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Protestantism

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According to a recent n=150,000 global survey by Gallup and S&P, there is an astounding lack of financial literacy in the world.

To gauge financial literacy, they asked a series of four questions on basic financial concepts such as risk diversification, inflation, simple interest, and compound interest. They were very simple and typically only had 2-3 possible answers. Here is the most “difficult” question:

Suppose you had 100 US dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account?

The possible answers were:

[more than 150 dollars; exactly 150 dollars; less than 150 dollars; don’t know;
refused to answer]

Demonstrating understanding in three out of the four areas qualified you as financially literate. Only a third of the world’s population reached that threshold, rising to a modest 53% in the advanced OECD countries.

global-financial-literacy-world-map

One surprising pattern is that there was very little variation in financial literacy between low-income and middle-income countries; there was only a sustained increase once countries began to exceed the $12,000 GDP per capita mark. Presumably, that is approximately the point when people start doing things like getting credit cards and taking out mortgages, so they are forced to come to grips with concepts like compound interest whether they like it or not. But there are plenty of both negative outliers (e.g. Japan, Korea, Italy, Portugal), as well as a few positive ones (e.g. Bhutan, Myanmar, Botswana).

economic-development-and-financial-literacy

Curiously, the correlation between financial literacy and cognitive ability appears to be surprisingly low. In other words, basic financial literacy has a low g loading.

There is a relationship to be sure, but exceptions abound, even in the rich country list. High IQ Japan, Korea, and China do a lot worse than one might expect. Botswana and South Africa do much better than what their national IQ levels might imply; in fact, South Africa is the highest-scoring of the BRICS countries.

g7-vs-brics-financial-literacy

Although conventional coverage of the national differences in financial literacy highlighted in this report by mainstream journalists like Leonid Bershidsky predictably focus on things like education levels and exposure to financial services, the really big explanatatory factor seems to be religious/cultural.

On the global scale, the Protestant world comprise nine of the world’s top 10 most financially literate countries, and an amazing 17 of the world’s top 25 – which is also a convenient threshold representing 50%+ financial literacy. (By which point the stock of both developed world Protestant countries pretty much ends). The world’s offshore bank, Switzerland, is a relatively disappointing 15th.

9 of the top 10 countries are within the Hajnal line of Europe, or are their descendants; and 17 of the top 25.

Predictably, the non-Protestant exception in the top 10 is Israel. The Jews can sure count their shekels.

Another correlation that seems to exist is with time preference. Countries where people displayed a willingness to wait to get a greater sum of money in one month’s time, as opposed to getting a smaller sum right now (inflation-adjusted), also tended to perform much better on financial literacy metrics.

The Catholics and Orthodox Christians tended to do a lot worse, even though as we know IQ differences between them and the Protestant world are fairly minor. Likewise with the Confucian civilization.

This suggests that Protestant populations have tended to culturally evolve (or gene-culturally evolve) an “intuitive” understanding of finance like things, while the rest of the world pretty much has to figure it out from zero. More intelligent populations with financial experience, such as the Japanese, tend to be relatively better at it (43% financially literate); less intelligent populations without much financial experience, such as the Indians and Iranians, do much worse at it (<25% financially literate).

Still, there remain some curious cases nonetheless. How does dirt poor and only 60% literate Bhutan manage to take 20th place, with 54% financial literacy? Myanmar also does surprisingly well for a country of its socio-economic and hisorical profile, taking up the 24th slot. Both are Buddhist, but otherwise, Buddhists do not appear to perform especially well; Cambodia is one of the worst, while Thailand is middling between Myanmar and Cambodia. Nor does it appear to have anything to do with the particular sect of Buddhism: Bhutan follows Vajrayana Buddhism, while Myanmar follows Theravada.

