Tag Archives: meritocracy

Rule by signaling

A meritocracy means taking the most competent and putting them in charge. Simple enough. But how does one determine competency? The problem is competence is determined ex post facto, through empirical evidence, in which case it may be too late. This means signaling is required, such as tests.

The “most common definition of meritocracy conceptualizes merit in terms of tested competency and ability, and most likely, as measured by IQ or standardized achievement tests.”[2] In government or other administration systems, meritocracy, in an administrative sense, is a system of government or other administration (such as business administration) wherein appointments and responsibilities are assigned to individuals based upon their “merits”, namely intelligence, credentials, and education, determined through evaluations or examinations.[3]

Hence meritocracy, in practice, often means rule by those who signal best, but a single word to describe this eludes me.

Despite indoctrination, a college degree may still be the best path out of poverty

From Washington Post: Poor kids who do everything right don’t do better than rich kids who do everything wrong

I had to double-check because the chart seems to contradicts the author’s thesis that the American meritocracy is dead and that upward mobility is impossible.

It doesn’t look so bad when you consider that 67% of poor college grads are at least 50-percentile in wealth compared to 49% of rich high school dropouts. It’s even better when you compare poor high school dropouts vs. poor college graduates, which is why a college degree may still be worth the money and the best pathway out of poverty, especially if you major in STEM.

This is why, despite being on the ‘right’–and how colleges have become like ‘West Point’, but instead of producing lieutenants they are producing SJWs–I’m not so quick to join the anti-college bandwagon, because the evidence still suggests that a college degree is worthwhile, especially for STEM. Yes, there is a a lot of student loan debt, but also a ton of financial aid, too, for students of all socioeconomic levels. There is almost no excuse for someone of a reasonably high IQ to not take advantage of these generous financial aid programs to major in STEM.

Some of the most common arguments against college are as follows:

‘I have a degree and all I can find are crappy jobs. Therefore, college is useless.’ This is a legitimate grievance, and I have empathy for millennials who have degrees and are unable to find decent jobs, but this not necessarily proof that college is worthless. For every story of indebtedness and bad jobs prospects, there are other stories, especially on Reddit, of 20 and 30-something graduates in fields such as accounting, STEM, or finance who have solid six-figure jobs, a home, and are paying off their student loan debt. In the case of grads who have bad jobs, consider that getting the degree may have been necessary to get the job in the first place, and despite the low pay, is better than having no job.

‘Look how rich and successful I became (in a field outside of my college degree); the degree is useless, because I became successful in a field that is not applicable to the degree.’ You see this a lot – college grads who major in finance or computer science who become rich and successful in fields outside of computer computer science or finance, and so it would seem like the degree was not necessary. But when you look closer, often these people leveraged their degree early in life, and after amassing financial and social capital (thanks to the early job opportunities and connections afforded by the degree), were later able to parlay these resources to an unrelated endeavor.

‘I became really rich and successful without a degree and or after dropping out.’ Examples include Steve Jobs and Bill Gates, although to their credit neither boasted like this and were more humble. There’s a major survivorship bias here. 80-95% of small businesses fail within a decade, and failures never get as much media attention as successes, giving the false impression that most small businesses succeed. Then you have post-2008 economic trends that favor big, successful companies, that can leverage cheap credit, economies of scale, and networking effects, to keep growing and crowding out smaller businesses. As I explain in Pencil Pushers, success in entrepreneurship requires top-5 percent talent, whereas most day jobs require maybe only top-50 percent talent, to make less money. Bill Gates, Michael Dell, Mark Zuckerberg, and Steve Jobs were able to leverage their superior IQs (as well as connections, family wealth, luck & timing, and other factors) to succeed wildly without a college diploma, which is not applicable to the vast majority of college dropouts who try to follow in their lead, and fail.

