The SciAm authors get Milton Friedman completely wrong. He, like other monetarists, emphatically believed in short-run money illusion, contrary to what the SciAm authors say.  
 
Indeed, Friedman's famous AEA Presidential Address was largely about short-run money illusion, its disappearance in the long run, and the implications for economic theory and policy. But the SciAm authors have reduced Friedman to a foil, so there's no room for accurately summing up monetarism.  
 
As John Gurley summed up monetarism in the 1960's: "Money is a veil, but when the veil flutters, real output sputters." Sounds like money illusion to me.  
 
And the evidence emphatically supports the idea that that there is roughly zero long-run money illusion. The link in my name heads to a classic paper, "Some Monetary Facts," that shows that money growth and inflation have roughly zero correlation with long-run output growth. So money illusion is (at best) a short-run phenomenon, as Friedman argued.  
 
Robert Lucas's Nobel Lecture and basically any macroeconomics text--New Keynesian or neoclassical--will tell much the same tale.  
 
There are exceptions and caveats, but the big story is simple: Money illusion is a short-run phenomenon, and Milton Friedman preached that fact.  
 
Guess we can't trust SciAm for economics coverage.

Should mention Boldrin and Levine's Against Intellectual Monopoly, which takes a strong contrary view: They argue that patents or monopoly privileges of any sort are unneeded and counterproductive.  
 
This has been David Levine's big push within econ in the last decade or so, and he's been quite successful in getting economists to soften their priors on the issue. It helps that he uses a mix of theory and data to tell his tale....And that he's a great public speaker.... 
 
It's a big thesis, but here's one key anecdote: Countries that tighten intellectual property rights don't get a boost in innovation. This seems a pretty robust empirical fact. Tough to reconcile with "Innovation requires Monopoly."  
 
A free version of the book is in the homepage link.

@geecee 
 
On more objective, time-based IQ measures:  
 
Jensen's book The g Factor reviews a few studies of African reaction-times, as I recall, and they were about 1.5 sigmas below the white mean---far short of the 2+ sigmas predicted by IQ tests. So Africans were always one group where reaction time underpredicted IQ.  
 
I've always kept that in mind in discussions of African g. If all you had was African reaction times, you'd get an IQ estimate quite close to Wicherts, et al.

FYI: The new terms for "money illusion" are "sticky prices" or "sticky wages" or "nominal rigidity." If you did a JSTOR search on those terms, you'd see huge explosions in usage.  
 
New Keynesian thought, which is the mainstream of the field, is built around sticky prices/nominal rigidity/money illusion.  
 
So the idea that economists "forgot" about money illusion is absolutely wrong. Romer's canonical Advanced Macro uses it as a lodestar, Woodford's magisterial Interest and Prices assumes it from the word go. These nominal rigidity models are taught at most of the big schools.  
 
Even U of C's Bob Lucas, who created the rational expectations revolution in the 1970's, teaches sticky price models these days, or so I've been told on good authority. Been doing it for years.  
 
There's a debate in the profession about whether nominal rigidity is a big deal or a small deal, whether our models of it are good or bad, whether it matters more in labor markets or product markets, why it exists, etc. But it's central to the debate, central to macro training.  
 
Oh, and Milton Friedman believed in short-run nominal rigidity too. That was central to the monetarist worldview, and it's central to his view of how the Fed made the Great Depression great. It's littered through his writings--it's a key reason why he believed that increases in the money supply raised output in the short run.  
 
The URL in my name goes to a widely-cited paper recently published in the University of Chicago's Journal of Political Economy--the home of free-market neoclassical economics. It's all about the joys and delights of nominal rigidities---or should I say "money illusion?"

@ Steve Sailer: 
 
Clark checked for name change effects in two ways: aliases listed in wills and indictments (2% each), and minor spelling changes in name spelling over time.  
 
No evidence that this was a driving force. Neither are perfect tests, but we don't expect perfection out of science: We just expect future researchers to run more tests.  
 