Financial Literacy 2015 via S&P/Gallup

# Country % Financial Literacy
1 Norway 71.3%
2 Denmark 71.3%
3 Sweden 71.2%
4 Israel 68.4%
5 Canada 68.3%
6 United Kingdom 67.1%
7 Netherlands 66.1%
8 Germany 65.7%
9 Australia 63.7%
10 Finland 62.9%
11 New Zealand 61.5%
12 Singapore 59.4%
13 Czech Republic 58.4%
14 United States 57.4%
15 Switzerland 57.1%
16 Belgium 55.3%
17 Ireland 55.1%
18 Estonia 54.4%
19 Hungary 54.2%
20 Bhutan 53.7%
21 Luxembourg 53.2%
22 Austria 53.0%
23 Botswana 52.2%
24 Myanmar 51.8%
25 France 51.7%
26 Spain 49.1%
27 Latvia 48.3%
28 Montenegro 48.2%
29 Slovak Republic 48.1%
30 Greece 45.0%
31 Uruguay 44.8%
32 Tunisia 44.7%
33 Lebanon 44.4%
34 Malta 44.2%
35 Croatia 44.1%
36 Slovenia 44.0%
37 Kuwait 43.5%
38 Japan 43.0%
39 Hong Kong SAR, China 42.7%
40 Poland 42.4%
41 South Africa 41.7%
42 Turkmenistan 41.1%
43 Mongolia 40.7%
44 Chile 40.7%
45 Zimbabwe 40.6%
46 Zambia 40.4%
47 Tanzania 40.3%
48 Ukraine 40.0%
49 Kazakhstan 39.7%
50 Senegal 39.7%
51 Bahrain 39.5%
52 Lithuania 38.7%
53 Mauritius 38.7%
54 United Arab Emirates 38.3%
55 Russian Federation 38.1%
56 Kenya 38.0%
57 Serbia 38.0%
58 Togo 38.0%
59 Madagascar 37.7%
60 Cameroon 37.7%
61 Belarus 37.5%
62 Benin 37.0%
63 Italy 36.9%
64 Taiwan, China 36.9%
65 Azerbaijan 36.3%
66 Malaysia 35.7%
67 Sri Lanka 35.4%
68 Dominican Republic 35.4%
69 Costa Rica 35.1%
70 Malawi 35.1%
71 Gabon 34.8%
72 Bulgaria 34.7%
73 Côte d’Ivoire 34.7%
74 Brazil 34.7%
75 Cyprus 34.6%
76 Uganda 34.2%
77 Korea, Rep. 33.4%
78 Mali 33.4%
79 Mauritania 33.3%
80 Algeria 33.0%
81 Jamaica 32.9%
82 Burkina Faso 32.8%
83 Belize 32.6%
84 Colombia 32.2%
85 Indonesia 32.2%
86 Puerto Rico 32.2%
87 Ethiopia 32.1%
88 Congo, Dem. Rep. 31.9%
89 Mexico 31.6%
90 Ghana 31.5%
91 Niger 31.5%
92 Saudi Arabia 31.3%
93 Congo, Rep. 31.0%
94 Guinea 30.4%
95 Ecuador 30.3%
96 Georgia 29.7%
97 China 28.1%
98 China 28.1%
99 Argentina 28.0%
100 Peru 27.6%
101 Egypt, Arab Rep. 27.5%
102 Thailand 27.4%
103 Moldova 27.4%
104 Bosnia and Herzegovina 27.2%
105 Iraq 27.2%
106 Namibia 26.7%
107 Panama 26.5%
108 Pakistan 26.3%
109 Chad 26.2%
110 Nigeria 26.1%
111 Portugal 26.0%
112 Rwanda 25.8%
113 Guatemala 25.7%
114 Venezuela, RB 25.1%
115 Philippines 25.0%
116 West Bank and Gaza 24.6%
117 Burundi 24.4%
118 Vietnam 24.4%
119 Bolivia 24.4%
120 Turkey 23.6%
121 India 23.6%
122 Jordan 23.6%
123 Honduras 22.9%
124 Romania 21.7%
125 Macedonia, FYR 21.5%
126 Uzbekistan 21.4%
127 El Salvador 21.1%
128 Sierra Leone 21.0%
129 Sudan 20.7%
130 Iran, Islamic Rep. 20.5%
131 Kosovo 19.9%
132 Nicaragua 19.8%
133 Bangladesh 19.2%
134 Kyrgyz Republic 18.9%
135 Cambodia 18.4%
136 Nepal 18.3%
137 Armenia 18.2%
138 Haiti 17.9%
139 Tajikistan 16.9%
140 Angola 15.3%
141 Somalia 15.2%
142 Afghanistan 14.1%
143 Albania 13.8%
144 Yemen, Rep. 13.3%
 
• Category: Economics • Tags: Culture, Finance, Literacy, Protestantism 
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The Economist lies about Russia, it has beef with France, and in general it is far more useful as a barometer of Anglo-Saxon elite opinion than as a good source of objective information on the real world. Nonetheless, it does have the occasional gold nugget, and even one gold vein – its Daily Charts blog.

After all, one can rarely argue with cold, raw statistics, and opinion polls.

