The Unz Review - Mobile
A Collection of Interesting, Important, and Controversial Perspectives Largely Excluded from the American Mainstream Media
 TeasersRussian Reaction Blog
Paper Review: The Wealth and Competence of Nations
🔊 Listen RSS
Email This Page to Someone

 Remember My Information



=>

Bookmark Toggle AllToCAdd to LibraryRemove from Library • BShow CommentNext New CommentNext New Reply
Search Text Case Sensitive  Exact Words  Include Comments
List of Bookmarks

PAPER REVIEW

Kulivets & Ushakov – 2016 – Modeling Relationship between Cognitive Abilities and Economic


Abstract:

We propose that problem solving is the mediator between human competencies and achievements. Creation of goods and services is based on problem solving in design, production and delivery. The quality of problem solving depends on human competencies and, in turn, determines economic achievements. More importantly, the choice of problems to be solved creates or does not create the possibility for application of highly qualified labor and, as a result, for full-fledged realization of human capital. We propose a mathematical model based on these assumptions. The simulation reproduces most important traits of Lynn and Vanhanen’s (2002) findings. The simulation shows a non-linear growth of economic achievements with national IQ growth as well as an increase of between countries variance. Thereby the proposed model can serve as a satisfactory explanation for empirical data on links between national IQs and economic achievements.

It’s well established that there is a very close correlation between average national IQ and GDP per capita, especially when corrected for resource windfalls and Communism.

jones-iq-gdp-per-capita

(One such standard graph from Garett Jones).

However, there remain two additional results that correlational exercises cannot adequately explain:

  1. “First, the relationship between national IQs and income is not linear. As it was shown later this relationship can be well approximated by quadratic function (Whetzel & McDaniel, 2006). The mere assumption that more capable, competent and educated people produce better economic results is not sufficient to explain this specific finding.
  2. “Second, residuals of the regression of GDP on national IQ grow proportionally with the IQ. It means that in some high-IQ countries human potential leads to serious economic realizations while in others it is out of demand. So a comprehensive explanation of Lynn and Vanhanen’s data includes understanding of factors stimulating the use of highly qualified labor.”

So Sergey Kulivets, a mathematician at the Trapeznikov Institute, and Dmitry Ushakov, a psychologist at the Institute of Psychology RAN, created a model in which problem solving plays a central role to investigate these two puzzles.

They model a world composed of different countries, in which every resident has a “talent” with a bell curve distribution around different means. Each country has two types of people: Entrepreneurs and specialists. Entrepreneurs hire specialists to produce goods, the quality of which is determined by the talents of the specialists working on them. These goods are then sold on the international market, where any country can buy them. The “GDP” of each country is the sum of the income of its entrepreneurs, or the value of all the goods produced by the entrepreneurs within a country and sold in the international product market, during a set period.

ushakov-simulation-model

Here is how the model works:

  1. Each entrepreur chooses a task for solving. There are two types of tasks: “Threshold” and “open type” ones. Threshold problems require a minimum competence level to complete, but additional competence beyond that threshold offers no further advantages beyond that minimal point; the value of the solutions to open problems increases with the talent of the specialists allocated to it.*
  2. The entrepreneur hires specialists from his own country to perform that task, attracting specialists by offering higher salaries for more competitive candidates.
  3. The entrepreneur produces goods. Quantity dependent on number of workers and money allocated to them; quality depends on the competence (talent) level of the hired specialists.
  4. The entrepreneur sells the good on an international market, competing with other enterpreneurs on price and quality.
  5. Income from this goes to entrepreneur, which in turn – after subtracting production costs and salaries – determines his budget for the next round of problem solving.

Consult the paper for the specific formulae used to describe task selection, the labor market, and the product market.

Towards the end, K&V compare their theoretical models against Lynn and Vanhanen’s. They match up near perfectly.

ushakov-simulation

Competence: I; Development: D.
Left: Lynn & Vanhanen 2002; Right: Simulation results.

Also one can observe that K&V get a nicer fit than L&V, presumably because the Communist legacy (negative outliers) and resource windfalls (positive outliers) aren’t modeled.

ushakov-budgets

Over time both consumers and entrepreneurs become much richer in competent countries relative to incompetent ones, as the “rise in entrepreneurs’ income influences the consumer income through salary rises.”

In this model, entrepreneurs choose tasks in a random way; unsuccessful ones are abandoned, while those that bring a return continue to be produced. As K&V note, if the quality of entrepreneur predictions as to the profitability of various tasks were to also depend on competence levels, then this cognitively-determined pattern of the wealth and poverty of nations can be expected to be even starker.

