There are TWO elephants in Acemoglu's bedroom
Why are some countries rich while others are poor? The answer to that is not far to seek. With apologies for the army expression, the major differentiating factors stand out "like dog's balls". The factors concerned, however, challenge basic Leftist beliefs so Leftists do their usual trick of ignoring the elephant in the room -- seeking more politically acceptable explanations. So the theses put up by the absurd Leftist economist Daren Acemoglu have been eagerly seized on by the Left. Sadly, however, Acemoglu's theories are as full of holes as a Swiss cheese -- as I have already pointed out. I would have failed his thesis as a Ph.D. dissertation. There is however a saying that bad theories are driven out only by better theories so I think it is incumbent on me to spell out what the obvious factors are. I attempt that below
Acemoglu has addressed the "geography hypothesis", which points to the rather striking fact that poverty mostly seems to be concentrated in the tropics and their immediately adjacent area. So is climate the key to wealth and poverty? Having myself been born and bred in the tropics, I hope not. Acemoglu rejects the hypothesis in favour of his own tale about governmental institutions but makes a pretty thin argument of it.
His chief counter-argument is the prosperity of the Inca and Aztec civilizations prior to the Conquistadores. And it is certainly notable that those civilizations were in the warmer parts of the Americas. One swallow doesn't make a summer however and no statistician would let pass a generalization based on a sample size of one.
Furthermore, I think that what actually went on is fairly clear. The areas where the meso-American civilizations arose are very fertile agriculturally and easily produced the food surpluses that are needed for civilization to arise. Whereas in what is today the USA and Canada, European farming technology was needed before large agricultural surpluses could be produced.
So I think the geography hypothesis is pretty good. It fits almost all the examples. Though we could argue about Tasmania, I suppose. But the interesting question is why. How come that climate makes such a difference? My answer to that is a very old one. To oversimplify, in the tropics you just have to pick fruit off a tree to survive whereas in the cold climates you have to lay up food months in advance if you are to survive the winter. Putting it generally, survival is much harder in cold climates so you need to be smarter to do so. You have to use a mental model of the future for a start, and that sort of abstract thinking is what lies behind a higher IQ.
So IQ is the first elephant in Acemoglu's bedroom. You need information about IQ in order to understand relative wealth and poverty. It is high average IQ that produces wealth-creating behaviour. Even within modern countries, there is a correlation between low IQ and relative poverty. And, as is now I think well-known, Lynn and Vanhanen have shown a strong correlation between average national IQ and national prosperity. The catastrophically low average IQ of Africans corresponds closely with the pervasive dysfunction of African societies -- and indeed of African populations everywhere. If you want evidence that IQ tests measure what they purport to measure, Africa is very strong evidence that they do.
BUT: IQ is not the sole foundation of national prosperity. It suits Leftists like Acemoglu to use simplistic single-factor explanations for everything but most of the world is more complex than that. China is the obvious counter-example. The average Chinese IQ appears to be very high (though studies of IQ in China have mostly been confined to coastal areas) and China has long been very poor.
My favourite example however is South India. South India is very warm and yet the average IQ there appears to be high. It was South Indian mathematicians and engineers who were behind India's recent remarkable Mars shot. In one bound India leapt to near parity with other space-exploring nations. And South India is well and truly in the tropics.
How South Indians got so smart I will have to leave for another day but the continuity of civilization there has to have a lot to do with it. Tamil Nadu claims to be the only place where a classical civilization has survived into modern times. And the constant wars between South Indian states probably also had a eugenic effect.
The interesting question, then, is why, like China, South India has long been poor. And in both cases the answer is blindingly clear: Socialism. It is particularly clear in South India, which is the land of envy. All the States have been very socialist for a long time and Kerala for a while even had the distinction of having the world's only freely elected Communist government. Even the present government is very Leftist.
And the same of course goes for China. It was the virtual relinquishment of socialism under the leadership of Deng Xiaoping that allowed the recent breakout into prosperity by China. No matter how smart the people of a country are, socialism will impoverish them. We saw that also in Russia. Russia has made great strides since it abandoned Communism. And even India's recent surge was fired up by the big attack on the "Regulation Raj" in the 1990s.
There are of course numerous other examples of the economic benefits of winding back socialism: Margaret Thatcher's privatizations and Ronald Reagan's tax cuts both ushered in long booms, for instance. But let me mention another example that might otherwise go largely unheeded: New Zealand.
New Zealand had some pretty socialistic governments during the 20th century (even the nominally conservative Muldoon regime was a big government regime) while Australia had long periods of conservative rule (including the market-oriented but nominally Leftist Hawke regime). And that meant that New Zealand was always a poorer country than Australia. Recently however New Zealand has almost completely caught up. Why? Australia recently had 6 years of a vastly wasteful socialist government (the Rudd/Gillard regime) whose only notable legacy was a mountain of debt -- while New Zealand has now for over five years been under the prudent premiership of the conservative John Key. The results were predictable.
So that is the second -- and presumably most unwelcome -- elephant in Acemoglu's bedroom: Socialism. High IQ makes you rich and socialism makes you poor. You need the right combination of those two factors to have prosperity -- JR.
John Key. It's rarely mentioned but Key is New Zealand's third Jewish Prime Minister. He is apparently not religious, however
Posted by John J. Ray (M.A.; Ph.D.).