Some people like murder mystery novels. I much prefer intellectual mysteries like that in Garett Jones’ new book Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own:
Over a decade ago I began my research into how IQ matters for nations. I soon found that the strong link between average IQ and national productivity couldn’t be explained with just the conventional finding that IQ predicts higher wages. IQ apparently mattered far more for nations than for individuals. In my early work, I estimated that IQ mattered about six times more for nations than for individuals: your nation’s IQ mattered so much more than your own. That puzzle, that paradox of IQ, is what set me on my intellectual journey. …
I’ll lay out five major channels for how IQ can pay off more for nations than for you as an individual:
1. High-scoring people tend to save more, and some of that savings stays in their home country. More savings mean more machines, more computers, more technology to work with, which helps make everyone in the nation more productive.
2. High-scoring groups tend to be more cooperative. And cooperation is a key ingredient for building higher-quality governments and more productive businesses.
3. High-scoring groups are more likely to support market-oriented policies, a key to national prosperity. People who do well on standardized tests also tend to be better at remembering information, and informed voters are an important ingredient for good government.
4. High-scoring groups will tend to be more successful at using highly productive team-based technology. With these “weakest link” technologies, one misstep can destroy the product’s value, so getting high-quality workers together is crucial. Think about computer chips, summer blockbuster films, cooperative mega-mergers.
5. The human tendency to conform, at least a little, creates a fifth channel that multiplies the effect of the other four: the imitation channel, the peer effect channel. Even a small tendency to conform, to act just a little bit like those around us, too try to fit in, tends to quietly shape our behavior. If you have cooperative, patient, well-informed neighbors, that probably makes you a bit more cooperative, patient, and well-informed.
Of course, test scores don’t explain everything about the wealth of nations: I’m only claiming that IQ-type scores explain about half of everything across countries – and much less within a country.
The question of why IQ matters more for nations than individuals does indeed seem quite important, and quite puzzling, and Jones is to be praised for his readable and informative book calling it to our attention. And the five explanations Jones offers are indeed, as he claims, channels by which each of us benefits from the IQ of the people around us.
However (you knew that was coming, right?), when we benefit from the IQ of people nearby who are within the scope of shared social institutions, then institution access prices can reflect these benefits. For example, employers can pay more for a smart employee who is not only more productive personally, but also raises the productivity of co-workers. Landlords can offer lower rents to people that other renters want to be near. Stores can offer discounts to customers that other customers like nearby when they are shopping. And clubs can offer discounts to entice memberships from those with which others like to associate.
So simple economic theory leads us to expect that the benefits that smart people give to others nearby, within these shared priced-entry institutions, will be reflected in their incomes. Specifically, people can plausibly pay more to live, club, shop, and work near and influenced by others who are more patient, cooperative, informed, and reliable. So these local benefits of smart associates do not plausibly explain the difference between how individual and national IQ correlate with income.
To explain this key difference (a factor of six!) we need big market or government failures. These could result if:
Small social institutions such as firms, clubs, malls, and rental housing suffer some severe and as yet unidentified market failures which prevent them from favoring the smart.
Benefits from the smart span such long social distances that they are not encompassed by shared social institutions with low enough transaction costs to allow deals to favor the smart. Maybe, for example, large metropolitan areas just can’t make effective deals on policies to favor attracting the smart, and pushing away the stupid.
Governments with structures that fail to prevent the stupid and impatient from greatly influencing government policy. Such prevention might happen via restricting the franchise in democracies, by auctioning governance to a highest bidder, or via institutions like futarchy tied to long-term outcomes.
This third explanation seems by far the most plausible to me, especially via the government impatience channel. After all, while the stupid might be persuaded to see a benefit in adopting government institutions that give more influence to the smart, the impatient may just not see much benefit from their point of view in having a more patient government.
Adopting this as my tentative explanation, I must admit to now being more nervous about allowing more impatient and stupid immigrants, though as Bryan Caplan points out, that still allows for taking on billions of smart immigrants. But even if I’m now mildly more reluctant to take on certain kinds of immigrants, I’ll blame that mainly on our poor governance institutions, which give too much weight to the stupid and the impatient.
P.S. I’m aware that Jones has a formal model wherein a certain kind of nation-IQ correlation is larger than a certain kind of individual-IQ correlation. The model has two industries, one where reliability matters greatly, and one where it matters much less, and two kinds of workers, a set of identical and very reliable workers and another set of less reliable workers who vary in their reliability. Only the identical very reliable workers work in the industry where reliability matters a lot, but some of these workers also work in the industry where reliability matters less, and within that second industry, there is only a weak correlation between reliability and wages. But if we compare nations that differ in the value of the high identical reliability among the workers in the industry where reliability matters, we’ll see that national income varies greatly with this reliability parameter. Yes this is a valid formal model, but it seems fragile and I doubt it robustly generalizes well to more complex situations; I just don’t think it works as a robust account of why national IQ matters more than individual IQ for wages.