The Better Half or the Worse Half?

Arnold Kling, writing about a post of Robin Hanson’s, says:

My guess is that if Robin were to try to make this argument to a general audience, he would get a hostile response.

Hanson’s argument?

Cutting half of medical spending would seem to cost little in health, and yet would free up vast resources for other health and utility gains. To their shame, health experts have not said this loudly and clearly enough.

…The claim is not that there would be no harmful health effects of such a policy, but rather that harmful effects would be roughly balanced by helpful effects. And the claim is not that harmful and helpful effects would exactly balance, but rather that any net health harm will be small compared to the health gains possible by spending the savings on other health influences, and to the utility gains possible from spending the savings in other ways.

Kling continues:

However, the opposition would be almost entirely emotional, with little or no rational component….The intensity of the emotions is probably a sign that Hanson is onto something.

I don’t think it’s emotional to ask two questions:

1. Who does the cutting?

2. How does the cutter know, for each affected individual, whether the cut removes the better half or worse half of that individual’s health care?

Cato Unbound (where Hanson’s post appears) seems to be off-line. Perhaps I’ll have more to say when I’m able to read the whole post.

Okay, I’ve now read Hanson’s post. Hanson’s point about over-spending on medical care is well supported, but here’s the key passage about how to cut spending:

How should we cut medical spending? There are many possibilities, and I may prefer some possibilities to others….The obvious first place to cut would be our government and corporate subsidies for medicine, including direct payments, tax exemptions, and regulatory requirements. Socially, we should also try to give medicine far less prestige than we now do. After these one could consider taxing medicine, limiting it by law, or nationalizing the industry and using agency budgets to limit spending.

Yes, I know, these are not politically realistic proposals.

The least realistic proposals, politically, are to cut government and corporate subsidies, tax exemptions, and regulatory requirements. Such changes would be the most beneficial because they would restore income and discretion to the actual recipients and beneficiaries of medical care.

The politically realistic proposals (taxing medicine, limiting it by law, or nationalizing the industry) would be ruinous. Necessary medical care would become more expensive and harder to come by.

Does Hanson seriously endorse taxes, government-imposed rationing, and nationalization as substitutes for the the judgments of individuals who actually need medical attention? Perhaps he would prefer to live in Canada or the UK.

Socialized Medicine in the U.S.A.

Cato‘s Michael Cannon has it exactly right in “Socialized Medicine Is Already Here” (TCS Daily). Go and read it.

Insofar as medicine is concerned, we have traveled all the way down the slippery slope, following one and then another of the paths I trace in “The Slippery Slope of Constitutional Revisionism.”

Can it get worse? Yes. See:

Thomas Sowell, “No Health Care?”
These three posts at Cato-at-Liberty

Note, also, the planned presence of U.S. Senator Bernie Sanders (“Independent”-VT) at the convention of Democratic Socialists of America. Were they honest about their true political orientation, almost all Democrats in Congress and far more than a few Republicans would join Sen. Sanders at the convention.

Right On!

Linking Immigration and Poverty,” by Robert J. Samuelson, supports this and this.

Students, Beware!

UPDATED, BELOW

I’m speaking especially to the students of Kevin Quinn, who teaches economics at Bowling Green State University in Ohio. Quinn also blogs at EconoSpeak. His first substantive entry there, “Safety,” leads me to fear that his students — if they do not question and challenge him — will learn socialism rather than economics.

Consider the example that Quinn uses to show how workers are “forced” to accept a high level of risk (breaks added for clarity):

Suppose there are two types of jobs, safe and risky, and 2 workers. Safe jobs have a safety index of 2 and pay $20,000, while risky jobs have a safety index of 1 and pay $30,000. Further suppose workers utility is the product of three factors: income measured in thousands of dollars, safety( measured by the index), and relative income. Now we have a standard prisoner’s dilemma [link added: LC]:

If you take the safe job, [my] taking the safe job as well gives me utility of (20)(2)(1) = 40. [My t]aking the risky job gives me (30)(1)(3/2) = 45, so I take the risky job.

If you take the risky job, I get (20)(2)(2/3) = 26.67 if I take the safe job and (30)(1)(1) [=30] if I take the risky job, so I take the risky job in this case too.

Each of us does better choosing the risky job whatever the other does, but when we choose the risky job we are worse off, with utility of 30 each, than had we both taken the safe job and gotten utility of 40 each.

Putting it more directly and explicitly, here are the “payoffs” to “you” and “I” (calling them “A” and “B,” respectively):

A takes a safe job and B takes a safe job — A = 40, B = 40
A takes a safe job and B takes a risky job — A = 26.67, B = 45

A takes a risky job and B takes a safe job — A = 45, B = 26.67
A takes a risky job and B takes a risky job — A = 30, B = 30

These results, when displayed in a 2×2 table, make it obvious (granting many assumptions, discussed below) that both A and B minimize their losses (the strategy of the game of prisoner’s dilemma) by choosing a risky job. If A chooses a safe job, his payoff could be as low as 26.67, instead of 30; if B chooses a safe job, his payoff could be as low as 26.67, instead of 30. Both therefore choose a risky job to ensure themselves of the “less bad” payoff: 30.

But prisoner’s dilemma rests on the assumption of non-cooperation. In fact, there is an alternative, known as a coordination game, in which A and B cooperate to their mutual benefit. In that instance, both A and B would choose a safe job. They needn’t cooperate explicitly; each of them could calculate that the best result for both is to choose a safe job.

In any event, Quinn’s conclusion rests on many convenient assumptions, explicit and implicit:

  • Utility is a simple, multiplicative function of three factors: pay, safety, and pay relative to that of a particular person (or class of persons).
  • Relative pay for the two jobs is as specified by Quinn.
  • Relative pay is an important determinant of utility — as opposed to the enjoyment one derives from one’s own pay, for example.
  • The pay of the other person (or class of persons) is determined by riskiness of his job, not by such factors as his productivity or the market value of the good or service he is involved in producing.
  • Safety can be indexed as in Quinn’s example.
  • The indices of safety for the two jobs are precisely 1 and 2 (or a multiple thereof).
  • A and B must choose jobs simultaneously and irrevocably, each without knowledge of the other’s choice, according to the stylized logic of prisoner’s dilemma.

Just like real life, eh?

Even if Quinn’s utility formula is realistic (which it isn’t), and even if prisoner’s dilemma is a valid model (which it isn’t), the outcome is sensitive to the values chosen for pay, safety, and the importance of relative pay. Different values yield different outcomes: A takes a risky job, B takes a safe job; both A and B take safe jobs; etc.

Here’s the bottom line:

  • Prisoner’s dilemma is a dubious model of behavior.
  • Quinn’s utility model is dubious.
  • Quinn’s example uses numerical values that conveniently support a certain conclusion.
  • That conclusion? A labor market that is unregulated with respect to safety “forces” workers to take risky jobs.

Why does Quinn want to reach that conclusion? Answer: So that he can make a case for mandatory safety measures. How does he do that? By rigging his example (as I have discussed), and then by asserting this:

Making safety level 2 mandatory makes both workers better off and has no effect on employers (the pay differential is assumed to reflect the cost of making the workplace safer) and is thus a Pareto-improvement.

Here, Quinn assumes that the pay differential between the safe and risky jobs is determined solely by “the cost of making the workplace safer.” That is:

  • The marginal cost of safety measures is constant ($10,000 per worker per year). (There might be one-time costs, as well, and those might drive the employer out of business or make the employers’ type of business less attractive to new entrants, thus eliminating a source of jobs for new entrants to the labor market. But I’ll let that go, for now.)
  • The employer simply reduces each worker’s annual wage by $10,000 to compensate for the cost of the safety measures, thus holding output, total cost, and profit at their “pre-safety” levels.
  • Given Quinn’s earlier (rigged) assumptions, workers gladly accept lower wages in return for greater safety, or…
  • Workers do not “gladly” accept lower wages, but they accept lower wages, anyway, because there are no other jobs for them, anywhere, or…
  • Other employers are unwilling to “exploit” the workers’ pay cuts by offering them more than they make as a result of Quinn’s government-enforced safety measures.

In other words, what Quinn dismisses, without discussion, is the likely effect of safety regulations: raising the cost of employing workers in jobs affected by those regulations and, therefore, reducing employment and wages in those jobs, in the longer run if not immediately. Safety regulations, in other words, narrow workers’ options by forcing them to accept certain levels of risk — set by regulators — regardless of how those levels affect workers’ jobs and pay, and regardless of workers’ own risk-reward schedules.

Why should government narrow workers’ options and force them to accept fewer jobs and less pay? After all, workers are not literally forced to take risky jobs. The choice is theirs, no matter how Quinn rigs his example. Perhaps Quinn thinks he’s living in the Soviet Union, where workers actually were forced by the “dictatorship of the proletariat “to take certain jobs — many of them risky ones.

What Quinn wants is an end to “injustice.” But he has a strange formula for ending it: Cut jobs, cut pay, and narrow workers’ options. Why? Because, in effect, Quinn doesn’t believe that workers should take certain risks, even if they voluntarily choose to do so.

Quinn, in other words, is a paternalist or a socialist. Actually, it doesn’t matter which of those he is (in his heart of hearts) because government-enforced paternalism is just socialism in a Santa Claus costume. Both regimes attempt to substitute the preferences and judgments of élites (the Quinns of this world) and their minions for the preferences and judgments of the millions of workers and businesspersons who face the actual risks and rewards of daily life.

The judgments can be made by fiat, but they can’t be made correctly by socialists or by “libertarian” paternalists; viz.:

Practical Libertarianism for Americans: Part I (especially the paragraph that begins “Whether or not you subscribe to the abstraction of self-ownership…”)
Practical Libertarianism for Americans: Part II (especially the synopsis of Friedrich Hayek’s views toward the end of the section on “The Evolution of Libertarian Thought: The Unification of Economic and Personal Liberty”) and the Addendum (especially the first three block quotations)
Socialist Calculation and the Turing Test
The Social Welfare Function
Libertarian Paternalism
A Libertarian Paternalist’s Dream World
The Short Answer to Libertarian Paternalism
Second-Guessing, Paternalism, Parentalism, and Choice
Another Thought about Libertarian Paternalism
Ten Commandments of Economics
A Little Putdown of Politically Correct Shopping
More Commandments of Economics
Three Truths for Central Planners
Risk and Regulation
A Further Note about “Libertarian” Paternalism
Apropos Paternalism

UPDATE (10/04/07): Interesting paper here about the positive relationship between cooperation and IQ. (Thanks to Arnold Kling for the pointer.) That the relationship is weaker now that it was about 40 years ago supports the thesis that the rise of socialism leads to the breakdown of civil society. How? The state rips asunder socially evolved norms and networks and replaces them with impersonal laws and bureaucracies.