However, they do end with a cautionary note of some relevance to today’s political economy: Our model is based on the assumption that entrepreneurs’ income comes from organizing people to produce goods and services. This mechanismfunction is impaired if natural rent becomes the main source of profit.

* Incidentally, I would note that this division is justified by and reinforced by Garett Jones’ theory of the O-Ring sector: “I posit that there are two kinds of jobs: O-ring jobs where strategic complementarities to skill are large, and a diminishing-returns Foolproof sector, where two mediocre workers provide the same effective labor as one excellent worker… In a world where countries vary only slightly in the average skill of workers, these assumptions are sufficient to generate massive differences in cross-country income inequality while generating only small amounts of intra-country income inequality.

 
Hide 13 CommentsLeave a Comment
Commenters to Ignore...to FollowEndorsed Only
    []
  1. utu says:

    Why there is large spread in D values (model output) for virtually the same values of I (model input)? The spread seems to be larger for larger values of competence I.

    Read More
    ReplyAgree/Disagree/Etc.
    AgreeDisagreeLOLTroll
    These buttons register your public Agreement, Disagreement, Troll, or LOL with the selected comment. They are ONLY available to recent, frequent commenters who have saved their Name+Email using the 'Remember My Information' checkbox, and may also ONLY be used once per hour.
    Ignore Commenter Follow Commenter
    Sharing Comment via Twitter
    /akarlin/wealth-and-competence-of-nations/#comment-2056217
    More... This Commenter Display All Comments
  2. thaiboy says:

    So why Westerners hurt themselves inviting (or allowing their ‘democratic’ masters to invite) millions of immigrants to their countries? Oh, it’s because of their superior cognitive abilities! Maybe if they had a bit lower IQ, they would not come up with such a brilliant idea?

    [MORE]

    All this IQistry is pure bullshit. It’s wisdom that really matters, not some imaginary ‘intelligence’.

    Note that IQ, GDP, income, etc. are Western concepts, products of Western society, Western culture, Western civilization — and not some ‘objective reality’. No wonder if these fictions happen to correlate with each other.

    “It is no measure of health to be well adjusted to a profoundly sick society.” Nor it is measure of true intelligence.

    Read More
    • Replies: @WHAT
    Measure wisdom.
    , @Anonymous
    Existentialism is no basis for scientific research, m'dear.
    , @Talha
    I would certainly agree with you that wisdom is much more of value than raw intelligence. I also agree with others that it cannot be measured - but then again one can certainly measure serotonin levels and fluctuations in body heat, but that hardly conveys the concept of falling in love. With both, you’ll usually be quite aware when in their presence.

    A note however; wisdom is also found in how you wish to convey your message to others. Without applying wisdom in conveying wisdom, your message may be lost in translation.

    Peace.

    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  3. 5371 says:

    This is superspergy theory and GIGOrific empiricism.

    Read More
    ReplyAgree/Disagree/Etc. More... This Commenter Display All Comments
  4. WHAT says:
    @thaiboy
    So why Westerners hurt themselves inviting (or allowing their ‘democratic’ masters to invite) millions of immigrants to their countries? Oh, it's because of their superior cognitive abilities! Maybe if they had a bit lower IQ, they would not come up with such a brilliant idea?



    All this IQistry is pure bullshit. It's wisdom that really matters, not some imaginary ‘intelligence’.

    Note that IQ, GDP, income, etc. are Western concepts, products of Western society, Western culture, Western civilization — and not some ‘objective reality’. No wonder if these fictions happen to correlate with each other.

    “It is no measure of health to be well adjusted to a profoundly sick society.” Nor it is measure of true intelligence.

    Measure wisdom.

    Read More
    • Replies: @Andrei Martyanov

    Measure wisdom.
     
    I'll add another one: measuring being cultured.
    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  5. @WHAT
    Measure wisdom.

    Measure wisdom.

    I’ll add another one: measuring being cultured.

    Read More
    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  6. Pseudo-intellectual rathole where libertarianism copulates with Iq fundamentalism.
    Oh yeah: in my humble opinion.

    Read More
    • Replies: @utu
    libertarianism copulates with Iq fundamentalism

    Good one.
    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  7. Anonymous says: • Disclaimer
    @thaiboy
    So why Westerners hurt themselves inviting (or allowing their ‘democratic’ masters to invite) millions of immigrants to their countries? Oh, it's because of their superior cognitive abilities! Maybe if they had a bit lower IQ, they would not come up with such a brilliant idea?



