Peter Berezin: A Smarter World: Human Intelligence & Economic Growth From 50,000 B.C. To The Singularity

I had the pleasure of speaking on a panel with Andrew McAfee from MIT at BCA’s annual New York Investment Conference last week. My speech touched on a wide spectrum of issues, ranging from how rising human intelligence has helped propel civilization over the past 10,000 years, to how technology is likely to further increase our mental capabilities and radically extend our lifespans. Here is the  link to my presentation: A Smarter World: Human Intelligence & Economic Growth From 50,000 B.C. To The Singularity. [Below is] an extended transcript of my remarks (along with a number of items I did not get a chance to discuss during my speech). I hope you enjoy reading it as much as I enjoyed delivering it.

Good afternoon, ladies and gentlemen. Up until 200 years ago, humanity lived at the edge of starvation. Then, something amazing happened: a growing share of the population began to escape the Malthusian trap that characterized life for countless millennia.

Why did this happen? A lot of ink has been spilled trying to answer this question. Yet, I would argue that despite the merits of the various explanations that have been proposed, they all suffer from one shortcoming, which is that they exclude the pivotal role played by human evolution.

Now, the conventional view is that evolution operates on much too slow a scale to have any effect on historical developments. Here’s Stephen Jay Gould (Slide 1):

“There has been no biological change in humans in 40,000 or 50,000 years. Everything we call culture and civilization we’ve built with the same body and brain.”
—Stephen Jay Gould

Well, Stephen Jay Gould was wrong. This is a chart based on a paper that was published a few years ago in the Proceedings of the National Academy of Sciences (Slide 2). It shows that the number of genes under selective pressure has increased significantly over the past 10,000 years. In fact, the data suggest that evolution not only did not stop as humans settled down in farming communities, but that it actually sped up nearly 100-fold.

If you think about it, it is not at all surprising that this happened. First, the agricultural revolution led to a surge in population levels. This, in turn, increased the absolute number of potentially beneficial genetic mutations that occurred. Second, the advent of agriculture and the rise of city states completely reshaped the environment in which people lived. And basic biology teaches us that changes in the environment tend to generate selective pressures that cause evolution to speed up. So here’s the new view (Slide 3):

“We are more different genetically from people living 5,000 years ago than they were different from Neanderthals.”
—John Hawks, Professor of Biological Anthropology and Genetics, University of Wisconsin, Madison

What sorts of genetic changes occurred over the past 10,000 years? Well, for one, we know that many changes had to do with our bodies’ continued effort to fight off infectious diseases. The various genetic resistances that people have to malaria are all less than 10,000 years old. We also know that a lot of mutations had to do with dietary changes. The most famous of these are probably the various mutations of the LCT gene, which confers lactose tolerance into adulthood. So important were the mutations for lactose tolerance that they occurred independently in three different locations around the world.

Now, about half the genes in a genome regulate some aspect of brain function, so given the rapid acceleration in evolution, it would be rather surprising if our own brains had not been affected. And indeed, there is plenty of evidence that they were. The frontal lobe in the brain has increased in size over the past 10,000 years. That’s the part of the brain that regulates such things as language, memory, and long-term planning. Testosterone levels have also declined. That may explain the steady reduction in violent crime. You can see that most of the decline in homicide rates in England actually began hundreds of years before the start of the Industrial Revolution (Slide 4).

We also know that certain genes that are associated with higher intelligence have been under selective pressure. For example, the gene that leads to torsion dystonia, which is a fairly debilitating movement disorder, appears to have increased in frequency over the past 500 years. This is a rather amazing fact, if you think about it. Why would a gene that is associated with a known disease increase in frequency? The answer is that individuals who have this particular mutation tend to have IQs that are around 10 to 20 points above the population average. This suggests that in the pre-industrial era, there were significant advantages in terms of reproductive success from having above average intelligence.

And indeed, the historic evidence clearly points in that direction. For example, this is data compiled by Gregory Clark from pre-industrial England, which shows that wealthier households tended to have twice as many surviving children as poorer households (Slide 5).

