City, Country

Month 2014

Peter BerezinChief Strategist, The Bank Credit Analyst, BCA Research

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

THE OLD VIEW

“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

SOURCE: PROCEEDINGS OF NATIONAL ACADEMY OF SCIENCES.

HUMAN EVOLUTION HAS ACCELERATED 100-FOLD OVER

THE PAST 10,000 YEARS

© BCA Research 20140

10

20

30

40

80,000 60,000 40,000 20,000

YEARS AGO

0

“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

THE NEW VIEW

1250 1350 1450 1550 1650 1750 1850 1950

1

10

100 ENGLAND: HOMICIDE RATE PER 100,000

LOCAL ESTIMATES

KENT SERIES

NATIONAL DATA

© BCA Research 2014

SOURCE: MANUEL EISNER, “MODERNIZATION, SELF-CONTROL AND LETHAL VIOLENCE. THE LONG-TERM DYNAMICS OF

EUROPEAN HOMICIDE RATES IN THEORETICAL PERSPECTIVE”, BRITISH JOURNAL OF CRIMINOLOGY (41:4), 2001.

LONG-TERM DECLINE IN HOMICIDE RATES

MARRIED

ALL

SOURCE: GREGORY CLARK AND GILLIAN C. HAMILTON, “SURVIVAL OF THE RICHEST: THE MALTHUSIAN

MECHANISM IN PRE-INDUSTRIAL ENGLAND”, JOURNAL OF ECONOMIC HISTORY (66:3), 2006.

SURVIVAL OF THE RICHEST?

ASSETS BEQUEATHED (£)

0-9 10-24 24-49 50-99 100-199 200-499 500-999 Over 1000

SU

RV

IVIN

G C

HIL

DR

EN

IN

PR

E-I

ND

US

TR

IAL

EN

GL

AN

D

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

© BCA Research 2014

SOURCE: JAY L. ZAGORSKY, “DO YOU HAVE TO BE SMART TO BE RICH? THE IMPACT OF IQ ON WEALTH,

INCOME AND FINANCIAL DISTRESS”, INTELLIGENCE (35:5), SEPTEMBER-OCTOBER 2007.

MEDIAN INCOME AND NET

WORTH OF YOUNG BABY

BOOMERS BY IQ TEST SCORE:

NET WORTH (LS)

INCOME (RS)

POSITIVE CORRELATION BETWEEN IQ AND WEALTH

IQ TEST SCORE

© BCA Research 2014

US$ US$

120,000

100,000

80,000

60,000

40,000

20,000

50,000

40,000

20,000

30,000

10,000

75 &

BELOW

80 85 90 95 100 105 110 115 125 &

ABOVE

120

IQ T

ES

T S

CO

RE

GREAT BRITAIN

NETHERLANDS

ISRAEL

NORWAY

BELGIUM

SOURCE: JAMES R. FLYNN, “SEARCHING FOR JUSTICE: THE DISCOVERY OF IQ GAINS OVER TIME”, AMERICAN

PSYCHOLOGIST (54:1), 1999.

© BCA Research 2014

THE FLYNN EFFECT

GERMANY

GREAT BRITAIN

FRANCE

ITALY© BCA Research 2014

SOURCE: T.J. HATTON AND B.E. BRAY, “LONG RUN TRENDS IN THE HEIGHTS OF EUROPEAN MEN, 19TH AND 20TH

CENTURIES”, ECONOMICS AND HUMAN BIOLOGY (8), 2010.

HEALTHIER BODIES = HEALTHIER MINDS

CM

180

175

165

160

18

66

-18

70

18

56

-18

60

18

76

-18

80

18

86

-18

90

18

96

-19

00

19

06

-19

10

19

16

-19

20

19

26

-19

30

19

36

-19

40

19

46

-19

50

19

56

-19

60

19

66

-19

70

19

76

-19

80

MEAN HEIGHT OF EUROPEAN MEN BY BIRTH COHORT:

© BCA Research 2014

SOURCE: CHRISTOPHER EPPIG, UNIVERSITY OF NEW MEXICO.