For Labor Day

The Truth about Labor Day,” from the Ludwig von Mises Institute.

Toward a Capital Theory of Value,” “A Very Politically Incorrect Labor Day Post,” and “Your Labor Day Reading,” by me.

The State of Michigan

When you don’t have anything else going for you, you move your presidential primary to January 15.

The Persistence of Poverty

First off, it’s not generally persistent (despite this). But where it is, it can be blamed on genes and culture.

Corroboration, of a Sort

In “Positive Rights and Cosmic Justice: Part IV

I argue that cosmic justice (a.k.a. redistributionism) is largely futile. Those who are created less-than-equal — with respect to the attributes that yield material success — cannot be made equal by handouts, “head starts,” or affirmative action.

Arnold Kling, writing today at EconLog, puts it this way:

My guess is that the reason that resistance to the use of IQ as an explanatory variable is high, and particularly high among people on the left, is that it appears to offer less scope for government policy to achieve social improvements. If everything depends on IQ, and IQ is fixed, then social programs can ameliorate problems but not solve them.

If you think that the key variable is college education, then sending more low-IQ youngsters to college is good policy. If you think that the key variable is IQ, then sending more low-IQ youngsters to college is a waste.

So far, so good. Kling continues, however, by erecting a strawman:

One of the stereotypes that people have about IQ is that it is 100 percent inherited, with no environmental influences. I believe that this stereotype is wrong. I believe that the Flynn effect is real and important.

I do not know if it is a “stereotype” that IQ is 100 percent inherited, but genetic inheritance evidently is more important than environmental influences. Invoking an invalid “stereotype” does not disprove the fact that nature outweighs nurture when it comes to IQ. (See my post, linked above.)

As for the general rise in IQ over time (the Flynn effect), it may have narrowed the racial gap in IQ (by some measures), but the gap remains large. The causes of the Flynn effect are uncertain, but the Flynn effect probably has more to do with economic growth — which occurs in spite of government — and its attendant improvements in nutrition, exposure to media, etc., than it does with “policies that could achieve gains in IQ that appear to be available from environmental influences,” whatever those might be.

In any event, the Flynn effect is a weak justification for such policies, which are counterproductive because they must be funded by taxing success. That is to say, such policies have a significant opportunity cost: They rob fuel from the main engines of economic growth: invention, innovation, capital formation, and entrepreneurship.

Timely Material

Apropos yesterday’s post, “Positive Rights and Cosmic Justice: Part IV,” today I came across these pieces:

In “The downside of diversity,” at The Boston Globe, Michael Jonas reports on a study by Harvard political scientist Robert Putnam (“E Pluribus Unum: Diversity and Community in the Twenty-first Century,” The 2006 Johan Skytte Prize Lecture Scandinavian Political Studies 30 (2), 137–174.). Putnam, according to Jonas,

has found that the greater the diversity in a community, the fewer people vote and the less they volunteer, the less they give to charity and work on community projects. In the most diverse communities, neighbors trust one another about half as much as they do in the most homogenous settings. The study, the largest ever on civic engagement in America, found that virtually all measures of civic health are lower in more diverse settings.

John Leo, writing at City Journal (“Bowling with Our Own“), first discusses Putnam’s findings; e.g.:

Putnam’s study reveals that immigration and diversity not only reduce social capital between ethnic groups, but also within the groups themselves. Trust, even for members of one’s own race, is lower, altruism and community cooperation rarer, friendships fewer. The problem isn’t ethnic conflict or troubled racial relations, but withdrawal and isolation. Putnam writes: “In colloquial language, people living in ethnically diverse settings appear to ‘hunker down’—that is, to pull in like a turtle.”…

Neither age nor disparities of wealth explain this result. “Americans raised in the 1970s,” he writes, “seem fully as unnerved by diversity as those raised in the 1920s.” And the “hunkering down” occurred no matter whether the communities were relatively egalitarian or showed great differences in personal income. Even when communities are equally poor or rich, equally safe or crime-ridden, diversity correlates with less trust of neighbors, lower confidence in local politicians and news media, less charitable giving and volunteering, fewer close friends, and less happiness….

Leo then discusses the fact that Putnam had delayed announcing his findings:

Putnam has long been aware that his findings could have a big effect on the immigration debate. Last October, he told the Financial Times that “he had delayed publishing his research until he could develop proposals to compensate for the negative effects of diversity.” He said it “would have been irresponsible to publish without that,” a quote that should raise eyebrows. Academics aren’t supposed to withhold negative data until they can suggest antidotes to their findings…

Though Putnam is wary of what right-wing politicians might do with his findings, the data might give pause to those on the left, and in the center as well. If he’s right, heavy immigration will inflict social deterioration for decades to come, harming immigrants as well as the native-born. Putnam is hopeful that eventually America will forge a new solidarity based on a “new, broader sense of we.” The problem is how to do that in an era of multiculturalism and disdain for assimilation.

Myron Magnet, also writing at City Journal (“In the Heart of Freedom, in Chains“), addresses “elite hypocrisy, gangsta culture, and failure in black America.” Magnet asks

how can there still exist a large black urban underclass imprisoned in poverty, welfare dependency, school failure, nonwork, and crime? How even today can more black young men be entangled in the criminal-justice system than graduate from college? How can close to 70 percent of black children be born into single-mother families, which (almost all experts agree) prepare kids for success less well than two-parent families?

And answers:

The legacy of slavery and racism isn’t the reason, economist Thomas Sowell has long argued [link added]….

Beginning around 1964, the rates of black high school graduation, workforce participation, crime, illegitimacy, and drug use all turned sharply in the wrong direction. While many blacks continued to move forward, a sizable minority solidified into an underclass, defined by self-destructive behavior that all but guaranteed failure.

What was going on in the mid-sixties that could explain such a startling development? Political scientist Charles Murray gave the first answer to that question: welfare benefits sharply rose just at that moment. Offering more purchasing power than a minimum-wage job, the dole, he argued, provided an economic incentive for women to have out-of-wedlock babies and for their boyfriends to live off their welfare payments, too.

A decade after Murray, I suggested that, though welfare was part of the answer, the real explanation was larger. It was cultural, not economic. Begun by the elites, vast changes reshaped mainstream attitudes in the 1960s. Sex became fine outside marriage, and illegitimacy lost its stigma. Drugs were cool; social authority and tradition weren’t. America was deemed a racist, unjust society that victimized and impoverished blacks, who could rarely better their condition and who therefore deserved generous welfare benefits as reparations for past and present oppression. If blacks committed crime, the system that drove them to it, out of poverty or as an act of protest, was at fault: we shouldn’t blame the victim, as the saying went—meaning the poor criminal, not his prey. Since people shape their actions according to the ideas and beliefs they hold, when these new attitudes reached the inner cities, what could result but an epidemic of social dysfunction?

(Regarding the importance of social “signaling” — and the blocking or reinforcement of it by the state — read this, this, this, this, and this.)

Finally, here’s Tyler Cowen of Marginal Revolution, writing about

Charles Karelis’s truly intriguing The Persistence of Poverty: Why the Economics of the Well-Off Can’t Help the Poor….

It can make more sense to give money to people on the verge of leaving poverty, rather than people deeply mired in poverty. The former transfer will get people onto “normal” marginal utility curves, but the deeply poor will just squander their new wealth, as it doesn’t much alleviate their unhappiness.

That’s today’s food for thought.

Positive Rights and Cosmic Justice: Part IV

The prologue is here, part I is here, part II is here, and part III is here. In this post — probably the last in the series — I argue that cosmic justice (a.k.a. redistributionism) is largely futile. Those who are created less-than-equal — with respect to the attributes that yield material success — cannot be made equal by handouts, “head starts,” or affirmative action. UPDATE: For a long, well-substantiated survey about the validity of intelligence as a concept, the validity of race as a concept, persistent differences in IQ between races, and related matters, go here.
BACKGROUND
I say in Part II that

[l]iberals’ arrogant willingness to play at being gods [i.e., meting out cosmic justice through redistributionism]…rests on these deep[] (and usually unacknowledged) assumptions:

  • One person’s well-being can be measured against another person’s well-being through interpersonal comparisons of utility.
  • There is a kind of cosmic justice — or social welfare function — that is advanced by harming some persons for the benefit of other persons. That is, a benefit cancels a harm — at least when the benefit and harm are decided by liberals.
  • Taking wealth and income from those who have “too much” does not, on balance, harm those who have “too little” by dampening economic growth and voluntary charity….

(The first and second assumptions enable [liberal redistributionists] to assert that “positive freedom entails negative freedom.” To [liberal redistributionists], there is one big “welfare pie” in sky, in which we all somehow share — despite the obvious fact that A is made worse off when some of his wealth or income is confiscated and given to B.)
…Given the foregoing, liberals see it as necessary and desirable to redistribute wealth and income from persons who have “too much” to persons who have “too little” — or “too little” of the things that wealth and income can buy. Otherwise, those who have “too little” wealth or income (or the things they can buy) would enjoy only “theoretical” freedom. But the use of the word “theoretical” is a rhetorical trick, a bit of verbal sleight-of-hand. It implies, without proof, that anyone who does not enjoy a certain “minimal” state of health, wealth, etc. — as “minimal” is defined by a liberal — simply lacks the wherewithal to strive toward ends that he or she values….
The liberal argument for redistribution, therefore, is really a circular argument intended to justify liberals’ particular sense of fitting outcomes.

A “liberal” (or “progressive”) would be quick to proclaim that most of the poor are not poor simply for lack of wherewithal (i.e., education and training); rather, they are victims of discrimination based on race, ethnicity, or gender. That is, they are “trapped by the system,” and it is the duty of liberals to rectify the system’s wrongs.
TOUGH QUESTIONS, UNPOPULAR ANSWERS
But are the poor (and other groups favored by liberals) really trapped by the system, that is, by prejudicial discrimination? Or are they generally lacking in wherewithal because they are trapped by their genetic and cultural inheritance? If the latter, as I argue here, the quest for cosmic justice through redistribution is counterproductive, largely futile, and unfair. How so?
The quest for cosmic justice through redistribution is counterproductive for three reasons

  • Redistribution is like giving a person a fish instead of teaching him how to fish; if he becomes dependent on the handout he is less likely to better himself, within the scope of his ability.
  • Because redistribution reduces the rewards that accrue to superior achievement it leads to a lower rate of economic growth — to the detriment of all, including those for whom liberals’ hearts bleed. (For more about the counterproductive effects of redistribution, see this, this, and this.)
  • The lowering of rewards for superior achievement (i.e., taxation) reduces voluntary charity. And yet it is voluntary charity that is most likely to help those in need better themselves. Why? Because voluntary donors, operating through truly non-governmental organizations (i.e., not the Red Cross, United Way, and their ilk) are personally committed to — and vigilant about — the effective use of their contributions.

