Money Stuff

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.


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.

*Header image by Artem Avetisyan

15 thoughts on “Money Stuff

  1. Good reflections – I more or less agree with everything, though I believe that the billionaire class should donate way more to the best charities and social programs, and the public should learn to reward them for doing so rather than for the vain PR gestures.

    So Jacob, what kind of fund allocation strategy (i.e. A% to Option 1, B% to Option B, etc.) would you currently suggest to somebody with a $50k gross annual income and $20k savings in the bank deposits, living in Europe, planning to spend not more than $15k each year, intending to invest the remaining money in a way that’s very risk-averse and can hopefully squeeze at least 4-6% of annual ROI? Thank you!


    1. With so little money, just pick a low cost index fund and put everything in excess of your 6 months living expenses backup fund in it.
      Once you get up above 100K, you can consider making your own index, evenly buying 50-100 different stable high-dividend (or high spending-money-buying-back-shares on a regular basis) until your dividend returns cover your expenses (with the expectation that capital returns will cover inflation)

      Liked by 1 person

    2. “the public should learn to reward them for doing so rather than for the vain PR gestures”

      Tbf, the threat of this is the whole rason d’etre for the PR industry – it stands for Public Relations after all. So maybe we need some sort of PR-forensics industry that society would somehow employ to tell them which billionaires do which things for real and which is vain PR? Investigative journalism kinda does that, but in a very non-transparent way and with a lot of space for conflicts of interest.


  2. “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.”

    Were you referring to the guy’s wife and her affair?


  3. Do Buffett’s donations really not raise his total prestige among non-Effective Altruists? Sure, some probably still hate him, but I feel like he’s much less likely to be seen as a cartoon villain than some other UHNWI. I think Buffett and Gates announced their big pledges when I was a kid. I want to say that people around me respected that, I guess I could be wrong about my memory, though. And contrast this with some hate on Gates for some stuff he did to get rich.

    I’d be curious if you feel like some worthwhile observations / models generated your comment on Buffett’s altruism.


  4. I’m glad that somebody has written such a good take on the variety of people’s bizarre attitudes towards money. Discussing these examples in the context of lifestyle and social signalling should be a part of basic financial education in the elementary schools.

    People continue to make deranged financial decisions at a massive scale – just think about all the number of men who still marry these days, thinking about tax savings as one of the benefits while not calculating the probability of a breakup and getting devastated by the entire divorce-alimony industry.

    Liked by 1 person

    1. Eh, a lot of guys want a family (who else is going to take care of you in your dotage?), and then they can pull the child support thing on you.

      I’m not saying you’re wrong, I’m saying there are no good options these days.


      1. I was always considered a great fit for starting a family, I wanted to have it, but I won’t – precisely because of these traits. I care about avoiding rigged games and making responsible life choices. In many cases, wife will leave you or push you for an “open marriage” when you’re vulnerable and no longer provide a competitive value, and the character of your children is a lottery – they could be eventually raised by the woke religion, file antinatalist complaints against you for bringing them to this world, or simply send you to a creepy foster home. I don’t even mention the threat of false accusations, losing half of your financial resources, and dealing with the alimony/custody laws.

        I already save money for my elderly care, I hope that the novel rejuvenation technologies will help me when I’m 50 or 60, and maybe the advancements in future robo-girlfriends will finally take them beyond the uncanny valley they’re stuck in now. I don’t care about the social stigma.

        As for the social consequences, including declining birth rates and various dysgenic effects (smarter, kinder, and less violent men opt out or are excluded from the gene pool) – I no longer consider it as my problem. Let the decisive people and social currents who created the current dystopia fix it.


  5. I am this dad who advised the author to buy the 10-year treasure then giving 4.5%. My son’s writing is so eerily persuasive that for a second I felt regret for not encouraging buying 104 bottles of cheap vodka for 15-year olds instead. But then I returned to my old boring self who thinks that just discussing investing choices with a teenager serves him better than encouraging buying a social prestige with free drinks. I’m ready to admit that I may be wrong, so I shall be ready in 15 or so years to try the vodka option with a grandkid. Let’s see what the author’s thought on that will be then.

    Liked by 4 people

    1. Oh my goodness this comment is brilliantly delightful! I’m ashamed to say I’m (I think) one of Jacob’s money-deranged friends mentioned in the article (maybe the mildest form of such at least?)


  6. You recently linked this Blog Post on your Twitter in relation to the Draft Kings Free Bet promotion for the Superbowl.

    The issue is, it sounds like you can’t cash out the Free Bet money even if you win.

    It even says this right there in the promotion “Free Bet Money is not included in any returns or winnings”

    So your EV is 0.5(+$4500 less taxes)+0.25(-$500 and you might have to pay taxes on the $4500 “”winnings””)+0.25*(-$5000)

    Assume marginal tax rate of 33.3% and having to pay taxes on Free Bet winnings, that’s 0.5(+$3000)+0.25(-$2000)+0.25*(-$5000) for an EV of -$250

    Assume marginal tax rate of 20% and NOT having to pay taxes on the Free Bet winnings, that’s 0.5(+$3600)+0.25(-$500)+0.25*(-$5000) for an EV of +$425

    Liked by 1 person

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