Of course, just because someone was wealthier back then does not mean they were more intelligent. Having said that, we do observe that this is the case today. This chart shows that people with higher IQs today have, on average, higher levels of income and wealth than those with lower IQs (Slide 6). It is certainly not implausible to believe that this has been true for a very long time.

For example, in China, the gateway into the bureaucracy for a thousand years was the highly competitive imperial exam. And just as was the case in pre-industrial England, there is a lot of evidence to suggest that up until the modern era, wealthier government bureaucrats in China had many more surviving children than peasants.

By the late-19th century, it had become clear – at least in Europe – that the old pattern of the rich having more surviving children than the poor had reversed. This realization was the main driver behind the eugenics movement. Contrary to popular belief, this movement was not a product of the far-right. In fact, the most vocal proponents of eugenics were among the progressive left. John Maynard Keynes, for example, served as the Director of the British Eugenics Society between 1937 and 1944.

But a funny thing happened. The concerns of eugenicists did not come to pass. Rather, people continued to get smarter, and did so at a faster rate than in the past. This phenomenon is now known as the Flynn Effect, named after James Flynn, a psychologist who was among the first to document it. Here is a chart of the evolution of IQ scores in a sample of countries between 1940 and 1990. The average country recorded IQ gains of 3 points per decade over this period, a remarkably large increase over such a relatively short period of time (Slide 7).

What explains the Flynn Effect? Well, it turns out that while IQ is almost as heritable as height, it is also heavily influenced by environmental factors. In particular, we now know that healthy bodies lead to healthy minds, and people have gotten a lot healthier over the past two centuries. Thanks to nutrition, the average height of European men has soared (Slide 8). And not only have we gotten taller, our brains have gotten bigger: the brain of an average American today is about 7% larger than it was 200 years ago.

Another thing that has helped boost IQs is modern medicine. Early childhood diseases reduce IQ by diverting the body’s resources away from mental development and towards fighting off infections. You can see that there is a strong correlation between measured IQ and disease burden across countries (Slide 9). So gains in health have been a major driver of the Flynn Effect.

In addition, we now know that the brain is bit like a muscle in the sense that the more you use it, the better it gets. And thanks to public education and the automation of manual labor, modern society forces us to use our brains a lot more than we used to, and that, in turn, has made us smarter.

But here is the catch: all environmental effects, by their very nature, run into diminishing returns. And while the Flynn Effect appears to be alive and well in places like Africa and South Asia, it is running out of steam in much of the developed world. In fact, a number of recent studies suggest that IQs peaked in most developed countries in the early 1990s and have been falling since.

As a consequence, one needs to be skeptical when hearing such statements as “Don’t worry about the prospect that a robot may eventually take your job; you can still find a new job designing new robots.” Well, maybe. But the average IQ of someone with a graduate degree in engineering is 125. That’s less than 5% of the population. What are the other 95% supposed to do?

And don’t tell me that all we need to do is invest more in education. We are already investing more in education. In the U.S., we currently spend almost double as much per pupil on K-12 education as we did in 1980, but test scores haven’t budged one bit (Slide 10).

Everyone likes to say that we just need to “fix the schools”, but the reality is that there is nothing wrong with American public schools. When parents talk about lousy schools, they are almost always talking about lousy students and their lousy parents. And there is very little that public policy can do about that.

But don’t take my word for it. Here is a conclusion from a comprehensive report by the Department of Education (Slide 11):

“The panel did not find any empirical studies that reached the rigor necessary to determine that specific turnaround practices produce significantly better academic outcomes.”
—U.S. Department of Education, 2008

I think you may see where I am going with this: for thousands of years, humanity has benefited from rising human intelligence. And now that tailwind is gone. And if you think this will not have economic and financial consequences, you are wrong.