Above is a chart from early April about the importance Europeans attach to being rich. It’s funny the extent to which it confirms almost every relevant stereotype in the book (in general, the act of stereotyping is very much maligned, but that’s for another post). Russians and Ukrainian gold-diggers, oligarchs, mafia. Israel – Jews LOL. Greeks have a reputation for being a very mercantile people. Czechs are individualists, so it makes sense that they’re high up there too.

At the other end of the scale, you have the Scandinavian countries that operate under the self-effacing principles of Jante Law, and the French with their rich anti-capitalist intellectual traditions and love for existentialist philosophy. In the middle we have quintessentially bourgeois nations such as the UK, and Germany – they love themselves some money, but Protestantism has long encouraged them to be low-key about it.

(Republished from AKarlin.com by permission of author or representative)
 
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Now that I’m done with the Necessary Caveats, it’s time we had a look at why exactly HBD/IQ theories are both valid, and relevant to the real world. As I see it, their main import (as interpreted by me) can be distilled into a few logically consecutive, falsifiable statements:

  1. IQ tests are a valid, culturally fair measure of cognitive ability.
  2. It is hereditary.
  3. Race is real.
  4. There are racial/ethnic differences in average IQ that cannot be explained merely by reference to socio-economic or cultural factors.
  5. The US is an excellent “laboratory” to ascertain the average genetic IQ ceiling of different races and ethnicities.
  6. Average IQ influences prosperity, and general living standards.
  7. Consequently, knowing the racial constraints on average IQ’s – i.e., the IQ ceilings – we can estimate the relative development potential of different countries and regions.

All of them have have acquired a great deal of supporting evidence, even though they – or in particular, their linkage – remains taboo for the media and wider public discussion. By the numbers:

1. There is typically a large degree of correlation between various IQ tests, and academic achievement scores (1, 2). Nobody has yet discovered a test which has a negative correlation with a battery of other tests. This implies that there is a common “g factor” behind all types of cognitive ability.

Obviously this allows for very big variations within a single person. But within a group, someone who does well in one test will most likely also do well in another.

The argument that IQ tests are culturally biased is frequently made on the basis that they show differences in performance between racial/ethnic groups. This is a fallacy. In any case, there are IQ tests designed to be culturally fair insofar as they eschew words and test pattern recognition, such as Cattell Culture Fair III and Raven’s Progressive Matrices. These tests have a high correlation with the battery of other tests, i.e. they are valid reflections of g.

2. The scientific literature converges on a range from 40%-80% for IQ heritability. (1, 2) The correlation in scores between twins reared apart is around 75%-80%.

3. Is race a social construct? The commonsense answer is no. Consider that beyond the “my lying eyes” stuff (e.g. skin color/melanin content; epicanthic folds, etc.), there is also evidence of genetic differences in: Physical abilities (west African sprinters; Kenyan marathoners); conformity (Asians); lactose tolerance (whites); alcohol intolerance (Asians); even average penis size (large – Africa; Latin America; small – East Asia). The latter example isn’t nearly as… flippant as it seems, since testosterone levels have a large effect on behavior. There are multiple genetic disorders that only affect certain races or ethnicities, and race specific drugs are now coming online.

But ultimately, this is one of those cases where a picture is worth a thousand words.

This is a genetic map of Europe, superimposed on a geographic map (remarkable how it works out almost perfectly). Note that although there is some degree of overlap between European ethnicities, there are still clear clusters and centers of gravity corresponding to particular nationalities.

Now look at this genetic map (click to enlarge). See that dark blue oval to the center-left? That is Europe. Recall that even within that tiny space there are distinct clusters, with virtually zero overlap between, say, Greeks and Germans. Now note the vast distance that separates Europe from East Asia (center-right), and the three African clusters (bottom).

So it’s really just a minor matter of semantics. Some people shy away from using the word “race”, instead speaking of “genetic clusters”, “population groups”, “groups of common geographic ancestry”, etc. “Race” is short and convenient.PI

4. There is a vast body of global IQ scores (e.g. Lynn). They follow a consistent pattern: East Asian countries tend to score 105, European and Euro-settler countries 100, and sub-Saharan African countries 65-80.

The internationalized standardized PISA tests display the same pattern (as expected, since they load on the same g).

(Internationally, I think the culture argument makes some interesting points. E.g., the Protestant work ethic – reflected even now in the fact that the world’s richest and highest-IQ white countries tend to be Protestant. But there are two problems. First, possible narrative fallacy, e.g. Confucianism, with its connotations of traditionalism and conservatism, was once used to explain why Asian countries lagged behind Europe; but with their success in the past generation, the respect for learning, rule of law, etc. that it supposedly instilled is now sometimes used to explain their success! Can’t have it both ways. Second, what applies in one period can wane in another. Yes, Protestantism fostered human capital development by emphasizing independent Bible reading (i.e. more literacy!), which in turn helped early industrial growth. But today this effect seems to have receded into the past – see the success of south Germany, north Italy, France, Ireland.)

