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Circle of Competence Issue #56


"The rhetoric of the far left plays on resentments and differences, and it’s easily swallowed. But the policies are more likely to equalize the sharing of misery than to expand blessings, however unequal." - Howard Marks, Growing the Pie (4/1/19)


Higher Education

I've been thinking about higher education for a while and wondering why in the 21st century, with all of our technological achievements and networked computational power, we still haven't fully disrupted the teaching methods and models that have been used for centuries. I will admit that there are companies out there attempting to do just this, such as Udacity, African Leadership University, Coursera, Khan Academy, and Lambda School to name a few. However, while all of these schools make heavy use of online lectures, they have not fully supplanted the university experience. No longer is the university the bastion of knowledge that it once was on the 19th century - anything you wish to learn is on the internet, available at the click of a button. But if the information is free and widely available, why haven't we changed our ways? The hegemony of higher education is NOT in closely guarded information (which is widely available), but rather in its accreditation.

For broader, cheaper, and more innovative higher education experiences, this must change.

Let's start by asking a basic question: what is the purpose of higher education? A few thoughts:

- Producing productive, prepared citizens who can function in society

- Educating citizens to go create new knowledge, make new discoveries, create new jobs, form new companies, and design new products and services

- Allows for multicultural experiences to broaden cultural awareness

Now for a second question - can all of these be accomplished with information gathered online? Yes, except for the last point, which requires genuine human interaction, but even multicultural experiences can happen outside of the university setting.

So what is holding back higher education in the US and broader western world from adapting new, innovative, and cheaper education models? Entrenched stakeholders and the signaling value of a degree. Hot take: a university degree is less about what you studied and more about what your admission signals to prospective graduate schools or employers. See David Perrell's piece on information flows in the 21st century here for a more nuanced approach to this. Before we go further, I want to clarify that I value my two degrees from the University of North Carolina VERY highly! I value them, however, based on my experiences more than my education. The people I met, the places I went, and the experiences I had were invaluable to me - a real form of experiential education. The in-class education was top notch too, but my question still stands: for many people today who simply can't afford college without taking on tremendous amounts of student debt, why is the system not changing to allow broader access to education at affordable prices when we have the technology to do so? Put another way, why, in the age of deflationary technology pricing, is the cost of education skyrocketing? (Some people will point out that many schools are beginning to offer online degrees with the same signaling value, which I admit is a good first step).

Well, the cracks are beginning to show. Take for example, Lambda School, which educates students freely up front in computer science, and takes a percentage of their income until they have paid $30,000 back to the school. AND - this is the kicker - they only take their tuition on the back end if the student is employed and making over $50,000/year. This raises a salient question - what if our universities were paid based on employment rather than just delivering education? Alignment of incentives in the 21st century will be one key in transitioning from an all university to a blended, more online education model. With over $1.5 Trillion in student debt outstanding, I believe many people will be forced to be value based shoppers for higher education rather than blind consumers. In addition to aligned incentives between consumers and education institutions, look for more innovation around mixed classroom formats (online+offline), apprenticeship based education models, income sharing agreements instead of student debt, and varying accreditation schemes such as micro/nanodegrees (Coursera, Udacity) that carry heavier weight with employers.

Of course not all education can be online, but in the era of Amazon, which has heavily cannibalized brick and mortar shopping, why can’t higher ed consumers shop for their education online? At the end of the day, innovation in education has a signaling problem not an education problem. Again, I have no hard feelings towards elite higher education establishments. I went to one. I only ask why higher education hasn’t changed more in the internet era.

Clayton Christensen has been predicting for years that 50% of higher education institutions will be bankrupt within a decade or two because of the intense pressures of education moving online. In my observations over the years, generally the more bloated the system, the more pain that is sustained when significant shocks occur (what happens to $1.5T in student debt?). There are many within the bloated system of higher education that may be in the wake of a coming reckoning.

A few extra links:


Once again, Marks shows his wit in explaining the fallacy in progressive left economic policies. See the quote of the week.

It is always fun to play the 'what if' game with history. This piece goes in depth into 'what if' Nazi Germany conquered Britain. History only happens one way, but asking 'what if' can yield interesting counterfactuals that may offer lessons to be learned.

Niels Jensen puts out interesting letters and this one takes aim at the declining life expectancy of the poor in the US, UK, and Italy. Worth a read.

Long, but worth reading for the national policy section, starting on page 42.

This is one of the biggest advantages to being in the Berkshire Hathaway fold, but it hardly ever gets discussed. As more companies come under Buffett's purview, the more the executives are able to share best practices, new ideas, and collaborate in an owner-oriented fashion. This culture has paid massive dividends over the long run and has been a big part of the continued success at Berkshire.

I normally don't share science-y articles here, but this one was too good not to pass on for a couple of reasons. While some may dismiss this piece as a collection of pretentious and grandiose claims about the actual day the dinasaurs died, I want to point out two things. First, without their extinction, the age of the mammal may never have arrived. Second, this is a great lesson on living an antifragile life - never forget that your business, your job, your spouse, your very life could be taken in the blink of an eye.


Thinking about the world through the lens of various mental models can help us simplify complexity. This allows us to make decisions without knowing 100% of the information at any given time.

Key takeaway here: while the multifamily asset class has become somewhat overheated, industrial seems to still offer solid value as US manufacturing picks up due to automation.

While I don't necessarily agree with a 100% libertarian take on fiat currency and governance, Mike and Alok make some great points around having alternatives to currencies in existence today.

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