The quest is largely futile because — contrary to liberal rhetoric and political correctness (which are much the same thing) — all races, ethnic groups, and genders are not equal when it comes to mental and behavioral inheritance. (Races, ethnic groups, and genders differ broadly in their mental and behavioral traits, but each race, ethnic group, and gender is not And it is one’s mental and behavioral inheritance that largely determines one’s income. homogeneous, even though liberals like to treat them as if they were.) Redistribution — in any form (e.g., welfare payments, preferential hiring and promotion of “protected” groups) — does not offset the “barriers” of race, ethnicity, and gender because, in the main, it cannot do so. Because liberals will not admit the futility of redistribution they are bound to redouble and perpetuate it, as they have done for more than 70 years.
As to the unfairness of redistribution, I think Anthony de Jasay hits it on the head in “Risk, Value, and Externality“:

Stripped of rhetoric, an act of social justice (a) deliberately increases the relative share….of the worse-off in total income, and (b) in achieving (a) it redresses part or all of an injustice….This implies that some people being worse off than others is an injustice and that it must be redressed. However, redress can only be effected at the expense of the better-off; but it is not evident that they have committed the injustice in the first place. Consequently, nor is it clear why the better-off should be under an obligation to redress it….

For more about the counterproductive and unfair nature of redistribution, see parts II and III (linked above). My focus, from here on, is the essential futility of the redistrutionist urge.
BEGINNING AT THE BEGINNING
Hypotheses
The rest of this post summarizes some of the evidence that is available with respect to relationships between genes, intelligence, and behavior. Much of the evidence is controversial not because it is false but because (a) some of its authors are controversial* and (b) it tells a politically incorrect story:

  • There are heritable differences in behavior and intelligence.
  • Those differences show up in education and income.
  • Those differences run (generally) along the lines of race, ethnicity, and gender.

Those who deny such evidence do so, I believe, because their political leanings preclude objectivity. They are committed to the dispensation of cosmic justice in the service of “equality.” They are therefore committed to the enforcement of discrimination in favor of certain classes of persons. Their first, loudest, and everlasting reaction to evidence which indicates that races, ethnic groups, and genders are not created equal when it comes to income-producing aptitudes is to cry “racism” and “sexism.”
Disclaimer
Thus this anticipatory disclaimer:

I anticipate — and reject — accusations that I am a racist and a misogynist. A racist is “a person with a prejudiced belief that one race is superior to others.” A misogynist hates women. I hew to neither trait.
I am very far from being a woman-hater; women are (among other things) essential to civil society, without which liberty is impossible (e.g., see this). More generally, I do not believe that a particular race, ethnic group, or gender is a superior one — in the sense of being entitled to a position of power over other races or ethnic groups or another gender. I do believe, based on evidence of the kind I sample below, that there are very real, measurable, and persistent differences in aptitudes across races, ethnic groups, and genders, and that those differences underlie persistent differences in the average incomes earned by various races, ethnic groups, and genders.
My belief is based not on prejudice: “an adverse judgment or opinion formed beforehand or without knowledge or examination of the facts.” I was once a prejudiced (i.e., ignorant) liberal, a believer in cosmic justice. Facts, experience, and reason have led me away from that benighted persuasion.
The careful reader will observe that the evidence I sample here most decidedly does not support any claim of “white supremacy.” White supremacy in the United States involves the presumption that whites are superior to blacks. But there is more to it than that. White supremacy also encompasses anti-Semitism and prejudice against such “non-white” groups as Arabs and Asians. Moreover, white supremacists in the United States usually are anti-Catholic, and they consider persons of Eastern and Southern European origin to be of inferior stock. The IQ measures I cite here decidedly favor Ashkenazi Jews and East Asians over the particular kinds “whites” favored by white supremacists (e.g., the “Herrenvolk“).

Intelligence, a Central Concept
I should now elaborate on the concept of intelligence — in particular, IQ or “general intelligence” — and its importance in the context of this post. I do not deny the possibility of “multiple intelligences.” But, for the purpose of this post, the relevant kind of intelligence is

a property of mind that encompasses many related abilities, such as the capacities to reason, plan, solve problems, think abstractly, comprehend ideas and language, and learn….

Despite the variety of concepts of intelligence, the most influential approach to understanding intelligence (i.e., with the most supporters and the most published research over the longest period of time) is based on psychometric testing. Such intelligence quotient (IQ) tests include the Stanford-Binet, Raven’s Progressive Matrices, the Wechsler Adult Intelligence Scale and the Wechsler-Bellevue.

All forms of IQ tests correlate highly with one another. The traditional view is that these tests measure g or “general intelligence factor“. g can be derived as the principal factor using the mathematical method of factor analysis.

Why is IQ the relevant kind of intelligence? Arnold Kling explains:

[T]he reality is that the intelligences that feed into IQ are what drive economic success. I have an unwritten essay on the meadow and the food court. It’s a way of capturing Gregory Clark’s economic history in a metaphor.
In a meadow economy, the human race is a grazing herd. The naturalists are the ones who eat the best. This was the economy up until about 1800 everywhere, and it still applies in the underdeveloped world today.
In the West since 1800, we’ve been moving to the food court economy, where we use complex recipes and convoluted trading mechanisms to translate basic ingredients into fancy consumption goods. Overall, most of the value nowadays is in the recipes, not in the ingredients.

SAMPLES OF THE EVIDENCE
Nature Outweighs Nurture
Bruce Sacerdote’s “What Happens When We Randomly Assign Children to Families?” (October 2004) directly addresses the issue of nature versus nurture. Wading through the statistics, we come to this key conclusion:

[T]ransmission of education and income for adoptees is much less strong than for non-adoptees. Hence, by definition, either initial endowments [i.e., genetically transmitted traits] or the interaction between family environment and initial endowments must be driving a large portion of the transmission of income and education to children.

In sum, according to “Nature versus nurture” at Wikipedia,

[e]vidence suggests that family environmental factors may have an effect upon childhood IQ, accounting for up to a quarter of the variance. On the other hand, by late adolescence this correlation disappears, such that adoptive siblings are no more similar in IQ than strangers.[5] Moreover, adoption studies indicate that, by adulthood, adoptive siblings are no more similar in IQ than strangers (IQ correlation near zero), while full siblings show an IQ correlation of 0.6. Twin studies reinforce this pattern: monozygotic (identical) twins raised separately are highly similar in IQ (0.86), more so than dizygotic (fraternal) twins raised together (0.6) and much more than adoptive siblings (~0.0). [6] Consequently, in the context of the “nature versus nurture” debate, the “nature” component appears to be much more important than the “nurture” component in explaining IQ variance in the general adult population of the United States.

Cultural Differences That Influence Income Are Heritable
I turn now to Nicholas Wade of The New York Times, whose International Herald Tribune article (“Cultural Differences: A DNA Link?,” March 2006) suggests that an

explanation for such long- lasting character traits [as social interdependence] may be emerging from the human genome. Humans have continued to evolve throughout prehistory and perhaps to the present day, according to a new analysis of the genome reported last week by Jonathan Pritchard, a population geneticist at the University of Chicago.
So human nature may have evolved as well.
If so, scientists and historians say, a fresh look at history may be in order. Evolutionary changes in the genome could help explain cultural traits that last over many generations as societies adapted to different local pressures….
In a study of East Asians, Europeans and Africans, Pritchard and his colleagues found 700 regions of the genome where genes appear to have been reshaped by natural selection in recent times. In East Asians, the average date of these selection events is 6,600 years ago….
Some of the genes are active in the brain and, although their role is not known, may have affected behavior….
Some geneticists believe the variations they are seeing in the human genome are so recent that they may help explain historical processes.
“Since it looks like there has been significant evolutionary change over historical time, we’re going to have to rewrite every history book ever written,” said Gregory Cochran, a population geneticist at the University of Utah.
“The distribution of genes influencing relevant psychological traits must have been different in Rome than it is today,” he added. “The past is not just another country but an entirely different kind of people.”
John McNeill, a historian at Georgetown University in Washington, said “it should be no surprise to anyone that human nature is not a constant” and that selective pressures have probably been stronger in the last 10,000 years than at any other epoch in human evolution….
The political scientist Francis Fukuyama has distinguished between high-trust and low-trust societies, arguing that trust is a basis for prosperity. Since his 1995 book on the subject, researchers have found that oxytocin, a chemical active in the brain, increases the level of trust, at least in psychological experiments.
Oxytocin levels are known to be under genetic control in other mammals.
It is easy to imagine that in societies where trust pays off, generation after generation, the more trusting individuals would have more progeny and the oxytocin-promoting genes would become more common in the population.
If conditions should then change, and the society be engulfed by strife and civil warfare for generations, oxytocin levels might fall as the paranoid produced more progeny.
Napoleon Chagnon for many decades studied the Yanomamo, a warlike people who live in the forests of Brazil and Venezuela. He found that men who had killed in battle had three times as many children as those who had not. Since personality is heritable, this would be a mechanism for Yanomamo nature to evolve and become fiercer than usual.
Since the agricultural revolution, humans have to a large extent created their own environment. But that does not mean the genome has ceased to evolve. The genome can respond to cultural practices as well as to any other kind of change.
Northern Europeans, for instance, are known to have responded genetically to the drinking of cow’s milk, a practice that began in the Funnel Beaker Culture that thrived 5,000 to 6,000 years ago. They developed lactose tolerance, the unusual ability to digest lactose in adulthood….
The most recent example of a society’s possible genetic response to its circumstances is one advanced by Cochran and Henry Harpending, an anthropologist at the University of Utah.
In an article last year they argued that the unusual pattern of genetic diseases found among Ashkenazi Jews (those of Central and Eastern Europe) was a response to the demands for increased intelligence imposed when Jews were largely confined to the intellectually demanding professions of money lending and tax collection.
Though this period lasted only from A.D. 900 to about 1700, it was long enough, the two scientists argue, for natural selection to favor any variant gene that enhanced cognitive ability….
But the variant genes common among the Ashkenazi do not protect against any known disease. In the Cochran and Harpending thesis, the genes were a response to the demanding social niche into which Ashkenazi Jews were forced and the nimbleness required to be useful to their unpredictable hosts.
No one has yet tested the Cochran-Harpending thesis, which remains just an interesting, though well worked out, conjecture. But one of its predictions is that the same genes should be targets of selection in any other population where there is a demand for greater cognitive skills. That demand might have well have arisen among the first settled societies where people had to deal with the quite novel concepts of surpluses, property, value and quantification.
And indeed Pritchard’s team detected strong selection among East Asians in the region of the gene that causes Gaucher’s disease, one of the variant genes common among Ashkenazim.

