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Pax Americana Geriatrica

• July 14, 2008 • 4:25 PM

An unprecedented era of great-power aging makes it likely the 21st century will, again, be American.

Last year, Sergei Morozov, the governor of the Ulyanovsk region of central Russia, offered prizes to couples who agreed to take advantage of a “family contact day” and wound up producing babies nine months later, on June 12, Russia’s national day. It was the third year running that Ulyanovsk had declared a “sex day” and offered prizes for babies born, according to the BBC. The 2007 grand prize (for conceptions in 2006, of course) was a sport utility vehicle.

The Ulyanovsk initiative is just a part of Russia’s efforts to fight a looming demographic crisis that hovers over much of the world. Simply put, the world’s great powers are growing old. Steep declines in birthrates over the last century and major increases in life expectancies have caused the populations of Britain, China, France, Germany, Japan, Russia and the United States to age at a substantial rate. In Russia, declining birthrates and other factors are not just aging the society but actually shrinking the country’s population.

This phenomenon will have critical effects on America’s international-security interests in coming decades. Most important, global aging will be a potent force for the continuation of American military and economic dominance. Aging populations are likely to result in the slowdown of states’ economic growth at the same time that governments face pressure to pay for massive new expenditures for elderly care. This double economic dilemma will create such an austere fiscal environment that the other great powers will lack the resources necessary to overtake the United States’ huge power lead. This analysis applies even to China, which most analysts point to as America’s most likely future rival. China’s aging problem will be particularly dramatic over the next 40 years, which will make it difficult for it to challenge American international supremacy.

Meanwhile, America also seems likely to face fewer threats from terrorism based in Islamic countries. If current demographic trends continue, many Islamic states — now in the throes of “youth bulges” — will be aging as societies in coming decades. As active and disaffected young people have aged in other parts of the world, they have become a source of political stability and economic development. There is reason to believe this pattern will hold in Iraq, Pakistan, Saudi Arabia and other Muslim states as their youth slip into middle age.

Although the United States is also growing older, it is doing so to a lesser extent and less quickly than the other great powers. Consequently, the costs created by aging will be significantly lower for the U.S. than for potential competitors. Global aging is therefore likely not only to extend U.S. dominance (because the other major powers will lack the resources necessary to overtake the United States’ economic and military power lead) but also to deepen it as these other states are likely to fall even farther behind the United States. By inhibiting the other powers from challenging American primacy, global aging increases the odds in favor of continued peaceful relations among these states. Pax Americana is therefore likely to extend well into the 21st century.

Although the United States is in better demographic shape than the other great powers, it, too, will confront massive new costs created by an aging population. The U.S. will be more secure from great-power rivalry than it is today, but it (and its allies) will be less able to realize other key international objectives, including preventing the proliferation of weapons of mass destruction, funding nation building and engaging in humanitarian interventions, among the many costly conflict-resolution and prevention efforts it now undertakes. To protect America’s future international interests, it is vital that the country’s current leaders adopt policies designed to strengthen its demographic advantages. In the future, America’s ability to pay to care for its elderly citizens will become a matter not just of compassion but of national security.

Something New Under the Sun
The scope of the aging process in the great powers — a result of historically low fertility rates and expanding life expectancies —is unprecedented. By 2050, at least 20 percent of the citizens in Britain, China, France, Germany, Japan, Russia and the U.S. will be over 65, according to United Nations projections. In Japan, more than one of every three people will be over this age. In 2050, China will have more than 329 million people over 65, a total approximately equal to the entire current populations of France, Germany, Japan and the United Kingdom combined. As aging progresses over the next half-century, the populations in Germany, Japan and Russia are expected to shrink significantly. Russia’s population is already decreasing by nearly 700,000 people per year, and Japan, too, is experiencing population decline. Russia’s aging problem is so severe that, in 2006, The New York Times quoted President Vladimir Putin calling demography “Russia’s most acute problem today.”

The aging of the world’s great powers is also happening quickly. It took France 115 years for the size of its 65-and-over age group to double from 7 to 14 percent of its population. The U.S. took 69 years to do so. China will experience this transformation in 27 years, or roughly one generation. China, in fact, will age at a pace and extent scarcely before witnessed in human history.

