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Wednesday, 10 November 2010

Economic Parasites

A Question of Intelligence

A question that’s oft-perplexed economists is why some countries are so much less successful, economically, than others. Huge reams of research have been generated developing a wide range of theories until eventually someone came up with the obvious answer. Poor countries are poor because their people are stupid.

Fortunately what’s the obvious answer to one set of researchers is the departure point for another group. It turns out that while the simple and straightforward answer has an element of truth about it, it’s only a small part of the story.

Objective Research, Subjective Opinions

It’s an unfortunate fact that dispassionate scientific research is rarely very dispassionate. Sometimes it’s not very scientific either, but there’s a tricky grey area where the research is genuine, the results are clear-cut but the interpretation is bound up in people’s perception of the subject under analysis. We approach all topics in the light of our expectations and a lot of us aren’t very good at changing our minds when it turns out we’re wrong. One of the areas where this happens all too often is the analysis of human intelligence.

To start with it’s actually pretty hard to define ‘intelligence’ and there’s plenty of debate about what IQ tests actually measure. As discussed in What's Your Financial IQ? it's far from obvious that it's intelligence however you define it. Arguable it’s the ability to take IQ tests, but even if we leave that aside and agree that there is one number that defines human intellectual capacity that tells us very little about the native intelligence of any person or group.

A History of Intelligence

It’s no coincidence that the history of intelligence testing has been wrapped up with questions of social class in the UK and racial identity in the US because these have been subjects of huge social interest in those countries. The originator of this line of thinking was Francis Galton and, as we saw in Regression to the Mean: Of Nazis and Investment Analysis, it was based on a mis-interpretation of the biology of mean regression.

So studies down the years have claimed to show that the UK’s lower social classes and the US’s black population exhibit, on average, lower intelligence than higher social classes and the non-black population respectively. More nuanced commentators have been unable to avoid pointing out that the researchers invariably come from higher social classes and the non-black population. They wonder, idly, whether the research is finding what its instigators want to find.

Once again let’s put this argument to one side, with the observation that even if these groups do have lower I.Q. test results, whatever that means, that this says nothing about innate abilities. Nothing here tells us whether intelligence is something we’re born with or something we develop as we mature through growing up in a nurturing environment. After all, if you take two hothouse plants, one with yellow flowers and one with red and place the yellow plant in a hothouse and the red one in a cooler we don’t generally conclude that the red variety is genetically inferior.

Poor by Colonisation

Unfortunately such a nuanced view doesn’t sell books or gain publicity so it’s usually only when someone starts making controversial ‘scientific’ statements about the topic that it gets (another) hearing. Given this history it’s perhaps a bit surprising that it’s taken as long as it has for someone to come up with the idea that the reason poor countries are poor is that they’re home to an above average number of below average intelligent people.

As we’ve seen previously in History's Financial Shadow research has suggested that a country’s economic wealth is somehow bound up with its geography and/or its history: it certainly seems that both have some role to play. A historical legacy of strong colonial institutions seems to be predictive of better economic development and one suggestion is that where geography prevented effective colonisation by Western European nations the colonised country suffered a double whammy – not only did the coloniser not introduce powerful institutions but they also tended to damage the country’s existing ones by stealing everything they could and exploiting the native population something rotten.

Poor by Nature

Anyway Richard Lynn and Tatu Vanhanen have hypothesised that the reason for the poor economic growth in the world’s poorest nations wasn’t history or institutions – at least not directly – but the lower intelligence of their peoples. And when they did the analysis that’s more or less what they found. Ignoring arguments about the nature of intelligence testing the research provides a powerful set of data suggesting that the basic hypothesis is correct.

This, of course, is a dispiriting result, however true it might be. It suggests that attempts to help such countries are forever doomed and, to be honest, the idea that people are destined to a life of poverty simply because they’re born in the wrong place is a fairly gloomy prognosis for humanity generally. Although not all of us can end up bestriding the globe like colossi – or at least earning enough to go on holiday – it’s at least a pleasant conceit to think we all have the possibility within us.