Intelligence and Race
To this point I have reviewed evidence that nature (i.e., genetic inheritance) generally outweighs nurture (i.e., environmental factors) in determining intelligence and income. Also, I have reviewed evidence that suggests the heritability of certain cultural traits (e.g., the kind of group solidarity that leads to economic betterment). Consider, now, some evidence about intelligence as it relates directly to race.

From “Race and Intelligence” at Wikipedia:

The modern controversy surrounding intelligence and race focuses on the results of IQ studies conducted during the 20th century, mainly in the United States and some other industrialized nations. In almost every testing situation where tests were administered and evaluated correctly, the mean IQ of Blacks was approximately one standard deviation below that of Whites. [That is, the average white person has an IQ higher than about two-thirds of all black persons: ED.]….

It is a matter of debate whether IQ differences between races in the U.S. are…entirely environmental or…partly genetic. Several published consensus statements agree that the large differences between the average IQ scores of Blacks and Whites in the U.S. cannot be attributed to biases in test construction, nor can they be explained just by simple differences in socio-economic status, however they are still well with in the range that may be attributed to other environmental factors….

But are inter-racial IQ differences “well within the range that may be attributed to…environmental factors”? Charles Murray, writing in Commentary about two years ago (article now behind paywall), reviews what had been learned about gender, race, and IQ since the publication of his (and the late Richard Herrnstein’s) The Bell Curve (1994). As for race, Murray reviews the evidence at length and concludes

that we know two facts beyond much doubt. First, the conventional environmental explanation of the black-white difference [in IQ] is inadequate. Poverty, bad schools, and racism, which seem such obvious culprits, do not explain it. Insofar as the environment is the cause, it is not the sort of environment we know how to change, and we have tried every practical remedy that anyone has been able to think of. Second, regardless of one’s reading of the competing arguments, we are left with an IQ difference that has, at best, narrowed by only a few points over the last century. I can find nothing in the history of this difference, or in what we have learned about its causes over the last ten years, to suggest that any faster change is in our future.

John J. Ray, an Australian psychometrician, observes that

[McElwain and Kearney] constructed a test that WAS biased — but biased towards blacks rather than towards whites. They included in their test (the Queensland Test or QT) only those items that blacks responded well to and which actually could be shown to be valid predictors of problem solving performance among blacks. In effect, blacks constructed the test themselves — by providing the responses used to select the individual questions within the test.

But you know what happened, don’t you? On a test intrinsically biased against them, whites still greatly outperformed blacks. So there really is an underlying difference between blacks and whites. The difference is not just the result of naively constructed tests.

Some (e.g., Thomas Sowell) have argued that the persistence of the inter-racial IQ gap is owed to black culture — “black redneck” culture, in Sowell’s words. But, as I say here,

[i]f “black redneck” culture is the cause of the inter-racial gap in IQ, and if blacks choose to perpetuate the “black redneck” culture, then the perpetuation of the IQ gap might as well be genetic. For, it will be the result of blacks’ self-imposed servitude to the forces of ignorance.

And it well may be that the “black redneck” culture has become a genetically heritable trait.

Finally, on this topic, let us hear again from Rushton. In a review of Lynn’s book, Race Differences in Intelligence: An Evolutionary Analysis (2006), he says:

Lynn’s book represents the culmination of more than a quarter of a century’s work on race differences in intelligence. It was in 1977 that he first ventured into this field – some would say minefield – with the publication of two papers on the IQ in Japan and Singapore. Both showed that the East Asians obtained higher means than white Europeans in the United States and Britain….

His conclusions are that the East Asians (Chinese, Japanese and Koreans) have the highest mean IQ at 105. These are followed by the Europeans (IQ 100). Some way below these are the Inuit (Eskimos) (IQ 91), South East Asians (IQ 87), Native American Indians (IQ 87), Pacific Islanders (IQ 85), South Asians and North Africans (IQ 84). Well below these come the sub-Saharan Africans (IQ 67) followed by the Australian Aborigines (IQ 62). The least intelligent races are the Bushmen of the Kalahari desert together with the Pygmies of the Congo rain forests (IQ 54).

After the ten chapters setting out the evidence for each of the ten races there follows a chapter on the reliability and validity of the measures. These show that the studies have high reliability in the sense that different studies of racial IQs give closely similar results. For instance, East Asians invariably obtain high IQs, not only in their own native homelands but in Singapore, Malaysia, Hawaii and North America. To establish the validity of the racial IQs he shows that they have high correlations with performance in the international studies of achievement in mathematics and science. Racial IQs also have high correlations with national economic development, providing a major contribution to the problem of why the peoples of some nations are rich and others poor. He argues further that the IQ differences between the races explain the differences in achievement in making the Neolithic transition from hunter-gathering to settled agriculture, the building of early civilizations, and the development of mature civilizations during the last two thousand years.

Lynn tackles the problem of the environmental and genetic determinants of race differences in intelligence and concludes that these contribute about equally to the phenotypic differences. He argues that the consistency of racial IQs in many different locations can only be explained by powerful genetic factors….

He elaborates the argument he has advanced over the last fifteen years that the race differences in intelligence have evolved as adaptations to colder environments as early humans migrated out of Africa. In North Africa and South Asia, and even more in Europe and Northeast Asia, these early humans encountered the problems of having to survive during cold winters when there were no plant foods and they had to hunt big game to survive. They also had to solve the problems of keeping warm. These required greater intelligence than was needed in tropical and semi-tropical equatorial Africa where plant foods are plentiful throughout the year….His analysis relating race differences in intelligence to exposure to low winter temperatures has recently been independently corroborated by Templer and Arikawa (2005)….

To the arguments presented by Jensen (1998) for a substantial genetic determination of the difference in intelligence between blacks and whites in the United States, Lynn adds a more general one. He advances the general principle of evolutionary biology that wherever subspecies, strains or races have evolved in different environments they invariably develop differences in all characteristics for which there is genetic variation as a result of mutations occurring in some subspecies and of adaptations to different environments, and asserts that intelligence cannot be an exception. He concludes witheringly that:

“The position of environmentalists that over the course of some 100,000 years peoples separated by geographical barriers in different parts of the world evolved into ten different races with pronounced genetic differences in morphology, blood groups and the incidence of genetic diseases, and yet have identical genotypes for intelligence, is so improbable that those who advance it must either be totally ignorant of the basic principles of evolutionary biology or else have a political agenda to deny the importance of race. Or both.”

Intelligence and Gender

On to the gender gap in IQ. There is a male-female gap, in favor of males, but it is much smaller than the black-white gap. In “Sex differences on the progressive matrices: A meta-analysis,” Intelligence, September-October 2004) Richard Lynn and Paul Irwing report this:

A meta-analysis…of 57 studies of sex differences in general population samples on [Raven’s] Progressive Matrices….showed that there is no difference among children aged 6–14 years, but that males obtain higher means from the age of 15 through to old age. Among adults, the male advantage is…equivalent to 5 IQ points. These results disconfirm the frequent assertion than there are no sex differences on the progressive matrices and support a developmental theory that a male advantage appears from the age of 15 years….

Given that [an] increasing female advantage in educational achievement coexists with somewhat lower scores among adult women on the progressive matrices, it can be inferred that there are other factors predominantly possessed by women that facilitate this achievement. Possibly, this may be stronger work motivation. Thus, it has been found in the United States that women obtain lower mean scores on the SAT-M [Scholastic Aptitude Test for Mathematics] but they did not obtain lower math grades (Wainer & Steinberg, 1992). The most probable explanation is that women’s stronger work motivation compensates for their lower test scores.

Rushton and Douglas N. Jackson confirm the male-female IQ gap in “Males have greater g: Sex differences in general mental ability from 100,000 17- to 18-year olds on the Scholastic Assessment Test” (Intelligence, September-October 2006). This is from the abstract:

In this study we found that 17- to 18-year old males averaged 3.63 IQ points higher than did their female counterparts on the 1991 Scholastic Assessment Test (SAT). We analysed 145 item responses from 46,509 males and 56,007 females (total N=102,516) using a principal components procedure. We found (1) the g factor [general intelligence] underlies both the SAT Verbal (SAT-V) and the SAT Mathematics (SAT-M) scales with the congruence between these components greater than 0.90; (2) the g components predict undergraduate grades better than do the traditionally used SAT-V and SAT-M scales; (3) the male and the female g factors are congruent in excess of .99; (4) male–female differences in g have a point-biserial effect size of 0.12 favoring males (equivalent to 3.63 IQ points); (5) male–female differences in g are present throughout the entire distribution of scores; (6) male–female differences in g are found at every socioeconomic level; and (7) male–female differences in g are found across several ethnic groups. We conclude that while the magnitude of the male–female difference in g is not large, it is real and non-trivial.

Jennifer Roback Morse, writing at Townhall.com on the concept of male-female equality, adds this:

Cambridge professor of Psychology and Psychiatrist Simon Baron-Cohen [who] reports on numerous studies that have found differences in skill levels between men and women. In his book, The Essential Difference: the Truth about the Male and Female Brain, Dr. Baron-Cohen explains that sex differences in math have been documented in children as young as seven years old. And when you look at the different aspects of math, an even more interesting fact emerges. There is no difference in the ability to calculate, or the “primary mathematical abilities.” The difference shows up in the “secondary abilities,” such as geometry, spatial relationships and problem-solving.
For instance, boys tend to perform better than girls at a test called the Mental Rotation Test. The examiner shows someone two shapes and asks whether they are mirror images of each other. This ability to visualize a shape even when rotated in space helps in a whole variety of other skills, including building things from plans, interpreting schematic drawings, tying knots or reading maps.

