Invest based on PISA test results and income tax rates?

by philg

The latest PISA test results are in, comparing academic achievement among 15-year-olds in countries around the world (OECD). I’m wondering if these can be a guide for a long-term buy-and-hold investor. What motivates a business to invest? Natural resources, obviously, but, for the non-extractive part of the economy, how about educated workers plus low tax rates?

Within a country, both the academic ability of young adults and overall size of government seem to be fairly persistent over the decades.

Consider France. Like the U.S., this country is mediocre in terms of academic achievement and, according to the above-referenced OECD report, 14.8 percent of French people are “low achievers” who, especially in a $15/hour (15 euro?) minimum wage world, seem likely to be permanently on welfare (the French may not offer U.S.-quality subsidized or free public housing or food stamps, but they do have free health care for those without jobs and at least some traditional cash welfare). Heritage Foundation says that the French collect 45 percent of GDP in taxes (but maybe the real number is higher? The same page says “Government spending equals 57.5 percent of total domestic output” and “deficits hovering around 4 percent of GDP”).

Maybe some French companies are profit-machines today, perhaps based on brands established 50 or 100 years ago, but in the long run why would the country attract new investment? Capital could flow to PISA chart-toppers Singapore (government spending 18 percent of GDP; top income tax rate 22 percent; top corporate tax rate 17 percent), Estonia (no corporate income tax), Taiwan (government spending only 19.4 percent of GDP; top corporate tax rate 17 percent),

What do readers think? If investing with a 20- or 30-year horizon, would it make sense to look at these PISA numbers?

[A retired hedge fund manager friend says “No. All of this is already priced into the markets,” a variation of the traditional money-manager’s theory that “Your ideas are priced in; my ideas will yield above-market returns.” Generally I am a believer in the Efficient-market hypothesis, but what if markets are dominated by investors with a shorter-term horizon? Why would they be looking at the academic achievement of today’s 15-year-olds?]

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27 thoughts on “Invest based on PISA test results and income tax rates?”

  2. Cuba had really good and improving social metrics in the 50s. North Koreans do pretty well on IQ tests.

    “Enough Smart People” seems like an important but nowhere near dominant ingredient in the recipe for widespread growth and prosperity. You need a high trust society not prone to marxist freak-outs, race riots, or pervasive racketeering. This doesn’t appear to correlate super highly with average math ability, though there is some correlation.

  4. Davep: What’s “POC”?

    What’s the significance of the population numbers? Are you saying that if the U.S. broke up into 50 countries, each with roughly the population of Singapore, that our 15-year-olds would then exhibit the same level of achievement as 15-year-olds in Singapore?

  5. Person Of Color. Steve Sailer has dug into the PISA numbers for America and some other Western Nations and found that if you isolate whites and asians, they outperform highly ranked countries. If you disaggregate the PISA scores by race you get a very different understanding of things.

    If you further disaggregate by region you also get a very different picture. Singapore is not really a country. It’s more comparable to, say, NYC. A place where people move to make money. If you isolate the PISA scores of white/asian NYC kids you get top of the list level performance.

  6. From the point of view of an investor, what difference does the skin color of underachievers make? OECD says that 13.6 percent of American 15-year-olds are “low achievers in all three subjects”. If they are legal residents of the U.S. that means they are likely to collect about 85 years of welfare. That’s a drag on the economy that will have to come out of the hides of investors either through corporate taxes or taxes on employees (who will then have to be paid more to compensate). Estonia has only 4.7 percent “low achievers” that will need to be carried.

    Is this kind of like the popular vote? American 15-year-olds do pretty badly on average, but if you look at selected subgroups they can do better than the average Estonian?

  7. I don’t think the race insight is very useful from an investment perspective. But I also don’t think the PISA score in general are very useful. The race insight is profoundly important from a public policy perspective, however. The schools in America are actually fine. The issue is the students.

  8. philg: “What’s the significance of the population numbers? Are you saying that if the U.S. broke up into 50 countries, each with roughly the population of Singapore, that our 15-year-olds would then exhibit the same level of achievement as 15-year-olds in Singapore?”

    https://www.theguardian.com/news/datablog/2013/dec/03/pisa-results-country-best-reading-maths-science

    2019

    2 Singapore 573 542 551
    12 Finland 519 524 545

    http://dailyhowler.blogspot.com/search?q=pisa

    Average scores by American students, PISA science, 2006 versus 2012
    White students: 523/528
    Black students: 409/439
    Hispanic students: 439/462
    Asian-American students: 499/546
    All American students: 489/497

    Is educating people in NYC (7.4 million) easier or harder than Singapore (5.7 million) or Finland (5.4 million)?

    Is looking at the PISA scores (apparently an annual media tradition) an accurate or overly-simplistic way of assessing education?

    http://dailyhowler.blogspot.com/search?q=pisa

  9. phil: “Is this kind of like the popular vote? American 15-year-olds do pretty badly on average, but if you look at selected subgroups they can do better than the average Estonian?”

    Estonia (1.3 million) is a subgroup (of Europe).

  10. Is it really a problem that 14% or 15% of a country’s kids don’t do well in school? There are so many jobs that don’t require a lot of education. Every month when the BLS jobs report comes out, one of the top sectors for job creation is restaurants and bars. This has probably been going on for 40 years. You don’t need to know anything about algebra or the works of Mark Twain to wash dishes or make sandwiches.

  11. Vince: It isn’t a serious problem for individuals, of course, to be uneducated in a welfare state. But the difference in labor force participation in Singapore and the U.S. is pretty close to the difference in “low achievers”. If we assume the people who are not in the labor force are closely correlated with low achievers that will reduce return on investment in any welfare state with a lot of low achievers.

