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What Do Millennials Spend All Their Money On?

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A few days ago, Australian real-estate mogul Tim Gurner had some harsh words for millennials who are unhappy that they can't afford to buy a house:

“When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,” he said. “We’re at a point now where the expectations of younger people are very, very high. They want to eat out every day; they want travel to Europe every year.

“The people that own homes today worked very, very hard for it,” he said, adding that they “saved every dollar, did everything they could to get up the property investment ladder.”

This prompted a snarky, avocado-centric Twitter meme for a while, and the next day the New York Times even tried to fact check Gurner's claim:

According to the Food Institute, which analyzed Bureau of Labor Statistics expenditure data from 2015, people from 25 to 34 spent, on average, $3,097 on eating out. Data for this age group through the decades was not readily available....As for Mr. Gurner’s second suggestion — skipping the European vacation — there is indeed an opportunity for savings, but research suggests millennials are the generation spending the least on travel.

This is some strange stuff. In its current form, the BLS Consumer Expenditure Survey goes back to the 80s, so this data is indeed available through the decades. Still, at least this is an attempt to take Gurner seriously: he's not literally complaining about avocados on toast, but about a cavalier attitude toward money in general. So let's take a look at that. First, here are total expenditures for 25-34-year-olds:

As you can see, millennials spend a smaller proportion of their income than 25-34-year-olds did a generation ago. In the Reagan era, this age group spent 91 percent of their income. Today's millennials spend only 81 percent of their income.1 Still, thanks to rising incomes their total expenditures clock in about $3,000 higher (adjusted for inflation) than young households in the 80s.

But do they spend a big part of that income on fripperies, like lavish vacations and expensive dinners out? Let's look:

Three decades ago, 18-34-year-olds spent 10.5 percent of their income on entertainment and eating out. Millennials spend 8.6 percent. In real dollars, that represents a small decline. In other words, millennials are more frugal about dining and entertainment than past generations.

So what do millennials spend their money on each year? They may have $3,000 more in disposable income than young families of the 80s and 90s, but they also spend:

  • About $1,000 more on health care.
  • About $1,500 more on pensions and Social Security.
  • About $2,000 more on overall housing (rent, maintenance, utilities, etc.).
  • About $700 more on education.

If they're not buying houses, this is why. It's not because houses are more expensive: the average house costs about a third more than it did in the 80s and early 90s, but thanks to low interest rates the average mortgage payment is about the same or even a bit lower. But it's tough to scrape together a down payment when you're already running a tight ship on dining and entertainment and paying more than previous generations for health care, education, retirement, and student loans.

That said, I'll add one more thing: our perceptions are probably a bit warped about this. Millennials who write about this stuff tend to live in media centers like New York or San Francisco or Washington DC, where housing is extremely expensive. Even with a decent income it's hard to afford anything more than a cramped apartment. In the rest of the country things are different, but we don't hear as much about that. Caveat emptor.

1The share of income not counted as expenditures includes taxes, student loans, credit card payments, savings, etc.

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17 hours ago
"If they're not buying houses, this is why. [...] it's tough to scrape together a down payment when you're already running a tight ship on dining and entertainment and paying more than previous generations for health care, education, retirement, and student loans."
South Burlington, Vermont
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The Power of Predictable Paychecks

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While it’s well documented that income inequality and wealth gaps have been widening in the United States, there is another sort of economic inequality that is just as worrisome but harder to see. It has less to do with the total amount of money that people have, and more to do with how that money moves through their lives: Increasingly, financial stability is only enjoyed by a few.

This type of inequality lurks underneath the reams of official economic data that’s regularly collected and widely reported. It’s about whether workers can reliably predict the size of their next paycheck, how much of a financial cushion they can build, and whether or not they can do something as simple as set up automated bill payments without worrying about overdrafting or making ends meet.

As we undertook a study of Americans’ household finances, we came to understand how this instability manifests itself. For the study, called the U.S. Financial Diaries, we followed 235 low-income and moderate-income households that had at least one working member, tracking every dollar they earned, spent, saved, borrowed, or gave away for a full 12 months. The households we followed were diverse—urban, rural, white, black, Hispanic, Asian, recent immigrants, families that have been in the U.S. for generations, single mothers, inter-generational households—and located in five different states (New York, Mississippi, Kentucky, Ohio, and California). When we started the study in 2012 we didn’t know how pervasive or persistent financial instability would be. But we found that many Americans, even some squarely in the middle class, worry as much about swings in income and expenses from month to month as they do their overall earnings.

Most financial surveys gather aggregated information such as annual income, or they provide snapshots such as the total amount owed on credit cards or held in retirement accounts. While useful in a macro sense, the standard measures of economic well-being—poverty and unemployment rates, the level of consumer debt—obscure what’s happening day to day. We had the chance to see how money moved through a family’s life over time. And, because our team collected the data in person, we got to ask why households made the choices they did.

Their stories often centered on the struggle to create stability amidst financial volatility. One family we met lives in a small town in Ohio, outside of Cincinnati. The husband (we’ve withheld the identity of study participants to protect their privacy) was the primary breadwinner, and he worked full-time, fixing long-haul trucks. During the year of the study, he was paid just over $40,000, enough in their town to support his wife and four children, albeit living modestly. Yet on one afternoon when we met with his wife, she was worried about whether or not to pay their mortgage bill. She had the money in hand, and she was eager to get it done. But she was worried that her husband’s next paycheck might be, in her words, “crap.” If so, she’d have to borrow money from her sister, and she didn’t want to have to do that.

There was a possibility that her husband’s next paycheck would be small because what he took home each month depended in part on what he earned on commission. Business is better for long-haul-truck mechanics in winter and summer than in fall and spring—trucks are more likely to break down in extreme weather—and this was October. Sunny, clear, and temperate, it was a perfect day for trucks to run smoothly and a poor day for the wife of a truck mechanic to feel confident about making a mortgage payment.

