Leithner & Co Pty Ltd - Why Value Investors Discount Expert Predictions

CRUSOE VISITS ACADEMIC ISLAND

Part VI

1 July 2004

...continued from Part V

… While everything I have said is non-original and has long been obvious to the point of banality to many good and well-educated minds, all the evils I decry remain grossly over-present in the best of our soft-science educational domains … To me, this ridiculous outcome implies that the soft-science departments tolerate perverse incentives. Wrong incentives are a major cause because … truth is hard to assimilate in any mind opposed by interest. And, if institutional incentives cause the problem, then a remedy is feasible because incentives can be changed.

Charles Munger
Address to the 50^th Reunion
of the Harvard Law School
Class of 1949 (4 April 1999)

An Uneducated Conception of Education

The reality, as Crusoe demonstrates and Kealey richly documents in myriad contexts over hundreds of pages, is starkly different. Assumption 4 is only partly true (and typically stated misleadingly) and Assumptions 1-3 are flatly false. Alison Wolf (Does Education Matter? Myths About Education and Economic Growth, Penguin, 2001, ISBN: 0140286608) and Murray N. Rothbard (Education: Free and Compulsory, Ludwig von Mises Institute, 1999, ISBN: 0945466226) demonstrate that for individuals education does indeed matter. The private returns to private education, in other words, can be high. But what about the positive externalities (“returns to society”) of “education” directed and financed by the state? They are, to put it mildly, much lower than academics and governments blithely, relentlessly and unthinkingly assert – and in most instances may be negative.

Assumption 1 is demonstrably false. Governments need not finance science, education R&D and the like because entrepreneurs, capitalists and the private sector can do so – and indeed did so before the rise of the Leviathan state. Further, governments should not finance these things: both Crusoe’s logic and Kealey’s evidence tell us that individuals will do so better than governments. Assumption 2, of course, is laughable: the history of science and technology, ably reviewed by Kealey, demonstrates that the best science takes place in informal and non-institutional settings – most notably and successfully, in the amateur’s workshop. Assumption 3 is not just wrong – it is backwards. The technology created by enterprising individuals and harnessed by capitalists creates the wealth that leads benefactors to found universities. The redbrick universities of the north of England were founded after the brass was made out of the muck – not to make more brass. Again, Kealey provides example after example of this phenomenon.

Crusoe, who possesses no formal qualifications, is able to understand that these premises are demonstrably false. In sharp contrast, the Ph.D.-adorned residents of Academic Island cannot admit this because if they do then they must acknowledge that their featherbedded positions are superfluous. Contemporary “education then, is indeed a vast mess – not because it is “underfunded” but because politicians’ and academics’ idea of education is idiotic and puerile. The problem with education is not at the bottom but at the top: it is the problem of the insufficiently-educated and miseducated governing class that clogs today’s parliaments and universities.

Thanks to these élites, the age-old distinction between education and training has been deliberately blurred. Worse, the training cart and the educational horse have been reversed: according to contemporary politicians and academics, one does not (as Crusoe did) make money in order to afford an education: one obtains “education” in order to get a job. Education, in modern hands, has nothing to do with virtue and the inheritance of Western civilisation: it is a “service” and an “investment” that is delivered to “clients.” As a result universities have exploded in number and size, and vocational, quasi-vocational and pseudo-vocational courses (arts management, asset management, catering management, leisure and tourism management, etc.) have displaced the preservation and transmission of the bases of civilisation.

So what if the standard of contemporary tourism management is rubbish compared to traditional analytical philosophy? In today’s universities, education has no definite character and anything that receives state funding counts as “knowledge.” The result, of course, is a mammoth swindle that no private investor would touch with a ten-foot barge pole. Some taxpayers are persuaded and others are forced to part with billions in order to “invest” in “education.” But precious little education, in the classical sense of the term, is imparted – and just try to sell your forced “investment” on the open market.

Bleak Prospects

As he disembarks from Academic Island, Crusoe muses that the prospects of the BSers and their other colleagues on the island are bleak. What they regard as their greatest strengths – their privileged access to the Politicians’ plunder and their steady growth of population (to which their share of the Politicians’ booty is tied)–are actually signs of weakness. The BSers’ organisation is also weakening. The basic unit remains the village, and decisions are taken by its Chief and his Council of Elders. But their authority and influence have been eroding for some time. Respect for one’s elders is no more apparent among the young BSers than it is among any other young people. Authority based upon wisdom has weakened, and status has come to be tied to piety of “REE-search” and cleverness in model-making. (Many Elders, it is worth repeating, have little incentive to remain either pious or clever). Schools, it is true, have co-opted younger and more zealous “REE-searchers” as “Elders.” But the legitimacy of the governing structure in the eyes of many BSers people is obviously threatened.

A second problem is that the adult BS no longer regards himself as a life-long member of his School. Nowadays, migration between villages is more and more common and not even the Elders of a village necessarily regard themselves as permanent members. A concomitant problem is urban sprawl: many BS villages are today three or four times as large as they were only a decade or two ago. Indeed, many large BS villages have existed for less than a decade. Big conurbations with large transient populations and ineffective machinery of village government – no one needs a degree to diagnose the social ills that this combination breeds.

Under such circumstances alienation, disorientation and a general loss of spiritual values are likely to ensue. And this is exactly what Crusoe has found. A disturbing phenomenon that frequently accompanies the decline of a culture is the loss of a sense of history and a growing disrespect for tradition. Contrary to the normal case in primitive societies, high-status BS make no effort to maintain and teach the history of the clan. In some villages one still encounters the occasional Elder who preserves the rites of “REE-search” and “models” made by some past tribal hero. Such an Elder is eager to tell the legends associated with these historical figures. But few of the adults, fewer postgraduates and virtually no undergraduate, noting what they regard as the crude workmanship of these dusty old relics, listen to such rambling fairytales. Among the younger generations, it is now rare to find an individual with any conception of the history of the BS. Having abandoned their specific past and disavowed the broader bases of Western civilisation, and possessing no purpose for entrepreneur-capitalists in the present, Crusoe concludes without regret that BSers have little future.