It is worth stressing that the predictions for global aging are very unlikely to be wrong. The reason for this certainty is simple: The elderly of the future are already born. Consequently, absent some global natural disaster, disease pandemic or other worldwide calamity (all extremely rare historically), the number of people in the world who are over 65 will increase dramatically in coming decades. Only major increases in immigration rates or fertility levels will prevent this inevitable rise in the number of elderly from resulting in significant increases in median ages in these states.

Such outcomes are unlikely. Over the next 50 years, immigration rates in the great powers would have to be orders of magnitude higher than historical levels to prevent population aging. Not only do the sheer numbers work against such an outcome, but some countries are becoming more hostile to immigration, despite its benefits for social aging. Both Japan and Russia passed laws in 2006 that will restrict immigration to these states, and right-wing parties have been on the rise across Europe since the 1990s, spurred largely by hostility toward immigrants.

Significant increases in fertility are also unlikely. Such an outcome would require a reversal of a centuries-long trend in the industrialized world, and one that has existed in many states despite the existence of pro-fertility governmental policies (perhaps the most direct of these being Russia’s “sex days”).

Aging in the most powerful actors in the international system is, in short, a virtual inevitability.

The Costs of Growing Old
In its most basic formulation, a state’s gross domestic product is a product of the number of workers and overall productivity. When a country’s work force shrinks as more people enter retirement than enter the labor market, so, too, will its GDP, unless productivity levels rise sufficiently to compensate for the loss. Japan’s and Russia’s working-age populations (ages 15 to 64) are expected to shrink by 34 percent by 2050, Germany’s by 20 percent, France’s by 6 percent and China’s by 3 percent. To prevent these work force reductions from translating into overall GDP decline, states’ productivity must increase proportionally. Although productivity will likely increase in most industrialized countries, work force contraction will still act as a substantial brake on economic growth in coming decades.

We are already witnessing this dynamic. Even though China is the youngest of the great powers, it is experiencing labor shortages that are threatening economic growth. These shortages are due in large part to the aging of China and reductions in the number of 15- to 35-year-olds there. Experts predict that shrinkage in China’s working-age population will result in a loss of 1 percent per year from this state’s GDP growth by the 2020s. The economic forecasts are even more dire for France, Germany and Japan, where massively contracting labor forces could result in overall annual GDP growth of roughly 1 percent in coming decades.

Significant societal aging may also limit productivity growth. The elderly are likely to be more conservative with their investments than younger people. The more risk averse a society’s investment portfolio is, the less entrepreneurship will be funded and, thus, the lower the gains in productivity. National savings rates may also shrink in aging states as seniors spend down their savings. The Japanese government has already reported that national savings rates are down substantially due to social aging. Reduced savings may lead to rising interest rates and ultimately to reduced rates of productivity increases.

An even more important economic effect of societal aging is the strain that it places on governmental resources. All governments in the industrialized world have made commitments to pay for substantial portions of the retirement and health care costs of their elderly citizens. Social aging increases these obligations in two principal respects. First, the older a society is, the greater the number of retirees and senior citizens for which a particular government is responsible. Second, the elderly, on average, require significantly more resources than working-age adults. Studies have shown that seniors use three to five times more medical care than younger people, for example.

The pension systems across the industrialized world will be particularly taxing on governments’ fiscal policies. The public pensions in all of the great powers are “pay as you go,” meaning that current workers are taxed to support current retirees. This type of system does not place a significant strain on a state’s economy as long as relatively high numbers of workers contribute to the system in relation to retirees. This will not be the case for much longer across the industrial world, and, in some cases, it is not true even today. France, Germany, Japan and Britain have roughly only four working-age adults per senior citizen. By 2050, only America among the great powers will have more than three working-age adults per elderly person.