That is to say, males generally outperform females in key dimensions of intelligence, such as the capacity to reason, solve problems, and think abstractly. Why? Because male and female brains differ in fundamental ways. To put it another way, the female genome produces a somewhat different brain structure than that of the male genome.

Intelligence and Income: Intra-National Differences
Intelligence correlates with income and race on two levels: intra-nationally (within the U.S.) and internationally. Looking at the U.S., let us begin here:

Relation between IQ and earnings in the U.S.
IQ <75 75–90 90–110 110–125 >125
Age 18 2,000 5,000 8,000 8,000 21,000
Age 26 3,000 10,000 16,000 20,000 42,000
Age 32 5,000 12,400 20,000 27,000 48,000
Values are the average earnings (1993 US Dollars) of each IQ sub-population.

Next, consider this, from La Griffe du Lion, writing in March 2000:

Figure 3 shows how math SAT scores increase with family income for both whites and blacks….However, black students from families earning more than $70,000 (1995 dollars) score lower than white students whose families earned less than $10,000. Figure 4 shows more of the same for the verbal SAT. Here too, the wealthiest blacks score below the poorest whites. (Complete data can be found in Appendix B.)



For more, we go to the abstract of Anne Case and Christine Paxson’s NBER Working Paper No. 12466 (“Stature and Status: Height, Ability, and Labor Market Outcomes,” August 2006):

On average, taller people earn more because they are smarter. As early as age 3 — before schooling has had a chance to play a role — and throughout childhood, taller children perform significantly better on cognitive tests. The correlation between height in childhood and adulthood is approximately 0.7 for both men and women, so that tall children are much more likely to become tall adults. As adults, taller individuals are more likely to select into higher paying occupations that require more advanced verbal and numerical skills and greater intelligence, for which they earn handsome returns. Using four data sets from the US and the UK, we find that the height premium in adult earnings can be explained by childhood scores on cognitive tests. Furthermore, we show that taller adults select into occupations that have higher cognitive skill requirements and lower physical skill demands.

Finally, on the intra-national level, there is Jay L. Zagorsky’s paper, “Do you have to be smart to be rich? The impact of IQ on income, wealth, and financial distress.” (The paper, which has received much publicity, is still “in press” at the journal, Intelligence.) Zagorsky confirms the positive relationship between IQ and income but then, anomalously, posits no relationship between IQ and wealth (i.e., net worth):

How important is intelligence to financial success? Using the NLSY79, which tracks a large group of young U.S. baby boomers, this research shows that each point increase in IQ test scores raises income by between $234 and $616 per year after holding a variety of factors constant. Regression results suggest no statistically distinguishable relationship between IQ scores and wealth. Financial distress, such as problems paying bills, going bankrupt or reaching credit card limits, is related to IQ scores not linearly but instead in a quadratic relationship. This means higher IQ scores sometimes increase the probability of being in financial difficulty.

How could IQ positively affect income but not wealth, given that (for most of us) wealth is derived from income? Zagorsky doesn’t know, and admits as much; all he offers are non-quantitative guesses. Many others have made much of Zagorsky’s “findings” (envious Leftists, for the most part), but I have not yet found a critique of it by an academic economist. (It may be too soon for that; the paper was published only a few months ago.)

Here are some of my reactions to the paper. To begin with, IQ, wealth, and income are highly correlated, as you might expect. This is from Zagorsky’s paper:

The correlations at the bottom of the table are Zagorsky’s stated correlations between between IQ and net worth and IQ and income, respectively. Those correlations are for the entire data set (N=7403). But the correlations for the data given in table are as follows:

IQ and net worth — 0.981
IQ and income — 0.984
Net worth and income — 0.970

The point is that the low correlations reported by Zagorsky are, in fact, significant. There is a lot of “noise” in the data, but the underlying trends are what you would expect. That leads me to suspect that Zagorsky set out to find what he found. Here are some of my concerns and objections about what he found and how he found it:

  • There is the obvious anomaly in table 2, at the cell represented by IQ 110, where (a) net worth is lower than at IQ 105 and (b) income is barely higher than at IQ 105. How could that be if there are about 700 for that IQ cell, as one would expect given 11 IQ cells and a sample size >700?
  • For married persons, Zagorsky divided family income and wealth by two, so as to avoid a “bias” toward married persons. What that does, of course, is bias the results toward single persons, who generally earn less and have less wealth than married persons. (See, for example, the correlations for “ever married” and “divorced” in table 1 of the paper.) The income and wealth of a married person is his or her income and wealth, legal fictions aside. Family income and wealth is higher but not fully accounted for because the income and wealth contributed by a “non-working” spouse generally goes unrecognized. Dividing the income and wealth of married persons in half is a shady trick and/or an indication of Zagorsky’s incompetence.
  • In any event, Zagorsky wasn’t satisfied with the obviously strong relationships between IQ, income and wealth, so he used regression analysis to “control” for other factors other than income that might determine wealth. In the end, Zagorsky simply runs regression after regression, most of them meaningless because he uses the “kitchen sink” style of analysis: throwing in every variable at hand (e.g., siblings, ever married, ever divorced, heavy smoker, light smoker, and self-esteem(?)). It is regression analysis at its worst: a data-mining fishing expedition, pure and simple.
  • Where Zagorsky reports the results of regressions on a limited number of (mostly) relevant variables (table 3), the regression that best fits the data (highest r-squared) yields a positive coefficient on IQ.
  • Zagorsky draws largely on self-reported survey data (a major weakness, in itself) for persons aged 40 to 47 years. That is, Zagorsky’s sample represents persons who, for the most part, are a decade or three from their peak earnings and wealth. And persons with higher IQs will tend to accumulate wealth more rapidly than those with lower IQs because (a) they will have learned more from their past mistakes and (b) over a decade or three wealth usually grows at a rate that is closer to exponential than linear (compound interest, stocks for the long run, and all that).
  • Finally, it is clear that Zagorsky is in over his head. He is not an economist or statistician but, rather, some kind of sociologist. His home base is Ohio State’s Center for Human Resource Research. Some of his other research (if you can call it that) undermines the so-called findings that I have summarized here.

In sum, Zagorsky’s paper is junk. I felt obliged to acknowledge it because the “finding” about IQ and wealth garnered a lot of attention when the paper was published earlier this year.
Intelligence and Income: International Differences
I return to Rushton’s review of Lynn’s Race Differences: An Evolutionary Analysis:

Lynn’s book…tak[es] a global perspective and consists of a review more than 500 studies published world wide from the beginning of the twentieth century up to the present. He devotes a chapter to each of ten races, differentiated by Cavalli-Sforza, Menozzi and Piazza (1994) into “genetic clusters”, which he regards as a transparent euphemism for races.

His conclusions are that the East Asians (Chinese, Japanese and Koreans) have the highest mean IQ at 105. These are followed by the Europeans (IQ 100). Some way below these are the Inuit (Eskimos) (IQ 91), South East Asians (IQ 87), Native American Indians (IQ 87), Pacific Islanders (IQ 85), South Asians and North Africans (IQ 84). Well below these come the sub-Saharan Africans (IQ 67) followed by the Australian Aborigines (IQ 62). The least intelligent races are the Bushmen of the Kalahari desert together with the Pygmies of the Congo rain forests (IQ 54).

After the ten chapters setting out the evidence for each of the ten races there follows a chapter on the reliability and validity of the measures. These show that the studies have high reliability in the sense that different studies of racial IQs give closely similar results. For instance, East Asians invariably obtain high IQs, not only in their own native homelands but in Singapore, Malaysia, Hawaii and North America. To establish the validity of the racial IQs he shows that they have high correlations with performance in the international studies of achievement in mathematics and science. Racial IQs also have high correlations with national economic development, providing a major contribution to the problem of why the peoples of some nations are rich and others poor. He argues further that the IQ differences between the races explain the differences in achievement in making the Neolithic transition from hunter-gathering to settled agriculture, the building of early civilizations, and the development of mature civilizations during the last two thousand years.

Lynn tackles the problem of the environmental and genetic determinants of race differences in intelligence and concludes that these contribute about equally to the phenotypic differences. He argues that the consistency of racial IQs in many different locations can only be explained by powerful genetic factors. He works out the genetic contribution in most detail for the sub-Saharan Africans. His argument is that sub-Saharan Africans in the United States experience the same environment as whites, as regards determinants of intelligence. He argues that they have as good nutrition as whites, as shown by their having the same average height in studies going back to World War 1, and they have approximately the same education as whites. He presents evidence that blacks in the southern states have very little white ancestry and have an IQ of about 80, and that proposes that this can be adopted as the genotypic IQ of blacks, i.e. the IQ that blacks attain when they are reared in the same environment as whites. The IQ of blacks in sub-Saharan Africa is a good deal lower at 67. Hence, the adverse environment in sub-Saharan Africa, which he regards as consisting principally of poor nutrition and health, contributes about 13 IQ points to the low IQ in sub-Saharan Africa. Lynn’s estimate is not too different from that advanced in 1969 by Jensen to the effect that about two thirds of the low IQ of blacks in the United States is attributable to genetic factors, and the more recent estimate of Rushton and Jensen (2005) that the figure is around 80 percent. Lynn has (unsurprisingly for those familiar with his work) put a bit more weight on the genetic factor.

Lynn (with Tatu Vanhannen) had earlier (2002) written IQ and the Wealth of Nations (summary and criticisms, here). That book seems to be an outgrowth of a Lynn-Vanhannen article in The Mankind Quarterly (“National IQ and Economic Development: A Study of Eighty-One Developing Nations,” Summer 2001). (For corroboration of Lynn and Vanhannen’s findings about the positive influence of IQ on national output, see Garrett Jones and W. Joel Schneider’s “Intelligence, Human Capital, and Economic Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach,” June 2005.)
Gerhard Meisenberg, writing in “IQ Population Genetics: It’s Not as Simple as You Think” (The Mankind Quarterly, Winter 2003), offers a comprehensive view of the evolutionary causes of IQ differences across geographic regions and the effects of those differences on GDP. Meisenberg draws on the Lynn-Vanhannen data and many other sources. Meisenberg says that

[s]ome scholars, most notably Richard Lynn and Philippe Rushton, propose climate and ecology as selective forces. According to Lynn, the dependence on big-game hunting in northern climates necessitated complex social organization with efficient cooperation and intelligent planning, while tropical populations could always fall back on cognitively undemanding food gathering (Lynn, 1991).

