is quite small, but not zero. There are just enough of them to serve as the motte for the prestige hunters. In any case, the homeless and those working three shifts aren’t the ones writing Twitter threads and magazine articles denouncing rich people, while the activists and journalists who do are rarely destitute or welfare-dependent.

Almost everyone is, however, struggling for status and respect. Sustenance itself requires a perceived sacrificed of dignity, whether it means you have to submit to a boss or wrangle with an impersonal bureaucracy or plead with your family. When people do acquire disposable income, they tend to spend it on status competitions like limited spots in selective clubs and schools for their kids. People who think they’ve opted out of the status rat race to settle in material comfort still find prestige games biting them in the ass.

It’s less acceptable to say “let’s take this person’s status and redistribute it among ourselves” so people conflate prestige with money and pretend that rich people are hoarding both in some immoral way. As my friend says, this makes billionaires a universally accepted target of hate and the most oppressed class in America.

Almost no one (outside of Effective Altruism, perhaps) is offering to give billionaires more prestige in exchange for their money. Warren Buffett is widely admired for making billions of dollars, not for giving 99% of them away. Mark Zuckerberg got more goodwill for surfing with a flag than for donating a 12-figure sum to public schools.

So: the chattering classes are looking to appropriate the elite’s prestige by pretending to care about redistributing money to the poor. Rich people compete with each for prestige mostly by acquiring more money, and have no reason to give any of it away if to those who would take their prestige along with it. The actual poor lack the platform and the leisure for these status fights, and their voice is mostly drowned out by the rest.

This situation contributes to economic inequality by sidelining discussions of effective redistribution, makes everyone polarized and hate each other, and feeds back into Americans’ individual insanity around money.

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There are also groups entirely capitulated to capitalism, egging each other on in contests of conspicuous consumption. I talked to an Uber driver who confided that he and his friends spend slightly more than all of their disposable income on fashion sneakers. He said that anyone discovered to be prudently managing their money instead of keeping up with the latest sneaker offerings is made fun of. He wasn’t particularly happy to be driving 10 hours a day just to fill his small apartment with hideous Yeezy Foam Runners, but didn’t really see a way out.

Vodka is the answer.

For some reason the link suggests that they're* more valuable (price wise) used than new.

*Yeezy Foam Runners

Before we dismiss the money taboo as something that obviously hurts people (which it does), I wonder what is the upside? What are the situations in life where not discussing money is the right thing to do? I suppose, if you win a lottery but don't tell anyone, you are less likely to be robbed or have your kids kidnapped. (But you still need some advice on how to use the money wisely.)

From the class-war perspective, money taboo obviously benefits rich people. Their family probably already hires an expert to manage the assets, so the rich kids can get advice from their parents and also use the expert. Kids born in poor families won't get good advice, so if they happen to win a lottery -- or just a well-paying job -- they will probably waste that money somehow, keeping them in their place. This however does not explain why the poor people also enforce the taboo, instead of cooperating with each other. Or is the causality the other way round, like inheriting a cultural taboo against discussing money is one of those things that keep people poor? But sometimes the taboo is strategically enforced from the top, like when your boss tells you not to discuss your salary with your colleagues.

I am generally oblivious to many status games, so I don't feel the need to compete with others at spending. Spending is instrumental. When I was a kid, I hated the fact that some of my classmates had a computer and I did not; but that's because computers are fun (and later also turned out to be useful). If someone has a very expensive shirt or socks... I most likely won't even notice. -- Okay, technically, spending money on status is also instrumental. But it's an instrument I don't know how to use well anyway, so why bother wasting money on it.

To the list of financial stupidities, I would also add how people automatically increase their expenses when their income increases. Like, I get it that poor people live paycheck to paycheck. But when a software developer also lives paycheck to paycheck, something is wrong. (People usually don't disclose this explicitly, but if they worry too much about whether the salary arrives on 10th or 15th of the month, I assume they do.) Having more money, in general, should make your life less stressful, shouldn't it?

Thinking about why the rich people can't get more prestige by redistributing their money to the poor... maybe it's because instead of having many small competing tribes, the society is interconnected and then separated again by social class. -- Like, imagine that you could randomly assign people to dozen tribes, and magically make everyone care about their tribe a lot. Each tribe would have its millionaires. And some of them would be willing to help the poor people from their tribe, because this would make the tribe as a whole more powerful. And the poor people would appreciate that someone made their tribe more powerful; they would see the millionaires from their tribe not as competitors, but as allies against the other tribes. So, I suppose this is kinda the mechanism that worked in the past, whether the "tribe" was a literal tribe, or perhaps a city. -- But in our society, it is all interconnected, and then people sort themselves out mostly by their social class, so instead of millionaires in each tribe we get a separate millionaire tribe.

