Kempen's Commentary: Dumb and dumber
Before you start reading: please don’t take the following personally. It’s others and not you. The reason for this is that I have some bad news: we are not getting any smarter. In fact, we are all getting dumber. At least that’s what recent IQ tests suggest.
Between 2009 and 2015, the OECD found that the average test results for mathematics and science among young people were falling. Which translates into lower IQ scores. Other studies in specific countries (France, the Netherlands, Germany, ...) confirm this trend. If it continues, it means a structural change.
Over decades, the average IQ in developed economies increased thanks to the so-called Flynn effect. This basically means that favourable environmental factors boost the average intelligence. We don’t know exactly what these factors are, but the introduction of the general compulsory education already seems to be a logical one. But also, the emergence of modern, more complex societies may have had an impact. Nice to know in this context is that certain parts of the brain of London taxi drivers are larger than average, as they must memorise complex routes.
Now every effect is subject to the law of diminishing returns. This also applies to the Flynn effect. At a certain point all the low-hanging fruit has been picked. In addition, certain environmental factors seem to prevent the development of intelligence rather than to encourage it. Think of technology that makes us lazy. When we look at the taxi drivers again: thanks to GPS, we no longer have to memorise any routes. This is nice and easy, but also quite disastrous for the development of our visual-spatial insight. For example, there seems to be an interesting connection between that insight and the likelihood that someone is professionally engaged in research, like inventors.
And why should we, as investors, worry about all this? Well, because intelligence also has economic consequences. In general, we see a positive relationship between IQ and purchasing power. Intelligence also increases the chances of innovation, which leads to a higher productivity. Something that is all too useful when trying to maintain economic growth with an ageing population.
How we can prevent the further decline of intelligence in our developed economies, is unclear. Strictly scientifically, genetic manipulation could be a possibility. Maybe in a far-away future. And even then, there are also ethical and moral issues to be considered.
Anyway, in our central economic scenario we take into account a moderately increasing productivity. The expectations about the future average IQ support this principle.
But hopefully we are wrong and productivity will increase after all. And then we'll look back and just feel a bit dumb to have simply overlooked a crucial factor.