Questions for Garett Jones

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After a quick reading of Hive Mind. The core issue is what he calls the paradox of IQ. That is, among individuals, the correlation between IQ and income is modest. However, among nations, the correlation between average IQ and average income is strong.

How does your high IQ raise my income? Think of four possible explanations for this paradox.

1. Statistical artifact.
2. Proximity effect–I earn more income by living close to people with high IQ’s.
3. Cultural effect–people with high IQ’s transmit good cultural traits to me.
4. Political effect–having people with high IQ in my jurisdiction leads to me enjoying better government.

Can we rule out statistical artifact? Put it this way. Suppose we chose 1000 people at random. Then we create 50 groups of them. Group 1 has the 20 lowest IQ scores. Group 2 had the next 20 lowest IQ scores, etc. Then we run a regression of group average income on group average IQ for this sample of 50 groups. My prediction is that the correlation would be much higher than you would get if you just took the original sample of 1000 and did a correlation of IQ and income. I think that this is because grouped data will filter out noise well. Perhaps the stronger correlation among national averages is just a result of using (crudely) grouped data.

Can we sort out between proximity effects, cultural effects, and political effects? Perhaps a natural experiment involving people from different cultures living moving to different jurisdictions, or people living close to one another but having different cultures?

The most parsimonious proximity effect could be capital per worker. Assume that people tend to invest close to home (Jones calls this the Feldstein-Horioka effect when it applies across countries). Then if high-IQ people invest more wisely, then I will have better capital to work with if I live close to high-IQ people. Or if high-IQ people invest more (because, as Jones points out, they are more patient), then I will have more capital to work with if I live close to high-IQ people. How well does capital per worker serve as a channel for transmitting someone else’s IQ to my income?

Another proximity effect would be strong complementarity in team production (what Jones, following Kremer, calls the O-Ring effect). If the value of my output depends on the value of others in a team, then I will be better off living close to people with high IQ’s.

What happens when you divide the U.S. into fifty states and put teach state into the database with other countries? My guess is that Mississippi will look really good on average income relative to average IQ when you compare it with Denmark. If so, is that because of high capital per worker in Mississippi? A higher trust culture? Or better overall governance than Denmark?

3 thoughts on “Questions for Garett Jones”

  1. Re: proximity effect vs. cultural effect. Suppose we transplanted an American into Africa and observed that his income dropped precipitously. Would that be because being emersed in African culture dramatically changed the American’s work ethic, trustworthiness, and other characteristics or would it be because there are fewer opportunities for the American to trade his skills for other goods and services? It seems obvious that proximity effect dominates.

  2. Hanson has come comment too:

    So simple economic theory leads us to expect that the benefits that smart people give to others nearby, within these shared priced-entry institutions, will be reflected in their incomes. Specifically, people can plausibly pay more to live, club, shop, and work near and influenced by others who are more patient, cooperative, informed, and reliable. So these local benefits of smart associates do not plausibly explain the difference between how individual and national IQ correlate with income.

    To explain this key difference (a factor of six!) we need big market or government failures. These could result if: …

    3. Governments with structures that fail to prevent the stupid and impatient from greatly influencing government policy. Such prevention might happen via restricting the franchise in democracies, by auctioning governance to a highest bidder, or via institutions like futarchy tied to long-term outcomes.

    This third explanation seems by far the most plausible to me, especially via the government impatience channel. After all, while the stupid might be persuaded to see a benefit in adopting government institutions that give more influence to the smart, the impatient may just not see much benefit from their point of view in having a more patient government.

  3. One social metric could be the ‘high-end to low-end’ ratio. Let’s forget about IQ and just use some kind of measure of social externality, with high-end people tending to have positive impact and low-end people causing problems. People in the middle do their part, but don’t have much impact on collective performance either way.

    Anyone who has ever had to manage a diverse group, or work on a team project with folks with highly variant levels of talent and motivation, can appreciate the possibility of this social reality.

    If you start with a bell curve centered at 0, and say high-end people start at +2SD, and low-end people are below -2SD, then the ratio is 1:1, with 2.3% of the population above the high line, and 2.3% below the low line.

    Now, what happens to the ratio if you shift the mean by 0.5 SD (only 7.5 points in IQ terms), but keep the high and low lines where they were?

    Now, 6.7% of people are above the old high line, but only 0.6% of people are below the old low line. The ratio is now 11 to 1! A 1,000% increase. That’s huge.

    And 0.5 SD isn’t even that much. Symmetrically, if you were to go 0.5 SD in the other direction, the ratio would drop to 1 to 11, which is a fall over over 90%. Also very dramatic.

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