I’ve seen thousands of people telling him he’s a piece of shit for daring to mention it and in the same breath asking him for charity

I suppose, if you ask someone for charity, it lowers your status... but if you ask someone for charity while telling him he's a piece of shit, that balances it somehow. It may reduce your chances, but they were already low anyway. (Is this analogical to catcalling?)

Many poor people are actually ashamed to ask for money, or even to accept it when it is freely offered. The latter is somewhat mysterious to me, especially in situations where it is already established that they are poor and in dire need of money (so it is not like they would reveal this fact by accepting the money).

Before we dismiss the money taboo as something that obviously hurts people (which it does), I wonder what is the upside? What are the situations in life where not discussing money is the right thing to do? 

This is an important Chesterton's Fence to identify.

Status games and social/family obligations and judgement are the main reasons NOT to discuss the reasons for your choices, nor too much detail about your current or projected situation.  Envy is a real thing for many (most!) humans, even if it's a little more rare (or better-hidden) in rationalist and high-IQ groups.  Even fairly close friends can take your decisions which differ from theirs as a judgement on them, and react badly.

Ah yes - wealth (not kept secret) creates obligations.

I wonder whether there is a strictly better solution, something that would preserve the obligations without incentivizing against becoming visibly rich.

For example, imagine that a group of people takes a vow (written, legally binding) that 20 years later each of them will redistribute 10% of their net worth to the rest of the group. That means, if they all have approximately the same wealth, no money will change hands (the amounts will cancel out on paper). But if one of them becomes a millionaire, they will distribute 10% of their wealth among the rest of the group.

With such vow, you would be happy if one of your friends becomes visibly rich, and you would gladly support them to become even more rich, because that would mean a payout waiting for you in the future. If they are a millionaire, you would wish them to become a billionaire instead!

Of course, this would not be so easy. People would be picky about whom to include in the group, and 20 years later would regret their choices. The millionaires would try various tax evasion techniques to minimize the amount they need to distribute. Perhaps it wouldn't work at all, dunno.

In the past, people had all kinds of implied obligations, many of them sucked. Today, in theory we are free to make various kinds of contracts, in practice most people suck at designing contracts and coordination is hard.

Of course, this would not be so easy. People would be picky about whom to include in the group, and 20 years later would regret their choices. The millionaires would try various tax evasion techniques to minimize the amount they need to distribute. Perhaps it wouldn't work at all, dunno.

Tax evasion might decrease taxes, but not necessarily 'net worth'.

Yeah. But there are techniques (perhaps unrelated to tax evasion) for decreasing net worth, that the millionaire might use to avoid paying the 10%. Politicians use them to pretend they didn't get rich while in the office. Divorcees use them to reduce alimony. Criminals use them to not appear suspiciously rich.

For example, "this is not my property, it all belongs to my wife and/or children". Or it is owned by a shell company, which is owned by another shell company, which is owned by... oops, this one is registered in a country that does not disclose this information. Depending on the exact definition of "net worth", the money could be (temporarily) converted to something that technically does not count as "net worth".

(There is also an opposite problem, that sometimes the net worth is overestimated. For example, if you own a large fraction of shares of some company, their total value is calculated as "value of 1 share × the number of shares you own", which ignores the fact that if you actually started selling the shares, that would automatically drive their price down.)

Hm. You may have made a case for not using 'net worth'. (Though what else to use isn't clear.) At the same time, it's also not clear how much that would be an issue. (Is the practice more common among billionaires than millionaires perhaps?)

Such a thing, if done at all, might make more sense taking in to account the plans the people involved have for the future, i.e. they're all doing something risky which could pay out big.

For most groups, the obligations are not written nor legally binding.  They're implied and illegible, and VERY hard to change, or even talk rationally about.

In fact, most contracts you can imagine are un-enforceable - only some narrow topics are in the overton window of contracts that can be discussed, and only some of those are in realms that many courts will enforce.