Many working families are familiar with this dilemma. On average, households in the Financial Diaries study had more than five months a year when the income they earned was at least 25 percent more or less than their average monthly income. But even that understates the volatility: The average monthly spike raised income to 52 percent higher than the mean, and the average monthly dip made it 46 percent lower than the mean. To put it another way, a family might earn $5,000 seven months out of the year, but those months might be interspersed with two great months of $9,000 and $7,000 and three tough months of $3,000 each. The annual total—$60,000—would be reported in surveys. That’s a notch above the median family income in the U.S., but it hides the fact that for at least three months of the year, money is very tight.

This type of volatility isn’t reserved for people like the Ohio family we met, whose incomes vary with the seasons. Workers who depend on tips and commissions experience it; the success or failure of the business falls partly on their shoulders. Workers who are self-employed or part of the gig economy do, too. Even full-time employees paid hourly wages, who account for over half of American workers, can face substantial fluctuations in the number of hours assigned each week. Many do not get paid leave, so a few days staying in with the flu or a child home sick from school can make a dent in people’s paychecks. Just 2 percent of the families in the Financial Diaries study had relatively steady income during the year, experiencing no spikes or dips of 25 percent or more.

The obvious advice is to save during the $9,000 month and the $7,000 month so that there’s an ample cushion during the $3,000 months. But that advice is far easier to dole out than it is to follow. What if the $3,000 months come three in a row, early in the year, right after Christmas spending, before the easy $9,000 month appears? What if a $3,000 month happens to coincide with the dying days of a clunky old car on its last miles?

Saving is also made difficult by the fact that inflation-adjusted incomes have stagnated for working families, even while the costs of housing, education, health care and transportation have risen. It’s not altogether surprising that families had a hard time saving the “extra” $4,000  from a $9,000 month for a rainy day. Instead, that $4,000 went to pay overdue bills, fees, and credit-card payments that had piled up during the low months.

The Ohio mechanic’s wife came up with her own solutions to these ups and downs. When her husband’s paycheck was small, she cleaned houses to pick up some extra income. She also clipped coupons and stocked the family’s pantry and her freezer whenever she saw a good deal. She knew that depositing money into a bank account would make more sense, but it had been hard to stop withdrawing from it for day-to-day expenses. So, by putting her savings toward filling the freezer, she was eliminating the temptation to spend frivolously when money was good, and lost less sleep wondering if her family would have to cut back on necessities when it wasn’t.

This system worked for her, and, over and over again, we saw households devise similar strategies. These families could not necessarily explain the standard ideas taught in financial literacy courses, like the power of compound interest, but they knew where the best deals could be found or which bills had the lowest late fees. More importantly perhaps, they could often identify human impulses that had to be managed in order to mitigate the ill effects of volatility. One woman in Mississippi parked her savings in a credit union an hour’s drive away and cut up her ATM cards, so that she would only withdraw the money for things she categorized as “really, really needs.” She cut up her checkbook too, so that she wouldn’t be tempted by high-priced payday loans (which typically require a signed check as collateral).

These kinds of strategies worked, but imperfectly. They were time-consuming and, despite being clever, didn’t prevent bad outcomes or errors. Over the course of our study, one-third of the families were threatened with (or actually experienced) eviction, the disconnection of utilities or cable, or repossession of an asset, most often their vehicles. Nearly half of those with bank accounts had at least one overdraft. Households were making only the minimum payment on about half of the credit cards that we tracked, which they’d often pay for dearly down the line.

Volatility is much easier to deal with for people with ample savings, access to good credit and insurance products, and/or social networks that can afford to lend a hand. But these coping mechanisms are currently reserved primarily for those with higher incomes—people who need them less. Those with low incomes are losing out in multiple ways. They are also more likely to have jobs with unpredictable incomes, and less negotiating power to change that. They are less likely to have access to low-priced credit to manage an emergency or invest in education or a home, and less likely to have friends and family with enough money to help out. Those with the most difficult financial lives are also the least able to get good financial advice.

As a result, a large share of people, even if they’re employed and even if they budget and plan, are financially unstable. It’s no wonder many people are frustrated by where the economy has left them, given that they’re doing a lot of things right and still struggling.

Conversations about inequality often miss something essential, something that the families we met felt strongly: The financial problem they were most immediately focused on wasn’t about relative earnings or wealth. It was about their ability to create stable lives in our uncertain world. Shortly after our regular data collection ended, the family in Ohio decided that attaining stability demanded a change. The husband switched jobs. He still fixes long-haul trucks, but now his wages are not dependent on commission and he has a guaranteed minimum number of hours. But to get that stability, he had to take on a longer commute, and he now actually earns less on an annual basis than he did when he worked on commission. It’s a hefty price, but one that he and his wife decided was worth paying.

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18 hours ago
"Conversations about inequality often miss something essential, something that the families we met felt strongly: The financial problem they were most immediately focused on wasn’t about relative earnings or wealth. It was about their ability to create stable lives in our uncertain world."
South Burlington, Vermont
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How Far Should Societies Go to Prevent Terror Attacks?

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After the terrorist attack in Manchester, England, David French, the conservative writer and Iraq War veteran, published an article at National Review that harkens back to the Bush administration in several ways—most objectionably in its attempt to use a kind of political correctness to advance the counterterrorism policies that he prefers.

The article, “The World Is Too Comfortable With Terror,” eventually offers substantive arguments for those policy preferences. And they are worth grappling with on the merits: the author is an intelligent commentator opining earnestly on an important subject.

But the article begins by priming the reader as follows:

Make no mistake, there is an emerging bipartisan consensus that a certain amount of terrorism is just the price we have to pay to live the way we want to live. Now, to be clear, very few people will come out and say this explicitly, and national-security establishments do their best — within certain, limited parameters — to stop every single terror attack, but more than 15 years after 9/11 it’s clear that there are prices our societies aren’t willing to pay. And neither our nation nor any of our European allies is willing to pay the price to reduce the terror threat to its pre-9/11 scale.