Still, the finding doesn’t quite end the story because it’s one thing to discover that the poorest countries have the dumbest people – and to make the connection between the two – but it’s entirely another to understand why this is the case. It’s easy to conclude that this is simply the way things are – just as researchers into intelligence differences between the social classes in nineteenth century England “proved” that the lower classes were dumber, while ignoring the effects of poor sanitation, dreadful diets and working conditions that make today’s third-world sweatshops look like pleasure palaces.

Poor by Parasite

Eppig, Fincher and Thornhill wondered if something similar was happening to the people in the world’s poorest countries and started casting about for something in the environment that might impact brain development. Once you do that it isn’t too hard to come up with ideas and one of the more obvious ones is the impact of disease and, in particular parasites, on cognitive development. Perhaps, they hypothesised; parasitic infections were redirecting the resources of developing bodies away from the brain, leading to poorer development of cognitive functions.

Well, they did their research and, subject to all the caveats that science requires, what they found essentially confirms their hypothesis. As they relate in Parasite Prevalence And The Worldwide Distribution Of Cognitive Ability poor countries are indeed poor because their populations are less intelligent. However this is nothing to do with innate ability but is because they’re infected with parasites in infancy because disease prevention systems are inadequate because their countries can’t afford them because they’re poor. Or: countries are poor because they’re poor, but also because they’re directing what money they have at the wrong targets.

In fact this suggest an area that foreign aid budgets might usefully be spent in, rather than delivering large amounts of cash to morally suspect and dubiously mandated leaders. Directly supplying mosquito nets and water purification systems is likely to do far more to raise more people in poor nations out of poverty than any number of other, more worthy schemes.

Benficial Economics

It’s refreshing to find an intelligence related study that goes beyond the obvious idea that poor people are poor because they’re stupid to try and figure out why they’re stupid. The human brain is an incredibly plastic system, capable of dealing with all sorts of trauma and coping with completely unpredictable situations. It’s implausible to the greatest degree that variations in cognitive development across class, race or country are genetic in origin.

It’s all too easy to feel that economics is about a bunch of smart people coming up with wacky theories and then promoting them assiduously without feeling any responsibility for the effects they cause when implemented. Quite often this is true, but not always – sometimes you find a study that is genuinely enlightening and helps us change the world for the better. It’s just a bit sad that usually it takes a non-economist to do the research.


Related articles: Intelligence Can Seriously Damage Your Wealth, What's Your Financial IQ?, Money and Minds

11 comments:

  1. It’s all too easy to feel that economics is about a bunch of smart people coming up with wacky theories and then promoting them assiduously without feeling any responsibility for the effects they cause when implemented.

    I relate.

    Many economists are good people. But we all have responsibilities to speak up when we see things going on around us that are not right. Too many in the economics field have failed to speak up for too long about too much.

    Rob

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  2. Tim,


    How about capitalism, private property and free markets? Not even mentioned in your article. Are you taking those things for granted?


    Regards,
    Kevin

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  3. Hi Kevin

    How about capitalism, private property and free markets? Not even mentioned in your article. Are you taking those things for granted?

    I'm not really sure of the context of that question. Do you mean; "aren't these things that economists have been responsible for?", with the secondary rider; "and aren't these things good"?

    If so, it's a fascinating question and one I've been spending a lot of time on recently, the results of which will appear eventually. However, I think the answer is a tentative and qualified "yes". Basically markets, property rights and the like have been around longer than economists. What economics has enabled is greater quantification of risk and therefore greater utilisation of capital and therefore greater growth. Accompanying this have been bigger failures when the models fail and an increasingly homogenous way of measuring non-financial stuff in the language of economics as a way of making choices without moral sympathy.