Rushton emphasizes the need for close family ties and high parental investment in harsh climates. While most childhood mortality in the tropics was caused by uncontrollable endemic diseases, most childhood mortality in the arctic was due to the predictable challenges of seasonal food shortages and the rigors of the climate. These challenges demanded intelligent planning in addition to stable families (Rushton, 1995).

These theories postulate that physical and cognitive race differences evolved at roughly the same time, starting about 100,000 years ago when modern humans first ventured out of the tropics and into the inhospitable wastelands of central and northern Asia. Thus both Lynn and Rushton predict that intelligence genes cluster with climate-selected physical traits such as skin color. Both make the specific prediction that intelligence is highest in Mongoloids, lowest in Negroids, and intermediate in Caucasoids.

This prediction is borne out by the data in Table 1. The average IQ is 97.1 for Mongoloids, 93.9 for Caucasoids, and 69.6 for Negroids. IQ also correlates with latitude (Pearson’s r = 0.7559) and per-capita GDP (r = 0.7348). However, in multiple regression models with either latitude or GDP or both as copredictors of IQ, race remains a statistically significant predictor at the P

La Griffe du Lion has solved the puzzle. First, some background. La Griffe’s analysis of March 2002, highlights the “puzzle”:

In Figure 2, the [Lynn-Vanhannen] data [table here] is [sic] divided into contributions from four groups: blacks, (European) whites, East Asians and “others.” I did not include the outliers: South Africa, Barbados, Qatar and China.

Figure 2. Per capita GDP by racial group. “White” here means European white; “East Asian” means the racially homogenous polities: Taiwan, South Korea, Hong Kong, and Japan.

La Griffe, in a later post (May 2004) addresses the seeming anomaly in the relationship between IQ and GDP. As shown in the figure directly above, four East Asian (or Northeast Asian) countries (Hong Kong, South Korea, Japan, and Taiwan), which have the highest average IQs, do not have the highest per capita GDPs. The short of it is this: GDP is best explained by verbal IQ, as opposed to a measure of IQ that encompasses both verbal and quantitative skills. Thus figure 7:

La Griffe observes that the IQ of (North)east Asians

is bifurcated. NE Asians have the highest IQ of all peoples other than Ashkenazim. They owe that superior IQ, however, to extraordinary visuospatial ability, which, despite verbal shortcomings, lifts their IQ above that of Europeans….

Among the races, only NE Asians and Amerindians exhibit this particular kind of verbal-nonverbal cognitive split. For other races verbal and general IQ averages have similar values, making the distinction between the two transparent to smart fraction theory. In the 12 studies reporting both general and verbal IQ for NE Asians, the general-verbal gap averaged 6.5 IQ points….

[T]he spectacular visuospatial ability of NE Asians, while accounting for their high [overall] IQ scores, does not necessarily make them good capitalists. Hunting strategies have little to do with wealth production. And a new tool, irrespective of point of origin, is now soon available worldwide. The structure of NE Asian intelligence did not come about in response to pressures to be attorneys or editors or production managers or copywriters or salesmen or programmers or systems analysts or insurance adjusters or purchasing agents or account executives.

In sum, IQ strongly determines both personal income and, therefore, per capita GDP. Verbal IQ turns out to be an important (negative) determinant of income in those (few) cases where it is a relatively weak component of overall IQ.

But what about the influence of income on IQ? Let’s return to Meisenberg’s article:

The massive rise of IQ that took place in many countries over the past century shows conclusively that environmental effects can have a powerful effect on the average intellectual level of large populations. Presumably one or another aspect of “standard of living” is responsible for this secular trend: education, nutrition, health care, mass media, or, most likely, a combination of all of these.

Gross domestic product adjusted for purchasing power (GDP in Table 1) is an indicator for the population’s “standard of living”. If a high standard of living does indeed raise IQ test performance, then GDP should be an independent predictor of national IQ even when the effects of race and latitude are partialled out.

When race, latitude and GDP are used as co-predictors, GDP does indeed have an independent effect in predicting national IQ (P = 0.0007). In this model, race and latitude remain powerful independent predictors, each with P Flynn effect [link added: ED] these results suggest that the causal arrow points both ways. High intelligence produces a high standard of living, which in turn raises intelligence even more. Thus intelligence and economic development are mutually reinforcing in a positive feedback loop….

This feedback loop explains…the rise in mental test performance that has become known as the Flynn effect.

This feedback loop between intelligence and standard of living can explain the great magnitude of the IQ differences between nations. It predicts that even in cases where genetic differences affecting mental ability are small, the observed phenotypic differences become amplified because the slightly more gifted populations achieve a higher standard of living which raises their measured intelligence even more, which in turn raises their standard of living yet further. Similar “amplifier effects” have previously been proposed as explanations for the Flynn effect (Dickens and Flynn, 2001).

There you have it: The smarter get richer and the richer get smarter, not at the expense of the poorer and not-as-smart but by virtue of their genes and the material advantages afforded by those genes. Forceful transfers of income and wealth from the smarter and richer to the not-so-mart and poorer might be helpful to the latter — but more likely not, as I argue earlier. But such transfers definitely diminish the ability of the smarter and richer to help the not-so-smart in more lastingly productive ways: through technological advancement, job creation, mutually beneficial trade, and well-targeted charity.
CONCLUSION
Redistribution in an effort to make us “more equal” is not only counterproductive and unfair, it is futile. Or if not entirely futile, largely wasteful. All human beings (or at least those who are citizens and lawful residents of the U.S.) deserve equal rights. But the equal rights they deserve are the negative rights of the original Constitution, not the positive rights sought by generations of so-called liberals and progressives. There is nothing “liberal” or “progressive” (in the root meanings of those words) about redistribution.
Some related posts:
The Cost of Affirmative Action
Affirmative Action: A Modest Proposal
Race, Intelligence, and Affirmative Action
Affirmative Action: Two Views from the Academy
Affirmative Action, One More Time
Much Food for Thought
After the Bell Curve
A Footnote . . .
The Main Causes of Prosperity
Why Class Warfare Is Bad for Everyone
Fighting Myths with Facts
Debunking More Myths about Income Inequality
A Century of Progress?
Socialist Calculation and the Turing Test
Taxes, Charitable Giving, and Republicanism
Productivity Growth and Tax Cuts
Zero-Sum Thinking
Liberty, General Welfare, and the State
The Causes of Economic Growth
Republicanism, Economic Freedom, and Charitable Giving
The Last(?) Word about Income Inequality
Status, Spite, Envy, and Income Redistribution
Things to Come
__________
* The more controversial scientists whose work I sample here are Charles Murray, J. Phillipe Rushton, Richard Lynn, and Napoleon Chagnon.
Murray is controversial mainly for The Bell Curve, which brought to a wide audience the large body of long-standing evidence of persistent inter-racial differences in IQ. Rushton and Lynn are controversial because of their findings on race, gender, and intelligence, and because of their affiliation with the Pioneer Fund. The Fund’s roots and some of its current connections are tainted with the label “white supremacist.” The Fund (website here) has responded to those allegations. Whether Rushton, Lynn, and others who produce similar research are white supremacists is beside the question of the validity of their research. Judge for yourself.
Chagnon is controversial for other reasons, namely the ethics (or purported lack thereof) in his field work. (For Chagnon’s statements about the controversy, go here. See also Steven Malanga’s review of Chagnon’s Noble Savages, “Welcome to the Jungle,” City Journal,  April 13, 2014.) In the “small world” department, I note that Chagnon hails from the village where my maternal grandparents raised ten children. The doctor who delivered many of those children bore the name Napoleon Chagnon. The sketchy biographical information about the anthropologist (p. 6, here) indicates that he was not the son of the medical doctor, but given the village’s small population (perhaps 500 when the anthropologist was born), it seems likely that he was related to and named for the medical doctor (a grandson, perhaps). And it was in honor of “old Doc Chagnon” that my maternal grandparents chose Napoleon as the middle name of the tenth and last of their children.

The (Relatively) Rich Get Richer

UPDATED, BELOW

Proof, if more were needed, of the symbiotic relationship between politicians and bureaucrats. From two posts by Cato’s Chris Edwards:

[N]ew data for 2006 show that 1.8 million federal civilian workers earned an average $111,180 in total compensation (wages plus benefits). That is more than double the $55,470 average earned by U.S. workers in the private sector.

Looking just at wages, federal workers earned an average $73,406, which is 60 percent greater than the $45,995 average earned by private sector workers.

* * *

[N]ew data for 2006 show that the nation’s 16 million state and local government workers earned an average $61,727 in total compensation (wages plus benefits). That is 11 percent more than the $55,470 average earned by U.S. private sector workers.

Looking just at wages, state and local workers earned an average $46,937, which is similar to the $45,995 average earned by private sector workers. Thus the primary state and local advantage is the generous fringe benefits.

Whereas, federal workers — with the help of their friends in Congress — enjoy abundant fringe benefits as well as inflated base salaries.

Government compensation is like Social Security and Medicare. Politicians secure the allegiance of “seniors” by bestowing windfall returns on FICA “contributions” (e.g., the prescription drug benefit). Similarly, politicians secure the allegiance of government workers by bestowing on them above-market compensation.

UPDATE (4:45 p.m.): Arnold Kling wonders “if we’ve seen some redistribution of wealth away from the private sector and toward government workers and contractors since 2001.” I have no doubt of it, given the rate at which government workers’ compensation grew in the early 2000s.

According the Chris Edwards (first link above), “Average federal pay has soared in recent years, growing much faster than private sector pay between 2001 and 2005.” So, yes, there was a redistribution of wealth away from the private sector — “thanks” to federal, state, and local legislatures, which took from non-government workers and gave to government workers. Robin Hood in reverse.

I don’t begrudge increases in pay and benefits for members of military and police forces, to the extent that such increases were necessary for effective recruitment and retention efforts. As for other government “workers,” I say “get a job.”

Prof. Mankiw’s "D"

Harvard’s Greg Mankiw, responding to a reader’s request for “three [key] economic concepts,” offers this:

1. Comparative advantage and the gains from trade.

2. Supply, demand, and the efficiency of market equilibrium.

3. Market failure, such as externalities, and the role for government.

The lesson is that we can all gain from economic interdependence and that markets are a good, but not always perfect, way to coordinate people in an interdependent world.

Two out of three is only 67 percent. Where I went to school, that’s a “D” — at best.

