David Perell’s essay “What the Hell is Going On” provides a thought provoking review of how technology and the information age continues to disrupt the most time honored information markets: advertising, education, and politics. Much of his discussion is inspired by the hypothesis of Martin Gurri that the information age has permanently diminished the authority of existing elites. Perell is willing to go out on a limb a bit in its quest to “solve for the equilibrium” (as Tyler Cowen would put it).

This includes the bold claim that the university system is doomed to be replaced by online courses and new types of signaling. According to Perell, the proliferation of low-cost and high-quality online education spells the end of universities, or at least the middling ones.

In his recent book The Case Against Education, Bryan Caplan lays out the opposite case, and it’s worth examining the differences. Caplan begins with the point that the correlation between college graduation and later income appear substantial, clocking in at 30% (correcting for ability bias) even for “impractical” majors like Philosophy and Art History, and much higher for hard sciences and engineering.

He notes that this link between education and income can be ascribed to a mix of three sources:

1. Social capital added. The “improvement” of the individual via training and coursework.
2. Pre-existing skill. The tendency of the competent to enroll in college.
3. Signaling. The tendency of employers to prefer candidates with better credentials.

Caplan argues that signaling accounts for ~80% of the premium for college graduates. He provides research to back that number up, but he also asks a question that’s hard to ignore: “Would you rather have 4 years of world-class education at Princeton and no degree, or a Princeton degree without the coursework?” I for one am fairly convinced by the argument that the latter would make you better off financially than the former, even if you believe that the college experience itself is a priceless spiritual journey.

Bryan goes on to argue that the signal provided by a degree is valuable to employers, because it connotes a package of three traits: intelligence, conscientiousness, and conformity. A technology company hiring a philosophy major as a project manager isn’t counting on them to produce well-argued treatises on Locke, or make use of any information about philosophy whatsoever. Rather, the company is counting on them to be able to reason well about novel situations (intelligence), ensure that their work is produced on time and to a high standard (conscientiousness), and that they will “get with the program” and act in accordance with company values and incentives (conformity).

If college degrees are truly 80% signalling, then even the best online courses or MOOCs could not replace them. Under this hypothesis, universities do not owe their success in the modern world to their status as gatekeepers of information. Rather, owe it to their reputation for educational programs whose completion signals intelligence, conscientiousness, and conformity. As Bryan points out in later chapters, the conformity signal in particular provides a catch-22 to would-be disruptors: Doing anything other than going to a four year college would be non-conformist.

So what’s the prognosis right now? There are predictions circulating that the demand for 4-year colleges will diminish starting around 2026, but these have to do with a drop in the number of high school graduates rather than a reduction in the proportion of graduates attending. Perell claims that mid-sized liberal arts schools are already beginning to decline, but it’s not clear that the institution more broadly is suffering.

I don’t doubt that there is opportunity in the education space: college provides little in the way of useful job skills, and as a signaling device, it is both costly and inequitable. Delivering content and university-like interactions should be feasible in an online format. But delivering on the strong signal currently sent by attending a selective four-year institution, and especially signaling conformity, is an uphill battle for any disruptor. We’ve already seen some experiments that have produced quality content but failed to make a dent against 4-year degrees (e.g., Khan academy, edX) and a generation of boot-camps that have been hugely useful to a niche set of students, but may not be able to scale to the level of universities (e.g., Lambda School, App Academy). There’s still an opening for new entrants, and for an ensemble of these disruptors to coalesce into a better route to success for new high school graduates. But the university system is a hardy weed with deep pockets and a centuries-long track record. It won’t be uprooted overnight.

Correction 2019-02-10: I originally had listed Philosophy’s premium as ~20%, in fact Caplan lists it as closer to 30% after correcting for ability bias. I also added the graph of adjusted premia.

Bibliography

Caplan, Bryan (2018). The Case Against Education: Why the Education System Is a Waste of Time and Money. [amazon]

Fox, Justin (2019). “The Coming College Enrollment Bust.” Bloomberg Opinion. [link]

Gurri, Martin (2018). The Revolt of The Public and the Crisis of Authority in the New Millennium. [amazon]

Perell, David. “What the hell is going on?” [link]

Perell, David & Forte, Tiago. “Tiago Forte: The Future of Education.” [link]