Especially when you look at the magnitudes involved (big--see Table 1 of the text), and when it already matches up with Clark's direct data on the fertility of the rich (the rich had twice as many surviving children as the poor), this looks like big, big selection coefficients at work.  
 
s=1.0 would be a literal reading, though of course Clark only has data on phenotypes not genotypes. Here's hoping some enterprising grad student starts doing archaeogenetics with samples from Renaissance graves.

ben g said: agreeableness doesn't correlate with IQ, right? so how could one claim that smarties are nicer? 
 
One can claim it because it's in the paper: High IQ truck driving students play nicer than low IQ truck driving students. If other studies fail to replicate, then we can go back to thinking that smarties aren't nicer.  
 
Also, note that "nicer" here is a specific form of niceness: It's trusting someone in a two-period game. The "nice" players are saying, in the immortal words of ABBA, "Take a chance on me...."  
 
It's not pure altruism as much as a risky investment in relationship-building..... 
 
James Schneider said:  
Could this perhaps be partially explained by the fact that those who perform better in IQ tests are more likely to be economically successful than those who perform poorly.  
 
These are all folks at truck-driving school, so the range of past incomes is probably lower than usual. They're not the worst (otherwise they couldn't afford school) and not the best (otherwise they'd be in college or nursing school or electrician school instead).  
 
Also, they asked the participants how much they thought they could earn in a another job--a measure of "economically successful"--this income measure was statistically insignificant and didn't hurt IQ's statistical significance.

One way to measure culture's independent impact: Move the person from one country to another, and see how they behave in the new place. 
 
Osili and Paulson do that in the new ReStat (link in "homepage" below). 
 
Abstract:  
 
We investigate the impact of institutions on financial development by analyzing the financial behavior of immigrants in the United States. We find that immigrants from countries with institutions that more effectively protect private property are more likely to own stock in the United States. The effect of home-country institutions is persistent and absorbed early in life. The impact of institutions is amplified for immigrants who live in metropolitan areas with many other immigrants from the same country. These findings are robust to (blah blah blah).

Dear Richard Sharpe: 
 
The line between "culture" and "institutions" ends at the DMZ and the Berlin Wall.  
 
Same "culture" on both sides (at least in the short-run) but different "institutions."

Notice I'm talking about "culture," not "institutions."  
 
That's standard jargon in economic history: "culture" is patterns of behavior, not mandated by force, while the latter is patterns of behavior generally mandated by direct or indirect threat of state-sanctioned force.  
 
So DavidB and bio, I'm talking about the former. I suspect most people would agree that the difference between N and S Korea isn't "culture." It's guv'mint. 
 
And this post is about culture.  
-------------------- 
Oh, and Marc, I'd been thinking about 'stems and seeds' as a wine reference, but I was figuring it would yield multiple interpretations....

pwyll:  
 
You're exactly right: I'm just highlighting the different coverage of the two papers, in hopes of getting some folks to actually read the d**n things....

Steve: 
 
Adoption studies won't be helpful: They will control for genes but not IQ per se. And part of the Gintis/Bowles point is that the heritability of IQ explains only a modest fraction of the genetic heritability of income.  
 
We can debate the precise fraction but "substantially less than 1/2" seems to be a good starting point. Methinks that even with an ideal measure of g rather than IQ, the story wouldn't change much, though no evidence springs to mind other than the fact that even if you double or triple 0.02, you've still got small potatoes.

LL: 
 
If by "large group of people" you mean "large group of people," then no, IQ is apparently still a poor predictor of group wages. Just look at the results from Jones and Schneider.  
 
Each of the observations in Figure 2 of the paper (page 27) is an average wage of a "large group of people": Immigrants to the U.S. from a particular country. It's a U.S. census result, so each observation may be the average wage of hundreds, even thousands of immigrants (The data adjust for the impact of education, but they report that the raw data tell the same story, acc. to Section IV).  
 