Where’d Mankiw go wrong? By touting “market failure” as a legitimate concept. As I’ve said (here and here, at #16):

There’s no such thing as “market failure.” Rather, there is only failure of the market to provide what some people think it should provide.

* * *

Those who invoke market failure are asserting that certain social and economic outcomes should be “fixed” (as in a “fixed” boxing match) to correct the “mistakes” and “oversights” of the market. Those who seek certain outcomes then use the political process to compel those outcomes, regardless whether those outcomes are, on the whole, beneficial. The proponents of compulsion succeed (most of the time) because the benefits of government intervention are focused and therefore garner support from organized constituencies (i.e. interest groups and voting blocs), whereas the costs of government intervention are spread among taxpayers and/or buyers of government debt.

Mankiw — one of that rare breed: the Republican economist — reveals himself as a big-government conservative. (That’s not surprising, given his service as chairman of the Council of Economic Advisers under G.W. (“no child left behind”) Bush.) For example, here is a post about Giuliani’s health giveaway plan in which Mankiw seem to relish the fact that Giuliani’s plan resembles Bush’s giveaway plan.

A Case in Point

I wrote yesterday about the arrogance that underlies the redistributive urge:

It is liberals who empower the state to dictate the redistribution of income, even though redistribution is a violation of the very autonomy that liberals claim to value. Liberals are willing and ready to draw arbitrary lines between those who (in their view) deserve more income and those who deserve less of it. And liberals are more than willing and ready to use the power of the state to enforce their arbitrariness.

By the same token, liberals are unwilling to allow free institutions to determine who fares well and who fares poorly. And their unwillingness to do so undermines the ability of those free institutions to enable the “cold/sick/hungry/stupid/isolated” to better their lot by their own efforts, and to care for those who are unable to do so.

My only regret is the exclusive use of “liberals.” The arrogant attitude that “no one deserves to be so rich” extends beyond liberals. A good case in point is Sen. Chuck Grassley (R-IA). According to an article in the current issue of Newsweek, Grassley

has a profound frustration with superrich businesses and corporations that do not pay their fair share of taxes. Now the senior senator from Iowa is fighting to eliminate what he sees as a giant tax loophole by co-sponsoring legislation that would raise the tax rates (from 15 to 35 percent) on publicly traded partnerships like the private-equity giant Blackstone. To Grassley, the bill would help prevent ultrarich financiers from conspiring with their lawyers to “screw the taxpayer.” To his opponents, it’s a wrong-headed means of stunting economic growth.

Wrong-headed is right. (See below for a sample of the consequences of “soaking” the “super rich.”)

The Newsweek piece about Grassley is a sidebar to another article in the same issue of Newsweek, namely, “Taxing the Super Rich.” From the lede:

In Wall Street’s pecking order the partners in private-equity firms are the true aristocrats…Global in reach, able to marshal billions to buy big companies…Private-equity partners are not just in it for the money (though the successful ones make tons of it), but for the power to reshape whole industries. Unlike corporate CEOs, who are shackled by the short-term focus of shareholders, private-equity managers can swoop in and transform a troubled industry to create efficiency and growth. [Emphasis added: ED]

But that isn’t enough for the class-warfare crowd. Returning to the article:

Ever since the rise of the populists in the late 1800s, lawmakers have periodically threatened to soak the rich. Usually, these movements fizzle, partly because Americans hope that they, too, might one day become rich, and partly because there are good economic arguments against discouraging investment and the accumulation of wealth. But from time to time comes a tipping point. In the early 20th century, the Progressive Movement managed to impose a federal income tax, partly in reaction to the vast fortunes made during the late-19th-century Gilded Age.

Those vast fortunes were made because those who made them were responsible for the rapid economic growth of the late 1800s. Productivity rose so rapidly during that era that prices fell, even as the economy grew.

As for the fruits of the Progressive Movement — which imposed a federal income tax and punitive anti-trust and regulatory policies — read this, in which I point out:

  • Had the economy continued to grow at the rate of 1790-1907 (the era of laissez-faire, more or less), real GDP in 2035 would be $107 trillion (in year 2000 dollars).
  • If the economy continues to grow at the rate of 1970-2005 (the era of entrenched big government), real GDP in 2035 will be $27 trillion (in year 2000 dollars).
  • Thus the average American will “enjoy” about one-fourth the real output that would be his absent big government.

We owe the sharp drop in economic growth after 1907 to the Progressive Movement. The great-grandchildren of last century’s “progressives” haven’t seen enough. In their ignorance and arrogance, the wish to redouble our economic pain by “soaking” the “super rich” whose efforts — as even Newsweek admits — create efficiency and growth.

Related post: More Commandments of Economics (see #13)

Illogic from the Pro-Immigration Camp

UPDATED BELOW (07/04/07)

The usually sensible Don Boudreaux, writing at Cafe Hayek, says:

James D. Miller is not alone in arguing that the existence of the U.S. welfare state means that more open immigration — particularly of unskilled foreign workers — is unwise policy. My reasons for rejecting this argument are several, but at the top of the list is this reason: If immigrants come to America to suckle on the tits of American taxpayers, why does Uncle Sam spend so much effort trying to prevent these immigrants from working?

Boudreaux’s argument amounts to this:

  1. Some (including James D. Miller) argue that open (i.e., illegal) immigration is unwise because the existence of the U.S. welfare state attracts immigrants whose presence imposes a (net) cost on taxpaying Americans.
  2. The cost arises because the U.S. government spends “so much effort trying to prevent these [illegal] immigrants from working” instead of getting jobs and paying taxes.
  3. Therefore, if the U.S. government made it easier for illegal immigrants to work, their presence would not impose a (net) cost on taxpaying Americans.

Boudreaux’s simplistic response to Miller (et al.) omits these considerations:

  • Illegal immigration is…illegal. For the U.S. government to condone it (openly) by making it easier for illegal immigrants to work would create yet another excuse for the U.S. government to bestow special privileges (monetary, most likely) on yet some other “downtrodden” group (e.g., subsidies for U.S workers “displaced” by immigrants). Boudreaux, in effect, counsels behavior that would encourage the expansion of the welfare state.
  • Relatively few illegal immigrants have skills that are marketable at an above-subsistence wage. Legalizing the immigration of their ilk would only encourage the entry of even more unskilled workers, thus further increasing the burden on taxpaying Americans.

For a detailed analysis of the folly of open immigration, please read “An Immigration Roundup.”

UPDATE: Boudreaux, in this post, points to his article at TCS Daily (“Absorption Nation“), in which he argues that

America today can better absorb immigrants [than in the great wave of immigration that ended in the 1920s]. For example, compared to 1920, per person today we:

  • have 10 times more miles of paved roads
  • have more than twice as many physicians
  • have three times as many teachers
  • have 540 percent more police officers
  • have twice as many firefighters
  • produce 2.4 times more oil — as known reserves of oil grow
  • produce 2.67 times more cubic feet of lumber — as America’s supply of lumber stands grows
  • have conquered most of the infectious diseases that were major killers in the past.

Boudreaux conveniently overlooks (forgets?) the fact that the welfare state was almost non-existent in 1920: no Social Security, no Medicare, no Medicaid, no tax-funded courses in “English as a second language,” no AFDC (or little of its equivalent), no tax-funded day-care centers for the children of illegal immigrants, etc., etc., etc. America can absorb immigrants who pay their own way — as did the immigrants of yore (or their friends and families). But American should not absorb the type of immigrant Boudreaux seems so willing to subsidize — at my expense.

Things to Come

Revised, 09/24/07

Arnold Kling observes, in an article in the June 1 edition of TCS Daily, that

[according to The Forgotten Man by Amity Shlaes, Franklin] Roosevelt’s vaunted brain trust was divided as well as misguided. Some shared an outlook that one might trace back to Jefferson and Jackson, of hostility toward Wall Street finance and concentrated economic power. They wanted to break up large businesses and create a level playing field for the common man.

Others, however, were ready to embrace bigness. This group held that a modern economy was characterized by great economies of scale. They viewed laissez-faire capitalism as “horse-and-buggy economics.” They saw a future of collectivization and central planning. For this group, Italy and the Soviet Union represented successful role models.

Roosevelt turned to his populist advisers for campaign rhetoric and for tax proposals that would punish wealthy individuals and large corporations. But most of the New Deal, including the alphabet-soup agencies like the NRA and the TVA, reflected the influence of the collectivist-planners.

In the June 26 edition of TCS Daily, Kling predicts that

[t]he Democratic Party base does not want to see a rerun of President Clinton’s budget-balancing approach. They are looking instead at Franklin Roosevelt [the New Deal] and Lyndon B. Johnson [the Great Society] as models for the next Administration. In addition to socialized medicine, they want major new initiatives and dramatic spending increases in anti-poverty programs, education, and so on. They are not willing to be thwarted by questions about where the money might come from to pay for this….

My prediction is that we will see tax increases on estates, high incomes, and other popular targets….

If the economy remains strong, so that tax revenues are healthy, then the big spenders probably will get a lot of their wish list, such as government day-care programs, more money to throw down the public school drain, and job training programs. The only thing that can stop the next wave of taxpayer-funded feel-goodism would be a recession in 2008-2009.

Kling is right about Roosevelt, the Democrat Party, and the likely outcome of the 2008 election. Moreover, the economy is likely to remain strong — or to seem as if it remains strong — thus opening the way to a further expansion of the New Deal-Great Society. What will go unheeded is the insidious long-term effect of Rooseveltian-Johnsonian policies on the economy. As I wrote here and here,

  • Real GDP (in year 2000 dollars) was about $10.7 trillion in 2004.
  • If government had grown no more meddlesome after 1906 [when the modern regulatory state began, under the first Roosevelt], real GDP might have been $18.7 trillion….
  • That is, real GDP per American would have been about $63,000 (in year 2000 dollars) instead of $36,000.
  • That’s a deadweight loss to the average American of more than 40 percent of the income he or she might have enjoyed, absent the regulatory-welfare state.*
  • That loss is in addition to the 40-50 percent of current output which government drains from the productive sectors of the economy.

A principal result of economic ignorance is an inability to grasp the subtle, corrosive effects of big government on those things that drive economic progress: invention, innovation, entrepreneurship, the saving that funds those activities, and the hard work that makes possible the rest. Americans of today are far better off materially than Americans of a century ago — but very few Americans (and policymakers) understand how much better off they would be had they not clamored for (and delivered) bigger government.

