Robin Hanson once wrote a blog post about how reasonably intelligent people (for instance, the sort of people who read his blog) tend to overestimate how smart everyone else is.

For instance, about half of Americans are unable to correctly read a table and do a simple addition/subtraction calculation:

Only 52% could do item AB30901, which is to look at a table on page 118 of the 1980 World Almanac and answer: According to the chart, did U.S. exports of oil (petroleum) increase or decrease between 1976 and 1978?

Such is the banal reality of the American high-90s average IQ, which is still a dozen points above the world average.

Why am I bringing this up?

Because whenever I write about IQ and its relationship to economic success there will inevitably be the skeptical commenters bringing up the same old tired responses. IQ is just a number. It doesn’t measure anything. You are a pseudo-intellectual. You are an IQ reductionism. You are an autist.

Now I acknowledge that there are understandable reasons for this. You can say that Country X has an IQ of 100 and Country Y has an IQ of 85 – but what the hell does it mean in real life?

And consequently, why should the ability to scribble down something for some irrelevant test matter for economic success?

Moreover, this to an extent even applies to the people who read and appreciate IQ realist writers like Steve Sailer and James Thompson on this website. You might have a good general appreciation of the different average IQs of the world’s major regions (Global North: ~100; Latin America and Middle East: ~85; Sub-Saharan Africa: ~70). And many do appreciate that national wealth depends largely on a population’s intelligence, especially of its “smart fractions” (as opposed to neoliberal hand-wringing over insufficient deregulation or the Marxist jeremiads about the “Golden Billion” keeping the Third World down). However, putting the two together – at least in an intuitive, non-autistic way – is quite tricky.

Fortunately, the PISA website has sample math questions from the 2012 assessment, corresponding to each of the six different levels of difficulty, as well as statistics on the percentage of 15-16 year old students from each of the participating countries that is capable of correctly answering it:

Distribution of countries by competence level in Math (PISA 2012)

Country Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Albania 68% 39% 16% 4% 1% 0% Argentina 65% 34% 11% 2% 0% 0% Australia 94% 80% 58% 34% 15% 4% Austria 94% 81% 59% 35% 14% 3% Belgium 93% 81% 63% 40% 19% 6% Brazil 65% 33% 13% 4% 1% 0% Bulgaria 80% 56% 32% 14% 4% 1% Canada 96% 86% 65% 39% 16% 4% Chile 78% 49% 23% 8% 2% 0% Colombia 58% 26% 8% 2% 0% 0% Costa Rica 76% 40% 13% 3% 1% 0% Croatia 91% 70% 43% 21% 7% 2% Czechia 93% 79% 57% 33% 13% 3% Denmark 96% 83% 59% 30% 10% 2% Estonia 98% 90% 68% 38% 15% 4% Finland 97% 88% 67% 38% 15% 4% France 91% 78% 56% 32% 13% 3% Germany 95% 82% 63% 40% 18% 5% Greece 86% 64% 37% 15% 4% 1% Hong Kong 97% 92% 80% 60% 34% 12% Hungary 90% 72% 47% 24% 9% 2% Iceland 93% 79% 55% 29% 11% 2% Indonesia 58% 24% 8% 2% 0% 0% Ireland 95% 83% 59% 31% 11% 2% Israel 84% 67% 45% 24% 9% 2% Italy 92% 75% 51% 27% 10% 2% Japan 97% 89% 72% 48% 24% 8% Jordan 64% 31% 11% 2% 1% 0% Kazakhstan 86% 55% 23% 6% 1% 0% Korea 97% 91% 76% 55% 31% 12% Latvia 95% 80% 53% 26% 8% 2% Liechtenstein 97% 86% 71% 48% 25% 7% Lithuania 91% 74% 48% 23% 8% 1% Luxembourg 91% 76% 53% 30% 11% 3% Macao 97% 89% 73% 49% 24% 8% Malaysia 77% 48% 22% 7% 1% 0% Mexico 78% 45% 18% 4% 1% 0% Montenegro 73% 43% 19% 6% 1% 0% Netherlands 96% 85% 67% 43% 19% 4% New Zealand 93% 77% 56% 33% 15% 5% Norway 93% 78% 53% 28% 9% 2% Peru 53% 25% 9% 3% 1% 0% Poland 97% 86% 64% 38% 17% 5% Portugal 91% 75% 52% 28% 11% 2% Qatar 53% 30% 15% 7% 2% 0% Romania 86% 59% 31% 12% 3% 1% Russia 93% 76% 50% 24% 8% 2% Serbia 85% 61% 35% 15% 5% 1% Shanghai 99% 96% 89% 76% 55% 31% Singapore 98% 92% 80% 62% 40% 19% Slovakia 90% 73% 49% 27% 11% 3% Slovenia 95% 80% 56% 32% 14% 3% Spain 92% 76% 52% 26% 8% 1% Sweden 91% 73% 48% 24% 8% 2% Switzerland 96% 88% 70% 45% 21% 7% Taiwan 96% 87% 74% 57% 37% 18% Thailand 81% 50% 23% 8% 3% 1% Tunisia 64% 32% 11% 3% 1% 0% Turkey 85% 58% 33% 16% 6% 1% UAE 80% 54% 29% 12% 4% 1% UK 92% 78% 55% 30% 12% 3% USA 92% 74% 48% 25% 9% 2% Uruguay 71% 44% 21% 7% 1% 0% Vietnam 96% 86% 63% 35% 13% 4% OECD average 92% 77% 55% 31% 13% 3%