The projected increases in governmental spending for the elderly in coming decades are sobering. Annual public pension and health care benefits to the elderly as a percentage of GDP are predicted to rise in 2040 by 15 percent in Japan (to an overall percentage of 27); by 13 percent in France (to an overall percentage of 29); by 11 percent in the United States (to an overall percentage of 20); by 10 percent in Germany (to an overall percentage of 26); and by 6 percent in Britain (to an overall percentage of 18).

These costs will be an increase of hundreds of billions of dollars to governments’ annual expenditures for many decades. To give some perspective on their magnitude, consider the following: Roughly 35 years from now, the annual amount of money that the great powers will have to spend on elderly care is going to increase by many times what these states currently spend on their militaries, even after adjusting for inflation. By 2040, Germany will have to increase its annual spending on elderly care by more than seven times what it currently spends on defense. France will have to spend more than five times as much and Japan more than 15 times as much.

Pax Americana Geriatrica
Population aging in the great powers will help prolong U.S. power dominance in the 21st century for three primary reasons. First, the massive costs created by aging populations, especially in combination with probable slowdowns in economic growth, will inhibit other major powers from significantly increasing military expenditures; these factors are even likely to push many of these states to reduce military spending from current levels. Second, with aging populations and shrinking work forces, other great powers will be forced to decide whether to spend increasing percentages of their defense budgets on personnel costs and military pensions, at the expense of the most technologically sophisticated weaponry. The third factor reinforces both of the previous points: Although the U.S. population is aging, it is doing so to a lesser extent and less quickly than those of the other great powers. The pressures pushing for the crowding out of military spending in favor of elderly care and the increasing substitution of labor for capital within defense budgets will be considerably smaller for the U.S. than for potential great-power competitors. By inhibiting the other powers from challenging America’s huge power lead, global aging will increase the likelihood of continued peaceful relations among these states.

We are, in fact, already witnessing in some states the crowding out of military spending for elderly care. Japan reduced military spending in the 2005 and 2006 budgets explicitly to pay for costs created by its rapidly aging population. The Japanese government has stated that over the next decade, general expenditures will have to be cut by 25 to 30 percent to address this problem. Similar pressure for cuts in defense spending to finance elderly-care costs is building in France and Germany.

The decision to cut military spending to pay elderly-care costs is likely to repeat itself in the state that is aging faster than any of the great powers: China. Rising longevity in China and the “one-child policy,” which has helped lower dramatically China’s fertility levels, have made China a rapidly aging society. By 2050, according to the U.N., China’s median age is predicted to be nearly 45, one of the oldest in the world. (The oldest country in the world today, Japan, has a median age of just under 43). The ratio of working-age adults to elderly will shrink from just under 10 in 2000 to 2.5 by 2050. China today has roughly 100 million citizens over the age of 65. This number will double in 20 years. Roughly 30 years from now, it is expected to triple.

Despite the effects of the one-child policy on China’s median age, China’s leaders are unlikely to repeal it in the near future. The New York Times reports that the Chinese government significantly increased the fines this year for wealthy couples who violate the law and have more than one child. Although some Chinese officials talk about reconsidering this law, any changes that do occur will most likely be incremental. The longer the one-child policy stays in effect, the more quickly China will age.

China is particularly unprepared to pay for the costs of its rapidly aging population. China’s elderly have very little savings. Nearly 80 percent of Chinese urban households with individuals aged 55 and over today have less than one year of income saved, and only 5 percent have more than two years of income in savings, according to Center for Strategic and International Studies and Asian Development Bank research. The Chinese government has also failed to set aside over the decades sufficient money to pay for elderly-care costs. Three-quarters of all Chinese workers are without any pension coverage, yet independent estimates have found a potential shortfall between China’s governmental obligations to the elderly and saved assets to be as much as 150 percent of its GDP.

China will not be able to “grow” its way out of this dilemma. Despite China’s very high levels of economic growth since the 1990s, it will become the first country to grow old before becoming an advanced industrial state. Even if China’s economy continues to grow in coming decades at rates similar to those it has experienced in recent years, by 2035, its median age will reach the levels of France, Germany and Japan today but at GDP-per-capita levels significantly lower than these states currently possess.

