Monday, November 13, 2017

The Open-Source Alternative to a College Degree

Five years ago, Massive Open Online Courses (MOOCs) were the hot new thing in higher education. Finally, the time was upon us! The internet was set to upend our outdated modes of education!

Today, that does not seem significantly closer to materializing.

MOOCs failed to usher in an era of cheap, large-scale higher education for exactly the same reason that opencourseware failed to usher in an era of cheap, large-scale higher education ten years earlier: they solve the wrong problem. “Education” is not about learning things, it’s about signalling. People don’t study in school because they’ll need all that knowledge on the job. People study in school to show how smart and hardworking they are, so companies will hire them.

Similarly, the value of college isn’t in making students memorize factoids or formulas. The value of college is in filtering students. Employers hire graduates because colleges filter out weaker candidates, both in admissions and over the course of a four-year degree. College grads are much more likely to make strong employees.

But in shifting from a learning-view of education to a signalling-view, one thing stays the same: college seems like an awful lot of resources to burn. Surely the benefit could be captured without spending four years and two hundred thousand dollars? If anything, it seems like signalling intelligence and work ethic ought to be even less resource-intensive than learning things!

So, what might a viable alternative to college look like? If not MOOCs, then what?

Within software, one answer might be open-source contributions.

Already today, companies are eager to hire large contributors to major open-source projects. And such qualifications seem much more relevant to software engineering than a degree: working on large open-source projects is nearly identical to working on a large project at a software company. A candidate who has contributed lots of code to a popular library or framework will almost certainly be successful writing similar code for a company.

On the flip side, open-source projects are constantly in need of more hands. Even the most popular libraries have long wishlists. There’s no Common Application to get started, just pick a software package, browse the open tickets and go. The filtering comes from project owners, who will review any proposed changes or additions to the code. If your code doesn’t pass muster, re-do until it does - the project owner will likely explain exactly where it falls short. If the owners of a project are unpleasant to deal with, go contribute to a different project - though projects are unlikely to grow large in the first place with unpleasant management.

On the other hand, compare to college. There’s a lengthy admission process of questionable granularity, followed by four years of professors who may or may not be interested in helping you. If you fail, it’s a permanent black mark, even if it’s in some stupid class unrelated to your career. At the end of the day, your incentives, employers’ incentives and colleges’ incentives are not very well aligned.

So why do people still go to college, rather than taking some online programming classes and then working on open-source projects?

One answer, presumably, is that college is the default path. The open-source alternative is non-obvious, especially to people not yet in the software industry. It also lacks the flexibility of a college degree. These both seem like reasonable explanations, but neither is a serious roadblock to wider “adoption” of the open-source alternative. Of course, moronic HR departments are another issue, but that only matters at large companies.

Perhaps the most serious roadblock is simply that nobody is promoting the open-source alternative, so nobody knows it’s there. In this case, there is an obvious group who is incentivized to promote it: owners and managers of open-source projects. If Apache were to promote open-source work as an alternative to a degree, they might find a lot more helping hands.

Am I missing anything here? Is there some other reason why the open-source path would not work? Let me know.

Tuesday, November 7, 2017

Post-Scarcity

Background: This is part of a short series on high-level principles relevant to political/social issues. The previous post discussed depersonalization and scalability of interactions. This post can be read standalone. If you want to understand the modern economy, as opposed to the economies of yore, the one source I recommend most strongly is a short story from the July 1958 issue of Astounding Science Fiction, titled “Business As Usual During Alterations”. It’s roughly a 15 minute read. I’m about to throw out major spoilers, so stop reading here if you want to enjoy the story first.

One morning, two devices mysteriously appear in front of city hall, along with directions on how to use them. Each has two pans and a button. Any object can be placed in one pan and, with a press of the button, a perfect duplicate will appear in the other pan. By placing one duplicator device in the pan of the other, the device itself may be duplicated as well.

Within a span of hours, material scarcity is removed as an economic constraint. What happens in such a world?