  12. Singapore is like Lichtenstein or Cyprus. These places are primarily in the business of being tax parasites and laundering money. They’re not real countries and it makes no sense to compare them to real countries like France, USA, Japan, etc. These little tax shelter parasite states are filled with weird nerds who breed at sub replacement rates and have zero capacity for national defense.

  14. That stat squares perfectly well with my theory that Singapore is not a real country. It is a population sink and primarily a tax avoidance mechanism and wealth shelter. Singapore is not a real country. I don’t see how the stat contradicts the point at all.

  16. I don’t understand all the Singapore hating micro aggressions here. Singapore has a real air force which flies F-15 Strike Eagles and F-16s. There is a strong manufacturing base, untill recently, the majority of hard disk drives were manufactured in Singapore, for example. It is easier to do business in Singapore than France or Denmark, in my experience. Most people would agree that Israel is a country. while Singapore is a lot smaller in area the population is 2/3 as large and the GDP is actually larger (not just GDP per capita)

  17. >If we assume the people who are not in the labor force
    >are closely correlated with low achievers that
    >will reduce return on investment in any welfare
    >state with a lot of low achievers.

    The labor force participation rate is a product of several different factors whose relative importance may not even be consistent over time or between countries. I would not make investment decisions based on an unproven assumption like this.

    >If investing with a 20- or 30-year horizon,
    >would it make sense to look at these
    >PISA numbers?

    Yes, as one factor among many.

  18. I was referring to the American economy as a whole. A large portion of all jobs, probably quite a bit more than 15%, don’t require much education. So it’s not a problem for the economy if 14% or 15% don’t do well in school.

    Also, the labor force participation rate measures includes all people either employed or seeking employment. By itself, it’s a pretty useless statistic. The version of the statistic that is often quoted on conservative website includes all people over the age of 18, thus including my parents, who are in their mid-seventies.

  19. I understand that our schools are great, it’s just our children who need improvement.

    We don’t want to be compared to foreign countries:
    Singapore, Hong Kong: too crooked
    Estonia, Finland: too drunk
    China, Taiwan: too Chinese (or at least not good enough for the Ivies)

    How about Korea? They beat us in every PISA metric, they have a diversified economy, and oh boy their whole country looks so beautiful, so prosperous and well kept, so convenient.

    But I guess it’s a loser’s game. Whenever somebody points out that there is something other nations are good at, we like to say that the statistics is wrong. How could we even be sure, with the math education like ours?

  20. Here is a URL of an interview with C.N. Yang (楊振寧, see https://en.wikipedia.org/wiki/Chen-Ning_Yang), a legendary US/Chinese theoretical physicist, a Nobel laureate, and a world-renowned mathematical wizard. He used to be the director of the Center for Theoretical Physics at Stony Brook University, and now he is a physics professor Tsing Hua University in Beijing:

    The question of interest starts at 47:40 but the whole 70-minute interview is absolutely worth it!

  21. > there is something other nations are good at, we like to say that the statistics is wrong.

    The American education system is the best in the world when you disaggregate by race and ethnicity. Finns, Chinese, Nigerians, and English all score better in America than in their respective homelands. Their scores still reflect the respective national rankings, however. America just brings the best that is apparently possible out of people.

    I find it odd that some can’t grasp that Singapore is a weird urban metro comparable to greater metro NYC and not a proper nation state. Singapore is a population sink that imports all necessities and has a capital base of tax shy cash from neighboring kleptocracies. Lovey place! Great! Lee Kwan Yew was a gas. But totally incomparable to a real cohesive and sustainable nation state. The Singapores of the world exist at the discretion of the great powers.

  22. bobbybobbob: “The American education system is the best in the world when you disaggregate by race and ethnicity.”

    That is total rubbish with no facts to back it up. You seem to know so much about Singapore, yet do not mention that Singapore is itself quite ethnically diverse and has quite a few of their very own “POCs”. If we apply the same metric to other countries, would the Chinese in Singapore be the best? If white Americans are ~73% of the US population. If they are indeed the best at PISA scores, assuming that the other 27% are at the same level of the worst ranked country (Dominican Republic, 332), then the white American score would be (496-332*0.27)/0.73 = 556.7, which coincidentally is almost exactly the same as Singapore. So even if ALL non-white Americans performed as the worst in the world, the US would still not be better than Singapore. Now repeat the same exercise for Singapore and isolate the Chinese Singaporeans.

  23. As noted above, from an investor’s point of view I don’t see skin color of underachievers is relevant. It costs the same amount to keep a family on welfare regardless of skin color and the costs have to be paid (at least partially) out of what would have been an investor’s return.

    Congressional Research Service came up with abouut $60,000 per welfare household for 2011 (see http://www.budget.senate.gov/newsroom/budget-background/america-spent-enough-on-federal-welfare-last-year-to-send-60-000-to-each-household-in-poverty ). Probably it is a lot higher now due to higher real estate and health care costs.

  24. That report from that congressional committee is misleading. It appears to ignore the fact that much of the spending that in the programs that is discusses goes to non-poor people. The importance of health care is interesting. Medicaid is considered to be a welfare program, but Medicare is not. So if a Medicaid recipient turns 65 and signs up for Medicare, she will receive a lot less welfare starting that year.

  25. “America just brings the best that is apparently possible out of people.”

    No it doesn’t, the PISA tests are for kids who were born in 2001 or thereabouts, or pre-device internet for infants and toddlers. We have no idea if the younger children are all right, and there is non-test evidence they probably aren’t in the aggregate.

  26. bobbybobbob: I doubt that you can find any statistics on how well Finns, Chinese, Nigerians in America do on standardized tests.

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