Consequently, an undetermined number of civilians will die, horribly, at concerts, restaurants, nightclubs, or simply while walking on the sidewalk. It almost certainly won’t be you, of course, but it will be somebody.

And they’ll often be kids.

That paragraph is technically correct. There are presumably majorities in both parties who believe that a certain amount of terrorism is the price we have to pay to live the way we want to live—after all, that has been so for as long as the United States has been a country. But it is manipulatively put in a way that conservative readers might find that easier to discern if we repeat the paragraph but substitute a few words:

Make no mistake, there is an emerging bipartisan consensus that a certain amount of gun deaths is just the price we have to pay to live the way we want to live. Now, to be clear, very few people will come out and say this explicitly, and national-security establishments do their best — within certain, limited parameters — to stop every single death, but it’s clear that there are prices our societies aren’t willing to pay. Consequently, an undetermined number of people will die, horribly. It may not be you, but it will be somebody.

And they’ll often be kids.

It isn’t that terrorism, or gun deaths, are unimportant; or that status quo policies are obviously correct; or that those who want to do more are necessarily incorrect; or that it is wrong to point to costs of inaction when making one’s case for action. The problem with these arguments is the implication that disagreements about what policies to pursue are rooted in some people caring enough to stop children from dying horribly, and others not so much. In fact, there are deep disagreements about the likely effects of many policies. And while the willingness to adopt some policies even though dead children will result is real, it is also universal; if you favor allowing cars to drive faster than 25 miles per hour, or allowing kids to ride in them, then you are willing to say that a certain amount of deaths are the price we pay to live as we want.

Unless you are willing to mandate tracking chips in everyone’s bodies, so that counterterrorism authorities can know the locations of all people at all times—and forbid the purchase of fertilizer, pressure cookers, bolts, and knives, all common terrorist weapons—then you too are unwilling to take measures that would stop an undetermined number of civilians from dying horribly, and you believe that “a certain amount of terrorism is just the price we have to pay to live the way we want to live.”

To put it so bluntly is politically incorrect. But to hold the contrary position, that we will pay any price to end terrorism, is morally monstrous and incompatible with the Constitution.

No free society could survive the latter posture.

As a conservative with strong moral beliefs and a commitment to following the Constitution, David French himself presumably believes that a certain amount of terrorism is the price we have to pay to live the way we want to live. His actual argument, stripped of the manipulative framing, is that two policies are worth pursuing. French argues for military action against terrorist safe havens abroad and restrictions at home that limit immigration from “jihadist regions.” In his estimation, the Bush administration pursued both national-security strategies to great effect; and abandoning the Bush approach led to increased attacks in the U.S. in Europe.

Bush “not only pressed military offensives in the heart of the Middle East, he fundamentally changed the American approach to immigration and implemented a number of temporary measures that, for example, dramatically decreased refugee admissions and implemented country-specific protective measures that have since been discontinued,” French wrote. “And don’t forget, aside from their reckless immigration policies, our European allies weren’t just beneficiaries of the Bush doctrine but also participants in Bush’s military offensives. Our NATO allies have been on the ground in Afghanistan since the war launched in earnest. Britain was a principal partner in Iraq.”

His larger theory is that “there are two laws of terrorism that work together to guarantee that attacks will occur, and they’ll occur with increasing frequency. First, when terrorists are granted safe havens to plan, train, equip, and inspire terror attacks, then they will strike, and they’ll keep striking not just until the safe havens are destroyed but also until the cells and affiliates they’ve established outside their havens are rooted out. Second, when you import immigrants at any real scale from jihadist regions, then you will import the cultural, religious, and political views that incubate jihad.”

Today, “there is little appetite across the entire American political spectrum for an increased ground-combat presence in the Middle East,” he observes. “So the slow-motion war against ISIS continues, and terrorist safe havens remain. In the U.S., even Trump’s short-term and modest so-called travel ban has been blocked in court and lacks public support.”

It seems to me that the rhetorical frame of Westerners unwilling to do what it takes to stop terrorism has blinded French to the most common reasons for rejecting his positions.

For many Americans, myself included, the Iraq War was not a counterterrorism success. It was a conflict that killed many more Americans than died on September 11, 2001; and the instability that it spawned was a major root cause of the rise of ISIS. The bipartisan consensus against more ground invasions in the Middle East is not rooted in an unwillingness to make the necessary sacrifices to reduce terrorism; it reflects a belief that the Iraq War seems to have increased rather than reduced global terrorism.

In my estimation, President Bush’s well-intentioned reaction to 9/11 did more to harm America than the evil attacks themselves, the very effect the terrorists hoped to have.

Indisputably, it killed more innocents.

What’s more, the bipartisan consensus remains in favor of denying safe havens to terrorists, as evidenced by the explosion of drone strikes during the Obama administration. That consensus is tempered by fears that a ground invasion of Syria would risk a major powers conflict with Russia (a nation with enough nuclear weapons to end life on earth), and that even a short term victory against ISIS could prove phyrric, requiring a choice between an open-ended occupation of Syria that would cost thousands of American lives, or leaving and seeing the territory revert to terrorist safe havens.

Is it even the case that the occupation of Afghanistan made Americans safer? If so, I haven’t seen the evidence. I suspect that the war there killed more Americans than it saved.

One also wonders how many people were radicalized into terrorism as a result of U.S. abuses in Iraq, like the ones at the Abu Ghraib prison, or by innocents killed by drones.

In any event, my sincere belief is that another invasion like the one in Iraq would make the American homeland marginally more vulnerable to terrorism, not marginally safer, even as it cost taxpayers tens of billions of dollars and killed hundreds or thousands of U.S. troops. I would oppose such a course not because I am averse to paying the costs but because I believe that the costs far outweigh the benefits.