People tend to imagine the dawn of a new era, in which human beings can finally escape the economic rat-race of capitalism and consumerism. In the world of the duplicator, a pantry can provide all the food one needs to live. A single tank of gas can drive anywhere one wishes to go. Any good can be copied and shared with friends, for free. All material needs can be satisfied with the push of a button. Utopia, in a nutshell.

The main takeaway of the story is that this isn’t really what happens.

Towards the end, a grocer explains the new status quo eloquently:
“... not very many people will buy beans and chuck roast, when they can eat wild rice and smoked pheasant breast. So, you know what I've been thinking? I think what we'll have to have, instead of a supermarket, is a sort of super-delicatessen. Just one item each of every fancy food from all over the world, thousands and thousands, all different”
Sound familiar?


Of course, that’s just the tip of the iceberg. When it comes to digital goods, like music or videos, the world of the duplicator is exactly the world in which we now live. That’s the obvious parallel, but let’s not stop there.

Over time, the value of raw materials and manufacturing have steadily fallen as a fraction of economic output. Even when looking at material goods, efficiency has shifted the bulk of costs from materials and manufacturing to design and engineering. We are converging to the world of the duplicator, where marginal production costs hit zero, and in many areas we’re already most of the way there!

This hasn’t made economic activity disappear. Pulling from the story again:
“This morning, we had an economy of scarcity. Tonight, we have an economy of abundance. And yet, it doesn't seem to make much difference, it is still the same old rat race.”

I won’t spoil all of the remarkably prescient predictions of the story - do read it yourself.

Badge Value
Here’s one good you can’t just throw on a duplicator: a college degree.

A college degree is more than just words on paper. It’s a badge, a mark of achievement. You can duplicate the badge, but that won’t duplicate the achievement.

Rory Sutherland is another great source for understanding the modern economy. The main message of his classic TED talk is that much of the value in today’s economy is not “material” value, i.e. the actual cost of making a good, but “intangible” or “badge” value. A college degree is an extreme example, but the principle applies to varying degrees in many places.

The sticker price on an iphone or a pair of converse isn’t driven by their material cost. A pair of canvas high-top sneakers without a converse logo is worth less than a pair of converse, because converse are a social symbol, a signal of one’s personal identity. Clothes, cars, computers and phones, furniture, music, even food - the things we buy all come with social signals as a large component of their value. That’s intangible value.

In the world of the duplicator, the world to which our economy is converging, badge value is the lion’s share of the value of most goods. That’s because, no matter how much production costs fall, no matter how low material costs drop, intangible value remains.

In the past, we’ve sold material value because that was a scarce commodity. Now, the shoe is on the other foot, we’ll sell intangible value.

Jobs & Employment
One particularly prescient line from the duplicator story:
“You know, when we first got the word about this thing, this duplicator, we immediately started thinking in terms of pretty drastic retrenchment. Then... it turned out we didn't have much fat to spare. Engineers, draftsmen, designers; we need about six times as many as we have. Nut-twirlers and button-pushers on assembly lines will go; but mechanics, craftsmen who can take a blueprint and turn out a piece to specified tolerance...”
Sound familiar?

We’re already well into the post-scarcity economy, and sure enough, nut-twirlers and button-pushers are disappearing rapidly. Yet every other week, news outlets are running stories about the shortage of STEM workers. The economy of the future, we’re told, needs thinking and creativity rather than repetition and basic labor.

The root cause of all this is the economic equivalent of the duplicator: steady growth of economic productivity, and the consequent reduction of materials and manufacturing as a share of cost.

The duplicator story gets one big thing wrong, however: it predicts that the shift in labor demands will be met by retraining. It’s an elusive dream still chased today, most recently by MOOC advocates. But at the end of the day, learning is not the main purpose of most education - after all, most of what people learn is never used on the job. Education is about signalling, through degrees and grades - badge value. That badge isn’t saying “I know Newton’s laws”, it’s saying “I have handled intellectually challenging problems”. Until we learn to create whatever cognitive capabilities a college degree filters for, retraining is unlikely to turn nut-twirlers into engineers.

