What the hell is Boris talking about?

distribution-of-income-2011

That graph atop this post doesn’t look like any bell curve I know. Intelligence is distributed normally. Income isn’t. Connecting the two is stupid, but looks clever. Superficially I can see the appeal, but when you dig down into the mechanisms it just doesn’t work. The superstar effect looks important, but isn’t. No matter which way I turn it in my head I can’t understand what Boris is on about. Boris says that those with IQs below 80 are inevitably poorer and those with IQs above 130 inevitably richer. The mechanisms that drive inequality don’t work like that and the data don’t back him up.

What drives inequality? It varies by time and place. In 1960s America over 94% of doctors were men, since then women have been allowed to enter the field and now only 62% of doctors are men. Since then, 20% of medical productivity improvement can be explained by the entry of more talented women. That study isn’t about IQ but it does show that power plays a huge role in keeping one group well off by harming another. 

Moving back to the issue at hand when we talk about inequality we’re generally talking about the 1%. Who are they? The 1% are Doctors, Lawyers, Financiers, Executives and Entrepreneurs, according to this Economist article. Doctors and Lawyers are clever and earn a lot of money, but aren’t generally super rich. Just appropriately rich, I’m going to leave them. People working in finance and entrepreneurs are the wealthiest but there’s no story about how high IQ could turn into super-high income that correlates with the data.

As The Epicurean Dealmaker points out, genius is not required to make lots of money in investment banking, tolerance for brutal working conditions is:

Investment banking neither seeks out nor requires the allegedly “best and brightest”—whoever the fuck they are supposed to be—for its employees. All we seek are aggressive, ambitious, smart enough young kids to process our ridiculous pitch books, update our standardized models, and generally take our shit while we senior bankers do whatever is necessary to bring in enough revenues to ensure our continued employment and the consequent support of our dependent wives, children, mistresses, and bartenders. [Emphasis in original]

That quote points to the other key reason financiers make so much money: organisational capital. This is the rules, connections and technology that turn a building of arrogant excel-jockeys into a multi-billion dollar wealth creation machine. While it lasts, organisational capital is responsible for a huge amount of value that an individual creates and it has nothing to do with how clever that individual is. The same logic applies to why senior managers make so much money, sure they’re smart, but being super smart won’t have much effect against the background of the rest of the firm.

So that’s a partial pass for Boris for Lawyers and Doctors, but a big fail for Financiers and Managers for Boris’s pet theory. Where Boris’s theory makes the most sense is for the fifth class of the super rich, the entrepreneur. But it only makes sense at a superficial level. Supercleverman has supergoodidea and makes loadsamoney. But no, that’s not how it works.

Having an higher IQ really doesn’t really make you more likely to succeed as an entrepreneur. Most companies fail, and while somebody with an IQ of 150 is smarter than more than 99% of the population, everyone is more or less as equally ignorant relative to the complexity of the economy. Being 50 IQ points cleverer than the next guy doesn’t mean your company will succeed, you’re taking as big a punt as anyone else.

So what was the data I was talking about? The longest longitudinal survey ever conducted was started in 1938 and still going recording the lives of 268 American men. There was no noticeable difference in maximum income earned by men with IQs in the 110-115 range vs. men with IQs above 150. This matches another paper (H/T Chris) which is much larger and also finds very little correlation between IQ and income.

The bottom 16% of people with IQs under 80 will find it very hard to join the 1%. But there’s no explanation in the data to explain why someone with an IQ of 130 or 150 is richer than someone with an IQ of 110. There is some justification for inequality in market income due to differences in inequality, but there is nothing in Boris’s speech that justifies the inequality we actually have. Using intelligence to justify inequality is classic Boris. It looks smart but when you look closely and ask how it works in vanishes into smoke.

Advertisements

2 thoughts on “What the hell is Boris talking about?

  1. What’s Boris on about? I believe the Mash got it right when they summarised his position as “stupid poor people are stupid and poor”. There is, of course, a side-order of “the rich must be wonderful, because they’re rich”… It’s got “fundamental attribution error” written all over it.

    Also, I’m curious as to what proportion of “the 1%” inherited wealth.

    1. It’s got trolling written all over it, but I’m sure he thinks there’s a stronger correlation between IQ and jobs and earnings than exists. Maybe he’s familiar with the literature and he was making a really simple, boring point badly. But I doubt Boris got anything other than the reaction he wanted.

      I’m not sure on inheritance. There must be a good paper somewhere on it. I’ll have a look (by look I mean google).

Comments are closed.