Genetically enhancing our children could raise interest rates

Once we understand the genetic architecture of human intelligence, couples will use existing fertility technologies to increase their offsprings’ average IQ. Today, couples who carry harmful genes, such as those responsible for cystic fibrosis, sometimes use embryo selection to avoid passing on these damaging genes to their kids.

With embryo selection, a woman produces many embryos that are examined by a fertility clinic, and then the clinic implants in her one of the embryos that happens to be free of the harmful gene. Once we understand how DNA can influence human intelligence, fertility clinics could also base their implantation decisions on the intellectual genetic potential of the embryos.

Eventually, gene editing technologies such as CRISPR would allow fertility clinics to add into an embryo’s genome beneficial variants that neither parent possesses. CRISPER holds the possibility of allowing parents to reliably birth people smarter than have ever existed.

As Steve Hsu and Razib Khan told me on my Future Strategist podcast, within five to ten years fertility clinics might well have the ability to significantly increase the expected intelligence of their clients’ children. Hsu is a physicist a Michigan State University who studies genetics and Khan is a biologist who was, for a few hours, a science columnist at the New York Times until Gawker got him fired.

Once a few parents anywhere in the world start using embryo selection or gene editing to create smarter children, many other parents will feel obligated to follow. IQ makes a huge difference to life outcomes, and at the very least many rich parents who spend tens of thousands of dollars for private elementary schools to slightly boost their kids’ potential will spend similar lesser sums at fertility clinics for much more substantial results.

After the technology is proven, liberals would likely demand that governments subsidize genetic engineering to preserve any hope at equality of opportunity between the children of the rich and poor, and conservatives in the United States would support it for fear that if their nation doesn’t raise the next generation’s IQ but competing countries do, America would become economically and militarily uncompetitive for example, If Chinese workers, scientists, and soldiers had, say, a thirty IQ point advantage over their American counterparts the best America could hope for would be to have something like Hong Kong’s international status.

Smarter kids will eventually change civilization, but the direct effects will take a while to manifest since the children would have to grow up before their boosted intelligence could supercharge scientific progress and economic growth. But the mere expectation of smarter children would immediately raise real interest rates.

Imagine it’s 2021 and fertility clinics successfully create babies that experts believe will grow up to have fifteen IQ points (one standard deviation) more than they would have without the clinics’ assistance. Experts further agree that within ten years clinics will be regularly adding another fifty IQ points to their clients’ progenies by which time the clinics will also be editing in other useful traits such as increased work ethic, disease resistance, and higher emotional intelligence. Most everyone thinks that these enhanced children eventually will become extremely productive workers who make the world vastly richer.

Governments would borrow more money in anticipation of future riches. Today, governments fear burdening future generations with too high of a debt to GDP ratio and worry that too much debt could cause lenders to question the fiscal feasibility of eventual repayment. But expectations of a much smarter and therefore richer tax base would alleviate both of these concerns and so, for every given level of interest rate, boost government borrowing.

REUTERS/Vasily Fedosenko

Capital tends to have greater value the more skilled and educated the workforce. Anticipating genetically enhanced workers would cause firms to want to invest more now in new equipment and buildings. Many assets, such as real estate and intellectual property, become more valuable the richer a society and so expectations of a much higher economic growth rate would cause companies to spend more buying and developing these assets so that businesses, as well as governments, will wish to borrow more when they realize the potential of human genetic engineering.

Many individuals will reduce their savings rate in anticipation of a future richer society. Today, fear that Social Security won’t survive motivates many Americans to save, but this fear and so this incentive for saving would disappear once genetic engineering for intelligence proves feasible. Furthermore, many citizens would rationally expect future government benefits to senior citizens to increase in a world made richer by genetic engineering and this expectation would reduce the perceived need to save for retirement.

Since understanding the consequences of a smarter workforce will increase the desire to borrow but reduce the wish to save, real interest rates will have to go up. These higher rates will reduce incentives to borrow while increasing the willingness to save and so will restore equilibrium to money markets. Expect to see higher interest rates as soon as markets price in embryo selection and genetic engineering.

James D. Miller is Associate Professor of Economics at Smith College, the host of the Future Strategist podcast, and the author of Singularity Rising.