The merits of a more restrictive immigration policy are harder to evaluate. I’ve thought and read comparatively little about the relationship between immigration policy and terrorism. And French’s claims forecast the future as much as they apply established knowledge. But say for the sake of argument that French is correct when he argues that “when you import immigrants at any real scale from jihadist regions, then you will import the cultural, religious, and political views that incubate jihad.”

Does that mean admitting Syrian refugees to the United States will save 50,000 human lives now at a cost of 3 people dying in a terrorist attack a decade in the future? Is the tradeoff more like 2,150,000 lives significantly improved, including 2 million Americans helped by a cardiology procedure discovered by a Syrian immigrant and 150,000 Syrians directly helped, while 23 people die in a terrorist attack perpetrated by one grandson of the initial immigrants? Or is it more like a few hundred people helped at the cost of a 9/11 style attack perpetrated on three occasions?

The argument that immigration from “jihadist regions” imports jihad, therefore it should be eliminated, is sufficiently vague that it treats all those scenarios as equal in their implications for the immigration policy that the United States ought to adopt.

And I reject that treatment.

If an immigration policy really does make the United States orders of magnitude more vulnerable to terrorism while doing very little good, then of course it’s prudent to oppose it. On the other hand, if an immigration policy helps to spare hundreds of thousands of foreign innocents from misery or death, has ancillary benefits for many Americans, and also increases the risk that there is a terrorist attack that kills 3 people in a future decade, then yes, I am willing to accept that tradeoff.

Where are we on that spectrum?

I suspect that the people who reject Trump’s travel ban are typically averse to terrorism and eager to prevent future attacks, but also understand themselves to be opposing a policy that was conceived in bigotry more than a rational assessment of risk, and that imposes very heavy costs while giving us relatively meager gains in safety, if any. And while I am happy to entertain evidence that we opponents of the Trump travel ban are mistaken about the costs and benefits that we are anticipating, I reject the notion that we ought to be willing to pay any price to eliminate any risk of future terrorist attacks by any immigrants or their descendants––the absolutist standard necessary to exempt us from the stigma French wields.

As Jim Manzi once put it, while arguing against that absolutist standard as an argument for torture:

We have suffered several thousand casualties from 9/11 through today. Suppose we had a 9/11-level attack with 3,000 casualties per year every year. Each person reading this would face a probability of death from this source of about 0.001% each year. A Republic demands courage -- not foolhardy and unsustainable "principle at all costs," but reasoned courage -- from its citizens .... To demand that the government "keep us safe" by doing things out of our sight that we have refused to do in much more serious situations so that we can avoid such a risk is weak and pathetic. It is the demand of spoiled children, or the cosseted residents of the imperial city.

In closing, let’s imagine that David French is correct that terrorism can be reduced to pre-9/11 levels, but that he is incorrect about the policies necessary to effect that reduction. For the sake of argument, say that the course that would eliminate most terrorism is not more foreign wars and less immigration, but a basic minimum income funded by massive tax increases on the rich and middle class; heavy-handed restrictions on Internet freedom that effectively end online recruiting; an education program indoctrinating young people, including second generation immigrants, into atheism; strict gun control; and realigning our foreign policy to benefit Palestine.

That is not my ideological agenda. And I suspect that even if we knew it would reduce terrorism to pre-9/11 levels, French would not criticize me for being unwilling to pay the price to reduce the terror threat if I was unwilling to adopt it wholesale.

“The Western world knows the price it has to pay to decisively reduce the terror threat,” he concludes, inaccurately, for that is an unknown. “It’s no longer willing to pay that price. It’s no longer willing even to let their militaries truly do the jobs they volunteered to do. So there will be more Manchesters, more Parises, more Nices, and more Orlandos. But that’s what happens when we’re not willing to do what it takes.”

To be moved by an argument of the sort that he offers is to be manipulated into eliding questions of efficacy and values by the specter of dead children. Don’t be led astray.

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18 hours ago
South Burlington, Vermont
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Saturday Morning Breakfast Cereal - You Too


Click here to go see the bonus panel!

I'm embarrassed to admit how long those last two homophones took to come up with.

New comic!
Today's News:

Hey Sydney! We need your BAHFest proposal! Only a week left to get it in!

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19 hours ago
South Burlington, Vermont
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American Health Care Is Expensive. It Will Take Years to Change That.

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A couple of days ago I tossed off a late-night post pointing out that health care is expensive, so it's hardly surprising that estimates of California's proposed single-payer plan have clocked in at a net additional cost of around $200 billion. That was pretty much my only point, but this post caused quite a...stir...on Twitter from the usual suspects, who were outraged that I hadn't assumed single-payer would radically slash medical costs. Today, Jon Walker provides a more measured version of the argument:

It is critical to address this weird claim from Drum because the idea that single-payer would cut health care costs isn’t some optimistic liberal talking point. It is a near universal assumption and the main reason achieving single-payer has politically been so difficult. It is the heart of the whole debate.

Again, this is not a liberal idea. The Lewin Group, a health care consulting firm owned by UnitedHealth Group, has repeatedly concluded that single-payer would cut health care costs. For example, they analyzed a single-player plan for Minnesota and concluded, “that the single-payer plan would achieve universal coverage while reducing total health spending for Minnesota by about $4.1 billion, or 8.8 percent.” It reached the same basic conclusion looking at a national single-payer plan in years past.

As it happens, I've found Lewin Group estimates in the past to be a little optimistic, but set that aside. I put the ballpark additional cost of national single-payer health care at $1.5 trillion, but if someone wants to assume it would be $1.36 trillion instead, that's fine. That's still in the ballpark. More important, though, is this chart, which accompanies that Lewin report on Minnesota:

This is basically right. As I mentioned in the original post, "If we're lucky, a good single-payer system would slow the growth of health care costs over the long term, but it's vanishingly unlikely to actually cut current costs." And that's pretty much what Lewin shows. The initial cost saving is small, but the cost containment measures inherent in a government-funded plan push the cost curve down over time. Their estimate is that within a decade Minnesota's proposed plan would have been a third less expensive than business-as-usual. This is roughly what I'd expect for a national single-payer plan too.