I am going to go through them, essentially repeating Robin Hanson’s exercise for the United States for the world at large. Hopefully, this will give us a better perspective on what abstract things like “average national IQ” actually mean in practice. And why seemingly minor differences between them are important and explain the vast bulk of international differences in GDP per capita and general socio-economic success.

***

Look Around. There Are Stupid People Everywhere.

Level 1

Very simple graph-reading problem that almost everyone (92%) in the OECD got correct.

Even so, even at this very elementary level, only 65% of Brazilians and not much more than half of Indonesians and Peruvians can be expected to get it right.

Level 2

Not even so much a question of elementary arithmetic as of elementary common sense.

But the OECD average is now 77% – only three quarters of Europeans are getting this right, while only the East Asians are still scoring at around the 90% mark.

However, performance amongst outside the high-IQ northern world is already plummeting: Only around half of Malaysians and Mexicans are getting this right, a third of Brazilians, and only a quarter of Colombians, Indonesians, and Peruvians.

Level 3

One would think that this not much harder than the most basic literacy test, but apparently not. There is not a single country where more than 80% got it right.

OECD average: 55. Elementary table reading is a struggle for half of Americans and Russians, and two thirds of Turks and Romanians.

But the results for the developing world are already veering into catastrophic territory: Only 18% of Mexicans, 13% of Brazilians, and 8% of Indonesians are still coping.

Level 4

This is the first problem with at least some multi-step elements to it, though it only involves multiplying numbers in a straightforward sequence. I suspect this is the bare minimum cognitive level you need to be capable of productive work within the complex “O-Ring” economy.

OECD average: 31%. The major East Asian countries: ~50%, the Germanic lands: ~40%, the USA – 25%, Russia – 24%, Turkey – 16%.

Meanwhile, the figures for the developing world are diminishing into truly “(not so) smart fraction” territory: Only 4% of Mexicans and Brazilians, 3% of Tunisians and Peruvians, and 2% of Jordanians, Colombians, and Indonesians are still on board, hanging on.

Level 5

The arithmetic procedure here is still elementary, but it is both multi-step, and has to be completed in the correct order.

I would estimate that this is the minimum level you have to be do competent intellectual work, such as programming.

OECD average: 13%, which broadly correlates to the actual percentage of “symbolic analysts” – mind workers who process information and symbols for a living – within the developed world economies.

But the percentage of people at this cognitive level in the developing world is now pretty much petering out: They constitute just 1% in Albania, Brazil, and Mexico, and less than 1% in Colombia and Indonesia.

