Category Archives: Economics

It’s the Money

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A topic that never gets the attention it deserves is the role of credit money in the modern technological economy. More important, the role of this new money, built for a technological society, is having on the old economy, where most everyone lives and works. Outside of Silicon Valley, Washington and New York, most people exist in the late-industrial age. Their money, however, is designed for the post-industrial, technological age where information and network positioning is the basis of value.

The current setup with the dollar as the reserve currency pegged to nothing more than the hopes and dreams if the Federal Reserve is a new thing in history. In fact, it is one of the truly new things in the last thousand years. Since the Louvre Accords formalized the currency arrangements we have today, debt of all types has exploded. You see it quite clearly in this article from the Free Press about Detroit’s woes. Right in the mid to late 1980’s, Detroit went from a declining debt path to a skyrocketing debt path.

The article, of course, does not address the role of credit money and instead tries to shift the blame to its favorite bad guys. The truth is, the unfolding debt crisis has very little to do with policy decisions made by Mayors, Governors or even Congress. It is the result of the shift change in the currency arrangements of the world. The old market restraints, based on the bond issuer’s ability to pay, have been changed to a system where restraint is based on the ability of the system to absorb new debt.

Many people recognize the debt problem, but they don’t understand the underlying cause, instead falling on old chestnuts like “Fiat Currency!” Our economic elites think the answer to the debt crisis is more debt. Some of it is narrow self-interest, as debt creation offers profit opportunities. Others are just true believers who get misty eyed whenever someone mentions capitalism. Then, of course, most people struggle to understand a a shadow banking system with its trillions in complex derivatives.

Cities like Detroit certainly suffer from a collapse of human capital, but that’s not the cause of their debt problems. In the old system, where an ability to pay would have been a restraint on debt issuance, the city would have had to cut services long before the debt load became dangerous. In a system that is hungry for debt, there’s no shortage of people willing to take the Detroit paper. This has allowed the global financial system to loot American cities by offering debt these cities can never repay.

The bankruptcies of American cities are just a tremor, one that everyone will ignore, as these can be papered over by new debt from states. The looming pension problem will be a much bigger tremor, as there will be no way to pay the debt owed to baby boomers retiring from the civil service. At some point, probably in the next decade, the great credit expansion will reach some natural limit that no one currently understands and then we get the real crisis. Detroit will look like good times.

Uncreative Destruction

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Libertarians and conservatives love tossing out Schumpeter’s gale, the observation that new stuff destroys and replaces old stuff. The automobile destroyed the buggy whip business, but created whole new industries for the repair of cars. That’s fine and largely true, but Marx, from whom Schumpeter stole the idea, was also right. Capitalism will, if allowed to operate unfettered, destroy itself. It’s why Buckley said “The trouble with socialism is socialism. The trouble with capitalism is capitalists.”

We are seeing this maybe in the cable TV business. Every home in America has cable or satellite now. There’s no growth in that business. The cable companies and content providers are trying to wring out more money by raising fees and charging more for the product. The response is people cutting the cord. News reports claim that the number of homes dropping TV has gone from under two million to over five million in the last few years. I know a few people who have pulled the plug. I’m considering it.

Some like to argue that the new services are driving the cord cutting. Why pay for cable when you can get Hulu or Amazon? Well, those services are pretty crude, so it’s unlikely that they are driving the trend. Instead, it is people responding to the declining quality and rising cost of cable television. There’s also a cultural element. If you are white, television is now an endless assault on your dignity and patience. You can only be called a racist for so long before you accept it and turn off the television.

The reason you need government to prevent consolidation in the marketplace is to not only protect customers, but to protect markets. In the case of natural monopolies, like power and gas, the state has to provide the role the market would play in setting prices and protecting consumer rights. By allowing cable companies to bundle channels and monopolize whole areas of the country, the cable business is in trouble. In other words, the market needs to be protected from itself in order to survive.

