It’s well-known that college tuitions are rising at obscene rates, with the inflation-adjusted cost level having grown over 200 percent since the 1970s. Then there is the phenomenon of “dark tuition”, referring to the additional costs that parents often incur in giving their kids a reasonable shot of getting into the best schools. Because of the regional balancing (read: non-rich students from highly-represented areas have almost no shot, because they compete in the same regional pool as billionaires) effect, the insanity begins as early as preschool in places like Manhattan. Including dark tuition, some families spend nearly a million dollars on college admissions and tuition for their spawn. To write this off as a wasteful expenditure is unreasonable; it’s true that these decisions are made without data, but the connections made early in life clearly can be worth a large sum. Or, alternatively, the cost of not being connected can be quite high.
Many also note that a college degree means less than it used to, and that’s clearly true: educational credentials bring less on the job market than they once did. Yet rising tuitions are a market signal indicating that, at least for elite colleges, the value of something has gone up. Some people have complained that MBA school has become the new college, due to the latter’s devaluation. I’d argue that the data suggest the reverse. College is turning into MBA school: quality can be found at the top 200 or so institutions, but increasingly, the real big-ticket value motivating the purchase is certainly not the education, and not really the brand name– 5 years out of school, no one cares where you attended; the half of elite-school attendees who fail to make significant connections are likely to end up in mediocrity and failure like everyone else– but the network itself.
So have elite social connections become more valuable? How could it be so, in an era during which technology is supposedly liberating us from inefficiencies like good-old-boy networks? Aren’t those dinosaurs on the way to extinction? It seems not. This should be an upsetting conclusion, not so much for what it means (connections matter) but for what it suggests about the trend. Realists accept that, in the real world, connections and the attendant manipulations and (often, for those outside needing to get in) extortions matter. What we all hope is that they will matter less as time goes on, because for the opposite to be the case suggests that progress is moving backward. Is it?
The news, delivered.
“You know what the trouble is, Brucey? We used to make shit in this country, build shit. Now we just put our hand in the next guy’s pocket.” — Frank Sobotka, The Wire.
Leftists like me would typically argue that American decline began in the 1980s. The prosperity of the 1990s falsely validated the limp-handed centrism of the “New Democrats”, and the 2000s was the decade of free fall. On the other hand, despite the mean-spirited political tenor of these decades, the U.S. continued to innovate. As bad as things were, from a macroscopic and cultural perspective, the engines of progress continued running. Silicon Valley didn’t stop just because Reagan and the Bushes held power. Google, which became a household name around 2002, didn’t go out of business just because of a toxic political environment. I’m not saying that politics doesn’t matter– obviously, it does– but even in the darkest hours (Bush between 9/11 and Katrina) there was not a visible, credible threat that American innovation would, in the short term, just die.
I also don’t think that we’re in immediate danger of an out-of context innovation shut-down. It’s not something that will happen in the next two years. I do think that we’re closer than we realize.
American innovation exists for a surprisingly simple reason: forgiving bankruptcy laws regarding good-faith business failure. If your company folds, it doesn’t ruin your life. Unfortunately, that protection has been eroded. Bank loans for new businesses require personal liability, circumventing this protection outright. The alternative is equity financing, but Silicon Valley’s marquee venture capitalists have set up a collusive, feudal reputation economy in which an individual investor can be a single-point-of-failure for an entrepreneur’s entire career. The single trait of the American legal system that enabled it to be a powerhouse for new business generation– forgiving treatment of good-faith business failure– has been removed. Powerful people saw it as inconvenient, they wrote it off the ticket.
Credible long-term threats to innovation are present. Makers struggle more to get their ideas funded, or to get anywhere near the people in control of the arcane permission system that still runs the economy. The socially-connected takers who own that permission system can demand more as a price of audience. We’re seeing that. The people who really make the big money (defined as enough to comfortably buy a house) in Silicon Valley, these days, aren’t the makers implementing new, crazy ideas; but peddlers of influence using their business-school connections to get unwarranted advisory and executive positions, stitching together enough equity slices to have a viable portfolio, or those who do the former even better and become real VCs. Silicon Valley’s Era of Makers has come and gone; now, MBA culture has swept in, 22-year-olds are getting funded based on who their parents are, and its clear that Taker Culture has won… at least in the “we’ll fund your competitors if you don’t take this sheet” VC-funded world.
So… what does this have to do with college tuitions rising? Possibly nothing. There are a number of plausible causes for the tuition bubble, many having little or nothing to do with Taker Culture and the (risk of) death of innovation. Or, it might tell us a lot.