    So these aren't unqualified benefits, although I tend to feel that they're probably worth the downside. Where it gets more complex is where free markets interact with personal freedom: and if the cost of more freedom is greater volatility and worse economics then so be it: "nudging" people into making the "right" decisions opens up the question of who decides what is "right". But I don't believe the "capitalism" we have today is the only possible system: for instance the "capitalism" of Adam Smith's time would be a different template, a world without giant corporations with the status of immortal people ...

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  4. Capitalism, private markets and property fall into precisely the trap that was discussed here. When you measure richness in monetary terms then your hypothesis is proved by construction.

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  5. This comment has been removed by the author.

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  6. Tim,

    My comment is not only are those things good, but the driving force between the disparity between rich and poor countries.

    Capitalism = Freedom. The problem today is that many people don't have the foggiest clue what the word means, and how it works.

    Remove the productive capital from the USA and they are no different from any other nation. Freedom has unleased the human potential there. Are the Russians stupid people? Absolutely Not. It's becuase socialism only works till you run out of other people's money (Margret Thatcher).

    Best Regards,
    Kevin

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  7. I don't quite see what socialism has to do with deep poverty in Equatorial Guinea. Nor do the deeply socialist Nordic states seem to have a problem with freedom or wealth. Nor does the wide disparity between the wealthy and the very poor in the US indicate that capitalism is the solution to all issues even if only measured financially. Moreover history shows fairly clearly that economic development leads to political freedom, not the other way around: the problem is kick-starting the virtuous circle.

    However, to get back to the article, if it is the case that economic development is held back in the poorest countries because their human capital is damaged by parasitic infection in infancy then no amount of intervention by economists introducing property rights and free markets and all of the other baggage of capitalism is going to make much difference. It's like trying to treat a brain tumour by psychoanalysis, well-meant but hopeless.

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  8. Really?

    I'm sure health-based detriments to intelligence (such are parisitism & malnutrition) are a factor in many places, but I doubt they are the main factor.

    Do you really think North Koreans are on average less intelligent than South Koreans? Are Zimbabweans less intelligent than South Africans?

    One quarter of the world population doesn't have running water, much less electricity, decent schools, responsive government, access to credit, computers, and so on.

    Its like we're playing a game of monopoly, and some players start with the usual $1500, while others start with $20. Its a bum deal.

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  9. Hi Tim,

    I can see I won't be getting anywhere with you caricature of capitalism.

    You said, "no amount of intervention by economists introducing property rights and free markets and all of the other baggage of capitalism is going to make much difference.

    Economist didn't introduce nor create those things.

    I would suggest reading "The Road to Serfdom" by Friedrich von Hayek. Brilliant book, that discussed the issues you raised and problem that socialism and tyranny has caused when freedom is taken away.

    The book is refreshing because it is much more balanced that taking to an austrian economist. Specifically Hayek discusses how after a country has reached a certain level of economic wealth it can afford to offer basic security to it's citizen without threating freedom. That can be social security and healthcare.

    Austrian economists, like those at the Mises institute are blinded by their political ideology.

    If you want to go deeper into the success of the west, I would suggest reading The Victory of Reason - How Christianity led to Freedom, Capitalism and Western Success (By Rodney Stark). Now even mentioning Christianity had any part in it will raise a firestorm of controvery, I'm sure.

    Once I really understood what capitalism is and isn't, the fog cleared.

    We don't have capitalism in Canada or the US, or Britian. Economic issues always have and will be caused by intervention in the markets. Intelligent people were acting rationally in the US as the housing bubble was built. If interest rates were market driven not dictated by the Federal Reserve, everyone would have made different choices. That is why they all were surprised when it happened, because market participants were all acting rationally.

    Good luck,
    Kevin

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  10. Kevin, what is the interest rate in a credit based monetary system? Every bank can generate as much credit as you want with its keyboard. So what is this interest that you refer to?

    Looks like you think that Fed is pushing rates down while in reality Fed is pushing rates up. Natural nominal risk free interest rate in any economy is zero. It is the rate that you get holding cash.

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  11. Is there an equivalent of Godwins Law for the appearance of Hayek/Rand fans on economic discussions?

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