Comparative Advantage and IQ

Fiscal Impact of Whites, Blacks and Hispanics

On net, whites generate a $249.52 billion surplus, or $1,260 per person if you assign 100% of military spending to whites. If you just give whites a proportional share of military spending, their surplus goes up to $553.52 billion total and $2,795 per capita.

Blacks, by contrast, run a budget deficit of $389.71 billion, or $10,016 per capita. If 100% of military spending is assigned to whites, blacks STILL run a $306.53 billion deficit, or $7,700 per capita.

Hispanics run a budget deficit of $411.95 billion of $7,289 per capita if military spending is proportional. If 100% of military spending is assigned to whites hispanics run a deficit of $291.3 billion, or $5,160 per capita.

Irrespective of race, poorer people tend to consume more in benefits than they pay in taxes, effectively having a negative income tax rate:

Because of the positive correlation between IQ and income, this is tantamount to saying low-IQ people are a drain on the economy. Because IQ and educational attainment are correlated, one can see how IQ and income are also be correlated. Having a low IQ confers with all sorts of problems that augur poorly for income, such as high time preference, higher rates of incarceration, and low educational attainment. Maybe 30 years ago IQ wasn’t as important, but now it is in terms of individual socioeconomic success. Real wages for high school grads has far lagged college grads.

It would logically seem to follow that if all low-IQ and even average-IQ people were banished from society, that such entitlement spending would go down. But it’s more complicated than that.

But there is another way of looking at this: if low-IQ people are working, even if they have a negative effective tax rate, it’s still cheaper than if they aren’t working and or if the government assumes the roles that low-IQ people in the private sector would otherwise provide.

This is related to the common argument by the left that the government is subsidizing Walmart No, government isn’t subsidizing Wal-Mart:

Economist Justin Wolfers also had a response as to how the issue is framed: “You could say all these guys who work at Wal-Mart are on food stamps, and if they weren’t being paid a low wage, they wouldn’t be on food stamps. So therefore implicitly we are subsidizing the hell out of Wal-Mart. [But as Wal-Mart might see it], if they weren’t working at Wal-Mart at a low wage, they wouldn’t be working at all. The food stamp [cost] would be even bigger.”

Due to comparative advantage, you actually don’t want to get rid of all the low income and low-IQ people, provided they are working, even if they consume more in benefits more than they pay in taxes.

If someone with an IQ of 150 is cleaning dishes or preparing food instead of, say, programming, it’s a waste of cognitive resources. let the person with an IQ of 90 do it. But if cleaning dishes and food preparation cannot be automated, someone will have to do it anyway, and the pay will be low. It doesn’t matter if someone with an IQ of 120 or 90 does the job; it still has to be done, and the pay will be the same regardless of the IQ of whoever does the job. Even if such jobs are net-narrative in terms of a negative effective tax rate for employees, it’s still cheaper than having the government try to create those jobs.

But there is an optimal ratio of high-IQ people relative to the total population. A ratio of 1 is better than zero, but the optimal is probably somewhere in between. The shape of this relationship resembles a parabola.

Although Bryan Caplan makes reference to comparative advantage in his support of immigration, he fails to understand that there is a point after which having too many low-IQ people is sub-optimal.