Mar 11, 2016

Economics Old and New

via West Hunter

When I reviewed Hive Mind, I mentioned that its thesis ‘IQ matters for national prosperity’ was more true today than it had been in, say, 1970, because of the fall of Communism, which was quite capable of making a country – even a smarter-than-average country – a lot poorer than it otherwise would have been. If you consider other circumstances, for example far earlier times, IQ mattered even less. If you look at a near-Malthusian society, one in which population size is near the carrying capacity (as set by the current knowledge and available resources), average IQ shouldn’t influence prosperity (in terms of food availability) at all. A smarter society might have more elaborate forms of entertainment, might have more sophisticated tools and crafts, but as long as technological progress (that affecting food production) was slower than population growth, no improvement. A higher standard of living is a short-run outcome of disasters like the Black Death.

And other changes mattered as well. Today countries with no significant natural resources can be very successful, if they have high human capital. Sometimes they can achieve this by pursuing strategies that don’t require much in terms of traditional natural resources – insurance, finance, and software are good examples. In some cases, countries with abundant human capital have found ways to fake up effective equivalents for traditionally-necessary natural resources. The most important example is the Haber-Bosch method of making ammonia: another is the development of mass production of synthetic rubber by the United States and Germany in WWII. This kind of substitution has become increasing possible over time.

In a world where transportation costs are low, international trade is fairly free (a function of political environment: not true in 1942!), a country can develop industries that require natural resources that don’t exist locally at all. So Japan could have a big steel industry, even though Japan has only a little low-grade coal and no significant iron ores. That is, it can if it has sufficient human capital. Japan does: many countries don’t.

Although it once had little effect on living standards,average national IQ now has a big influence. The world changed. Of course, it’s going to change again.

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