China has traditionally relied on the family unit to provide for elderly care in lieu of adequate public and private resources. But as The New York Times has noted, increasing rates of divorce, urbanization (and related migration) and female work force participation will place significant strain on this tradition. Decreasing family size will prove especially problematic for preserving elderly welfare within the context of the family. Demographers refer to a rapidly growing “4-2-1″ phenomenon in China, in which one child is responsible for caring for two parents and four grandparents.

Within 15 years, China’s leaders will be faced with a difficult choice: Allow growing levels of poverty within an exploding elderly population, or provide the resources necessary to avoid this situation. The Chinese government’s assumption since 2000 of unfunded pension liabilities of state-owned enterprises reveals the political and moral pressure working for the latter outcome. This pressure to significantly expand and deepen China’s welfare system will only grow as its aging crisis becomes increasingly acute in the decades to come. In this context, the crowding out of military and other discretionary expenditures will be likely, to the great benefit of America’s relative power position.

Aging is also likely to push militaries to spend more on personnel and less on other areas, including weapons development and procurement. This is important because no nation will be able to challenge U.S. military dominance without the ability to wage highly technologically sophisticated warfare. When states are forced to spend more of their military budgets on personnel than research, development and weapons procurement, the odds of continued U.S. military primacy increase substantially.

The oldest of the great powers are already devoting significantly more resources to military personnel than weapons purchases and research. Over the last 10 years, both France and Germany have dedicated nearly 60 percent of their military budgets to personnel. Germany spends nearly four times as much on personnel as weapons procurement; France, Japan and Russia roughly 2.5 times more. The U.S., in contrast, dedicates only 1.15 times more money to personnel than weapons purchases.

Population aging is a key cause of increasing military personnel costs for two main reasons. First, as societies age, more people exit the work force than enter it. Increasing numbers of retirees in relation to new workers are likely to create labor shortages relative to previous levels of employment. The result will be increased competition among businesses and organizations —including the military — to hire workers. Consequently, if states’ militaries want to be able to attract and keep the best employees in vital areas of operation — especially those in high-tech fields who usually have the most employment options and can command high salaries in the private sector — they are going to have to pay more to do so. If militaries do not increase their outlays for personnel, their effectiveness will diminish. A 2006 report endorsed by EU defense ministers made precisely these points, stating that the aging of Europe’s people will “inevitably” lead to rising military personnel per capita costs if European forces are to remain effective.

Similarly, to keep military salaries on par with wages in its expanding economy, China — even though its armed forces are conscripted — has had to raise military wages sharply in recent years. According to the Chinese government, growing personnel expenses are the most important factor behind the growth of China’s defense budget in the last decade.

The great powers’ pension obligations to retired military personnel are also considerable. Russia spends significantly more on military retirees than on either weapons procurement or military research and development, according to its 2006 defense budget.

Pensions for military retirees are not one-time costs but go on for decades, doing nothing to increase states’ power-projection capabilities. Every dollar spent on retirees is one less dollar that can be spent on weapons, research or active personnel. Consequently, every dollar spent in this area by the other great powers increases the likelihood of continued U.S. primacy.

U.S. Aging: Bad, But Better Than the Rest
At a gala event held at the National Press Club in Washington, D.C., on Oct. 15, 2007, Kathleen Casey-Kirschling, who was born one second after midnight on Jan. 1, 1946, became the first baby boomer to file for Social Security. Over the next 20 years, 76 million Americans from the age cohort born between 1946 and 1964 will join her.

The costs created by America’s aging population are staggering. The Congressional Budget Office projects that by 2015, spending on the elderly will total almost $1.8 trillion, nearly half of the anticipated federal budget. Health care costs, in particular, are the United States’ biggest problem regarding societal aging. The United States spends more than twice as much per capita in this area than any other industrial great power (though it ranks 48th in the world in life expectancy). According to conservative estimates – absent reforms – the costs of Medicare alone will be at least $2.6 trillion in 2050, after adjusting for inflation, which is roughly the size of the current U.S. federal budget.

