Quick Disclaimer

The following is a transcript of recorded content. Please note, these transcripts are not always perfect and may contain typos. If you notice any major mistakes, please feel free to report them by opening a Technical Support ticket under the Help menu at the top of the screen.

Full Transcript

Adam Taggart: Hello, and welcome to the Resilient Life Podcast. Resilient Life is part of PeakProsperity.com. It is where we focus on practical and actionable knowledge for building a better future. I am your host, Adam Taggart, and today’s guest is someone that the Peak Prosperity audience knows well, Charles Hugh Smith.

In addition to being proprietor of the excellent weblog oftwominds.com and a regular contributor to Peak Prosperity, Charles is prolific author. I have asked him to join me today to discuss his latest book, just released a few days ago, titled The Nearly Free University. The cost of higher education has skyrocketed in recent decades. The average cost of tuition is up over 1,000% since the 1980s, far outstripping price inflation and most other goods and services. Yet despite the accelerated cost, the value of a college degree has been diminishing, both in the terms of quality of education received, as well as future employment prospects. In his new book, Charles takes a critical look at the state of education in the developed world and claims that it is ripe for disruption. There are new models and new enabling technologies that promise to deliver more effective learning at much lower cost, but they challenge a very entrenched establishment, meaning that the system will likely fight these innovations.

Charles, this is a fascinating and important topic that has direct bearing on our future prosperity in society. Thank you for joining us today to share your insights from your recent work and helping us make sense of the opportunities and challenges here.

Charles Hugh Smith: Thank you, Adam. Glad to be here.

Adam Taggart: Let us start at the beginning. Where did our current education system go astray, and what sparked you to write this book now?

Charles Hugh Smith: I think that the education system went astray in becoming disconnected from the economy. Here is how I would describe the back-story of that. The current higher-education system of colleges and universities arose in the World War II era as a centralized command economy outgrowth of the war effort. The United States increased war production to an incredible degree and needed a level of science and technology that was new. In other words, the atomic bomb, and just the level of production, and a huge number of people with some sort of science and technology backgrounds were needed to win the war.

In the post-war era, then, all that brainpower in technology and science was applied to not just the military but to consumer goods and computers and so on. That model worked extremely well in the sort of industrial golden age of the 1950s and early 1960s. The model started to go astray when the economy started changing in the 1970s and the 1980s, while the old factory model of education continued on accreting costs and overhead. That is how I would describe the back-story, where we went astray with this model of education.

Adam Taggart: So what about the situation has raised things to the point where you felt the need to publish this book?

Charles Hugh Smith: Adam, I think that the system has reached diminishing returns, is how I would describe it, that it has just become so obvious that the current system – which I call a factory model in the sense that you take a standard course of material and you give it two hundreds or thousands of people in a sort of factory model. If fifty people come in here to hear the lecture, they read the same textbook, they take the same test, they move on, and another fifty people take their place, it is very much an assembly-line approach to education. As the costs have skyrocketed, the effectiveness of what we are learning in that assembly-line educational model – it is no longer paying dividends in the real economy. Statistically, half of all recent college graduates have either no job at all or they are severely underemployed. This speaks to an enormous disconnect from the higher education system and the economy that it is supposed to be serving.

Adam Taggart: It is raising a lot of questions for me. First, let us zero in on the cost aspect. On Peak Prosperity, both Chris and I have been pretty vocal about our estimation of the increasingly poor ROI (return on investment) that a college degree offers the average student these days, given the high cost, as you mentioned here, and in the declining returns on education that is being provided. I believe there is data out there that suggests that we are actually not graduating students that are as well informed as we have in the past. In some ways, the quality of education is suspect as well. You have these high and rising costs, you have these deteriorating standards, you have these weak job markets that you mentioned earlier on. You also have an increase in cost of living. Much of what we talk about here on Peak Prosperity is that basic living costs are going to get more expensive as time goes on.

We also talked, you and I, a lot recently about the fact that interest rates look like they are back on a secular rise. It really does seem to me that we are graduating a generation of debt slaves at this point in time. If you take out tens of thousands of dollars in student loans – it is not that uncommon to get close to $100,000 in student loans – and you are fortunate enough to get a job, and you make the average income, and you do all the things people do, like buy a house and get married and start a family and all that, a lot of these folks, today’s current graduates, are going to be paying off their student loans for undergraduate until the time their own children go to college, at this rate.

How bad is it? I know you are a lot closer to these numbers than I am. Have we gotten to that part where we are creating a generation of debt slaves here?