What do we actually know?
We know that college tuitions are skyrocketing. Professor salaries aren’t the cause, because the academic job market has been tanking over the past 30 years, with low-paid adjunct and graduate students replacing professors in much of undergraduate education. This suggests that the quality hasn’t improved, and I’d agree with that assessment. Administrative costs and real estate expenditures have gone up, but that seems to be more of a case of colleges wanting to do something with this massive pool of available money, than a prior cause of the escalating costs.
Housing prices in the most vital areas have also increased, even though the economy (including in those areas) has weakened considerably. I suspect that these two of the three aspects of the Satanic Trinity (housing, healthcare, and tuition costs) share a common thread: as the world becomes riskier and poorer, people are buying connections. That’s what living in New York instead of New Orleans in your 20s is about. It’s also what going to an Ivy instead of an equally adequate state university is about. Of course, the fact that connections matter enough to be bought isn’t new. People have been buying connections as long as there has been money. What is obvious is that people are paying more for connections than ever before, and that inherited social connectedness has probably reached a level of importance (even in the formerly meritocratic VC-funded startup scene) incompatible with democracy, innovation, or a forward-thinking society. Oligarchy has arrived.
What happens in an oligarchy is that the purchase of connections (via financial transfer, or ethical compromise) ceases to be an irritating sideshow of the economy– a distraction from actually making stuff– and, instead, becomes the main game.
Here’s an interesting philosophical puzzle. Does this pattern actually mean that connections have become (a) more valuable, or (b) less so? It means both, paradoxically. Social connections matter more, insofar as a much larger pool of money is being putting into chasing them, and this strongly indicates that hard work, creativity, and talent no longer matter as much. To navigate society’s dehumanizing and arcane permissions systems, “who you know” is becoming more crucial. The exchange rate between social property vs. talent and hard work now favors the first. However, connections are less valuable, also, insofar as they deliver less, requiring people to procure more social capital in order to make their way in the world. The price of something increasing does not necessarily mean that it’s worth more to the world; it might be that a reduction in its delivered value has driven up the quantity needed, thus its price. This evolution is not the functioning of a healthy economy; it’s sickness that benefits only a few. Connections matter more, make very evident by the fact that people are paying more for the same quantity, but deliver less. That means that the world, as a whole, is just getting poorer.
This is clearly happening. People are paying more for social connections and the health of the economy, in addition to this, indicates that even more social access is needed to buy as much economic value (security, opportunity, etc.) as yesteryear. Adam Smith decried Britain as a “nation of shopkeepers”. The United States, ever since the Organization Man age, has been in danger of becoming a nation of social climbers. However, there’s always been something else to its economic character; at least, enough impurity amid the bland mass to, at least, give color should the damn thing crystallize. But is that true now? In the 1970s, that “impurity” was Silicon Valley. There was cheap land that the old elite didn’t want, but that drew (for a variety of historical reasons) a lot of intelligent and capable people. Governments and businesses used this opportunity to build up one of the most impressive R&D cultures the world has seen. Maker Culture came first in Silicon Valley, generated a lot of value, and then the money started rolling in. Unfortunately, that also brought in douchebags, whose number and power have only dramatically increased. It was probably inevitable that Taker Culture (multiple liquidation preferences, note-sharing among VCs, MBA-culture startups with reckless and juvenile management, Stanford Welfare and the importance of social connections) would set in.
The New California?
We know that the California-centered Maker Culture is gone. There are still a hell of a lot of great people in that region– it might be the most talent-rich place on earth– but, with a few outstanding exceptions, they’re no longer the socially important ones. I don’t think it’s worth dissecting the death of the thing, or whining about the behaviors of venture capitalists, because I think that ecosystem is too far gone to repair itself. In the 1990s, venture capitalists rightly judged that most of the powerful, large corporations were too politically dysfunctional to innovate. Now, that same charge is even more true of the VC-funded ecosystem, which effectively functions (due to the illegal collusion of VCs, who increasingly view themselves as a single executive suite) as a single corporation, albeit with a postmodern structure.
What California was when the Maker Culture emerged, what places are like that now? Is it another city in the U.S., like Austin, perhaps? Or is it in another country? Must it even be a physical place at all? I don’t know the answers to these questions.
Or, as the escalating cost of college tuition– and the premium on social connections suggested by that– seems to indicate, is it just gone for good? Has an effete aristocracy found a way to drive meritocracy not just to a fringe (like California five decades ago) but out of existence entirely? If so, then expect innovation to die out, and an era of stagnation to set in.