Despite these expected cost increases, the United States is in significantly better shape to address the challenges created by its aging population than the other powers. The U.S. is the youngest of all the G-8 nations. Because it has the highest fertility and immigration rates of these countries, it will maintain, even strengthen, this position in coming decades. In 2050, the United States’ median age will be the lowest of any of the great powers, in most cases by a substantial extent. (China’s median age will surpass the United States’ by 2020.) Perhaps most important, while the working-age populations in all the other great powers are predicted by 2050 to either decline (China, France, Germany, Japan and Russia) or increase modestly (Britain), this demographic group is expected to increase by 31 percent in the U.S.

The United States’ relatively youthful demographics will help greatly with the fiscal challenges created by aging. The growing U.S. labor force over the next 50 years will contribute to an expanding economy, thereby providing the government with additional revenue without it having to increase taxes, borrow more money or cut other spending. In addition, the United States has a relatively well-funded pension system (especially in relation to China, France, Germany and Russia); its public welfare commitments to the elderly are relatively modest compared with those of other industrialized powers; its citizens work many more hours per year and significantly later in life than the average individual in the other powers; and its tax burden is low compared with those of other powers.

American expectations are also comparatively favorable. In a 2008 Harris Interactive poll of citizens in the United States, Britain, France, Germany, Italy and Spain, Americans had the highest predictions of when they would retire (67.2 years old) and the lowest expectations — by far — regarding governmental support of their retirement. (Only 27 percent of Americans believed that the national government should bear most of their retirement costs; this percentage ranged from 45 to 72 in European countries.) These expectations reveal that U.S. citizens are much more amenable to entitlement reforms and benefit cuts than are most Europeans.

Again, the preceding facts do not mean that the U.S. will escape the fiscal burdens created by aging or that this phenomenon will not create negative ramifications for U.S. security. Rather, as burdensome as the public costs of aging will be for the United States, the public benefits owed to U.S. seniors as a percentage of GDP will likely remain substantially lower than in most of the other great powers. Moreover, the U.S. will be better positioned to pay for these costs than the other major actors. Global aging will therefore be a powerful force for the continuation of the relative power dominance of the United States.

Population Aging and the “War on Terrorism”
Numerous studies have shown that there is a strong, positive relationship between so-called youth bulges — a disproportionately high number of young people in a society — and political violence, including civil conflict and terrorism. Developing states’ economies frequently have difficulty creating enough jobs to accommodate the exploding work forces in very young societies. Not surprisingly, the region that has the most youth bulges in the world — the Middle East and North Africa —also has, by far, the highest unemployment rates among young adults: 26 percent in 2006.

High levels of unemployment inevitably create strong grievances against existing political and economic policies, and, thus, a large pool of potential recruits for violent political change. The young tend to be particularly idealistic, which inclines members of this demographic group to believe that major political and social change can and should be made, even if this objective requires the use of force. The young are less likely to be married, have established careers or possess prominent positions in the community. As a result, young people, especially in the context of economic deprivation and political oppression, frequently feel that they have little to lose by engaging in violent acts designed to change the status quo.

Given the relationship between youth bulges and political violence and radicalism, it is no surprise that Islamic states in general — and Saudi Arabia, Iraq, Palestine (aka the occupied territories), Afghanistan and Pakistan in particular — have been hotbeds for domestic violence and international terrorism in recent years. In 2000, at least 45 percent of all adults in these countries were in the 15-to-29 age range.

The potential good news for the U.S. is that population aging may help alleviate, albeit slowly, the deleterious effects of youth bulges in many Islamic states. If current trends in fertility rates continue, by 2030, the youth bulges in Iraq, Pakistan and Saudi Arabia will all have receded. Population aging and the diminishment of youth bulges have been a source of political stability and economic development in many other countries over the last half-century, including in East Asia and Europe. There is little reason to believe that this pattern will not hold true in Islamic states, even though the transformation will require several generations.

Demography may ultimately hold the key for winning the “war on terrorism.”

The Bad News
Although global population aging is likely to create substantial security benefits for the U.S. in coming decades, the same phenomenon is also likely to threaten U.S. international interests in important ways.