Charles Hugh Smith: I think so, Adam. The numbers are something like this: credit card debt for the entire United States is something like $760 billion; auto loans are roughly the same thing, $700 billion or so. We have a student loan debt of over $1 trillion, and what is really astonishing is that the federal government has taken over issuing – not just guaranteeing – but they own these loans. I am looking right now at a St. Louis Federal Reserve chart which shows that the federal government’s ownership of student loans went from a $100 million in 2009 to $550 million today. In other words, it has skyrocketed as the federal government has basically taken over about a half a trillion dollars in student debt. They are issuing it and demanding it and demanding payment on it.

You have to ask, how is it that the federal government is issuing half a trillion dollars in new student debt or taking over old debt within a few years? What is the payoff for our society of saddling college students with a trillion dollars in debt? On the other side of the payoff – in other words, the return on investment, as you mentioned – a huge study, one of the few that has actually tracked the results of a college education – like, how much do people learn in getting a four-year degree – it is called academically adrift. It found roughly a third of all college graduates had no increase in critical thinking skills. Another third had marginal improvements in the kinds of skills that we would consider critical in what I call the emerging economy, the parts of the economy that are actually growing and expanding instead of shriveling and fading.

Adam Taggart: That really is sobering. Help me understand two things. The first is, I have heard – and I cannot actually say if I know for certain that this is accurate or not, so I look for you to clarify here for me – I have heard that student loans or education loans are one of the very few forms of debt that cannot be dismissed in bankruptcy. Is that true?

Charles Hugh Smith: In general, it is true. When I have repeated that online, I have had some people come back to me with outlier arguments where there have been a few law students who have gone through like seven different courts and seven appeals and gone through enormous expense and trouble and they have managed to get out from underneath it. In terms of an average person pursuing getting out from that via bankruptcy, no, it is not possible.

Adam Taggart: Okay.

Charles Hugh Smith: So you have to jump through an awful lot of hoops that are beyond the average person unless you happen to be an unemployed attorney.

Adam Taggart: Or an attorney with really deep pockets, who for some reason took out loans and wants to go and fight this fight. Unless you are that person, you are basically stuck with having to pay these loans back for the rest of your life until they are paid off. True?

Charles Hugh Smith: Yeah, I think that at the current point in time that is relatively true. What people can do, of course, is simply default – in other words, stop paying – but then there is a lot of negative consequences to that. I think the really important point here, and maybe this is the primary motivation for me writing the book, was, this is really unjust. There is a sense of wrongness to this whole scheme in which students are being told you must have a four-year college degree to get a steady, good-paying job. But it is a cartel system in which there are only a few places that you can get a degree that is useful, so you are going to have to pay through the nose to get that. It is going to cost you $100,000 or $150,000, and you can cobble together some cash and grants and so on and so forth, but ultimately you are going to be in debt for that.

Then, when you get that degree – and even one in biology or computer science or something that you were told was going to get you a reliable, steady, good job – it turns out to be false, because you did not really learn anything that employers want and need. Then you have to go through this whole process of learning what you really need to get a job, and that is after you have graduated from college.

Adam Taggart: Right, and that is usually doing so at very low pay because you are sort of being trained up in those early positions.

Charles Hugh Smith: Yeah, and so I guess my motivation for writing the book was to question what kind of system would we have if we could start from scratch in terms of higher education. I think that given the advances in digital technology, the answer is really clear. We would take a curriculum based on what is called MOOCs, massively open online courses, where the very best lecturers are recorded and their lectures are made available for free. Combine that with what I call YouTube University, where people have posted a tremendous number, thousands of little lessons on academic and practical bits alike. The core idea in YouTube University is, if you want to solve a particular kind of equation, then you can go and find a lesson that is three or four minutes long, and it shows you how to solve that one equation.

It turns out that there are academic studies on how people learn, and this constant feedback where you take one lesson, you solve it yourself, and you move on actually leads to more learning than sitting and watching a sixty-minute lecture. The point here is that the innovations that actually increase learning are available digitally now for basically free. Why should an education that is available for free cost $100,000?

Adam Taggart: Great. Well, let us jump right into this, then. I do want to return to the cabal topic before we finish up here today, because there are a few additional questions I have there for you, but this really is the meat of what I wanted to talk to you about. Let us really talk about these new models that are either being made possible by new technologies or just by new thinking. I love your concept there of just saying look, what if we just start from scratch? If we could really design an education system today, without the constraints of the prior system, how do we build it? I would love to hear more from you in terms of what you see as the most notable models that are out there.

