The Perverse Microeconomics of the American University

Even in STEM fields, the forces that shape decision-making for students, faculty, and administrators push them towards academic mediocrity and leftist politics.

An undergraduate degree from the most prestigious schools in the United States is, as evidence of educational achievement, worthless. The hardest thing anyone does on these campuses as an undergraduate is get admitted.

This is now a widely recognized fact in the technology world: no sensible manager would even consider hiring candidates out of an elite American college solely because of their grades and the school’s prestige. This is not true of a degree from the top schools in China, which remain significantly meritocratic, where judging students by their grades has real value. In fact, I recently had a conversation with a former admissions officer for an Ivy League medical school who told me that the admissions committee routinely disregards grades from Princeton as being a result of systematic grade inflation.

To put a finer point on it, receiving a degree from Stanford, Harvard, Princeton, or Yale is a strong indicator of socioeconomic class, of having done well in high school, and of a willingness to tolerate four years of progressive indoctrination. It’s an indication of a willingness to pay approximately the median cost of a house, plus four years of opportunity cost, to engage in high-grade social networking and prestige signaling—both of which, to be sure, can be incredibly valuable.

Sadly, based on anecdotal data, grade inflation has come even to Caltech and MIT, though apparently to a lesser extent than at the other top schools. These technical schools were for a long time the sole high-prestige holdouts against rampant grade inflation.

Savvy students are now gaming the system: in Silicon Valley, it has become quite common to get into Stanford, stay just long enough to be able to put the name “Stanford” on a resume, and then drop out to found a startup. Nobody thinks less of students for doing so, because anyone who is organized enough and clever enough to get into a top school can surely graduate with straight A’s. To quote a recent editorial in the Stanford Daily, “roughly 80 percent of grades given out at Yale are A’s and Harvard’s average GPA is a 3.80.”

As a former member of the faculty at several schools, I can speak with some direct knowledge about the perverse microeconomics that drive the universities. Here are five of the particularly mind-bending things that I observed:

1) Getting into top schools involves jumping through a series of invisible hoops involving various extracurricular activities and opportunities for signaling. Many of these activities constitute displays of progressive bona fides (for instance: identifying oneself as a member of a favored identity group, or as a victim, or volunteering for a leftwing nonprofit), while others are expensive in both time and money (for instance: classical-music lessons and competitions, private sports coaching, unpaid internships, research for scientific publication, travel abroad, or starting a non-profit or business). Simply achieving first-class scores on standardized tests is no longer sufficient to get into elite schools, and there is a thriving industry of advisers and consultants to help the children of the wealthy identify the relevant activities that will appeal to university admissions officers. The introduction of non-meritocratic metrics gives admissions officers immense discretion over who is admitted, which in turn creates opportunities for them to corrupt the process for either political or financial gain.

2) Faculty are strongly self-selected for two characteristics: a desire for near-feudal power over young people, and a willingness to accept below-market wages in exchange for being utterly impossible to fire. Tenure attracts those with political views and personality traits that would prevent them from ever surviving in the commercial world. To get a faculty position, it is typically necessary to go through a decade or more of graduate school and postdoctoral training at very low wages, carefully managing the perceptions of an adviser who can destroy one’s career on a whim. Is it any surprise that many faculty are the children of wealth, or that many of them are Marxists who will do almost anything to avoid exposure to market forces?

3) The fact that universities have access to an unlimited supply of student visas, which provide a straightforward path to green cards after graduation, explains why top schools are able to recruit first-rate talent from around the world. Such foreign students work in their labs while studying for PhDs and earn a tiny fraction of what they would be paid in the private sector. These students are there in large part for the visa and the green card; without that the economics would be absurd.

4) University administrators are rarely successful scholars. The faculty who focus on research generally avoid administrative roles at all costs; only in truly top departments will first-rate researchers take a turn as department chair, as an act of service, and then return to the faculty. More commonly, senior faculty who no longer have much interest in research, but who have tenure, will fight for these administrative positions, which come with additional compensation, time off from teaching, and with the opportunity to exercise power over their colleagues. After achieving tenure, it is generally necessary to make a choice: focus on research, grant writing and teaching, or seek status and power by climbing the ladder of the administrative hierarchy. Both are full-time activities.

Any administrator who annoys the students or their parents by advocating for meritocratic grading (i.e., grading on a curve), or who antagonizes their faculty colleagues by insisting that Marxist politics should not be taught as settled orthodoxy, is unlikely to move up from chair to dean, or from dean to provost. Administrators have every incentive to encourage grade inflation and to defer to the progressive politics of faculty whom they nominally supervise, since confrontational administrators get pushed back into the faculty.

After spending a five-year term as a department chair or associate chair, a professor’s research efforts and grants have typically withered under the burden of administrative responsibilities. Thus, once one goes into administration, especially in a larger department, going back to being a researcher is challenging, and few want to do it. But a chair or dean who can report an increase in a department or school’s U.S. News ranking has an excellent talking point for promotion into higher-level administration.

5) It was amazing to me that the sole remaining bastion of unquestioned meritocracy on campus is in sports, where winning produces revenue from alumni donations, ticket sales, and TV rights. In fact, compensation via endorsements and media appearances is now permitted for “amateur” student-athletes.

If we are to bend our academic institutions back toward educating, rather than indoctrination and signaling, the first thing that we must have is a way to measure whether these institutions are educating anyone. I believe that the new Menorah Index is a key step in this direction. Schools that emphasize teaching students how to think, rather than what to think, will undoubtedly rise to the top. With time, I hope that this ranking and others like it will displace rankings like U.S. News for parents who care about whether their children are receiving an education. And if this ranking changes consumer behaviors, over time it will redirect the incentives for university administrators toward merit and achievement.

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Michael Hochberg
A Caltech-trained physicist, and a founder of several companies, Michael Hochberg is a visiting scholar at the University of Cambridge in the Centre for Geopolitics and a special adviser at the Centre for Risk Studies at the University of Cambridge Judge Business School.
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