So yes, the R-squared of 22% is higher for groups than for individuals (which has an R-squared of 10% or so), and maybe that's what Sailer is talking about. But the 'effect size,' as psychologists like to say, is almost exactly the same: One IQ point predicts a mere 1% higher wages between groups.  
 
So even going from an IQ of 70 to 100--two full standard deviations--might yield about 30% higher wages. Small potatoes indeed! One good reason to be sanguine about immigration from low-average-IQ countries.  
 
Speaking of Sailer, Jones and Schneider don't take the Ross Douthat approach in their paper: They refer to Sailer's very useful data table based on Lynn and Vanhanen's IQ and the Wealth of Nations a couple of times.

bioIgnoramus: Agreed---there's nothing all that bad about "good genes" (aka eugenics) per se. Who can be against more good things, whether good meals at a restaurant or good manners in a society or good genes in a population?  
 
It's the combination of eugenic ideas + guv'mint mandates that leads to the bad outcomes most folks worry about. Well, that plus the fact that what is "the good" is always a matter for legitimate debate, whether regarding meals or manners or, well, genes..... 
 
But Cowan is a clever enough rhetorician to avoid that issue entirely---she doesn't fight every battle, just the ones that are easy to win. A smart approach, given her intended audience....

TGGP: 
 
Yes, U.S. slavery was productive (key evidence: high market price for slaves), but it used low-skilled workers. Roman slaves were more educated on average (note that education for slaves was illegal in many U.S. states), so the skill gap wasn't as big, but the principal-agent problems were still real.  
 
So I'm guessing that low-skilled Roman workers forced to work hard might be as productive as the average Roman--that's the "100%" case. And of course, if workers are worked hard they take more inputs--food in particular. So there's not much of a free lunch there. But for the sake of argument, let's say they cost 1/3 as much as wages for a comparable worker (Fogel and Engermann showed that poor white farmers had about the same material standard of living as plantation slaves, so that's likely an exaggeration). That leaves the remaining 2/3 as profit for the Roman slaveowner.  
 
Back-of-the envelope best case then is the 25%*(2/3)*(100%) case---the 17% I mentioned.  
 
I think that's pretty optimistic, since American slaveowners sometimes ended up paying market prices to their own slaves for produce from the slaves' private gardens. So just as the Communists gave their peasants private plots where the real production often occurred, the Southern slaveowners sometimes gave their slaves small private plots where market incentives were at play: Evidence that when slaves were "on the clock" for their masters, they were working well short of potential....

Let's do a back-of-the-envelope calculation to see if slavery can explain Rome: 
 
1. Slaves are 1/4 of the population. 
 
2. Let's assume they're 50% to 100% as productive as the average Roman.  
 
3. Let's assume they cost 1/3 to 2/3 as much as an equally-skilled free worker.  
 
(As the 'economics of slavery' literature has noted, it's hard to get excellent, creative work out of low-paid slaves since the incentives are so poor--hence the typical use of slaves for mindless, easily monitored tasks. If you want a lot of output, you pay a lot. Fogel and Engerman's book Time on the Cross showed that in the U.S. at least, slavery wasn't that much of a free lunch. Genovese's _Roll, Jordan, Roll: The World the Slaves Made_ tells a similar story with much better prose.) 
 
So: 1/4*(.5 to 1)*(1/3 to 2/3) yields a range of from 4% to 17%. So under these numbers, Roman slavery boosted the resources available for the non-slave classes by that amount. Of course, that's just looking at the positive side of the ledger--on the minus side you have the extra monitoring costs and the threat of rebellion.  
 
If you don't like the numbers I've used, feel free to provide your own! But as it stands, it seems to me that slavery could be at best a modest form of income redistribution.  
 
In the URL I've included a link to a paper by MIT economist Peter Temin. He's written a number of good papers recently on the economy of the Roman Empire.

Table 1 (Page 236) of the paper in the URL makes that point clearly. Assuming a normal distribution, it shows that even if men have only small advantages on spatial rotation skills, and/or a slightly higher variance of such skills, you'll see big differences at the high end. A 5:1 M/F ratio is nothing special, while 17:1 isn't out of the realm of imagination.... 
 