Is it technically possible to cut initial spending more? Sure. We could nationalize the whole medical industry, cut nurse and doctor pay by a third across the board, and create a mandatory formulary for drugs at a tenth of the price we currently pay. When the revolution comes, maybe that will happen—and doctors and pharma executives will be grateful we didn't just take them out and shoot them. In the meantime, I'm more interested in real-world movements toward single payer. Obamacare was a good start. Adding a public option would be another step. Medicare for all might be next. And something better than Medicare would be the final step. That will be hard enough even if we don't make mortal enemies out of every single player in the health care market.

Roughly speaking, if we adopted national single-payer health care today it would cost us an additional $1.5 trillion in taxes. That's reality, and as a good social democrat I'm fine with that. In theory, after all, my taxes might go up 30 percent, but Mother Jones will also increase my salary 30 percent because they no longer have to provide me with health insurance. Roughly speaking, this would be a good deal for half the country, which pays very little in income taxes; a wash for another third; and a loss for the top 10 percent, whose taxes would go up more than the cost of the health insurance they currently receive. If we decide to tax corporations instead of individuals, the incidence of the tax would pass through to individuals in a pretty similar way.

So that's that. I don't believe in Santa Claus, and I don't believe that we can pass a bill that slashes health care costs to European levels. They've had decades of cost containment that got them to where they are. We, unfortunately, haven't, so we have to start with our current cost structure. One way or another, that's what we have to deal with.

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1 day ago
South Burlington, Vermont
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The Atomic Bomb Considered As Hungarian High School Science Fair Project

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A group of Manhattan project physicists created a tongue-in-cheek mythology where superintelligent Martian scouts landed in Budapest in the late 19th century and stayed for about a generation, after which they decided the planet was unsuitable for their needs and disappeared. The only clue to their existence were the children they had with local women.

The joke was that this explained why the Manhattan Project was led by a group of Hungarian supergeniuses, all born in Budapest between 1890 and 1920. These included Manhattan Project founder Leo Szilard, H-bomb creator Edward Teller, Nobel-Prize-winning quantum physicist Eugene Wigner, and legendary polymath John von Neumann, namesake of the List Of Things Named After John Von Neumann.

The coincidences actually pile up beyond this. Von Neumann, Wigner, and possibly Teller all went to the same central Budapest high school at about the same time, leading a friend to joke about the atomic bomb being basically a Hungarian high school science fair project.

But maybe we shouldn’t be joking about this so much. Suppose we learned that Beethoven, Mozart, and Bach all had the same childhood piano tutor. It sounds less like “ha ha, what a funny coincidence” and more like “wait, who was this guy, and how quickly can we make everyone else start doing what he did?”

In this case, the guy was Laszlo Ratz, legendary Budapest high school math teacher. I didn’t even know people told legends about high school math teachers, but apparently they do, and this guy features in a lot of them. There is apparently a Laszlo Ratz Memorial Congress for high school math teachers each year, and a Laszlo Ratz medal for services to the profession. There are plaques and statues to this guy. It’s pretty impressive.

A while ago I looked into the literature on teachers and concluded that they didn’t have much effect overall. Similarly, Freddie deBoer writes that most claims that certain schools or programs have transformative effects on their students are the result of selection bias.

On the other hand, we have a Hungarian academy producing like half the brainpower behind 20th century physics, and Nobel laureates who literally keep a picture of their high school math teacher on the wall of their office to inspire them. Perhaps even if teachers don’t explain much of the existing variability, there are heights of teacherdom so rare that they don’t show up in the statistics, but still exist to be aspired to?


I’ve heard this argument a few times, and I think it’s wrong.

Yes, two of Ratz’s students went on to become supergeniuses. But Edward Teller, another supergenius, went to the same high school but (as far as I know) was never taught by Ratz himself. That suggests that the school was good at producing supergeniuses regarldess of Ratz’s personal qualities. A further point in support of this: John Harsanyi also went to the school, also wasn’t directly taught by Ratz, and also went on to win a Nobel Prize and invent various important fields of mathematics. So this school – the Fasori Gymnasium – seems to have been about equally excellent for both its Ratz-taught and its non-Ratz-taught pupils.

Yet the Fasori Gymnasium might not have even been the best high school in its neighborhood. It competed with the Minta Gymnasium half a mile down the street, whose alumni include Manhattan Project physicists Nicholas Kurti and Theodore von Karman (von Karman went on to found the Jet Propulsion Laboratory), brilliant chemist-philosopher Michael Polanyi, economists Thomas Balogh and Nicholas Kaldor (of Kaldor-Hicks efficiency fame), and Peter Lax, who once said “You don’t have to be Hungarian to be a mathematician – but it helps”. There are also some contradictory sources suggesting Teller attended this school and not Fasori; for all I know he might have attended both. Once again, most of these people were born in the 1890-1910 period when the Martian scouts were supposedly in Budapest.

Worse, I’m not even sure that the best high school in early 20th-century Hungary was either of the two mentioned above. The Berzsenyi Gymnasium, a two mile walk down Gyorgy Street from the others, boasts alumni including multizillionaire George Soros, Intel founder Andrew Grove, BASIC inventor John Kemeny, leading cancer biologist George Klein, great mathematician George Polya, and Nobel Prize winning physicist Dennis Gabor.

Given that the Fasori Gymnasium wasn’t obviously better than either of these others, is it possible that the excellence was at a higher level – neither excellent teachers nor excellent principals, but some kind of generally excellent Hungarian culture of education?

This is definitely what the Hungarians want us to think. According to Cultures of Creativity:

What’s so special about Budapest’s schools? A certain elitism and a spirit of competition partly explains the successes of their students. For example, annual competitions in mathematics and physics have been held since 1894. The instruction the students receive as well as these contests are an expression of a special pedagogy and a striving to encourage creativity. Mor Karman, founder of the Minta school, believed that everything should be taught by showing its relation to everyday life. Instead of learning rules by heart from books, students tried to formulate the rules themselves.