Another area where uncreative destruction is creeping into the discussion is cell phones. This is a huge scam based on cheap credit. That iPhone really costs something like $800, but the phone company finances it over the two year contract. With the juice you pay $1500 a year to send pointless texts to friends. You also get to carry around a devise that tracks your every movement and sells that data to marketing companies who beam ads back to that phone.This is good for Apple and Google, but very bad for you.

Some call this late stage capitalism, but I think they just think the term sounds clever, so they say it without thinking about it. In reality, this is late stage democracy. Once the voter rolls expand to cove all adults, the system becomes a bust-out. The elected officials no longer care about voters or public good. They are hired men paid for by a donor class who controls politics, by controlling the parties. It’s not an accident that politicians that lose election end up in cushy six figure jobs as lobbyist and consultants.

Failing Up

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In the 17th century, European elites told themselves and their subjects that it was providence that put them in charge. For most of human history, blaming God for the rulers has been a popular option. The alternative is some system where rulers are determined through merit. Exceptional warriors have often risen to the top of their society. Wealthy merchants would graduate into the ruling class either through bribery or marriage.

In modern times, western elites have no use for God and they are allergic to discussing nature as it applies to humans. Instead we have this make-believe meritocracy. The first step is to go to the right prep schools so you can get into the right college. Then it off to graduate school for networking and rubswabbery. Once those credentials are obtained, then it is getting the right jobs to fill out the resume and make the right friends.

Finally, if you worked the system correctly, you get into that top tier, where all of sudden the floor becomes impenetrable. You have made the club and unless you harm the reputation of the club or call into question the logic of the club, you are in the club for life, no matter what you do. That’s why government service has become the ticket to great wealth. It’s like having your own private toll booth on the highway. You get paid by simply being there. The managerial elites is a collection of toll takers.

Today we have this story about the perpetually wrong Larry Summers possibly getting the job of Fed Chairman. This was the guy who did the hatchet job on Brooksley Born over derivatives. She was the person who tried to blow the whistle of Long Term Capital, a trillion-dollar hedge fund that was about to go bust due to creative accounting. LTC had powerful friends in the managerial class, so they were saved by the government and the whole matter was swept under the rug. Again, that floor never gives way.

Everything Summers said back then turned out to be completely wrong. The single biggest economic event of the modern era and he was totally wrong. Yet, he is held up as an expert. Granted, it is economics, a profession with no right answers, only models of right answers. Still, you would think getting the one big thing wrong would have some impact on his career. That’s never how it works in the managerial state

He’s far from being an exception. In fact, he is the norm. There are whole professions that now have become inoculated against their own failures. The intelligence community got it all wrong at the end of the Cold War and they totally missed the rise of Islamic extremism, but they just get more money and power. We are rocketing toward a police state, because the people in charge are staggeringly incompetent. They just keep failing up.

Bullshit Jobs

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This story article was linked on Marginal Revolution. In the comments, a fellow named Bill points out that rent-seeking inevitably leads to worthless occupations. The source story is one of those snarky rants that have become popular with Millennials. They like that blend of pointless irony and dismissive disgust with reality. It seems like a strange affectation, as it implies a combination of naivete, obliviousness and solipsism. Of course, there is the strong possibility that millennials are in fact naive, dumb and solipsistic.

Economists will naturally reject the the assertion that there are “bullshit” jobs, because it lies outside their belief set. No profession is controlled by its tools like economics and since they have not tools to measure culture or biology, those things are left out of their models. That’s a story for another day. The important bit is that even in the private sector, loads of worthless jobs are created because they favor the state. Or, those jobs exist because they favor some cultural push by the state, like diversity training, for example.

One place you see this is in sports entertainment. In the days before cable, the sideline reporter did not exist. The reason is two-fold. One is women don’t know much about sports and therefore were not in the sports business. The other reason is no one would pay to have these bunnies on the field. The money was not there to do it.The job of sideline reporter is not a lot different than that of cheerleader. They pretend it is a real job, but it’s not. The girls come and go, because they are just not that important.