So boys and girls will do about equally well at your typical high school, but there'll be big differences at MIT and CalTech.

Ordered myself a copy of Dawn to Decadence on his birthday to celebrate. And it looks like Barzun may have indirectly inspired James Watson to write his classic, The Double Helix. On page 213 of Watson's very enjoyable Avoid Boring (Other) People: 
 
"How to write up [The Double Helix] did not crystallize until a spring 1962 dinner in New York City...On the dais I was next to Columbia University's Jacques Barzun, known to me since my adolescence through his regular appearances on the CBS radio network. Stimulated by Barzun's conversation, I used my after-dinner acceptance speech to tell the story of our discovery as a very human drama....My unexpected candor elicited much laughter and was later praised for allowing the audience to feel like insiders in one of science's big moments.....I saw in my future the writing of what Truman Capote would later call the 'nonfiction novel.'"

tc, 
 
Indeed--Galor and Moav push hard for somatic investment--a win-win story--over a more brutal (and more economic-sounding) trade-off story.  
 
But where there are puzzling facts to be explained--like big differences in average life expectancy across countries and "continental groups" that persist even after controlling for the usual suspects, it's time to try some theorizing.....So I welcome their efforts.

Jor: 
 
On Cosma's thousand-pinpricks attack on g:  
 
http://www.gnxp.com/blog/2007/09/cosmo-on-iq-heritability.php 
 
The comments section covered the issue thoroughly enough. Note that in the end, Cosma coyly states his belief that there's probably a genetic component to intelligence differences. *yawn*

yo: 
 
Thanks for that link. Shalizi is apparently operating in "any weapon to hand" mode, so it's good to be reminded about the facts that don't help his "heritability is low" story--such as the rise in heritability as people age..... 
 
It would seem that his entire h^2 rant could be just as easily written on the topic of height---it seems that all of his (broadly legitimate) h^2 gripes-- "heteroskedasticity, gene-environment interactions, gene-environment covariance, the existence of shared environment beyond the family, and the possibility that the samples being used are not representative of the broader population"---would apply equally well to any real-world studies about height. But he's pretty open to the idea that height differences in modern societies are partially driven by genes. I wonder why he has a such different priors for IQ and height.... 
 
And it's noteworthy that after pages of relentlessly attacking current (imperfect) h^2 estimates, Shalizi ultimately concludes that some cognitive ability differences in normal populations are probably genetically driven. The "strength of analogy to other areas of biology" just can't be ignored.....

TGGP: 
 
The surprising thing is that the one widely-studied ability--IQ--has held about the same relationship with wages ever since the 1960's. In the U.S. at least, the market abhors a vacuum, and so the market finds a way to use low-IQ workers productively. As a result, the link between IQ and wages just isn't that strong in the U.S.  
 
And the IQ-wage relationship has been pretty stable for decades. The link between IQ and earnings just hasn't much budged over time. According to Bowles, Gintis and Osborne, 1 IQ point has been worth about 0.5% more wages from the early 60's through the late 90's.  
 
Figure 6 of this paper tells the story: 
 
http://www.umass.edu/preferen/gintis/jelpap.pdf 
 
Of course, one can raise a ton of objections: What if IQ matters more (or less) in the future? What if Bowles et al. didn't measure something right? And don't lots of non-IQ traits matter, too?----Traits like patience and willingness to work long hours that Greg Clark emphasizes in Farewell to Alms? 
 
Yes, yes, lots of other things matter, non-experimental statistics is wildly inaccurate, and parameters are unstable--but the overriding story is that the rise of information technology hasn't led to the mass redundancy of low-IQ labor. (Recall that the late 1990's, the age of the dot-com boom, was Mickey Kaus's golden age for low-wage labor).  
 
So there's reason to be cautiously optimistic about the ability of modern market-based economies to find useful, above-minimum-wage employment for most of the folks who find themselves on the bottom half of the bell curve.....