    All this IQistry is pure bullshit. It's wisdom that really matters, not some imaginary ‘intelligence’.

    Note that IQ, GDP, income, etc. are Western concepts, products of Western society, Western culture, Western civilization — and not some ‘objective reality’. No wonder if these fictions happen to correlate with each other.

    “It is no measure of health to be well adjusted to a profoundly sick society.” Nor it is measure of true intelligence.

    Existentialism is no basis for scientific research, m’dear.

    Read More
    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  8. utu says:
    @Mao Cheng Ji
    Pseudo-intellectual rathole where libertarianism copulates with Iq fundamentalism.
    Oh yeah: in my humble opinion.

    libertarianism copulates with Iq fundamentalism

    Good one.

    Read More
    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  9. Talha says:
    @thaiboy
    So why Westerners hurt themselves inviting (or allowing their ‘democratic’ masters to invite) millions of immigrants to their countries? Oh, it's because of their superior cognitive abilities! Maybe if they had a bit lower IQ, they would not come up with such a brilliant idea?



    All this IQistry is pure bullshit. It's wisdom that really matters, not some imaginary ‘intelligence’.

    Note that IQ, GDP, income, etc. are Western concepts, products of Western society, Western culture, Western civilization — and not some ‘objective reality’. No wonder if these fictions happen to correlate with each other.

    “It is no measure of health to be well adjusted to a profoundly sick society.” Nor it is measure of true intelligence.

    I would certainly agree with you that wisdom is much more of value than raw intelligence. I also agree with others that it cannot be measured – but then again one can certainly measure serotonin levels and fluctuations in body heat, but that hardly conveys the concept of falling in love. With both, you’ll usually be quite aware when in their presence.

    A note however; wisdom is also found in how you wish to convey your message to others. Without applying wisdom in conveying wisdom, your message may be lost in translation.

    Peace.

    Read More
    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  10. This is more simplistic nonsense from economists. Dr. Taleb is correct about these morons. All this assumes that the IQ and income from the countries is correct. For example, it assumes that all people from every country value money etc. over other things such as family and their time with friends etc. I know MDs that have visited Italy and they tell me that many MDs in Italy only work around 24 hours a week. They value the time with their family and friends more important than money. They have enough to make a good living. In the US many Mds work 60 hour work weeks. The US is obsessed with money. Many people can’t enjoy their lives because they have fallen for the American Dream BS.

    Europeans typically take more vacations and work less than their American counterparts. Furthermore, there is no way to measure the underground economy of these nations which is wide spread in Russia and some parts of Europe. The underground economy in some of these countries may be over 30 to 40% according some people who have lived there. I have no idea how to measure it accurately but it’s big. And therefore, GDPs may be much different than these graphs.

    People should take these numbers with a grain of salt, a lime and good Tequila.

    Read More
    • Replies: @Anatoly Karlin
    No, it's not. There are OECD statistics about this. Americans work 1,800 hours per year. The "laziest" Europeans, Germans, work around 1,350 hours - not a cardinal difference.

    About the "family-orientated" Meds: Italy and Spain both around 1,700 hours, Greece - 2,000 hours (!). Rest assured they spend most of that time chatting and drinking coffee, unlike Germans or Americans, but still, that's time they don't spend around family and (non-work) friends.

    At the end of the day everybody wants more money for less effort and the influence of these cultural propensity to work differences might explain 10% of GDPpc variance but certainly not 50% of them.
    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  11. @niteranger
    This is more simplistic nonsense from economists. Dr. Taleb is correct about these morons. All this assumes that the IQ and income from the countries is correct. For example, it assumes that all people from every country value money etc. over other things such as family and their time with friends etc. I know MDs that have visited Italy and they tell me that many MDs in Italy only work around 24 hours a week. They value the time with their family and friends more important than money. They have enough to make a good living. In the US many Mds work 60 hour work weeks. The US is obsessed with money. Many people can't enjoy their lives because they have fallen for the American Dream BS.

    Europeans typically take more vacations and work less than their American counterparts. Furthermore, there is no way to measure the underground economy of these nations which is wide spread in Russia and some parts of Europe. The underground economy in some of these countries may be over 30 to 40% according some people who have lived there. I have no idea how to measure it accurately but it's big. And therefore, GDPs may be much different than these graphs.

    People should take these numbers with a grain of salt, a lime and good Tequila.

    No, it’s not. There are OECD statistics about this. Americans work 1,800 hours per year. The “laziest” Europeans, Germans, work around 1,350 hours – not a cardinal difference.