Look at all the failed efforts since 2011 or so to create a viable competitor to Facebook (remember Ello, which I correctly predicted would fail), Instagram, Snapchat, or Twitter, just like tons of money was wasted trying to create a competitor to Google (Bing anyone? There’s a joke that the only reason Bing has market share is because everyone who buys a PC must first use Bing to install Chrome) or the iPod and iPhone (Zune anyone?). The money could have been better spent on Facebook stock (which has surged from $30 to $132 in just four years, and keeps going up to no end), Google stock (up 1100% since 2005), Amazon stock (up 150% since 2014), the S&P 500 (which has nearly doubled since 2011), or on Bay Area real estate (which also has doubled since 2011) than starting an actual company. That’s how easy wealth is created…by piggybacking on existing successes, not trying to create one from the ground up. Sometimes the path of least resistance is the best one.

Contrary to the $200,000 figure cited by James Altucher and others, the average debt per graduate is only around $25,000 – or about the cost of a new car. But unlike a car new, which loses 30-50% of its value after the first year, a degree creates wealth both in terms of higher lifetime earnings and as an inflation hedge. This is because wages for non-graduates have lagged the CPI, and college graduates have seen the most wage growth since the 2009 recovery. This makes a degree a good hedge against inflation and wage deflation.

It doesn’t bear repeating that the higher education system is broken, that too many students are taking on debt to major in low-ROI subjects, and that there is a lot of indoctrination, but as bad as it is, a college degree may still be the best shot for reasonably intelligent people to enter the middle class.

The Meritocracy We Don’t Understand

From Wired: Silicon Valley Isn’t a Meritocracy. And It’s Dangerous to Hero-Worship Entrepreneurs

The meritocracy is alive and well, but it’s the meritocracy we don’t really understand. Many are producing merit, but their efforts are wasted because they don’t know the rules. I guess what I mean is that you have industries and regions in America, such as the Silicon Valley, where the meritocracy and capitalism is alive and well, but this is only for a small fraction of the country. More than a trillion dollars of wealth from web 2.0, rising stock prices, and Bay Area real estate has been created since 2009. Coders strait out of college or even high school are making 6-figures, but too many people are pursuing dead-end endeavors, their efforts wasted because capitalism is becoming much more myopic, with few winning sectors, industries, and companies (like web 2.0 & coding) and many more losers.

Wages in San Francisco and for software engineers are surging:

So this is evidence that at least in some regions and industries, merit is being rewarded.

Even right now, you have the S&P 500 just 7% from record all-time highs, yet over 50% of stocks are 20% or more below their highs – again, lots of losers and few winners. We expect this trend to continue, with the stock market making new highs and GDP holding steady even as fewer and fewer companies and sectors participate. This is because fund managers have gotten better at allocating money, choosing sectors such as large cap information technology that are the most impervious to macro-conditions, and ignoring weak sectors like emerging markets, commodities, and energy. It’s the winner-take-all, bigger-is-better theme in overdrive. If you’re not in the shrinking winner’s circle, you’re probably gonna be a loser. This blog, to it’s credit, has done a good job of knowing which sectors to to choose and which ones to avoid.

Some say the American dream is dead, but, I suppose, it depends for whom.

So many are fooled that the American dream is still attainable that they’ll leave us little guys alone to subsist somewhat happily under the radar.

It’s attainable for some, but for many not. It’s more likely attainable if you major in STEM and or have a high IQ; much less so if you major in a low-paying subject and are reckless with money. As shown below, it pays to be in high-IQ sectors like computer science:

So this is the meritocracy, but maybe not the one we would like. If you are smart and get a STEM degree, you are rewarded with more money. ‘Effort’ and merit are not mutually inclusive, meaning that just because you try hard doesn’t mean you will achieve as much as some who is smarter and doesn’t expend as much effort. That’s why working smarter is more important than working harder. If you are smart and ambitious, but are working in the wrong sector/industry, you may also find yourself falling behind.

Due to the normal distribution of IQs, poor decisions making in life, the winner-take-all economy, and the dearth of capitalist opportunities, the majority of people may feel like the American Dream is dead even though it is alive and well for some.

Related: Is Capitalism Dead? It Depends, I Suppose