The question is: “Can we do anything about it?” And the answer is “yes”, but it’s going to have to be through technology. Now, the first thing to note is that we are already using technology to overcome our mental limitations. I am a researcher. The idea of doing research without the aid of the internet seems unfathomable to me. Even the idea of not having a smart phone seems unfathomable to me, and I have only had one for five years.

Over time, smart technologies will become more integrated with our bodies. Here’s Larry Page showing off Google Glass (Slide 12). In a few years, the glasses will be replaced with contact lenses. And eventually, you will be able to have a chip implanted in your head that will allow you to surf the internet from the comfort of your own brain. It all sounds fantastic, but as famed inventor and futurist Ray Kurzweil reminds us, there are already over 100,000 people that have neural implants to treat diseases such as Parkinson’s.

What’s making all this possible is the explosive growth in computing power. Here is one of Kurzweil’s favorite charts (Slide 13). It shows that computer processing power as measured by the number of calculations per constant dollar has been increasing at an exponential rate for over 100 years. Note that the advent of microprocessors represents just the latest in a number of paradigms that stretch back to the start of the 20th century.

Yet, as Kurzweil has argued, despite all the gains that have been achieved, computers today still only have the processing power of a common mouse. However, by the end of the next decade, they will have the computing power of a human brain, making true artificial intelligence possible.

Computers will also continue to become smaller. This is a Respirocyte, a theoretical nanobot that replicates the work done by red blood cells (Slide 14). However, unlike a regular red blood cell, it can transport more than 200 times the oxygen. Simulations suggest that replacing a portion of one’s blood with these nanobots would allow someone to hold their breath under water for 4 minutes, or sprint for 15 minutes without taking a breath.

But even the progress in computing may pale in comparison with the coming genetic revolution. The most important software in your life is not what’s inside your computer, but what’s inside your body: your DNA.

This is one of the laboratories of BGI, formerly known as the Beijing Genomics Institute (Slide 15). These white boxes, which kind of look like refrigerators, are high-end Illumina Sequencers. BGI has more of these sequencers than any other company in the world. When I first discussed BGI in a report I wrote a year and a half ago, Illumina’s stock was worth $50. Today it is $170. So don’t tell me that these trends are too far away to be relevant for investors.

BGI does a lot of cool stuff, but one of its more interesting projects is its cognitive genomics initiative. Simply put, BGI is sequencing the genomes of 1,000 ultra-high IQ individuals in order to determine how they differ from ordinary people. Once that is done, it will be possible to take ten fertilized embryos and use standard statistical techniques to compute which embryos are likely to produce the child with the highest IQ.

Now, that may sound absolutely appalling to you, and perhaps it is. But I am not here to tell you what I think should happen; I am here to tell you what I think will happen; and whether we like it or not, the age of personal eugenics has arrived, and it is going to be a multibillion dollar industry.

And it’s not just embryo selection. This is Hobbie-J (Slide 16). Hobbie-J is the world’s smartest rat. He just started his own hedge fund. He is long duration. He thinks interest rates will stay lower for longer. I can’t say I disagree.

What makes Hobbie-J special is that scientists gave him an extra copy of the NR2B gene, which affects cognitive development. As a result, Hobby-J displays significantly better memory and learning skills than other rats. Eventually, we will be able to perform such genetic manipulations on ourselves, making us smarter and healthier in the process.

Why is all this happening now? The answer is that health care is becoming an information technology, which means that it is becoming subject to Moore’s Law. It cost $100 million dollars to sequence a human genome in 2001. Today it costs only $5,000 (Slide 17). The time to sequence DNA has also plummeted. It took 15 years to sequence HIV, but only one month to sequence SARS. We can now sequence a virus in less than a day.

Historically, medical research was very much a hit-and-miss affair, with a lot more misses than hits. For example, back in the late 1980s, a British subsidiary of a major U.S. pharmaceutical company was doing trials on a drug to treat high blood pressure. The drug didn’t work very well, so the company asked the test subjects to return the unused tablets. The women did. Many of the men did not. Well, you may have already guessed the punchline: the drug was eventually rebranded as Viagra.

