When we fought the Revolution against Britain, America’s economy was based on agriculture and the hydrological cycle. Along with the constants of soil and sun, water (where it fell, how it needed to be diverted, where it ran) determined American economic life. Know a man’s relationship to water, and you knew his relationship to wealth.
Around the time of the Civil War against the southern rebels, sun, soil, and water were surpassed by coal and rail as the foundation of power and privilege. The great rail network, centered around Chicago, enabled greater economies of scale than had ever been seen before in history. The story of the next century, from the racial strife of the 1860s to the racial strife of the 1960s, was the story of industrialization, scale, and how the benefits of coal would be shared.
We’re now changing again. “Information” appears to be valuable, and the economic giants of the day are information racketeers such as Google, Apple, Amazon, and Facebook. The world is becoming much less heavy, and manufacturing on-demand (from computer-driven milling to 3D printing) may accelerate the acceleration of the eclipse of coal by data.
We do not know what is next. The industrial age seemed to come to an apogee in the late 1940s, as economies around the world (the US, the UK, France, Germany, the USSR, China, Taiwan, both Koreas, and Japan) established bureaucratic-industrial welfare states managed by experts, with only quixotic variations based on national culture and ideology. But that was false sunlight, as phony as the widespread popularity of the concentration camps (brought to the US by Franklin Delano Roosevelt) of the 1930s.
We know the world is changing. We know now what comes next.
In this environment, we should focus on giving learners many low-cost opportunities and few high-cost high-risk paths. In other words, we should give students “optionality,” where they have many opportunities and few long-term costs. We’re not in an industrial age where we know economies of scale will rule the day, nor even in the long hydraulic age where water was the great idol. Students will have to find their own ways. We should help them.
To do this we should (except for core majors that are needed for national security — say science, technology, engineering, and mathematics) make much of the curriculum optional, and allow students “low-risk” trials in different career paths.
If you “have optionality,” you don’t have much need for what is commonly called intelligence, knowledge, insight, skills, and these complicated things that take place in our brain cells. For you don’t have to be right that often. All you need is the wisdom to not do unintelligent things to hurt yourself (some acts of omission) and recognize favorable outcomes when they occur. (The key is that your assessment doesn’t need to be made beforehand, only after the outcome.) Being able to make decisions that do not require correctly forecasting the future is a wonderful thing. Not one of the great value investors identified in the series of posts in this blog relies on macro forecasts of the future. Instead, value investors use the optionality of cash to buy after the outcome exists (i.e., a significant drop in intrinsic value). Regarding venture capital, Warren Buffett believes: â€œIf significant risk exists in a single transaction, overall risk should be reduced by making that purchase one of many mutually- independent commitments. Thus, you may consciously purchase a risky investment — one that indeed has a significant possibility of causing loss or injury — if you believe that your gain, weighted for probabilities, considerably exceeds your loss, comparably weighted, and if you can commit to a number of similar, but unrelated opportunities. Most venture capitalists employ this strategy.
It is certainly evil to trick an 18 year old into non-bankruptable loans of tens of thousands of dollars on a worthless major. A 16-year-old would be better off learning a trade than learning Shakespeare, especially if that student could learn Shakespeare later. An 18-year-old would surely be better off selling drugs (say from a pharmacy, an alcohol ball, a tobacconist shop, or so on) and learning that part of the economy than borrowing money to study political science.
Help our students prepare for an uncertain future, for America’s next stage of economic development. Give them low-cost opportunities and easy failures. Not non-bankruptable student loans.