You already mentioned the MOOCs and some of these new sort of progressive ways of learning like YouTube University. You also mentioned to me in conversations about this mentality or this model shift of accrediting an institution that you graduate from with a piece of paper that says you went to this institution and therefore all sorts of assumptions about your level of education should be conferred on you and shifting that to an accreditation of the individual, where the individual has a certain number of academic awards or certificates of proficiency or whatever it is. That really becomes the model, where it is really student-centric versus institution-centric. Please, you have spent a year writing this book, enlighten us about what are the things we should be paying attention to right now.

Charles Hugh Smith: Adam, I think the one you just mentioned is key, and I call it “accredit the student, not the school.” The basic idea is, in a profession such as architecture or law, in most states at least, just getting a degree does not mean that you can go out and practice. Because it is understood that you may not have learned enough or not learned the right stuff or not have the grasp of the material needed to actually go practice your profession, so you have to take a test. Once you pass this test, which is rigorous, then you are stamped “architect,” “attorney,” and so on, and you can go practice your trade.

Why can’t we apply this model to everything? In other words, if you get a degree in computer science and it is understood you should know something about network security, then you would pass a test that can be done online with encryption and various things. Or it could be proctored by a real person in a classroom and you pay a hundred bucks and you take the test. But you could be tested for the actual working knowledge that you are supposed to have, and if you pass the test, then you are accredited, you earn that degree. It could work in philosophy as well as computer science or biology; it could work in anything.

That eliminates this artificial scarcity of credentials. In other words, anybody could study on their own and take the test and be granted the accreditation. Of course, this was standard back in the day of, say, Abraham Lincoln, that he studied the law on his own and then he passed whatever hoops that were in place at that time and became an attorney. That idea takes away the power of accreditation from an institution which has a self-interest in scarcity, in keeping that credential scarce, to a system that would give everybody a college degree if they earned it.

Adam Taggart: I really like that. I guess one question is, is there anybody out there moving towards this yet?

Charles Hugh Smith: We are at the very early stages of this revolution in higher education. There are a few experiments here and there. There are established campuses which are establishing huge digital education departments that are trying to set up systems for giving credit for experience and this kind of thing, which are the first steps toward what I am suggesting.

But there are three other steps which I think are key to this whole model of what I call the Nearly Free University. Second one is, structure learning so that it no longer depends on large physical campuses and costly administration. That is part of why people ask, why has education gotten so expensive? Well, it used to be that there were four professors or instructors for each administrative person, and now in many places it is 1:1. If you have an Under-Assistant Secretary to the Assistant Dean drawing $150,000 a year, and you actually have professors being cut or the number of tenured positions being slashed because of the budgets absorbed by administration in the digital world – all this could be automated. Absolutely it could all be automated. People sign up for a class, they are given their tests, they pass or fail the test, it is all done digitally, and they are issued their credential online. It is like there is no need for a costly administration, or, in fact, a large campus that requires tens of millions of dollars to maintain.

The third point is, I think the curriculum needs to be tailored to the real-world emerging economy. This is where the current system has completely failed, that it is sort of assumed that your Bachelor’s degree or your Master’s magically confers the abilities that employers actually want. I think that is becoming less and less true.

The fourth point is eliminating the artificial scarcity of admissions and accreditation. We now go through this dance where smart kids apply to ten colleges and, of course, there is often a several-hundred-dollar fee to apply. Then, one in ten kids is admitted, and this whole dance of scarcity and the way it is being distributed is via this elite. Wherein the Nearly Free University model anybody can take a class from MIT or wherever, as long as it is digital, and if they master the material then they are issued a credential. There is no scarcity in tier admissions or accreditation.

Adam Taggart: Okay, so that raises obvious questions about how do the existing institutions react to this? Obviously there is part of it that I am hoping at least excites them in terms of ways to better deliver upon their missions. I have to think, especially the way in which this sort of cabal structure has evolved, as you mentioned, this comes as a real threat. I can certainly understand if indeed they are not embracing some of these technologies with open arms. What are you seeing out there?

Charles Hugh Smith: I think that the large universities are well aware that they need to connect their product – i.e., the education and their diplomas – to some real-world value in the job market. You see a lot of universities that have entrepreneurial programs where they try to line up students with entrepreneurial programs or incubators and that kind of thing. That is one way they are trying to respond, is not lowering their costs. They are saying, well, if you come here and give us $150,000, we are going to turn you into a real live entrepreneur because we have this program that after you have given us $150,000, you get two hours with somebody from an incubator. I mean, I know I am sounding rather harsh, but I think there is very little evidence that I have been able to find that entrepreneurship is being developed throughout a four-year curriculum. It is sort of being tacked on after you sat through a bunch of passive lectures on being an entrepreneur.