Government created cable monopolies have changed all that. ESPN can tax 100 million homes through their cable bill, which they do for about $8 a month. According to people who track this stuff, ESPN is watched by 20% of cable homes. That means the other 80 million homes are paying $80 bucks a year so ESPN can hire T&A to strut along the sidelines. ESPN is a great marketing machine, but it is mostly a rent-seeker. It spends a portion of its $9 billion in revenue bribing politicians and cable operators.

There is nothing new about rent-seeking. Government is the monopoly of force in a society, which means they can force people to do stuff and not do stuff. In a democracy, bribing elected officials so they will force people to do stuff that favors your business, is as old as democracy itself. Ben Franklin was a rent seeker. he got government contracts for printing and he got them by buttering up government officials. That’s how it works.

Franklin is a good example of how rent seeking can have unintended consequences down stream from the event itself. Franklin was a printer. His government contracts did not keep his presses running full time, so he he used the excess time to print fliers, newspapers and almanacs. In a way, government contracts underwrote the birth of the newspaper business in the colonies. Sports oligopolies and cable oligopolies are rent seekers that are altering the very nature of media, as a consequence of their rent seeking.

Put another way, rent seeking creates make work. Economics can understand the first part, but they struggle to understand the second part. they certainly don’t grasp the cultural impact of the second part. The legions of people in make work jobs want to keep those make work jobs. The employees of government contractors, for example, are the most effective lobbyists for more government. Northern Virginia, the home of government employees, media and political operators, is a billion dollar lobbying machine now.

Anyway, here is one of my all time favorite bits on the bullshit job theme.

Higher Ed

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One of the more frustrating debates in modern America is the one over student debt. It seems like the mere mention of the subject turns smart people into blithering idiots. The president has come forth with a “new” proposal to address student debt. The gist of it is a laundry list of government created metrics that schools will have to post for public view.  The assertion is that this will “empower” students to make better choices, thus avoiding debt for worthless degrees.

That sounds nice and maybe would impact student choices at the fringes. Without proof that students are making mistakes because they lack this knowledge, it falls into the realm of wishful thinking. I think it is easy to prove that this information is easily attainable. Thirty years ago when I was a student we were regularly given information about future earnings, job prospects and debt consequences. Only willful ignorance kept English majors from knowing they were not going to get a six figure job out of college.

Today, the Interwebs makes it easy to know just about anything about everything. Not only can you easily learn what you can expect in salary with a given degree, you can break it down by region and get some sense of lifetime earnings. Granted, that takes effort and it people have a way of gaslighting themselves on these things. But, they would do that with whatever the government is going to provide. You cannot get around the fact that white people have to be brainwashed into believing college is a requirement.

Now, it would be nice, if like calorie counts on menus, the realities of college were printed on the front of the brochure. Everyone loves convenience. Like those calorie counts, however, there’s no evidence it changes behavior. That’s what makes this post from the former Half Sigma blogger so weird. His enthusiasm is misplaced. His casting it as a “conservative idea” is the sort of sloppy thinking we see on the Left. There are plenty of dumb ideas with the conservative stamp of approval.

Yuval Levin offers some good questions in this posting at NRO. He does not mention it, but government standards turn the regulated into rent seekers. It is axiomatic. In this case, the universities suddenly need to bribe politicians to get the standards they want. As Levin points out, it is not clear what should be measured and by whom. That opens up the door to all sorts of shenanigans. The best way to ensure rational markets is to eliminate the number of intermediaries between the supplier and consumer. Another government agency to set standards is just going to make this more dishonest that they are now.

That’s the fundamental problem with higher education debates. Everyone is trapped in the old paradigm of government financing. No one ever asks why tuition has risen at five and six times inflation since the government got into the student loan business. The two markets that have seen the greatest amount of government intervention are higher ed and health care. In both prices have rocketed up, basic service levels have declined and massive amounts of debt have been accumulated. That’s called a clue

The Dullness Of James Pethokoukis

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Everyone gets that mass media aims for the lowest common denominator, which means it is aimed at the dullest people in society. That means having some not-so-smart person reading their parts, pretending to be something other than a bubble-head. Having a blond airhead do the weather is fine as everyone including the woman knows the score. Having an ex-beer league jock do sports is OK, because he is a fan talking to fans. The point of the performance is to be fun and pass on a few bits of useful information.