And that’s the optimistic case. What if colleges don’t filter for a fixed skill level at all, but instead filter for a relative skill level? Oversimplifying a bit, what if colleges just give degrees to the smartest 20% of people they can find?

Keeping Up with the Joneses
The general problem with badge value, and signalling in general, is that a badge isn’t worth anything if everybody has it. In order for a badge to be worth something, there have to be people without the badge. It’s a zero sum game.

Keeping up with the Joneses is a classic example: people buy things to signal their high status, but then all their neighbors buy the same thing. They’re all back to where they started in terms of status, but everyone has less money.

The prevalence of zero-sum signalling today economically stems from the reduction of material scarcity. If you think about it, zero-sum games are inherent to a so-called post-scarcity society. A positive sum game implies that net production of something is possible. That, in turn, implies that something was scarce to begin with. Without scarcity, what is there to produce?

To put it differently: there’s always going to be something scarce. Take away material scarcity, and you’re left with scarcity of status. If there’s no way to produce net status, you’re left with a zero-sum game. More generally, remove scarcity of whatever can be produced, and you’re left with scarcity of things which do not allow net production at all - zero sum goods.

Today’s world has found a way to get around this problem somewhat: heterogenous cultures. The baristas at SightGlass coffee have very high status among hipsters, but hardly any status with bankers. Janet Yellen has very high status among bankers, but hardly any status with hipsters. Each different culture has its own internal status standards, allowing people to have high status within some culture even if they have low status in others.

Cultural heterogeneity allows net status to be produced, by increasing the kinds of status which one can have. When “hipsters” became a thing, they brought along their own kind of status in addition to all the old kinds of status. Cultural granularization makes status signalling positive-sum. But from another perspective, it just kicks the zero-sum game up to the group level: hipsters as a group compete for status with bankers, in a zero-sum manner. Thus tribal conflict between groups.

Rent Seeking
With all this talk of zero-sum games, the last piece of the post-scarcity puzzle should come as no surprise: political rent-seeking.

Once we accept that economics does not disappear in the absence of material scarcity, that there will always be something scarce, we immediately need to worry about people creating artificial scarcity to claim more wealth. This is the domain of political rent-seeking, of trying to limit market entry via political channels.

One simple way to measure such activity is via lobbying expenditures, especially by businesses. Such spending actually seems to have flattened out in the last decade, but it’s still multiple orders of magnitude higher than it was thirty or forty years ago.

Conclusion
Remove material scarcity as an economic constraint, and what do you get? The same old rat race. Material value no longer scarce? Sell intangible value. Sell status signals. There will always be something scarce.

Between steady growth in industrial productivity and the advent of the digital era, today’s world looks much more like the world of the duplicator than like the world of 1958. Yet many people are still stuck in 1950’s-era economic thinking. At the end of the day, economics studies scarcity. Even in the world of the duplicator, where any material good is arbitrarily abundant, scarcity still exists.

This is the world in which we live: as material and manufacturing costs fall, badge value constitutes a greater and greater fraction of overall value. On the employment side, falling marginal production costs mean less need for assembly line workers, and more need for engineers, designers, and high-skill trades. And politically, less material scarcity means more investment in creating artificial scarcity, through political barriers to market entry.

Welcome to the post-scarcity economy.

Wednesday, October 25, 2017

What's the Point of Capital Markets?

Note: This piece will use “capital” in the popular sense, i.e. as a synonym for “money”.

Plenty of people argue that some or all of the modern finance industry is engaged in zero-sum games. In particular, speculators, high-frequency traders, and broker-dealers are frequently vilified in this manner.

I don’t particularly care about moralizing, but as someone who’s interested in making money from the capital markets, I’d much rather play a positive-sum game than fight over a fixed-size pie. If there’s real economic value to be generated, then I don’t necessarily have to outsmart everyone else in order to turn a profit. Thus the question: does the high finance industry generate real economic value, and if so, how?

