2011 March 19 Saturday
IQ Boosts National Income

News of this best kept secret occasionally leaks out. I hope I'm not carried away in the night for reporting it but some German and British researchers have rediscovered the obvious.

It's not just how free the market is. Some economists are looking at another factor that determines how much a country's economy flourishes: how smart its people are. For a study published in an upcoming issue of Psychological Science, researchers analyzed test scores from 90 countries and found that the intelligence of the people, particularly the smartest 5 percent, made a big contribution to the strength of their economies.

Human capital is the cognitive ability and accumulation of skills on top of that ability.

In the last 50 years or so, economists have started taking an interest in the value of human capital. That means all of the qualities of the people who make up the workforce. Heiner Rindermann, of the Chemnitz University of Technology, wanted to look more closely at human capital, and particularly the factor that psychologists call cognitive ability. "In other words, it's the ability of a person to solve a problem in the most efficient way—not with violence, but by thinking," Rindermann says. He wrote the new study with James Thompson of University College London.

Many measures of cognitive accomplishment and ability were examined.

The researchers collected information on 90 countries, including far-off lands from the U.S. to New Zealand and Colombia to Kazakhstan. They also collected data on the country's excellence in science and technology—the number of patents granted per person and how many Nobel Prizes the country's people had won in science, for example.

The intelligence of the top 5% matters most. Of course this makes American educational policy at the grade school and high school level pretty backward, with resources increasingly shifted toward the least able at the expense of the smartest.

They found that intelligence made a difference in gross domestic product. For each one-point increase in a country's average IQ, the per capita GDP was $229 higher. It made an even bigger difference if the smartest 5 percent of the population got smarter; for every additional IQ point in that group, a country's per capita GDP was $468 higher.

Immigration policy should be turned upside down to incorporate this finding. But good luck with that given that Barack Obama controls the White House and liberals in the media find common sense to be anathema.

The smartest people are most important for determining the wealth of a society. Smart people are more productive on average.

"Within a society, the level of the most intelligent people is important for economic productivity," Rindermann says. He thinks that's because "they are relevant for technological progress, for innovation, for leading a nation, for leading organizations, as entrepreneurs, and so on." Since Adam Smith, many economists have assumed that the main thing you need for a strong economy is a government that stays out of the way. "I think in the modern economy, human capital and cognitive ability are more important than economic freedom," Rindermann says.

As Chinese living standards rise the correlation between IQ and national wealth will grow even stronger. Unfortunately, while selective pressures used to select for genes that boost IQ that is no longer the case. Worse still, median income for American men is already on a long term decline. In America only the smartest and most skilled still experience rising incomes. (PDF)

After three decades of sustained increases, the return to skills as typically measured by the earnings ratio of college graduates relative to high school graduates is at a historic high. In 1963, the hourly wage of the typical college graduate was approximately 1.5 times the hourly wage of the typical high school graduate. By 2009, this ratio stood at 1.95. The entirety of this 45 percentage point rise occurred after 1980. In fact, the college-to-high- school earnings ratio declined by 10 percentage points in the 1970s.

Moreover, this simple comparison of the wage gap between college and high school graduates probably understates significantly the real growth in compensation for college graduates relative to high school graduates in recent decades. College graduates work more hours per week and more weeks per year than high school graduates, spend less time unemployed, and receive a disproportionate share of nonwage fringe benefits, including sick and vacation pay, employer-paid health insurance, pension contributions, and safe and pleasant working conditions. And these gaps in nonwage benefits between high- and low-education workers have each grown over the past several decades.10

People who are not smart are experiencing declining incomes. Unemployment of lower IQ people will soar as as more tasks become automated.

Share |      By Randall Parker at 2011 March 19 10:52 AM  Human Nature Cognitive Ability

Nanonymous said at March 19, 2011 12:47 PM:

Rindermann has been pushing this line of inquiry for a good decade now. Some of the best-researched work recent on smart fraction, wealth of nations come from him.

You probably remember
this paper that was prominently featured in various HBD blogs a while ago.

James Bowery said at March 19, 2011 12:59 PM:

When are the sophomores going to show up bleating "Correlation doesn't imply causation!"? Better yet, when are the PhD's in the social sciences going to show up roaring, "Ecological correlations are invalid!"???

There are no standards for intellectual honesty in the social sciences, nor can there even be anything resembling scientific ethics in the social sciences so long as people have to slug it out in politics (or gang fights aka war) in order to express their "consent" -- as opposed to assortatively migrating to territories occupied by mutual constenting adults and their dependants.

Oh, and by the way, don't be too sure that genius level IQ men in the US haven't been experiencing a decline in income at the hands of Asian ethnic nepotism taking root here. You have any data to refute that hypothesis? After all, it _is_ refutable. Oh wait... not its not... social scientists are unethical so their data can't be trusted.

Red said at March 19, 2011 2:30 PM:

There was a long term eugenics effect in Europe for a long time: A guy had to have enough money to buy a house to marry. This resulted in primary successful men reproducing while the less successful did not pass on their genes. China has something similar going on with cars these days.

Engineer-Poet said at March 19, 2011 8:47 PM:

I wonder when the Chamber of Commerce is going to realize that their ownership of the Republican party will avail them nothing if they can't elect Republicans, and all the low-skilled immigrants they like to import today will vote for pols who'll confiscate their profits to pay social benefits.

Suddenly, workman's comp insurance for RSI's won't look so cheap.  Maybe they'll start pushing robotics before it's too late?

Joe said at March 19, 2011 11:39 PM:

But James, correlation doesn't imply causation. Of course there are other ways to test this. Do non-free market economies have higher iq's than this would predict? Do changes in market policy cause poor, communist high iq countries to approach the level of rich iq countries? Do resource rich, wealthy countries still have low iq? The data seems to say 'yes'.

Nanonymous said at March 20, 2011 3:00 PM:


Correlation does not imply direct causation. That's simple enough. But apart from random (and thus rare) co-incidents, correlation almost always is an evidence of some causal relationship. The correct way of thinking about it is "correlation implies an unknown causal structure".

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