Tuesday, October 04, 2005

IQ's implication on taxes

Bryan Caplan argues that even though IQ is essentially impossible to change, it still matters because it reduces the marginal benefit of other interventions. Imagine we want to reduce poverty in a certain at-risk population. We find that after school programs improve outcomes for those who attend by 10%. But then suppose we control for IQ as well -- we find that the benefit falls to 2% (8% came from program participants having a higher IQ). Note that in this example the programs still have an impact, it's just that you get a lot less bang for your buck than you thought you did. Bryan says this makes a case for less government intervention.

Marginal Revolution, however, argues that since IQ is inelastic, it can be taxed to the hilt with little impact, so the consequence may not be less governmental at all. I would point out that IQ is merely one factor of production, along with effort, perseverance, etc., all of which are highly elastic. Since we cannot tax IQ directly, only the combined combinations of IQ+effort+perseverance dedeicated to visible economic activity, the impact of taxes will remain high.


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