Adam Taggart: Yeah.

Charles Hugh Smith: So I think that the emerging economy is all about having the value system and the skillset of being an entrepreneur, not in having a particular knowledge in computer science or biology or whatever anybody thinks is the key to the future economy. It is like, if you have the skillset to know how to learn and to be an entrepreneur and find value, create value, work with other people to create value, these skills, you can build a livelihood irrespective of your degree; frankly, your initial experience.

Adam Taggart: Right, that gets us to a question that I was planning to ask later, but in this new emerging economy, you refer to particularly where you might be able to pick up expertise and skills more organically than going through just an official four-year program. Do you really need a degree? Do degrees become less relevant? Does basically just “defined mastery” in certain areas just matter?

Charles Hugh Smith: That is an excellent question, and part of my response will be that one of the head honchos in Google was interviewed, I think by the New York Times, and he confessed that they used to seek out potential employees who had done well within academia, that they got straight A’s or whatever. He said they did a data crunch on that, and they found that there was no correlation between doing well in academia and being a productive employee of Google. In response, they have really diminished that their weighting of academic success, and in fact, he said in some divisions of Google, a number of people with no college experience – not just no college degree; no college experience whatsoever – is roughly 15% of their project workforce. I think this is indicative of a trend that I call what people are seeking from you is what you can accomplish and do on your own in the real world, not what stamps you have picked up on your academic passport.

Adam Taggart: I can talk about this from a personal perspective on two fronts. Certainly, in my professional experience I have seen that. I went to Brown University for undergraduate and went to Stanford for business school, so I have gone to some fairly well known and storied academic institutions. I have found firsthand that you can definitely spend a lot of money and go to a top-notch educational institution and still get out of there with very little new learning in your mind to show for it. I like to think I paid attention and got something out of my investment. Certainly not as much as I had personally expected to, and I certainly saw lots of people there who – it was really money down the drain for them professionally.

I have seen that in most cases, what that piece of paper does, that diploma does for you is, it gets you in the door in terms of the interview process during the initial recruiting phase right after graduation. But very, very quickly, I would say within less than twelve months, it really, in terms of what your employer is looking at, is really all about your experience versus your pedigree. I actually found, both in Wall Street and in Silicon Valley, that the higher up you progressed inside an organization – some of these large companies I worked for are Merrill Lynch and Yahoo, etc. – the higher up you went in the company, the fewer and fewer of the Ivy League degrees you saw and the more degrees you saw from any kind of school or at least a much more wide variety of schools. That is because these were the people who had a true passion for what they were doing, they were scrappy, and they just put their nose to the grindstone and did it. I have certainly observed that myself in my professional career.

Secondly, your story about Google makes me smile, because I did recruit with Google a couple of times where they had come and talked to me when I was working, both before and during Yahoo. Not only did they look at my business school experience, but they wanted my transcript – not just from my college, but from my high school. It just seemed like there was a ridiculous focus there on what the institutionalized measurements of your academic success were. It really did seem at the time like it was a misallocation of focus. It is interesting and somewhat gratifying to see that they have walked away from that now.

Charles Hugh Smith: Yeah, based on the data, there is no connection between academic success and being a productive employee. Adam, another thing that sparked me to write the book and to investigate the idea what would we have if we started from scratch? was the critical role of values in the emerging economy. In the good old days of the factory model, and I mean both the factory model in education and the factory model of production, you could get a degree in underwater basket weaving – or in my case, philosophy – and then you go work for an insurance company or some white-collar job in which whatever you were supposed to learn they would teach you on the job. So your degree literally was sort of like a stamp on a passport; you were not claiming to know anything of value to that business.

Well, that worldview and that economy is dying. The idea that you can just show up and an employer is going to lavish a bunch of on-the-job training, that is no longer efficient for the employer. They want somebody that can produce value on Day One. We need to create and teach the value system that is needed in the real economy, and values, of course, are not taught at college at all. It is like this strange magic is supposed to occur that if you finish your degree in biology or computer science that you will magically know how to collaborate effectively with people. That you will have an entrepreneurial spirit, that you will understand the mechanics of creating value.

We do not teach any of these things, and so why do we think people will know them when they exit college, even the finest colleges? Of course, we have to make a mention here, you are speaking about the very top 1% of universities. What we are really talking about is what is going to happen to the 90% of colleges that are not Ivy League, not huge graduate research schools like U.C. Berkeley or University of Illinois. What is going to happen to all of those sort of diploma mills? Well, they are going to go away.

