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Circle of Competence Issue #57


"I attack ideas. I don't attack people. And some very good people have some very bad ideas." - Antonin Scalia


Last week I wrote some thoughts about the higher education industry, and this week I wanted to write a follow up based on an article in the Huffington Post on how higher education continues to inflate tuition costs (H/T Beth F.). There are two main points that I would like to point out which I think are important lessons to be drawn from the HuffPost article as well as from the current state of higher education in general.

First, I want to think about the industry from first principles, from the principles of supply and demand. There seems to be an inherent supply and demand mismatch in the higher education industry - very high and growing demand for an accredited degree that certifies your COMPETENCE in a specific area with limited options as to HOW you will certify that you are competent. There is demand the world over for this type of certification, but why aren't there more alternative models that rely heavily on technology like Lambda School competing for this demand? There is a lack of supply of alternative education models, and the accredited 4 year model is about the only option for 18 year old kids these days, although this seems to be changing. This results in the incredible pricing power of both nonprofit and for profit institutions as alluded to in the article. I hope eventually schools like Georgia Tech (who have a wonderful engineering department) will put pricing pressure on other online degrees, but this remains to be seen. As I stated last week, I also believe that alternative models such as apprenticeship programs, technical programs for skilled labor, and other models will begin to emerge as employers begin to recognize their ability to signal competence in a particular domain of expertise. These two pressures in tandem will put pressure on prices for higher education and will attract a substantial amount of interest from would-be higher education consumers who lack sufficient resources to pay out of pocket and are not interested in personally taking on hundreds of thousands of dollars worth of debt.

Thus, the key question still remains: in an age where information is a commodity, why aren’t degrees a commodity as well? I believe that the answer lies with the status that is conferred with an accredited degree and the lack of broadly available viable alternatives. A four year degree is the best filter for competence in a domain of expertise that we have come up with as a society thus far. Institutions are merely selling the prestige, status, and monetary impact that a degree can bring, because information has been totally, utterly commoditized. The alternative models haven't replaced our current standard 4 year degree model yet because they haven’t garnered the total trust in the public eye (students, employers, employees, etc.) necessary to compete or supplant the standard education model. Thus the lack of viable supply of alternative options leaves us with the current state of affairs. Indeed, it encourages unscrupulous capitalists to take advantage of gullible students looking for a cheaper route through an accredited degree program.

Secondly, I took another valuable lesson from this piece - be wary as an investor for companies that make money at the expense of its customers. This is surely not a sustainable business model and will be either 1) regulated into oblivion or 2) competed away altogether. I'd rather own a business at risk of being regulated as a monopoly that serves its consumers incredibly well (Amazon, Google) than a business at risk of being regulated as a fraud (for profit education). This being said, I don't necessarily think that for-profit education is a doomed venture, it just has to be structured in a way that serves (not screws) the student. Nonprofit institutions are not off the hook either. Given that the federal government bestows acceptance for regional accrediting agencies, this represents a sort of government supported quasi monopoly that leads to the current status quo and allows for the tremendous pricing power in higher ed. Thus, I don't believe that current 'nonprofit' higher education institutions always necessarily serve their students' best interests either - they have raised their prices simply because they can (see the article) and there are no serious competitors stopping them.


“Disparity in wealth, especially when accompanied by disparity in values, leads to increasing conflict and, in the government, that manifests itself in the form of populism of the left and populism of the right and often in revolutions of one sort or another. For that reason, I am worried what the next economic downturn will be like, especially as central banks have limited ability to reverse it and we have so much political polarity and populism.”

Big thanks to one of my readers (Beth F.) for sending me this piece this week and getting the wheels turning on this week's piece on higher ed. This is a long but solid read on how higher education has managed to inflate tuition prices even in the age of digital classroom technology.

Worthwhile, but long, introduction to synthetic biology and how it may be shaping our future in novel protein synthesis, therapeutic uses, and beyond.

Carnegie's book ought to be annual reading for everyone. This is a succinct summary by Shane Parrish on Carnegie's principles. The beautiful thing about them is that you can easily experiment with and implement them in your daily life.

See my thoughts on China here. 21st century geopolitics will be largely shaped by the rise (and fall?) of alternative economic models - will free market capitalism still reign at the end of the century, or will it be replaced by command and control markets like those in China?


Back in issue 55 I discussed the DNA sequencing dominance of Illumina.

In this episode, Azeem Azhar (author of the Exponential View newsletter) discusses Cathie Wood's top 5 disruptive trends in DNA sequencing, robotics, energy storage, deep learning, and blockchain technology.

There is a sense that big tech companies pursued growth at all costs. And now that they have reached gargantuan proportions, solving the problems associated with massive growth on an exponential scale is proving to be difficult indeed.

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