The following sections explore ways to create real economic value through finance. Each section starts with a way to create value in a more intuitive market (grain), and then moves to capital markets by analogy.

I will omit the standard explanations of both banking and insurance, since they are explained just fine elsewhere. That said, bear in mind that the functions of both banking and insurance are not exclusive to institutions with “bank” and “insurer” on their business cards - both borrowing/lending and risk pooling occur in capital markets more generally, and real economic value is created accordingly.

Gains from Trade
Let’s start with the simplest possible econ-101 example.

A farmer grows some grain, and wants money. A consumer is hungry, has five dollars, and for some reason has a hankering for unprocessed wheat. A bushel of wheat is worth more than five dollars to the consumer, and five dollars is worth more than a bushel of wheat to the farmer. They trade, and each is happier - real economic value has been created.


What’s the analogous scenario in a capital market?

A company wants some capital, e.g. to buy a new oven. Somebody saving for retirement has some money, and wants to invest it. The company issues some stock to their newfound investor, in exchange for the money.

Now it starts to get interesting. With the farmer’s wheat, it was pretty clear how both sides benefitted from the trade: the farmer had lots of wheat, the consumer was hungry. But what about the stock example? In order for the company to benefit, their capital investment (e.g. the oven) must boost their earnings enough to justify the new stock issued. So for instance, if the company had to issue 1% more stock in order to raise capital for the oven, then the oven must boost their earnings by at least 1% to be a worthwhile investment.

On the other side, in order for the company’s stock to be a good investment for our hypothetical retirement-saver, the company’s earnings (using their new oven) must yield some return.

The main takeaway is that capital markets generate gains from trade by taking some capital that isn’t being used - e.g. retirement savings - and using that capital for something useful - e.g. a new oven. This is the basis of all value creation in finance, including all of the examples to follow. If you’re ever unsure whether some part of the finance industry is creating real value, remember: at the end of the day, it’s all about using spare cash to finance investments in real business assets. Follow the capital flow, and see what it’s ultimately invested in.

So there’s definitely gains from trade in capital markets. But this scenario completely omitted the actual finance industry - they’re mostly middlemen. How do the middlemen add value?

The Middlemen
Consider the middlemen in an oversimplified grain market. They buy grain from farmers, and sell it to consumers. Their value add is straightforward: they save farmers the hard work of finding a buyer, and they save consumers the hard work of finding a seller.

The finance industry is no different.

When a company issues stock, lining up buyers is a lot of work. Investment banks typically handle that work. Same with bonds, mortgage securities, etc. Just like middlemen in any other market, these institutions create value by saving companies the work of finding capital-sellers, and saving investors the work of finding capital-buyers.

That said, these particular middlemen have some SERIOUSLY entrenched rent-seeking. Imagine that all the grain middlemen managed to form an industry group, lobbied a bit, and their industry group was given the legal power to regulate their own industry - that’s FINRA. Unsurprisingly, they made it illegal for would-be investors to sell capital directly to companies without going through the FINRA-member middlemen, and also made it difficult for new middlemen to enter the space. They still offer SOME real economic value, but they’re also getting a lot by rent-seeking.

Anyway, those are just the most direct middlemen - those who sit directly between companies and investors. There are others, too.

Warehousing
Ever since ancient times, people have stored grain. It can be quite a good business: buy grain right after the main harvest when it’s abundant and cheap, store it for a while, and sell it when grain supplies run low. This can create huge amounts of real economic value, e.g. by preventing a grain shortage (a.k.a famine).

Most of the players we think of in the stock market are in the business of storing capital. They buy capital when it’s abundant (i.e. sell stocks when prices are high), store that capital, and sell it when the capital supply is low (i.e. buy stocks when prices are low). This can be a bit confusing, since buy/sell are kind of backwards compared to how we usually think of them. Fundamentally, that’s because capital is the product, whereas usually the other thing is the product and capital is just a means of exchange. But it’s the same concept as warehousing grain, and it creates value in the same way: by preventing a capital shortage (a.k.a. market crash and economic recession).