IQ AND DISEASE BURDEN

IQ VERSUS BURDEN OF INFECTIOUS

DISEASE IN 184 COUNTRIES

2.5 3.0 3.5 4.0 4.5

60

70

80

90

100

IQ T

ES

T S

CO

RE

DISEASE BURDEN

300

310

320

330

6,000

7,000

8,000

9,000

10,000

11,000

US$

1980 1984 1988 1992 1996 2000 2004 2008 2012

REAL EXPENDITURE PER PUPIL* (IN DOLLARS) (LS)

NAEP AVERAGE SCALE SCORE FOR MATH AND

READING** (RS)

© BCA Research 2014

* FOR ELEMENTARY AND SECONDARY STUDENTS. IN CONSTANT 2011-12 DOLLARS. SOURCE: U.S. DEPARTMENT OF EDUCATION, NATIONAL

CENTER FOR EDUCATION STATISTICS (2012), DIGEST OF EDUCATION STATISTICS, 2011 (NCES 2012-001), TABLE 191 AND CHAPTER 2 .

** SCALE FROM 0 TO 500. SOURCE: NATIONAL ASSESSMENT OF EDUCATIONAL PROGRESS, U.S. DEPARTMENT OF EDUCATION, INSTITUTE OF

EDUCATION SCIENCES. BREAK IN SERIES REFLECTS SHIFT TO REVISED ASSESSMENT FORMAT.

END OF THE FLYNN EFFECT?

“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,

May 2008

“LET’S JUST FIX THE SCHOOLS”: A REALITY CHECK

THE RISE OF THE MACHINES

10-4

19

05

19

10

19

15

19

20

19

25

19

30

19

35

19

40

19

45

19

50

19

55

19

60

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

20

15

20

20

20

25

BELL

CALCULATOR MODEL 1NATIONAL

ELLIS 3000ANALYTICAL ENGINE

HOLLERITH

TABULATOR

IBM TABULATOR

COLLOSSUS

IBM SSEC

IBM 704

UNIVAC I

DEC PDP-1

IBM 1130

DEC

PDP-10

APPLE II

IBM PC

IBM AT-80286

PENTIUM

CORE 2 DUO

CORE I7

(4TH GEN)

CORE 2 QUADPENTIUM 4

PENTIUM III

PENTIUM II

COMPAQ

DESKPRO 386

ALTAIR

PROCESSING

CAPACITY OF A

HUMAN

BRAIN

PROCESSING

CAPACITY OF A

MOUSE

BRAIN

ELECTROMECHANICAL SOLID-

STATE

RELAY

VACUUM

TUBE

TRANSISTOR INTEGRATED CIRCUIT

OPTICAL,

QUANTUM,

DNA,

COMPUTING?

10-2

1

102

104

106

108

1010

1012

1014

SOURCE: RAY KURZWEIL, “THE SINGULARITY IS NEAR: WHEN HUMANS TRANSCEND BIOLOGY”, P.67, THE VIKING PRESS, 2006.

DATAPOINTS AFTER 2000 REPRESENT BCA ESTIMATES.

CA

LC

UL

AT

ION

S P

ER

SE

CO

ND

PE

R $

1,0

00

THE POWER OF EXPONENTIAL CHANGE

19

00

SMARTER AND SMALLER

THE GENETIC REVOLUTION

HOBBIE-J LOOKING UP “MURINE”

$95,000,000

$3,000,000

SEQUENCING COST PER GENOME

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

SOURCE: NHGRI GENOME SEQUENCING PROGRAM. AVAILABLE AT: WWW.GENOME.GOV/SEQUENCINGCOSTS.

ACCESSED SEPTEMBER 3, 2014.

© BCA Research 2014

$5,000

SEQUENCING COSTS HAVE PLUMMETED

$10,000

$100,000

$1,000,000

$10,000,000

$100,000,000

• Focus on BRAIN stocks

(Biotech, Robotics, Artificial Intelligence,

Nanotechnology), as well as:

• Areas that are being transformed by

emerging information technologies

(Transport, Energy, Manufacturing)

• Prepare to live forever (Immortality has

arrived; we just don’t know it)

INVESTMENT CONCLUSIONS