First, the negative impact on the other great powers’ economic growth and military spending is, in some respects, a double-edged sword. On the one hand, these outcomes will mean that no state will be able to overtake the United States’ position of economic and military dominance. The same factor, though, will also reduce the amount of economic or military aid that other states will be able to contribute toward the realization of common international interests. Instead of increasing “burden sharing” with key allies, the United States will have to pay even more of the costs of its international goals than it does today.

Second, while the U.S. should expect less international aid from its allies, it, too, is likely to experience the slowing of economic growth and the crowding out of military expenditures for elderly care. America will in all likelihood have to scale back the scope of its international policies. The United States’ current position of unprecedented power allows its leaders to pursue highly extensive global commitments. The U.S. has military personnel in more than 140 countries in the world, and over the last 15 years, the U.S. has engaged in nearly 50 military interventions, more than any other state, by far, in the system. The primary motivation in at least four of these operations — Somalia, Haiti, Bosnia and Kosovo — was humanitarian.

In the aftermath of many of these interventions, the U.S. devoted considerable resources to help create stable political and civil institutions (so-called nation building). America also plays the dominant role in facilitating international trade and has borne the primary costs in trying to prevent “rogue” states — including Iraq, Iran, North Korea and Libya — from acquiring weapons of mass destruction. The economic effects of an aging population will deny the U.S. the fiscal room necessary to maintain the extent of its current global position, let alone adopt major new international initiatives. In the face of the exploding costs for elderly care and retirement, the crowding out of other spending will occur even for the richest country in the history of the world, to the likely detriment of American security.

America’s Golden Years?
The policy choices that flow from this article’s analysis are clear. Internationally, America’s long-term objective should be to help reduce fertility rates in developing countries. This outcome will likely reduce the problems created by youth bulges, including international terrorism. Policies that increase women’s rights and educational and employment opportunities, as well as those that provide better access to birth control, are key means to this end. International development aid designed to increase states’ GDP-per-capita levels should also be high among America’s foreign-policy priorities. The U.S., though, dedicates relatively few resources toward these goals. A December 2005 report issued by the Council on Foreign Relations with bipartisan leadership notes that demographics continued to be a neglected area of U.S. foreign policies. This important oversight needs to be corrected, and quickly.

In terms of domestic policies, U.S. leaders need to be proactive in maintaining America’s enviable demographic position. Specifically, America should reduce Social Security and Medicare payments to wealthier citizens, maintain largely open immigration policies that help keep its median age relatively low and restrain the rising costs of its health care system.

Raising the retirement age to reduce the government’s retirement obligations is a particularly effective — and logical — solution for the problems created by America’s aging population. Social Security’s original retirement age of 65 was set in 1935, when life expectancy was 63. Life expectancy today is 78. According to experts on this subject, a one-year increase in the retirement age would eliminate roughly one-third of Social Security’s projected expenditures shortfall over the next 75 years. This calculation does not take into account the extra tax revenue the government would accrue from increased economic growth due to people working longer. Some predict that if seniors work an average of five years longer than they currently do, America’s GDP in 2030 would be 7 to 8 percent larger than it otherwise would.

Although the need for reform on the aging issue is clear and compelling — and even though Americans appear amenable to adopting such reforms, as I discuss above — U.S. politicians have failed to lead on this subject. The immigration reform bill failed to pass Congress in 2007, major Social Security reform has not occurred since the 1980s and Medicare “reform” has mostly expanded obligations. The 2003 prescription drug benefits legislation, for example, increased the program’s unfunded liability by $16.2 trillion, according to government projections.

The longer U.S. leaders delay in addressing the growing gap between elderly-care obligations and resources set aside to pay for them, the more painful such action will be when it comes. And delay in putting U.S. retirement and health care programs on sound financial footing may not only negate the otherwise substantial demographic advantages America enjoys but also reduce the support those advantages give to U.S. security in the 21st century.

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Mark L. Haas
Mark L. Haas is an assistant professor in the department of political science and the Graduate Center for Social and Public Policy at Duquesne University. He formerly was a National Security fellow at the Olin Institute for Strategic Studies and an International Security fellow at the Belfer Center for Science and International Affairs, both at Harvard University.

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