5. The US is an excellent “laboratory” to estimate the average genetic IQ ceiling of different races and ethnicities by virtue of its diversity; standardized education system that produces results that, when broken down by race, are superior to almost every other country in the world; decent equality of educational opportunity; no nutritional deficit among any population group; and post-Flynn effect status.

Within the US, all tests of cognitive ability – IQ, PISA (1, 2), SAT – replicate the global pattern. Though there is variance from test to test, but as a rule, the intelligence hierarchy is as follows: Asian-Americans; whites; Hispanics; blacks. The gaps between Asian-Americans and whites are narrowed than internationally (because Asian-Americans also include medium-IQ peoples like Filipinos and Vietnamese); and the gaps between whites and blacks are narrowed (because, unlike African or Haitian blacks, African-Americans enjoy better nutrition and education.

It must also be noted that whereas most of these tests indicate that Asians closed gaps (in reading, writing) and overtook whites (in math) over the years, there has been no sign of any significant convergence for blacks.

Is it because schools in poorer areas (inner city, where NAM’s cluster) are badly funded? No, per student funding tends to be broadly similar for both inner city and suburban schools. Besides, education funding doesn’t play a major role in results. In Italy, there is no correlation between school funding and performance by province. China gets PISA and IQ results higher than America’s despite spending a tiny fraction of the resources that the US lavishes on each of its pupils. Indeed, it probably doesn’t matter much, as IQ tends to be fixed by the age of the 5.

Is it because blacks come from poorer families on average? IQ is a far more persuasive explanation for why people are poor in the first place. Refer to The Bell Curve (Murray & Herrnstein).

US blacks (85-90) get far better IQ scores than Africans (65-80). These two facts are highly important because in Africa, the IQ’s of many populations are currently constrained by poor nutrition and (in some cases) the different psychologies of pre-industrial and illiterate peoples. In practice, and discounting variation (Africa is the world’s most genetically diverse continent, so it is not impossible that there will be some relatively high-IQ subgroups among them), it seems likely that the average IQ ceiling for African blacks is similar to the actual IQ’s of US blacks. I.e., maybe 85 (lower than 85-90, because US blacks have 20% admixture with whites).

US Hispanics score better than Mexicans or Central Americans, displaying IQ’s (or IQ equivalents) in the low 90′s (Mexico: 88-90; Panama: 84-80). Whites are at around 100. Asian-Americans tend to be in the low to mid 100′s, but there is huge variance (East Asians – higher; South-East Asians – lower).

7. Refer to Education as the Elixir of Growth III. There is a 0.43 correlation between the GDP (PPP) per capita of a country with its PISA/TIMMS scores, which rises to a stunning 0.84 once countries with a post-Communist legacy (low outliers), resource windfalls (high outliers), or offshore financial industries that constitute the bulk of their GDP (high outliers) are removed from the same. (Any correlation of >0.5 is an excellent one in social science). This implies a fairly rigid glass ceiling on GDP per capita for any one country in relation to its IQ. It’s largely invisible, as few people appreciate the importance of human capital to growth, but it’s most certainly there.

At the micro level, the g factor tends to be by far the best indicator of job performance (above grades, interviews, references, etc) – not only in “cognitive elite” jobs such as lawyers or physicians, but also to a significant extent even among menial workers. There is a correlation of 0.9-0.95 between employees in a certain profession and prestige ratings of those professions by the general public. The correlation between IQ and income is around 0.4-0.5.

The importance of average genetic IQ ceilings

We have a fairly strong and convincing (to me anyway) theory that average IQ ceilings depends on race, and that IQ (g, PISA scores, etc) are remarkable closely correlated with economic prosperity. Furthermore, it is almost certain that the causation is largely one way, at least once basic nutritional and literacy problems are solved; otherwise, the Chinese and Koreans would not be outperforming US Hispanics or African-Americans.

Following from the graph of Human Capital Index and income above, there seems to be a point past 450 – about 92.5, in IQ terms – at which (market-based) economies transition from middle-income status, to high-income. If Mexico could raise its human capital to about the levels of their compatriots in the US, this would (going by correlations) enable a massive expansion in its productivity.