Making teams at this level of competence for ordinary entrepreneurs is becoming increasingly unrealistic and, consequently, imposing an absolute limit on economic complexity.

Level 6

This problem requires a multi-step approach, an understanding of rates, and the intelligence to complete it in the correct order.

Though not especially hard, even at this level. I suspect that many of you can do it in your heads within a minute.

But a majority of all the tested teens begged to differ.

OECD average: 3% (!!). Korea: 12%, Japan: 8%, Germany: 5%. The US, Italy, Sweden, and Russia were all at 2%; the Mediterranean was at 1%.

Some countries where a big fat 100% (rounded up) were unable to do this problem: Argentina, Brazil, Chile, Colombia, Indonesia, Jordan, Kazakhstan, Malaysia, Mexico, Peru, Qatar, Tunisia, Uruguay.

The number of people at this level, the highest measured by PISA, is dwindling away into insignificance in Latin America and the Middle East.

And yet this only translates to an IQ of 120-125. We’re nowhere even near genius level yet.

***

A Cognitive Model of the Economy

The classical definition of an economy is a system for the production and exchange of goods and services. However, I will argue that you can view it even more fundamentally as a system for generating and trading solutions to problems.

People with successful solutions acquire money, and in turn buy solutions for their own problems (which range from basic needs, such as food and shelter, to whims and fancies, such as a new Tesla). From this perspective, different systems of political economy are ultimately just different ways of organizing the problem-solving machine. For instance, under capitalism, everyone is largely free to buy and sell solutions, whereas under the central planning systems of the old socialist regimes, bureaucrats play the key role in deciding who works on which problem and who gets access to their solutions – and who doesn’t.

In this interpretation, loosening regulations should be generally good, since it effectively removes barriers to speedier exploration of any given problem space. But having people capable of such exploration in the first place is even more important.

Some of these problems, such as subsistence farming and trucking, are pretty simple and can be accomplished with reasonable efficiency even by relatively dull workers. This is because problems in this “Foolproof sector” (as Garett Jones calls it) require few steps and have only a minimal threshold difficulty, so production in this sector is governed by the standard Cobb-Douglas equation. More highly skilled workers are only modestly more productive, and are thus awarded with modestly higher salaries. Labor differs by productivity, but is substitutable – one experienced waiter is worth two novice ones.

Gregory Clark – A Farewell to Alms: A simple visual illustration of a multi-step production process. Even minor differences in competence – assuming they have an affect on p , the probability of failure, will have increasingly drastic effects on the success rate as the production chain gets longer.

Other problems are very complex and require teams of competent workers to perform multiple complicated steps to create a successful solution. The best are paired with the best for maximum productivity. Moreover, many O-Ring problems might have a threshold limit for IQ, below which no productive work can be done on them in principle (as per the Ushakov-Kulivets model). To be commercially viable, the risk of failure on any one link of a long production chain needs to be kept low. Examples of these “O-Ring” tasks may include: Aircraft manufacturing; corporate merger planning; computer chip design; machine building; open-heart surgeries.

Why is the O-Ring sector critical? Workers in this sector are richly awarded, corresponding to the massive amount of value generated in these enterprises. But these workers can also take jobs in the Foolproof sector – the chip designer in the O-Ring sector can always become a waiter in the Foolproof sector – thereby pushing up wages in the latter far beyond what they would otherwise be in a society with no substantial O-Ring sector to speak of. As Jones argues, this is because labor in the Foolproof sector is substitutable, and low-IQ people are broadly competitive with high-IQ workers.

According to Kremer/Jones, it is the relative strength of the O-Ring sector in the developed world which explains why a hairdresser earns five times as much in Belgium as in Brazil, even though productivity between the two cannot be much different. Or why a coffee at a cafe costs 10x less than in Turkey than in Norway, even though the Turkish coffee will if anything be better. This difference between 100 IQ Belgium and 85 IQ Brazil is much greater than the difference between two average persons with that IQ within either country.

Why is this O-Ring stronger in Belgium than in Brazil? Because in Brazil, only a tiny fraction of high school students can do anything much more complex than a simple, single-step arithmetic operation.