Where things go wrong is when these actors and actresses start pretending to be actual experts in the field. In sports, there is a flood of fake nerds jabbering about statistics, despite not being able to do basic math. They watched the movie Money Ball and started reading fangraphs. Pablo Torre is a good example. He has a degree in sociology from Harvard (Yeah Affirmative Action!) which means he maybe took statistics for liberal arts majors and probably has no aptitude for mathematics.

Another example of this type is James Pethokoukis. His job is to cover economics as a reporter. That’s a perfectly useful role, until he starts opining about economics as if he knows something about subject. He also carries on like the “E” in STEM fields stands for “Economics.” The guy has never run a lemonade stand and has no training in math, statistics, finance or economics. He went to school for journalism, which is right up there with majoring in gym, and has worked exclusively as a reporter.

What in the world is he doing offering opinion on tax policy? It’s fine if he is asking people who know something about tax policy for their opinions. That’s perfectly reasonable and something expected from modern reporters. He could opine on the fact that there are many experts with different opinions on tax policy. Again, that’s a useful hing for which he is qualified. He is not a tax expert. To make it more ridiculous,  he quotes another fake nerd, Ramesh Ponnuru, who has been wrong about everything for two decades.

So, what about his opinion?

Declining fertility rates in the West are a major problem. There’s not been a lot of research into the subject as our elites have been obsessed with ending child birth for as long as anyone has been alive. Going back to the early part of the last century, Western elites have been predicting a Malthusian moment when population numbers exceeded earth’s ability to support us. The Population Bomb was a famous book that predicted doom for mankind unless population was controlled. The prediction was all wrong, of course.

One thing we know is that tax policy has nothing to do with declining fertility rates in the West. Fertility rates plummeted in Poland after the end of the Soviet Empire. Fertility rates plummeted in Quebec after taxes were lowered. In America, white fertility declined, while black fertility remained constant. There’s simply no evidence to claim a causal relationship between taxes and baby making. Yet, Pethokoukis. sees a pretty graph and thinks the answer is a return to Bush Era social engineering through the tax code.

That’s always been the problem with libertarian conservatives. An article of faith among libertarians is that taxes need to be efficient. That means tax policy should not reward one activity over another. Ideally, taxes effect all goods and service equally. Imposing special taxes on the childless is pretty much the opposite of libertarian dogma. So-called conservatives have ingested this argument and now embrace the materialist assumptions of libertarians and Marxist. They’re all eating at the same trough.

That last bit gets at the heart of what vexes the West. Progressives wage a culture war, while the so-called Right responds with economic arguments. The Left starts from the assumption that people are infinitely malleable. They can get the culture they want, by use of the right incentives. The so-called Right starts from the same assumption as argues that they can get the corresponding results with the right economic incentives. It’s the two faces of the Janus that rules over us. It’s two heads with one body of thought.

The Left Side of the Bell Curve Again

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Given the tiny audience I have at this stage of my blogging career, I’m surprised to get any responses to post, but it does happen once in a while. Once I figure out how to work the commenting system here, maybe I will get responses that way, but for now e-mail is the only way to respond. Anyway, this was in the mail in response to my post about the left side of the bell curve. Here’s the text, without identifying the sender:

Putting aside from the odd subservience to IQ as a rational measure of intelligence and ability (not to mention the implicit assumption that IQ is static), its odd that you don’t mention investment in education at all. Seems like the obvious solution is to restructure our education system to acknowledge that consistent and rapid changes in technology, automation, and cybernation–that is, rapid increases in productivity–will require rapid increases in people’s access to efficient methods of learning.

I feel like this is all rather simple: people whose skillsets are made obsolete require access to resources and assets that enable them to acquire new, needed skillsets.