Adam Taggart: Yep. Very true, and you and I have talked about this in relation to the book I wrote on how to find your authentic career. Where, very similarly, we talk about that expectation where even though we never talk about or never teach people about how to identify their own unique strengths, attributes, passions, etc. and map those to professional paths, we have this narrative in our head that somehow, by the time you get that degree from a university, you will have it magically all figured out. Even though at no point during the sixteen-plus years of your formal education you have ever had a semester that is focused on helping you actually identify what to do with your life.

I agree with you, and this goes back to your earlier point about how we are really selling a bad bill of goods to the younger generation with the current model, as we talked about. We are selling them an increasingly expensive solution that just does not work anymore. We have not mentioned other factors that are going on here, where industry is becoming increasingly automated so there are fewer and fewer jobs, especially entry-level jobs, because those are the jobs that are most easily going to be replaced by a robot or by artificial intelligence. The outsourcing trend is still going on with globalization, so there is increased competition with workers in other countries.

Because the economy is doing poorly, and we believe that economic growth, slow economic growth at best, is here to stay, you also have intergenerational competition, where the older more experienced workers are not retiring from the system the way that they were. They are basically blocking new talent from coming in. You mention that, basically, training and development is a cost to corporations, and corporations are becoming increasingly focused on profitability and maintaining the bottom line. That is really kind of a perfect storm of really big powerful forces that are working in opposition to the interests of new graduates. It is very sad for them and it is very sad for us as a society when we are not, whether it is on the corporate side or the educational side or wherever, providing a pathway for young people to develop skills that have real value and create societal value. We are beginning to see examples in Japan, for sure, for the last generation or two now, it sounds like. We are seeing it in Europe, as well, where we are really breeding these lost generations, and I fear we are doing a similar one here in the States.

Charles Hugh Smith: Absolutely. I think we can say that at least in certain parts of Europe, there are too many universities and not enough people that are willing or able to pay for the product. Because once you start doubting that the product is going to help you get a job, then you go, why should I scrape up the money? – even in Europe, where education is largely subsidized.

The other point that I want to make here is, so how do you get a job in the emerging economy, the part of the economy that is growing, if a college degree is not enough? My answer is mastery, and that is the other thing that has been lost in our higher education – that mastery means that you know a subject, a technique and skill set, well enough that you can go out there and create value more or less on Day One.

Adam Taggart: I think that is excellent, Charles. Just as you deepen on this, in your book you talk about distinguishing among work, learning, and mastery, and I am hoping that maybe you can elaborate a little bit more broadly on all three here.

Charles Hugh Smith: Yes, I will try. I think that the model that is a good touchstone is the old apprentice/master model that you find in cultures like Japan in the East and also in the European tradition. Where a young student is taken on by a mentor, master, and they have sort of a long apprenticeship to really learn the whole trade or the whole business, the nuts and bolts, often spending years doing what we would call grunt work, that you are doing the repetitive part of the business to really master the fundamentals. Then once you have mastered that trade, that set of knowledge, then you are able to create value.

That, I think, is still a key way to understand how to create value in the economy, whether it is traditional, like learning how to weld so you can go create value in the real world by welding something that had been broken, or if you are going to be creating digital software that creates value for some business by cutting costs and improving products. Whatever your field, if you really understand it and really know it and you are able to collaborate with other people effectively like you have learned these skills and values, then you are going to get a job or you are going to create your own.

That whole process is not passive; it is not sitting in a classroom, either watching a dull lecturer or watching a MOOC, a massively online course, sitting there passively. You really have to be engaged. For me, I think that there is a need for the workshop model within what I call the Nearly Free University.

Now, it was not just enough to sit there passively and watch lectures and take exams; to master something you are going to have to be engaged in the process of problem solving, and that usually requires mentoring by a real person. I do not foresee a future in which everybody is just getting their degree by sitting in front of a computer for 1600 hours or whatever. It is definitely, you have to engage the real economy, and that means learning something to mastery under some mentoring by people who actually work in the real economy.

Adam Taggart: I know this is not necessarily in your book, but it sounds like you are describing a model here where perhaps instead of dropping a lot of money to go sit in university classroom for four years that you would maybe contract with an organization, company, whatever, or an individual expert, and say, look, let me come work with you. It might be for little or no cost. Maybe you are simply paying your living expenses instead of paying tuition, but you are actually there as an apprentice; you are getting real hands-on work exp