Different kinds of investors do this at different time scales. Unlike grain, there’s very little overhead when warehousing stocks, so day traders and high-frequency traders can warehouse small amounts for short times. This sort of activity prevents small market crashes - more day traders and high-frequency traders means less volatile prices on short time scales. Larger investors do the same thing at longer time scales - pension funds warehouse stocks for months or years at a time.

This is also where the information aspect of markets first kicks in. If you’re in the business of warehousing, then anticipated future abundances or shortages of capital (and of financial assets) is key to producing real economic value - and to making a profit. Again, this is counterintuitive at first. In the futures markets, for instance, we’re used to thinking about making money by forecasting abundances or shortages of commodities. To understand capital markets more broadly, we need to think of capital as the commodity.

Forecasting
Finally, we get to the usual picture of high finance: forecasting company performance. As before, we’ll start with the grain market, but with a twist - now there’s barter.

Rather than buying grain with money, imagine that consumers barter for grain, paying with chickens. Different consumers presumably have chickens of varying quality, so their chickens will buy varying amounts of grain.

Now, suppose some middleman comes along and realizes that a new consumer - let’s call her Alice - raises chickens of higher quality than most people realize. Everyone will figure this out eventually, as people eat Alice’ chickens and word gets around, but for now the secret is still fresh. Accordingly, this middleman offers extra grain for Alice’ chickens. Does this create real economic value?

It all depends on the elasticity of Alice’ chicken supply.

If Alice only raises fifty chickens, no matter what, then fifty of Alice’ chickens will eventually be consumed, no matter what. There’s the usual gains from trade, but the middleman isn’t increasing those. The middleman’s gain comes entirely from other traders’ ignorance of the quality of Alice’ chickens; the middleman’s gain is exactly equal to the other traders’ missed opportunity.

But the story is different if Alice responds to the higher price by supplying more chickens. Then, real economic value clearly is created. By making prices better reflect the true value of Alice’ chickens, the middleman has enabled more chickens to be created.

Now let’s switch to capital markets.

When people imagine making money in stocks, the usual picture is:
  • Find a company whose stock is “under-valued”
  • Buy their stock
  • ...
  • Profit!
Does this create real economic value?

It all depends on the elasticity of the company’s outstanding shares.

If you buy the stock from an investor, then you’re simply gaining money which that investor would otherwise have gained. It’s zero sum: their missed opportunity is exactly equal to your gain. But if you buy the stock from the company (either directly or indirectly), then it’s a whole different story. You’re supplying a bit of extra capital to the company. That will create real economic value when the company can invest the capital better than the competition - i.e. this company can get more value out of an extra oven than some other company would get out of an equivalent investment.

Put differently, suppose a middleman buys some stock in Millisoft. How much additional capital does Millisoft receive, compared to a scenario where the middleman did not buy any stock? Then, how much additional value does that capital create, when it’s used by Millisoft rather than whoever might have used it otherwise? That’s where the real economic value comes from, when forecasting company earnings.

When you think about it like that… well, forecasting earnings (and other similar activity) probably creates some real economic value, but probably not much, especially at the margin. Most of the gains from this sort of activity really are zero-sum.

Conclusion
I don’t have numbers on this, but I would guess that most of the real economic value created by the high finance industry comes from warehousing. Ironically, it’s largely from the day traders and high-frequency algo traders who are so often vilified.

Institutions like investment banks also create real economic value, but they are rent-heavy. Looking for places where investors’ expectations are inaccurate can create value in principle, but it’s probably mostly zero-sum.

Tuesday, October 10, 2017

From Personal to Prison Gangs: Enforcing Prosocial Behavior

Background: This is part of a short series on high-level principles relevant to political/social issues. The first post set up some ground rules for the general approach.