I’m going to assume that English is not the first language of my correspondent and assume what he meant in the first bit is “reliance” and not “subservience.” Relying on IQ as a rational measure of intelligence is good enough for neuroscience so it is good enough for me. We have a tremendous amount of data on human intelligence thanks to a century of testing. Unless and until someone comes up with a better way to measure intelligence, IQ is what we have. It’s one piece of the puzzle, but an important and reliable part.

Now, the next bit is one area where there is great debate. Can you structure a society-wide education systems to lift the average IQ of the population? Maybe. Ron Unz has written some excellent essays on the subject. Richard Lynn is a good recent example of the counter argument. We can throw Jason Richwine in the mix as another recent combatant on the topic of IQ and education. Then of course we have the dismal results from such programs as Head Start, which is a complete failure.

I’m of the opinion that the data and the science support the argument that no amount of education will alter one’s intelligence. I’d go even further and point to the many urban school systems that spend enormous sums on students. If there is one place where we would see a causal relationship between spending on education and educational outcomes, it would be the urban school systems.  Education could have a non-trivial impact on overall IQ, but so far no one has been able to find evidence of it.

While that debate is interesting, it has absolutely nothing to do with the central problem facing modern technological societies. There will always be a left side of the bell curve, no matter how you view education. Not even the most rabid blank slate fanatic argues that we can raise the IQ level of the bottom half to match that of the top half, resulting in everyone being average. Well, maybe George Bush thinks that, given that he once argued that the goal of his education policy as to make every kid above average.

The fact remains that even in Asian societies that lack a significant African or Amerindian population, there are a lot of people with IQ’s below what will be required in the technological future. This assumes automation progresses as everyone seems to think it will in the coming decades. Even if education can make some difference, all you can do is increase the size of the smart fraction. You will still be left with a large number of adults in the labor pool unable to master anything beyond mundane tasks.

The bit in the e-mail about the obsolete getting new skills is the standard refrain from libertarians to my question. It is merely a dodge. Instead of addressing the question, they answer a different, unasked question. Every human society has a subset of people with a very low ceiling. You cannot ship them away to a colony. You can’t send them off to the lithium mines. They cannot be taught to trade mortgage backed securities or teach gender studies at the community college. Every society has to figure out what to do with them.

Having a small percentage of the population, say ten percent, that is useless either because they are dumb or lack self-control is manageable. When fifty percent of adults have no role in the economy because they lack the IQ to do useful work, that’s a problem no society has had to solve. A large population of idle dimwits getting into trouble is a very new problem that advanced technological states will probably have to solve or they will be destroyed by it. That means a very different form of political organization in the future.

That Left Side of the Bell Curve

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A topic that will become increasingly important is what to do with low-IQ workers in a modern, technological society. For most of human history, there was a demand for most if not all of the low IQ population. Farming required a lot of labor. Maintaining buildings, roads and so forth required loads of guys willing to take direction. Then there was the demand for men willing to dress up and kill men loyal to a different ruler. It’s not that there has been a demand for dumb guys, it’s that there was always some way to put them to use.

Once we moved into the industrial age, manufacturing soaked up most of the low IQ workers, along with middling IQ workers. When the usual suspects decided to sell off the manufacturing base to Asia, retail and services were seen as the cure for excess unskilled labor. We would have an economy based on selling one another insurance and doing each others laundry! Of course that could never work, but it worked for a while as easy credit allowed us to pull forward GDP. Now, it is not working.

The evidence at this point suggests two things. One is that the technological revolution along with an extended recession has changed the approach of business. The old pattern was that businesses hired up in good times and cut staff in lean times. The new pattern is that business invests in technology in good times to get more from the same staff. In lean times they may do the same, but looking for ways to cut staff. In other words, technology is cutting jobs at the peak and the trough of the economic cycle.

The other thing that I think we see is the lagging effect of technology. For 25 years technology raced ahead of what users could use. By the time of the Great Recession, we had an enormous amount of excess technology. The old joke in the 1990’s was that 90% of Microsoft Word users utilized 10% of the product. Few companies utilized 25% of their IT investments. Companies have been sitting on all the tools to automate big parts of the business, but they never deployed the technology. That’s changing now.