This paper on “The Hungarian Phenomenon” makes similar claims, but adds a few more details:

The Eotvos Contests were a powerful mean for the stimulation of mathematics on a large scale and were used to motivate mathematical culture in the society. It also provided a channel to search for talented youths. The contests, which have been open to Hungarian high school students in their last year since 1894, played a remarkable role in the development of mathematics.

Okay. But I want to challenge this. During this era, formal education in Hungary began at age 10. By age ten, John von Neumann, greatest of the Hungarian supergeniuses, already spoke English, French, German, Italian, and Ancient Greek, knew integral and differential calculus, and could multiple and divide 8-digit numbers in his head. Wikipedia notes that on his first meeting with his math teacher, the math teacher “was so astounded with the boy’s mathematical talent that he was brought to tears”. This doesn’t sound like a guy whose potential was kindled by formal education. This sounds like a guy who would have become one of history’s great mathematicians even if his teachers had slept through his entire high school career.

Likewise, the book above notes that Dennis Gabor, the Hungarian inventor of holography, “developed his passion for physics during his youth, but did so for the most part on his own”. His biography notes that “During his childhood in Budapest, Gabor and his brother would often duplicate the experiments they read about in scientific journals in their home laboratory.”

Likewise, consider Paul Erdos, a brilliant mathematician born in Budapest around this time. As per his Wikipedia page, “Left to his own devices, he taught himself to read through mathematics texts that his parents left around their home. By the age of four, given a person’s age, he could calculate, in his head, how many seconds they had lived.”

I have no knock-down proof that Hungary’s clearly excellent education system didn’t contribute to this phenomenon. A lot of child prodigies burn out, and maybe Hungary was unusually good at making sure that didn’t happen. But it sure seems like they had a lot of child prodigies to work with.

So what’s going on? Should we just accept the Manhattan Project consensus that there was a superintelligent Martian scout force in early 20th-century Budapest?


Here’s something interesting: every single person I mentioned above is of Jewish descent. Every single one. This isn’t some clever setup where I only selected Jewish-Hungarians in order to spring this on you later. I selected all the interesting Hungarians I could find, then went back and checked, and every one of them was Jewish.

This puts the excellence of the Hungarian education system in a different light. Hungarian schools totally failed to work their magic on Gentiles. You can talk all you want about “elitism and a spirit of competition” and “striving to encourage creativity”, yet for some reason this worked on exactly one of Hungary’s many ethnic groups.

This reduces the difficult question of Hungarian intellectual achievement to the easier question of Jewish intellectual achievement.

I say “easier question” because I find the solution by Cochran, Hardy, and Harpending really compelling. Their paper is called A Natural History Of Ashkenazi Intelligence (“Ashkenazi” means Eastern European Jew) and they start by expressing the extent of the issue:

Ashkenazi Jews have the highest average IQ of any ethnic group for which there are reliable data. They score 0.75 to 1.0 standard deviations above the general European average, corresponding to an IQ 112 – 115. This fact has social significance because IQ (as measured by IQ tests) is the best predictor we have of success in academic subjects and most jobs. Ashkenazi Jews are just as successful as their tested IQ would predict, and they are hugely overrepresented in occupations and fields with the highest cognitive demands. During the 20th century, they made up about 3% of the US population but won 27% of the US Nobel science prizes and 25% of the Turing Awards [in computer science]. They account for more than half of world chess champions.

This doesn’t seem to be due to any advantage in material privilege; Ashkenazi Jews frequently did well even in countries where they were persecuted. Nor is it obviously linked to Jewish culture; Jews from other regions of the world show no such advantage. So what’s going on?

Doctors have long noted that Ashkenazi Jews are uniquely susceptible to various genetic diseases. For example, they’re about a hundred times more likely to have Gaucher’s Disease, a hundred times more likely to get Tay-Sachs Disease, ten times more likely to have torsion dystonia, et cetera. Genetic diseases are so common in this population that the are official recommendation is that all Ashkenazi Jewish couples get screened for genetic disease before marriage. I’m Ashkenazi Jewish, I got screened, and I turn out to be a carrier for Riley-Day syndrome – three hundred times as common in Ashkenazi Jews as in anyone else.

Evolution usually gets rid of genetic diseases pretty quickly. If they stick around, it’s because they’re doing something to earn their keep. One common pattern is “heterozygote advantage” – two copies of the gene cause a disease, but one copy does something good. For example, people with two copies of the sickle cell gene get sickle cell anaemia, but people with one copy get some protection against malaria. In Africa, where malaria is relatively common, the tradeoff is worth it – so people of African descent have high rates of the sickle cell gene and correspondingly high rates of sickle cell anaemia. In other places, where malaria is relatively uncommon, the tradeoff isn’t worth it and evolution eliminates the sickle cell gene. That’s why sickle cell is about a hundred times more common in US blacks than US whites.

The moral of the story is: populations can have genetic diseases if they also provide a useful advantage to carriers. And if those genetic diseases are limited to a single group, we expect them to provide a useful advantage for that group, but not others. Might the Jewish genetic diseases provide some advantage? And why would that advantage be limited to Jews?

Most of the Jewish genetic diseases cluster into two biological systems – the sphingolipid system and the DNA repair system. This is suspicious. It suggests that they’re not just random. They’re doing something specific. Both of these systems are related to neural growth and neural branching. Might they be doing something to the brain?

Gauchier’s disease, one of the Ashkenazi genetic diseases, appears to increase IQ. CHH obtained a list of all of the Gauchier’s patients in Israel. They were about 15 times more likely than the Israeli average to be in high-IQ occupations like scientist or engineer; CHH calculate the probability that this is a coincidence to be 4×10^-19.