    About the “family-orientated” Meds: Italy and Spain both around 1,700 hours, Greece – 2,000 hours (!). Rest assured they spend most of that time chatting and drinking coffee, unlike Germans or Americans, but still, that’s time they don’t spend around family and (non-work) friends.

    At the end of the day everybody wants more money for less effort and the influence of these cultural propensity to work differences might explain 10% of GDPpc variance but certainly not 50% of them.

    Read More
    • Replies: @reiner Tor

    Rest assured they spend most of that time chatting and drinking coffee, unlike Germans or Americans
     
    My impression is that the Germans also spend a lot of time drinking coffee and chatting. Their advantage is reliability. If a German tells you that he finished a job, he really did finish it well. As opposed to an Indian, where you might find that despite his assurances that he’s just about to finish, in reality he hasn’t yet started. And not because he’s lazy, but because he didn’t understand the task at all, and is embarrassed to ask. Or the task was impossible in the first place, but he didn’t want to say no before his superiors signed the contract, and now it’s so totally embarrassing and he does everything possible to hide the fact.

    Now Europeans will usually won’t be so embarrassed, but some Europeans won’t care if their output might be faulty. After all, quality control will catch it anyway. So they will produce tons of faulty products, which will ultimately be very expensive. Either because faulty products are expensive, or because the production will need to be reorganized in a way which makes quality higher even with lax workers, with tons of controls at every turn, and that’s expensive, too. More expensive than having workers who care a lot for the quality of their output.

    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
  12. dux.ie says:

    The use of GDP vs IQ is complicated by the contributions from natural resources for country like Qatar where 100% of the incomes from oil and gas are included in the GDP.

    While KV see their graph as quadratic, I see that as ramp function as the upper envelope where there is a base level across all IQ values depending on national priority and a cut off value below which nations were not able to better organized themselves, even when there are local natural resources they are exploited by other countries with little income following to the native countries e.g. Nigeria, and the further higher the national average IQ the better they are in organizing themselves as well as managing foreign experts in their countries who might on average more able than them, with GDP increases in an ramp function shape, countries like Qatar or all the first world countries.

    While KV got their chart from simulation I got a similar shape chart from real values of NatureIndex WFC scores of reputatble scientific papers output, and came after that in reverse order to the conclusions same as KV used as assumptions for the simulation. Though the income from local natural resources might fund the R&D, the effects are much less. The WFC scores are also counted locally and the foreign experts have to be managed locally. The national GDP values can come from multi-national companies HQ in the countries concerned with incomes from outside the countries.

    http://tinypic.com/view.php?pic=2jfesdh&s=9#.WfmEl5bZib4

    The datapoint for USA is way up and is omited as it might compressed the rest of
    the datapoints.

    Read More
    ReplyAgree/Disagree/Etc. More... This Commenter Display All Comments
  13. @Anatoly Karlin
    No, it's not. There are OECD statistics about this. Americans work 1,800 hours per year. The "laziest" Europeans, Germans, work around 1,350 hours - not a cardinal difference.

    About the "family-orientated" Meds: Italy and Spain both around 1,700 hours, Greece - 2,000 hours (!). Rest assured they spend most of that time chatting and drinking coffee, unlike Germans or Americans, but still, that's time they don't spend around family and (non-work) friends.

    At the end of the day everybody wants more money for less effort and the influence of these cultural propensity to work differences might explain 10% of GDPpc variance but certainly not 50% of them.

    Rest assured they spend most of that time chatting and drinking coffee, unlike Germans or Americans

    My impression is that the Germans also spend a lot of time drinking coffee and chatting. Their advantage is reliability. If a German tells you that he finished a job, he really did finish it well. As opposed to an Indian, where you might find that despite his assurances that he’s just about to finish, in reality he hasn’t yet started. And not because he’s lazy, but because he didn’t understand the task at all, and is embarrassed to ask. Or the task was impossible in the first place, but he didn’t want to say no before his superiors signed the contract, and now it’s so totally embarrassing and he does everything possible to hide the fact.

    Now Europeans will usually won’t be so embarrassed, but some Europeans won’t care if their output might be faulty. After all, quality control will catch it anyway. So they will produce tons of faulty products, which will ultimately be very expensive. Either because faulty products are expensive, or because the production will need to be reorganized in a way which makes quality higher even with lax workers, with tons of controls at every turn, and that’s expensive, too. More expensive than having workers who care a lot for the quality of their output.

    Read More
    ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments

Comments are closed.

Subscribe to All Anatoly Karlin Comments via RSS