Of course, there is something else that never gets discussed. That is the high cost of cheap labor. Government policy has made it expensive for employers to recruits and train the working class of America. On the other hand, government has made it easy to import indentured servants who work cheap. This has become so common, the servants and their masters are now important constituencies. The unemployed white working class is not an important constituency, so no one bothers to speak for them.

This brings me back to the point of the post. We have a lot of people on some form of government assistance. In fact, the government claims that nearly half of all homes have at least one person on the dole. I think we can assume that a big chunk of that number is for retired people. Another big chunk is the poor and stupid. Simply putting them on welfare does not solve the problem. Unless we are willing to have large scale reservations for the low skilled, this economic problem will soon be a very serious social problem.

In a democracy, lots of people with no purpose and not sense of connection to the greater society is going to become attractive to an ambitious politician. That’s always the argument against democracy. Someone always comes along as the champion of the little people, promising to help them as long as he becomes ruler. Most tyrants in human history rose to power on the back of the lower classes. America now has a growing disgruntled class, sitting around waiting for their champion, who will surely arrive one day.

Putting aside the political risks of large numbers of unemployed dumb people, how does a high tech society put these people to use? In a different age, the way to use up extra people was to start a war. These days, the modern military needs smart guys, not dumb guys. Then there is the fact that wars are now vastly more conservative with human capital. Even if we wanted to invade Canada, the war will be fought with robots and drones, rather than infantry battalion. It turns out that war is not the answer either.

 

Smart Guys With Dumb Ideas

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I’ve always been fascinated by the phenomenon of very high IQ people believing utter nonsense. We have been indoctrinated to think that smart people not only believe the right things, they never indulge in crazy fads or nutty politics. The former is obviously the important part of the proselytizing we hear from our rulers. Only dumb or evil people question the Progressive theology. Even putting that aside, most people assume smart people are too smart to fall for crazy ideas, conspiracy theories and so forth.

Way back in my youth I was dating a gal who had a brilliant uncle. The guy worked for NASA and had a PhD in physics. He started out from a working class family and went through college on scholarships and a love of mathematics. He was also very well read in a variety of subjects, which is unusual for math guys. He was also a communist. Every conversation would eventually lead to him ranting and raving about private property and the abuse of the poor by the rich. It was strange hearing a smart guy celebrate Marxism.

Of course, lots of very smart people were communists in the last century. I took a graduate class from a guy who was a Marxist believer. The class was on Marxism, so it worked out pretty well, but it was strange hearing an otherwise smart guy talk reverently about the worker’s paradise. The Cold War was still going so it was even more jarring, especially since he had traveled to the Soviet Bloc. All these years later I wonder how he managed to square what he saw in his travels with what he sincerely believed.

Anyway, I’ve become a fan of Tyler Cowen’s blog Marginal Revolution, mostly because it is that strange conflict of smart people not seeing the obvious.. He appears to do most of the posting, but maybe he has graduate students doing the work. Even though he is in the pseudoscience of economics, he does have a broad range of interests. Being a libertarian economics professor living off the public dime leaves a lot of time to be curious about stuff. Funny how all of the big foot libertarians tend to live off the sweat of others.

Anyway, this post caught my eye today. The first thing was the reference to left-wing blogger Matt Yglesias. I continue to marvel at his ability to fool people into thinking he is smart and interesting. Signalling on the Left is a highly developed part of how they reinforce their faith in Progressivism. Lefties put on the smart, smug guy outfit signalling that they are super smart. Then they go about repeating all the approved bits of the catechism, but with a cheeky twist. Everyone feels good about being in the faith.

A good example of it is the liberal blockhead Janeane Garofalo. She is as dumb as a goldfish, but she has been trained to play make believe on screen. She kits herself in the bohemian outfit, pretends to be smart, while repeating whatever she heard from the TV clown Jon Stewart. Of course, Steward is another great example of the mediocre mind spouting conventional liberal lines in a highly choreographed manner intended to cast him as brilliant. Maybe Yglesias is just doing a form of this that is lost on me.