Torsion dystonia, another Ashkenazi genetic disease, shows a similar pattern. CHH find ten reports in the literature where doctors comment on unusual levels of intelligence in their torsion dystonia patients. Eldridge, Harlan, Cooper, and Riklan tested 14 torsion dystonia patients and found an average IQ of 121; another similar study found an average of 117. Torsion dystonia is pretty horrendous, but sufferers will at least get the consolation prize of being really, really smart.

Moving from medicine to history, we find that Ashkenazi Jews were persecuted for the better part of a millennium, and the particular form of this persecution was locking them out of various jobs until the main career opportunities open to them were things like banker, merchant, and doctor. CHH write:

For 800 to 900 years, from roughly 800 AD to 1650 or 1700 AD, the great majority of the Ashkenazi Jews had managerial and financial jobs, jobs of high complexity, and were neither farmers nor craftsmen. In this they differed from all other settled peoples of which we have knowledge.

They continue:

Jews who were particularly good at these jobs enjoyed increased reproductive success. Weinryb (1972, see also Hundert 1992) comments: “More children survived to adulthood in affluent families than in less affluent ones. A number of genealogies of business leaders, prominent rabbis, community leaders, and the like – generally belonging to the more affluent classes – show that such people often had four, six, sometimes even eight or nine children who reached adulthood. On the other hands, there are some indications that poorer families tended to be small ones…as an example, in a census of the town of Brody in 1764 homeowner households had 1.2 children per adult member while tenant households had 0.6.

Now we can start to sketch out the theory in full. Due to persecution, Jews were pushed into cognitively-demanding occupations like banker or merchant and forced to sink or swim. The ones who swam – people who were intellectually up to the challenge – had more kids than the ones who sank, producing an evolutionary pressure in favor of intelligence greater than that in any other ethnic group. Just as Africans experiencing evolutionary pressure for malaria resistance developed the sickle cell gene, so Ashkenazim experiencing evolutionary pressure for intelligence developed a bunch of genes which increased heterozygotes’ IQ but caused serious genetic disease in homozygotes. As a result, Ashkenazi ended up somewhat more intelligent – and somewhat more prone to genetic disease – than the rest of the European population.

If true, this would explain the 27% of Nobel Prizes and 50% of world chess champions thing. But one still has to ask – everywhere had Jews. Why Hungary in particular? What was so special about Budapest in the early 1900s?


Okay, sure, everywhere had Jews. But it’s surprising exactly how many Jews were in early 1900s Hungary.

The modern United States is about 2% Jewish. Hungary in 1900 was about 5%. The most Jewish city in America, New York, is about 15% Jewish. Budapest in 1900 was 25%. It was one of the most Jewish large cities anywhere in history, excepting only Israel itself. According to Wikipedia, the city’s late 19th-century nickname was “Judapest”.

So is it possible that all the Jews were winning Nobel Prizes, and Hungary just had more Jews and so more Nobelists?

No. This doesn’t seem right. The 1933 European Jewish Population By Country site lists the following size for each country’s Jewish communities:

Poland: 3 million
Russia: 2.5 million
Romania: 750,000
Germany: 500,000
Hungary: 500,000
Britain: 300,000
France: 250,000
Austria: 200,000

It’s hard to find a good list of all famous Manhattan Project physicists, but I tried this article and got the following number of famous Jewish Manhattan Project physicists per country of origin:

Hungary: 4
Germany: 2
Poland: 2
Austria: 2
Italy: 1
Netherlands: 1
Switzerland: 1

Here’s an alternative source with a different definition of “famous”, broken down the same way:

Germany: 5
Hungary: 4
Poland: 3
Italy: 2
Austria: 2

The main point seems to be disproportionately many people from Central European countries like Hungary and Germany, compared to either Eastern European countries like Poland and Russia or Western European countries like France and Britain.

The Central European advantage over Western Europe is unsurprising; the Western European Jews probably weren’t Ashkenazim, and so didn’t have the advantage mentioned in the CHH paper above. But is there any reason to think that Central European Jews were more intelligent than Polish and Russian Jews?

I’m not really sure what to think about this. This paper finds that the sphingolipidoses and other Jewish genetic diseases are about twice as common in Central European Jews as in Eastern European Jews, but I have very low confidence in these results. Intra-Jewish gossip points out the Lithuanians as the geniuses among world Jewry, but doesn’t have any similar suggestions about Hungarians. And torsion dystonia, maybe the most clearly IQ-linked disease, is unique to Lithuanians and absent in Hungarians.

Probably much more promising is just to focus on the obvious facts of the social situation. Early`1900s Hungary was a great nation and a prosperous center of learning. Remember, we’re talking about the age of the Austro-Hungarian Empire, one of the most industrialized and dynamic economies of the time. It might have had advantages that Poland, Romania, and Russia didn’t. My list of historical national GDPs per capita is very unimpressed by the difference between Hungarian and Polish GDPs in 1900, but maybe it’s wrong, or maybe Budapest was an especially modern part of Hungary, or maybe there’s something else I’m missing.

Also, there could have been a difference in the position of Jews in these countries. Russia was still experiencing frequent anti-Jewish pogroms in 1900; in Hungary, Jews were among the country’s most noble families. Actually, the extent of Jewish wealth and influence in Hungary sort of defies belief. According to Wikipedia, in 1920 Jews were 60% of Hungarian doctors, 50% of lawyers, 40% of engineers and chemists, and 90% of currency brokers and stock exchange members. “In interwar Hungary, more than half and perhaps as much as 90 percent of Hungarian industry was owned or operated by a few closely related Jewish banking families.”

So Central European Jews – the Jews in Hungary and Germany – had a unique combination of intellectual and financial advantages. This means Hungary’s only real rival here is Germany. Since they were rich, industrialized, and pretty liberal about Jewish rights at the beginning of the 20th century – and since they had just as many Jews as Hungary – we should expect to see the same phenomenon there too.