Unfortunately, the average genetic IQ ceiling for African blacks is 85, maybe 90 at most. Nonetheless, if Africa could consistently raise it to even the former figure, it would then have a degree of human capital equivalent to today’s Brazil. Though true convergence with developed countries is precluded, reaching Brazil’s levels would be a gargantuan improvement for the living standards of the average African.

In general, it should be possible to construct a “potential IQ” (and corresponding potential GDP per capita level) for each country. They would look something like this (PISA/IQ format):

  • US (500/100) – All racial groups are already performing very close to their genetic potential (Asian-Americans (NOT East Asians) – low 100′s, whites – 100, Hispanics – low 90′s, blacks – high 80′s). The challenge will be in maintaining it (due to Hispanic immigration).
  • China (550/108) – It currently has 103(PISA converted into IQ)-105(IQ), but may still eke out a few more points by totally eliminating malnutrition. Should have no problem in becoming as rich as Korea or Japan with one more generation.
  • India (450/92.5) – Very low (and puzzling) 75(PISA)-82. But also malnutrition is still extremely high, as are endemic diseases; the vegetarianism of a significant portion of the population may also have a negative effect (protein aids brain development). My estimate is that average Indian genetic IQ ceiling is similar to Hispanics, but with huge variance due to caste/ethnic diversity.
  • Russia (500/100) – Moderate score at 95(PISA)-97(IQ). Smaller than ethnically similar Poland (99/100), due to 2 possible factors: (1) Academic focus to exclusion of more general g (Russia does much better on TIMMS, PIRLS); (2) Possible effects of highly prevalent alcoholism on the current cohort being tested. Poland’s score may represent a more accurate “Slavic ceiling.” Natural GDP per capita level would seem to be in between the Germanic countries and the Med, but resource windfall would nudge it closer to the former.
  • Brazil (460/94) – Today at 87(PISA)-85(IQ). Capping off the BRIC’s, the potential is derived by taking the estimated genetic ceilings of US blacks (with adjustment for Brazilian blacks having more admixture) with Med Europe ceiling, and weighing by population ratios.
  • Germanic Europe (520/103) – based on current scores, but will face challenge in maintaining it (due to immigration policies).
  • Med Europe (490/99) – based on Spain, Portugal, Italy results. In a way, one can see the Euro crisis – which is mostly affecting the PIGS – as the invisible hand’s way of bumping down the Med countries to a level more in line with their lower human capital (relative to the Germanic countries).
  • Turkey (470/96) – now at 91(PISA)/93(IQ), but potential based on Greece’s current scores; Turks and Greeks genetically similar.
  • Japan (530/105) – as now, no significant change as immigration is low. But economic difficulties due to debt, negative population growth, ballooning elderly dependency ratios.
  • Israel (?) – is globally irrelevant but a really fascinating case study, complicated by the discrepancy between Ashkenazi Euro-Jewish IQ scores (c.115) and Israel’s mediocre performance of 95(IQ)/94(PISA) which is hard to explain as Ashkenazi Jews still make up more than half of Israel’s population. Also lots of demography has to be taken into account. Deserves a separate post.
  • Australia, Canada (520/103) – as now, but will NOT face difficulties maintaining them because of their Cognitive Elitist immigration policies; as they also enjoy resource windfalls, they will probably do economically better than the rest of the developed world.

Based on the figures above, we can expect that the BRIC’s nations should in principle be able to converge to developed country levels. However, there are two major groups within the BRIC’s. China and Russia are already at a human capital level that enables convergence (China’s is significantly higher, but Russia is already richer, and also has the added bonus of a resource windfall). In contrast, Brazil and India are not currently at human capital levels that enable convergence; however, they do both have the potential to raise them to just the levels needed to break out of the “middle-income” trap and converge. But for that they have to develop their human capital to its full genetic potential. The quantity of the needed change is very significant and, even under rosy assumptions (e.g. +3 IQ points a decade until equalization with genetic potential), the process will take decades. Until they at least the low 90′s, they will remain stuck – especially Brazil, because it is already very rich for its human capital level – with fairly low long-term growth rates.

Whatever their average genetic IQ ceilings, it is highly advisable for all the poorer and low-IQ nations to: (1) improve childhood nutrition (e.g. free vitamin pills at schools seems especially low-cost/high-impact); (2) anti-vegetarian propaganda, where such applies; (3) study the experience of foreign countries, esp. the US which has had a lot of success with maximizing NAM scores, and Finland which (at least on PISA) manages to maximize white scores; (4) explore pharmaceutical and technological means of bridging their IQ gaps with the developed world (e.g. nootropics).

(Republished from AKarlin.com by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.