Anyway, what go me posting about this is how Alex Tabarrok, the other half of the Marginal Revolution blog, starts out great, quickly summarizing that Yglesias post and then his own position on the topic. Then in the last paragraph he veers into the madness of climate change and the need to placate the sky gods. I admit I have a strong bias against the topic of climate change. It’s pretty much just neo-pagan nonsense that fills a spiritual hole for people who fancy themselves as the intellectual elite of the West

That’s the thing. Tabarrok seems like a smart guy, maybe not a genius or even brilliant, but certainly smart enough to be a tad skeptical of climate change. Instead, he is eager to show how deeply he believes in it. It raises the question as to why he, and other above average intellects, feel like they need to repeat this stuff. Maybe it is social pressure or maybe it professional concerns. Politics in the academy can be nasty. Still, simply ignoring this stuff and sticking to safe topics would seem like the better option.

Belief, of course, plays a big role in this stuff. The communist physicist I knew in my youth was not a religious buy, as communism was his religion. For many modern academics, the sub-cultures within Progressivism fill the role of religion for them. Belief is one of those hard to quantify traits in humanity that drives much of what we do. It plays a huge role in social status, which in turn means it plays a role in reproductive fitness. Being seen as pious has always been and important part of establishing social status in settled society.

This is a long way to go to juts point out that smart people often believe nutty things, but it is something that cannot be said enough. People can be wrong and be smart. Even smart people get things wrong. At the same time, even brilliant people need to believe in something and often they believe in crazy stuff. It may be that the lack of a formal, retrained religion for the elites results in smart people searching around for something to fill the void and landing on kooky new age fads and destructive civic religions.

 

The Left Side of the Bell Curve

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One fun way to scandalize most decent people is to tell them half the people in the world are below average in IQ. Americans hate the idea of IQ and fixed biological traits. The reason for this is free will is tightly wound into the American creed. We have rights and we are judged by how we exercise those rights. The multi-billion dollar self-help industry exists,m because Americans are sure you can improve on what God gave you. It is a central part of the American myth that we can be anything we choose to be.

It is also what drives so much of social science and government policy. No amount of evidence to the contrary will convince us that you can’t get better and smarter. It’s why the  phrase “Flynn Effect” has become an involuntary response from liberals whenever the subject of IQ is raised. Whenever the topic of IQ comes up on-line, the comments will have people swearing the Flynn Effect means IQ is malleable. That means the reason little Matumbo is dumb is not nature, but an insufficiently funded school system.

The fact is, though, IQ is real. Most of every population falls into the category of average IQ for that population. Then there are some that are dimwits and others with above average and even genius level IQ. Every population of humans has an average IQ, just as they have an average height. Europeans tend to be smarter than other populations, on average. This is one reason why Europeans raced ahead of the rest of the world starting in the 15th century. Not the only reason, but an important one.

European societies have a relatively large number of above average IQ people compared to other populations. This advantage did not count for a lot until technology permitted enough extra to support a leisure class. Once Europeans societies were able to afford a leisure class, the smart fraction was able to accelerate the progress down the road to modernity. On the other hand, the societies lacking the human capital to create a leisure class, also lacked a large enough smart fraction to overcome scarcity.

This is and interesting paper on how technology is changing our labor markets. The fact is, technology works great for smart people. It offers all sorts of new ways to make a living and make life easier. Even credentialization has not limited this. Every business has a need for smart people. I know lots of people who have changed careers a few times, because the demand for their smarts changed. The demand for IQ is constant. Even those with professional degrees have adapted in a similar fashion.

For the people on the left side of the bell curve, it is a different story. Their skills are narrow and they acquire new skills slowly. Technology is often making their skills obsolete. That’s one reason why we see stagnant wages and unusually high unemployment rates among the unskilled and semi-skilled. It’s not the only reason, but technology also makes it easier to plug on foreign low-skilled labor, thus making open borders more attractive. Many fall into a condition of chronic under employment.

The question is what to do about it.