And we kind of do. Germany produced its share of Jewish geniuses. Hans Bethe worked for the Manhattan Project and won a Nobel Prize. Max Born helped develop quantum mechanics and also won a Nobel Prize. James Franck, more quantum physics, another Nobel Prize. Otto Stern, even more quantum physics, yet another Nobel Prize. John Polanyi, chemical kinetics, Nobel Prize (although he was half-Hungarian). And of course we probably shouldn’t forget about that Einstein guy. All of these people were born in the same 1880 – 1920 window as the Martians in Hungary.

I think what’s going on is this: Germany and Hungary had about the same Jewish population. And they produced about the same number of genius physicists in the same window. But we think of Germany as a big rich country, and Hungary as a small poor country. And the German Jews were spread over a bunch of different cities, whereas the Hungarian Jews were all crammed into Budapest. So when we hear “there were X Nobel Prize winning German physicists in the early 1900s”, it sounds only mildly impressive. But when we hear “there were the same number of Nobel Prize winning physicists from Budapest in the early 1900s”, it sounds kind of shocking. But the denominator isn’t the number of Germans vs. Hungarians, it’s the number of German Jews vs. Hungarian Jews, which is about the same.


This still leaves one question: why the period 1880 to 1920?

On further reflection, this isn’t much of a mystery. The emancipation of the Jews in Eastern Europe was a difficult process that took place throughout the 19th century. Even when it happened, it took a while for the first generation of Jews to get rich enough that their children could afford to go to fancy schools and fritter away their lives on impractical subjects like physics and chemistry. In much of Eastern Europe, the Jews born around 1880 were the first generation that was free to pursue what they wanted and seek their own lot in the world.

The end date around 1920 is more depressing: any Jew born after this time probably wasn’t old enough to escape the Nazis. Almost all the famous Hungarian Jews became physics professors in Europe, fled to America during WWII using channels open to famous physicists, and then made most of their achievements on this side of the Atlantic. There are a couple of stragglers born after 1920 who survived – George Soros’ family lived because they bought identity documents saying they were Christian; Andrew Grove lived because he was hidden by righteous Gentiles. But in general Jews born in Europe after 1920 didn’t have a great life expectancy.

All of this suggests a pretty reasonable explanation of the Martian phenomenon. For the reasons suggested by Cochran, Hardy, and Harpending, Ashkenazi Jews had the potential for very high intelligence. They were mostly too poor and discriminated against to take advantage of it. Around 1880, this changed in a few advanced Central European economies like Germany, Austria, and Hungary. Austria didn’t have many Jews. Germany had a lot of Jews, but it was a big country, so nobody really noticed. Hungary had a lot of Jews, all concentrated in Budapest, and so it was really surprising when all of a sudden everyone from Budapest started winning Nobel Prizes around the same time. This continued until World War II, and then all anyone remembered was “Hey, wasn’t it funny that so many smart people were born in Budapest between 1880 and 1920?”

And this story is really, really, gloomy.

For centuries, Europe was sitting on this vast untapped resource of potential geniuses. Around 1880, in a few countries only, economic and political conditions finally became ripe for the potential to be realized. The result was one of the greatest spurts of progress in scientific history, bringing us relativity, quantum mechanics, nuclear bombs, dazzling new mathematical systems, the foundations of digital computing, and various other abstruse ideas I don’t even pretend to understand. This lasted for approximately one generation, after which an psychopath with a stupid mustache killed everyone involved.

I certainly can’t claim that the Jews were the only people being crazy smart in Central Europe around this time. This was the age of Bohr, Schrodinger, Planck, Curie, etc. But part of me wonders even here. If you have one physicist in a town, he sits in an armchair and thinks. If you have five physicists in a town, they meet and talk and try to help each other with their theories. If you have fifty physicists in a town, they can get funding and start a university department. If you have a hundred, maybe some of them can go into teaching or administration and help support the others. Having this extra concentration of talent in central Europe during this period might have helped Jews and Gentiles alike.

I wonder about this because of a sentiment I hear a lot, from people who know more about physics than I do, that we just don’t get people like John von Neumann or Leo Szilard anymore. That there was some weird magical productivity to the early 20th century, especially in Central Europe and Central European immigrants to the United States, that we’re no longer really able to match. This can’t be a pure numbers game – the Ashkenazi population has mostly recovered since the Holocaust, and people from all over the world are coming to American and European universities and providing more of a concentration of talent than ever. And even though it’s impossible to measure, there’s still a feeling that it’s not enough.

I started down this particular research rabbit hole because a friend challenged me to explain what was so magical about early 20th century Hungary. I think the Jewish population calculations above explain a lot of the story. I’m not sure whether there’s a missing ingredient, or, if so, what it might be. Maybe it really was better education. Maybe it really was math competitions and talent searches.

Or maybe it was superintelligent Martian scouts with an Earthling fetish.

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1 day ago
«For centuries, Europe was sitting on this vast untapped resource of potential supergeniuses. Around 1880, in a few countries only, economic and political conditions finally became ripe for the potential to be realized. The result was one of the greatest spurts of progress in scientific history, bringing us relativity, quantum mechanics, nuclear bombs, dazzling new mathematical systems, the foundations of digital computing, and various other abstruse ideas I don’t even pretend to understand. This lasted for approximately one generation, after which an psychopath with a stupid mustache killed everyone involved.»
South Burlington, Vermont
1 day ago
Well, not everyone, 'just' about 2/3. For Hungary it's 3/4, for Germany 1/3. I'd quote this part: "that we just don’t get people like John von Neumann or Leo Szilard anymore. That there was some weird magical productivity to the early 20th century, especially in Central Europe and Central European immigrants to the United States, that we’re no longer really able to match. This can’t be a pure numbers game – the Ashkenazi population has mostly recovered since the Holocaust, and people from all over the world are coming to American and European universities and providing more of a concentration of talent than ever."
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