David Friedman has a fascinating upcoming book on alternative legal systems. One chapter focusses on prison law - not the nominal rules, but the rules enforced by prisoners themselves.

The unofficial legal system of California prisoners is particularly interesting because it underwent a phase change in the 1960’s.

Prior to the 1960’s, prisoners ran on a decentralized code of conduct - various unwritten rules roughly amounting to “mind your own business and don’t cheat anyone”. Prisoners who kept to the code were afforded some respect by their fellow inmates. Prisoners who violated the code were ostracized, making them fair game for the more predatory inmates. There was no formal enforcement; the code was essentially a reputation system.

In the 1960’s, that changed. During the code era, California’s total prison population was only about 5000, with about 1000 inmates in a typical prison. That’s quite a bit more than Dunbar’s number, but still low enough for a reputation system to work through second-order connections. By 1970, California’s prison population had ballooned past 25000; today it is over 170000. The number of prisons also grew, but not nearly as quickly as the population, and today’s prisoners frequently move across prisons anyway. In short, a decentralized reputation system became untenable. There were too many other inmates to keep track of.

As the reputation system collapsed, a new legal institution grew to fill the void: prison gangs. Under the gang system, each inmate is expected to affiliate with a gang (though most are not formal gang members). The gang will explain the rules, often in written form, and enforce them on their own affiliates. When conflict arises between affiliates of different gangs, the gang leaders negotiate settlement, with gang leaders enforcing punishments on their own affiliates. (Gang leaders are strongly motivated to avoid gang-level conflicts.) Rather than needing to track reputation of everyone individually, inmates need only pay attention to gangs at a group level.

Of course, inmates need some way to tell who is affiliated with each gang - thus the rise of racial segregation in prison. During the code era, prisoners tended to associate by race and culture, but there was no overt racial hostility and no hard rules against associating across race. But today’s prison gangs are highly racially segregated, making it easy to recognize the gang affiliation of individual inmates. They claim territory in prisons - showers or ball courts - and enforce their claims, resulting in hard racial segregation.

The change from a small, low-connection prison population to a large, high-connection population was the root cause. That change drove a transition from a decentralized, reputation-based system to prison gangs. This, in turn, involved two further transitions. First, a transition from decentralized, informal unwritten rules to formal written rules with centralized enforcement. Second, a transition from individual to group-level identity, in this case manifesting as racial segregation.

Generalization
This is hardly unique to prisons. The pattern is universal among human institutions. In small groups, everybody knows everybody. Rules are informal, identity is individual. But as groups grow:
  • Rules become formal, written, and centrally enforced
  • Identity becomes group-based.

Consider companies. I work at a ten-person company. Everyone in the office knows everyone else by name, and everyone has some idea of what everyone else is working on. We have nominal job titles, but everybody works on whatever needs doing. Our performance review process is to occasionally raise the topic in weekly one-on-one meetings.

Go to a thousand or ten thousand person company, and job titles play a much stronger role in who does what. People don’t know everyone, so they identify others by department or role. They understand what a developer or a manager does, rather than understanding what John or Allan does. Identity becomes group-based. At the same time, hierarchy and bureaucracy are formalized.

The key parameter here is number of interactions between each pair of people. In small groups, each pair of people has many interactions, so people get to know each other. In large groups, there are many one-off interactions between strangers. Without past interactions to fall back on, people need other ways to figure out how to interact with each other. One solution is formal rules, which give guidance on interactions with anyone. Another solution is group-based identity - if I know how to interact with lawyers at work in general, then I don’t need to know each individual lawyer.

In this regard, prisons and companies are just microcosms of society in general.

Society
At some point over the past couple hundred years, society underwent a transition similar to that of the California prison system.

In 1800, people were mostly farmers, living in small towns. The local population was within an order of magnitude of Dunbar’s number, and generally small enough to rely on reputation for day-to-day dealings.

Today, that is not the case [citation needed].