Now, the question is how much worse off Americans will be a generation hence. To answer that question, I revisited the estimates of real GDP that underlie my earlier work. I used the new estimates in the following chart, dividing the data into four eras (described below) and indicating the exponential trends for two eras (1790-1907, 1970-2006).

This graph is based on new estimates of real GDP from Louis D. Johnston and Samuel H. Williamson, “The Annual Real and Nominal GDP for the United States, 1790 – Present.” Economic History Services, URL : http://eh.net/hmit/gdp/. The new estimates cover the period through 2006 (vice 2003 in my earlier work). On re-examining the data, I decided that 1907 (vice 1906) was the last year of the laissez-faire era; that is, the effects of TR’s anti-business policies did not begin to affect GDP growth seriously until 1908.

The four distinct eras and the annual rate of growth in real GDP during each of them:

  • 1790-1907: laissez-faire reigns (more or less) — 4.3% growth
  • 1908-1929: even though the peacetime tax burden remains about 10 percent of GDP, the modern regulatory state emerges — 3.3% growth
  • 1947-1969: post-Depression/post-WWII recovery underwrites the extension of the New Deal to the Great Society, imposing a heavier burden of taxation and regulation — 4.2% growth
  • 1970-2006: New Deal-Great Society policies are entrenched and extended through greater regulatory control of economic activity and an even greater tax burden — 3.1% growth

(I have omitted 1930-1946 because the GDP figures for World War II grossly overstate the value of goods and services available to the civilian population and (falsely) suggest a high rate of growth for era.)

For more about the effects of taxation and regulation on GDP growth, and the failure of the New Deal to bring the country out of the Great Depression, go here and here.

The bottom line (all GDP estimates are in year 2000 dollars):

  • Had the economy continued to grow after 1907 at the 1790-1907 rate, real GDP in 2006 would have been $32 trillion, vice the actual value of $11 trillion.
  • Thus my earlier work, linked above, vastly understates the deadweight loss owed to big government: I had estimated that loss at 40 percent of potential GDP; it was, in fact, about two-thirds of potential GDP.
  • Had the economy continued to grow after 1907 at the 1790-1907 rate, real GDP in 2035 (a generation hence) would be $108 trillion (in year 2000 dollars).
  • If the economy continues to grow at the 1970-2006 rate, real GDP in 2035 will be $30 trillion (in year 2000 dollars).
  • However, growth is very likely to be less than 3.1% annually, given the advent of a new New Deal-Great Society under a new, anti-business, pro-regulation Democrat regime.
  • Thus the average American will “enjoy” (at best) about 28 percent of the income that would be his absent the advent of the regulatory-welfare state.

That — I am sorry to say — is the shape of things to come economically.

I have discussed, in these posts, the shape of things to come socially.

Toward a Capital Theory of Value

David L. Prychitko addresses the labor theory of value:

The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx’s masterpiece, Capital (1867). Its basic claim is simple: the value of a commodity can be objectively measured by the average amount of labor hours that are required to produce that commodity.

If a pair of shoes usually takes twice as long to produce as a pair of pants, for example, then shoes are twice as valuable as pants. In the long run the competitive price of shoes will be twice the price of pants, regardless of the value of the physical inputs.

The labor theory of value is demonstrably false. But it did prevail among classical economists through the midnineteenth century. Adam Smith, for instance, flirted with a labor theory of value in his classic defense of capitalism, The Wealth of Nations (1776), while David Ricardo later systematized it in his Principles of Political Economy (1817), a text studied by generations of free-market economists.

So the labor theory of value was not unique to Marxism. Marx did attempt, however, to turn the theory against the champions of capitalism.

Now, I would not posit a parallel theory of value in which capital is central. But I will posit a capital theory of value along these lines:

1. A broad array of capital goods (e.g., metal presses and railroad cars) will produce the same outputs (e.g., auto body parts of a certain quality and a certain number of passenger-miles) despite wide variations in the intelligence, education, and motor skills of their operators.

2. That is to say, capital leverages labor (especially unskilled labor).

3. Rewards justifiably — if unpredictably — flow to those who invent capital goods, innovate improvements in capital goods, invest in the production of such goods, and take the risk of owning businesses that use such goods in the production of consumer goods and services.

4. The activities of those inventors, innovators, investors, and entrepreneurs constitute a form of labor, but it is a very special form. It is not the brute force kind of labor envisaged by Marx and his intellectual progeny. It is a kind of labor that involves mental acuity, special knowledge, a penchant for risk-taking, and — yes, at times — hard work.

Without capital, labor would produce far less than it does. Capital, by the same token, enables labor of a given quality to produce more than it otherwise would.

Vive le capitalisme!

People Are Idiots

The proof is found in the lede of an AP story:

People overwhelmingly support two of the Democrats’ top goals — increasing the minimum wage and making it easier to buy prescription drugs from other countries….

Increasing the minimum wage will hurt the class of persons it is intended to help. There will be fewer jobs (or worse working conditions) for those unskilled workers who now seek employment, and even fewer jobs for succeeding generations of unskilled workers.

Making it easier to buy prescription drugs from other countries will result in (a) fraudulent sales of inferior substitutes and (b) less R&D by American drug companies. Those results will harm the consumers of drugs.

As I say, people are idiots.

An Immigration Roundup

Go to this very long post at Liberty Corner II for a thorough debunking of the economic and sociological fallacies upon which the case for unfettered immigration has been built. The post at Liberty Corner II consolidates and replaces several posts about immigration.

300,000,000 and Growing

The population of the United States has passed the 300,000,000 mark. (See here.) John Tierney and Austin Bay (channeling Mark Steyn) explain why population growth is a good thing. I agree that it is.

Among the seven main causes of economic growth that I discuss here is population growth, which

means more people to work “hard” and “smart”; more output that can be saved and invested; more inventors, innovators, and entrepreneurs whose activities can be leveraged into greater per-capita output; and a multiplication of opportunities for beneficial voluntary exchange.

As I observe here, population growth is a testament to the ability of the human race to provide for itself. What is relevant is not that some people today live in wealth while many more live in poverty, but that human beings — on the whole — are far better off than they were 100, 1,000, and 10,000 years ago. Thus:

Estimates for -400 through 1800 are from U.S. Census Bureau, “Historical Estimates of World Population“; estimate for 2000 is from U.S. Census Bureau, “Total Midyear Population for the World: 1950-2050.” Year 1 is plotted as Year 0 for ease of illustration. “Upper” estimates are used for -400 through 1800 (where given) because those estimates are taken from a series that extends from -10000 through 1950, and the upper estimate for 1950 in that series agrees with the estimate for 1950 in the series for 1950-2050.

Why So Few Free-Market Economists?

In “Is There a Free Market Economist in the House? The Policy Views of American Economic Association Members,” Daniel B. Klein and Charlotta Stern report:

People often suppose or imply that free-market economists constitute a significant portion of all economists. We surveyed American Economic Association members and asked their views on 18 specific forms of government activism. We find that about 8 percent of AEA members can be considered supporters of free-market principles, and that less than 3 percent may be called strong supporters. [Abstract of the paper]

Klein and Stern, in the text of their paper, say that

[s]upporters of free-market principles, we maintain, would score at least a 4.0 on the 18-question policy index [available here], and strong supporters would score at least a 4.5. By contrast, the mean for the 264 AEA members who completed the survey was 2.64. When we speak of supporting free-market principles, we do not mean being supportive relative to other academics and intellectuals. Rather, we mean supporting free-market principles, which implies opposing contraventions of individual liberty.

My score, which will come as no surprise to readers of this blog, was 4.67. Where did I go “wrong” — why not a perfect score of 5.0? With regard to question 16, which asks about “tighter rather than looser controls on immigration,” I strongly oppose unselective immigration on economic and social grounds, for reasons detailed here. Also, the answer to question 17, which asks about “military aid or presence abroad to promote democracy and the rule of law,” must take into account whether (in particular cases) such actions serve Americans’ long-run interets.

Klein and Stern offer an alternative analysis, in which they drop two questions that seem unrelated to free-market principles: the one about military aid or presence abroad that I discuss above, and one about monetary policy. Dropping those two questions has little effect on the results of the analysis; the average score barely rises, from 2.64 to 2.66. (My score drops from 4.67 to 4.44.) For the 16 issues, the mean score for self-identified Democrats was 2.34, as against 3.30 for self-identified Republicans. Although Republicans are, on average, “middle of the road” (according to Klein and Stern), the distribution of scores highlights the marked difference between Democrat and Republican economists:

Klein and Stern propose several answers to my question — “Why so few free-market economists?” — none of which I find compelling. I offer two answers. First, relatively few academic economists self-indentify as libertarians; the average score of those who did was 4.30. Second, libertarians aside, most persons who garner a Ph.D. in economics (i.e., most members of the AEA) go through a “hazing ritual,” which Arnold Kling describes:

One of the best incumbent-protection rackets going today is for mathematical theorists in economics departments. The top departments will not certify someone as being qualified to have an advanced degree without first subjecting the student to the most rigorous mathematical economic theory. The rationale for this is reminiscent of fraternity hazing. “We went through it, so should they.”

Mathematical hazing persists even though there are signs that the prestige of math is on the decline within the profession. The important Clark Medal, awarded to the most accomplished American economist under the age of 40, has not gone to a mathematical theorist since 1989.

One of the consequences of indoctrination in mathematical economics is that its practitioners come to believe, wrongly, in their understanding of and ability to predict economic phenomona. That leads them to the consequent belief that — if only they or like-minded persons were “in charge” — the economy could be fine-tuned, in the large and in the small. Fine-tuning in the small means, among other things, preventing or correcting so-called market failures, which are those market outcomes of which self-deludely “omniscient” economists disapprove.

Related posts:
About Economic Forecasting
Is Economics a Science?
Economics as Science
Maybe Economics Is a Science
Hemibel Thinking
Physics Envy
Proof That “Smart” Economists Can Be Stupid
Time to Retire the Fair Model
The Thing about Science
What’s Wrong with Game Theory
Debunking “Scientific Objectivity”
Science’s Anti-Scientific Bent
Libertarian Paternalism
A Libertarian Paternalist’s Dream World
The Short Answer to Libertarian Paternalism
Second-Guessing, Paternalism, Parentalism, and Choice
Another Thought about Libertarian Paternalism
Another Voice Against the New Paternalism
Slippery Paternalists
Ten Commandments of Economics
More Commandments of Economics
Science, Axioms, and Economics< Mathematical Economics
Economics, the Dismal (Non) Science