In the future, however, modern technology will take much of the guesswork out of drug discovery. We will be able to use computers to model the effects of different molecular compounds on the body. And with a better understanding of the genome, we will be able to tackle genetic diseases such as cancer directly at the source, rather than relying on blunt treatments such as chemo and radiotherapy.

Where do all these roads lead? The answer may be radical life extension, and perhaps even immortality. Certainly there has been a lot of progress in understanding the aging process. For example, every time a cell divides, the little bits of the DNA at the end of each chromosome – which are known as telomeres – become shorter and shorter. If you can slow down this shortening process, you can slow down aging. Interestingly, scientists have discovered an enzyme named telomerase that does precisely this. Gene therapy using this enzyme has been shown to extend the lifespan of mice by around 25%.

There has also been major progress in stem cell research. We don’t hear too much controversy about stem cells anymore. The reason is that scientists have figured out that if you take a regular skin cell and add just four genes to it, it will become functionally equivalent to an embryonic stem cell, thus obviating the need for human embryos.

Right now, life expectancy for adults is increasing by around two months per year. So for every extra year you manage to live, you’re basically getting a two month bonus. But with the new technologies that I described, it is conceivable that the bonus in additional longevity will one day exceed 12 months, which is another way of saying that your life expectancy may eventually increase as you get older.

Realistically, such radical increases in longevity are at least 20 years away. Not everyone has that long to wait and even if you do have the time, you could still be struck by lightning or have an anvil fall on your head. Thus, you need a backup plan.

Until recently, the only semi-viable backup plan was cryonics. Now, you can still get that done. The cost is about $50,000 per head. And I mean that literally. That’s how much it costs to have your head frozen in the hopes that it will be reanimated one time in the future.

But increasingly, there is a better solution. For $5,000 you can have your entire genome sequenced. That will largely preserve your physical self in digital form. Now, you will still want to preserve your thoughts, feelings, memories and everything you learned over the years.

But there’s been progress on this front as well. Using neural imaging, scientists have already been able to record simple memories in mice and even implant these memories into other mice. President Obama recently announced the BRAIN Initiative. The end result of this project will be the creation of what is called the “connectome”, which is a precise 3D rendering of all the neural connections in the brain.

Admittedly, that also is still quite a few years away, but hey, not to worry. You still have your smart phone. These days you can digitally preserve a huge amount of information about your life. There will eventually be a time, perhaps long after you have died, when it will be possible to take all this information, and together with the information encoded in your genome and epigenome, create a younger, healthier, and better looking version of yourself that has all your thoughts and memories. This may sound ridiculous, but then again, how many of the technologies that we enjoy now would have seemed ridiculous to someone living 100 years ago?

Let’s talk about some investment implications from my discussion (Slide 18).

The way I think about it, the most exciting opportunities will come from the producers and consumers of the technologies that I described. On the producer side, I coined this term “BRAIN” stocks in a report I wrote last year. It stands for Biotech, Robotics, Artificial Intelligence, and Nanotech. Companies in these areas will be among the technological leaders in the future.

With respect to the consumers of these technologies, I think the most interesting opportunities will be in industries that are still in the early stages of being transformed by information technology. I mentioned health care as one example, but there are others. Driverless vehicles will completely revolutionize the transportation industry. In the energy sector, installed solar capacity is following Moore’s Law, doubling every two years. We are only seven doublings away from having solar meet the entire planet’s energy needs. In the manufacturing sector, 3D printing is transforming the way we produce everything from airplane parts to prosthetic devices.

Our constant quest to preserve our physical selves in digital form will also generate numerous exciting investment opportunities. If you remember one word from this presentation, let it be “life-logging”. It is going to be a huge industry.

In summary, ladies and gentlemen, the future is uncertain and a bit scary. But I also think it is incredibly exciting. It really is a fascinating time to be alive.

Thank you very much.

Peter Berezin