For your specific (group agrees to share 10% of individual wealth after 20 years), it would be tricky to adjust for expected net worth (why would someone with better prospects agree?), and you'd need some way to handle entry and exit (or just decide not to have any new social contacts, I guess).  

I don't see a solution here, other than secrecy, at least among those who aren't very-well-trusted rational individuals in pretty close relationships.  Which describes vanishingly small groups.

OR maybe we bite the bullet.  Take the Scandinavian approach, and publish tax returns, or further - publish all wealth and income worldwide.  Get through the strife and pain that would happen in many regions and in many groups, and those who survive can learn to stop worrying about it.   A guy can dream, huh?

Many poor people are actually ashamed to ask for money, or even to accept it when it is freely offered. The latter is somewhat mysterious to me, especially in situations where it is already established that they are poor and in dire need of money (so it is not like they would reveal this fact by accepting the money).

Does not seem so mysterious to me. Even if everyone already know that you're poor, deliberately asking for money (or even accepting charity) moves you to Officially Poor People™ and strongly increase your risk of feeling like a burden. Also, unless you've been poor all your life, I suppose that local gossipmongers can be quite nasty if they catch you accepting charity ("I never thought they would stoop so low!").

Of course, things can get even worse. According to Wikipedia, the second most commonly listed motive for suicides in Japan is "Financial/Poverty related issues" (17% of suicides). Some people are willing to kill themselves rather than being ashamed to ask for money (this is quite mysterious even to me).

Some people are willing to kill themselves rather than being ashamed to ask for money (this is quite mysterious even to me)

The evolutionary explanation is that if you're a burden on enough people who are genetically close to you, then by reducing their chance of passing on their genes you also reduce the chance of passing your own. So if it's unlikely you will pass your own genes by yourself, or if the group can't support everyone when it includes you, then the optimal reproductive decision might be to leave the group and alleviate the burden, and one way to do that is suicide.

It's one of those sad evolutionary adaptations that are no longer relevant in the modern world and now only cause harm. Today even if you are a burden on someone it's never so drastic that killing yourself helps anyone.

These are statements whose truth can't be discussed, only claimed with filtered evidence. Like politics, this requires significant reframing to sidestep the epistemic landmines.

Can you elaborate? I agree this a difficult risky topic to discuss, and I tried to evade the landmines while writing it (like accidentally implying that this evolutionary instinct is somehow good), but though I very much like and agree with Yes requires the possibility of no, and know what filtered evidence is, I don't really understand the first part of your comment. Also I'd be interested to hear what you think are the epistemic landmines.

If you are about to say something socially neutral or approved, but a salient alternative to what you are saying comes with a cost (or otherwise a target of appeal to consequences), integrity in making the claim requires a resolve to have said that alternative too if it (counterfactually) turned out to be what you believe (with some unclear "a priori" weighing that doesn't take into account your thinking on that particular topic). But that's not enough if you want others to have a fair opportunity to debate the claim you make, for they would also incur the cost of the alternative claims, and the trial preregistration pact must be acausally negotiated with them and not just accepted on your own.

See this comment and its parent for a bit more on this. This is a large topic, related to glomarization and (dis)honesty. These contraptions have to be built around anti-epistemology to counteract its distorting effects.

I also saw you saying a similar thing here. I think there's a top level post here waiting to be written. I'll be glad to read it if you write it.

There are also groups entirely capitulated to capitalism, egging each other on in contests of conspicuous consumption.

 

Capitalism !== conspicuous consumption.

In a perfect competition environment, there wouldn't be any spare money to waste on conspicuous consumption!

The solution might be more capitulation to capitalism.

I should've written "capitulated to consumerism" but "capitulate to capital" just sounds really cool if you say it out loud.

Since there’s not a question at the end or some further anchor for productive discussion I presume you are hoping for commentators to offer some. Here’s one:

People’s demands for positional goods likely rise and fall in correlation with the change in perceived value of those positional goods. So if we desire less competition for such goods then it would make sense to try and lower the incentives to attain them.

To me it seems sensible that to lower the incentives would require a lowering of the perceived value of such goods, though other ways may prove to be even more fruitful.

To lower the perceived value of positional goods would require what methods? 

To lower the actual value of positional goods would require what methods?

What is the relationship between perceived and actual value in this case? Are they too intertwined to separate in this manner?

Can these methods, whatever they may be, even be carried out? (either individually or in combination)

What are the requirements to do so?

And what are the implications for society if such a change occurred?