IQ and Economic Growth

I finally got around the writing up a review of Hive Mind, by Garett Jones. Short version is that the book is excellent, and well worth reading. I'll get into more detail below, but the book explores the importance of cognitive skills (as measured by IQ) for economic development.

There are several reasons to like it. First, the book has absolutely no fat on it. This is a model of concise explanatory writing. Most books that try to bring recent research to the public end up bloated. Not this one. Five stars for clarity here.

Onto the content. There are really two parts to the book. First, Jones establishes that ``cognitive skills'' are in fact highly correlated with economic development, and a subsidiary part of this is establishing that IQ is just one of many ways of measuring ``cognitive skills''.

I'm not going to go into a lot of detail here. Like I said, the book is very lean and you can easily read Jones' own words on this. Let me summarize by listing his own five main channels for how IQ is related to economic development. In italics next to the channel are a few comments of my own on them.

1. High IQ's are related to higher savings rates. But we have evidence that savings rates don't actually vary a whole lot across countries, and that what variation there is explains little.
2. High IQ's are related to more cooperation. For my money, the most important channel. Economic development looks a lot like people choosing the ``cooperate'' equilibrium in a repeated game. High IQ may be a marker for people willing to play this move, and to play it first, and often, even though the other players could take advantage of them.
3. High IQ's are related to market-oriented policies. Perhaps it is that high IQ people believe in their own ability to succeed?
4. High IQ's are related to using team-based technologies. I think I would lump this in with cooperation.
5. People like to conform. This isn't about IQ itself. But if you have lots of high IQ people with those other traits, then even those without high IQ's will try to conform. A critical mass of high IQ people may be sufficient to reach the good equilibrium.

Let's be clear here about the role of high IQ's. They are a marker, not necessarily a cause, of these behaviors and traits. Jones is clear on this, and is not making some strong causal claim. Rather, think of all these traits (including high IQ scores) as a package of traits that tend to come together. Call these traits ``cognitive skills'', as they typically involve some kind of ability to do abstract thinking.

An interesting note here is that lots of what the labor literature calls ``non-cognitive skills'' are what, I think, Jones would lump under cognitive skills. For example, patience is something that some refer to as a non-cognitive skill, but for Jones it is part of the package of abilities that come along with relatively high IQ levels.

The wrong conclusion to draw from Jones' book is that there is some kind of fixed genetic difference in intelligence across countries that explains why some are rich and some are poor. These traits are malleable, as evidenced by the ``Flynn Effect'' of rising IQ scores over time. Cognitive skills certainly are related to economic development, but they are better seen as a more refined measure of human capital than years of schooling. You can invest in cognitive skills the same way that you can invest in years of schooling. One possibility might be more extensive pre-schooling that teaches those ``non-cognitive skills'' that are associated with IQ.

By the way, Feyrer, Politi, and Weil have a paper coming out on how iodizing water helped raise IQ scores in the US. There may be direct public health measures that could materially impact cognitive skills and IQ in developing countries.

The second part of the book delves more specifically into Jones' research on the returns to IQ, or cognitive skills. Namely, why is there such a small premium on IQ within countries, but such a large premium to IQ across countries? Again, I'm not going to lay into a lot of detail here, he does a nice job in the book explaining the theory here. Let me try to give you the basic intuition.

High-IQ places are able to take on ``fragile'' production processes, where even one mistake ruins the output (e.g. a semiconductor or a hit movie). Economists often call these ``O-ring'' processes, after the Challenger disaster. Having lots of high IQ people means you have lots of high productivity, fragile, production processes, and this creates demand for other, non-fragile, production processes (e.g. retail). The high demand for the non-fragile process means that wages are relatively high for the low IQ people who can work that sector. Hence there is little difference in wages between the high-IQ people and the low-IQ people. But the average wage is incredibly high, because the economy engages in these productive, fragile production processes. So high IQ countries are very rich compared to low IQ countries.

Let me add that this disconnect of the within-country return to a trait (IQ, years of education, etc..) and the cross-country return to the same trait is littered all over the growth literature. Sometimes we think about these positive spillovers/externalities, but for the most part we do not. One nice thing about Jones' book (and prior research) is that he does think about these things seriously. Even if you don't buy the first part of the book, it is worth reading the second part (substitute ``high-skill'' or ``high-education'' in everywhere you see ``high-IQ'' and you'll be fine).

I'll be assigning parts of this to my undergrads this semester. It should be a fun day of class.