Just as in prisons and companies, we should expect this change to drive two kinds of transitions:
  • A transition from informal, decentralized rules to formal, written, centrally-enforced rules.
  • A transition from individual to group-level identity.
This can explain an awful lot of the ways in which society has changed over the past couple hundred years, as well as how specific social institutions evolve over time.

To take just a few examples…
  • Regulation. As people have more one-off interactions, reputation becomes less tenable, and we should expect formal regulation to grow. Conversely, regulations are routinely ignored among people who know each other.
  • Litigation. Again, with more one-off interactions, we should expect people to rely more on formal litigation and less on informal settlement. Conversely, people who interact frequently rarely sue each other - and when they do, it’s expected to mess up the relationship.
  • Professional licensing. Without reputation, people need some way to signal that they are safe to hire. We should expect licensing to increase as pairwise interactions decrease.
  • Credentialism. This is just a generalization of licensing. As reputation fails, we should expect people to rely more heavily on formal credentials - “you are your degree” and so forth.
  • Stereotyping. Without past interactions with a particular person, we should expect people to generalize based on superficially “similar” people. This could be anything from the usual culprits (race, ethnicity, age) to job roles (actuaries, lawyers) to consumption signals (iphone, converse, fancy suit).
  • Tribalism. From nationalism to sports fans to identity politics, an increasing prevalence of group-level identity means an increasing prevalence of tribal behavior. Based on this, I predict that social media outlets with more one-off or low-count interactions are characterized by more extreme tribalism.
  • Standards for impersonal interactions. “Professionalism” at work is a good example.

I’ve focussed mostly on negative examples here, but it’s not all bad - even some of these examples have upsides. When California’s prisons moved from an informal code to prison gangs, the homicide rate dropped like a rock; the gangs hate prison lockdowns, so they go to great lengths to prevent homicides. Of course, gangs have lots of downsides too. The point which generalizes is this: bodies with centralized power have their own incentives, and outcomes will be “good” to exactly the extent that the incentives of the centralized power align with everybody else’ incentives and desires.

Consider credentialism, for example. It’s not all bad - to the extent that we now hire based on degree rather than nepotism, it’s probably a step up. But on the other hand, colleges themselves have less than ideal incentives. Even setting aside colleges’ incentives, the whole credential system shoehorns people into one-size-fits-all solutions; a brilliant patent clerk would have a much more difficult time making a name in physics today than a hundred years ago.

Takeaway
Of course, all of these examples share one critical positive feature: they scale. That’s the whole reason things changed in the first place - we needed systems which could scale up beyond personal relationships and reputation.

This brings us to the takeaway: what should you do if you want to change these things? Perhaps you want a society with less credentialism, regulation, stereotyping, tribalism, etc. Maybe you like some of these things but not others. Regardless, surely there’s something somewhere on that list you’re less than happy about.

The first takeaway is that these are not primarily political issues. The changes were driven by technology and economics, which created a broader social graph with fewer repeated interactions. Political action is unlikely to reverse any of these changes; the equilibrium has shifted, and any policy change would be fighting gravity. Even if employers were outlawed from making hiring decisions based on college degree, they’d find some work-around which amounted to the same thing. Even if the entire federal register disappeared overnight, de-facto industry regulatory bodies would pop up. And so forth.

So if we want to e.g. reduce regulation, we should first focus on the underlying socioeconomic problem: fewer interactions. A world of Amazon and Walmart, where every consumer faces decisions between a million different products, is inevitably a world where consumers do not know producers very well. There’s just too many products and companies to keep track of the reputation of each. To reduce regulation, first focus on solving that problem, scalably. Think amazon reviews - it’s an imperfect system, but it’s far more flexible and efficient than formal regulation, and it scales.

Now for the real problem: online reviews are literally the only example I could come up with where technology offers a way to scale-up reputation-based systems, and maybe someday roll back centralized control structures or group identities. How can we solve these sorts of problems more generally? Please let me know if you have ideas.