The main idea of this book is that the skin in the game is necessary for effective functioning of any system containing humans and functioning via actions of these humans. The main cause of many societal problems is that people, whose action cause these problems, have no skin in the game so they act in their narrow interest causing system overall to fail.
Book 1: Introduction
Prologue, Part 1: Antaeus Whacked
The main point of this part is that the knowledge and skills obtained in the real live by doing something is far superior to abstract formal knowledge obtained in class room, and author compares it to the Antaeus’ link to earth. After that author moves to discussing USA interventions in Middle East and defines deficiencies of people who designed it:
1) They think in statics not dynamics,
2) They think in low, not high, dimensions,
3) They think in terms of actions, never interactions.
Author especially points out that these people unlike warmongers of the past do risk their own lives and livelihood in these interventions and therefore have no skin in the game, which makes them reckless and dangerous. Similarly, in financial area author points out to Bob Rubin type of trades when government supported people’s financial operations, helping them to win every time because any lose was covered by taxpayers. The final point here is that skin in the game is the necessary condition for successful learning and without it error could be much costlier and even catastrophic.
Prologue, Part 2: A Brief Tour of Symmetry
Here author looks at his “skin in the game” from the point of view of symmetry. He starts with Hammurabi code that established symmetry between actions and counteractions even for extremely rare “tail” events. Author provides a nice table this:
He also compares golden and silver rules, prefer latter over former:
The Golden Rule wants you to treat others the way you would like them to treat you. The more robust Silver Rule says do not treat others the way you would not like them to treat you.
After that author refer to Kant and his Universalism as unworkable in practice even if it looks great on the paper. As usual he brings Fat Tony (supreme common-sense personality) to expresses his philosophical approach in the series of aphorisms.
This follows by discussion on modernism that created a huge educational apparatus with its extension to consulting of all kinds about things that consultants never actually did, but rather learned in school. What makes it dangerous is absence of skin in the game. Author also discusses regulation vs. legal system noting that former has risk of regulator’s malfeasance because cost is always goes to somebody else. The next part is about soul in the game, which is honor that used to be important, sometimes even more than life. Author then discusses people who are by nature have skin in the game and it is more important for them and material returns: Artisans and Entrepreneurs. Finally, author talks about his American Citizenship that he consciously chosen, even if it means that he has to pay more taxes on his international income.
Prologue, Part 3: The Ribs of the Incerto
This part of prologue discusses author’s work over many years and a number of books all that he calls Incerto (kind of uncertainty).
Appendix: Asymmetries in Life and Things:
Book 2: A First Look at Agency
This is a deeper exposition of symmetry and agency in risk sharing, bridging commercial conflict of interest with general ethics. It also introduces us briefly to the notion of scaling and the difference between individual and collective, hence the limitations of globalism and universalism.
Chapter 1: Equality in Uncertainty
It is reference to ancient adage and basically about advises given by people who themselves do not risk anything, but also about inequality of information access between sellers and buyers. Yet another point here is scaling when moving up or down the scale qualitative changes the game. Author makes important point here that “general kills particular”. Here is a nice example from political scaling:
Book 3: That Greatest Asymmetry
This is about the minority rule by which a small segment of the population inflicts its preferences on the general population. The (short) appendix for Book 3 shows:
1) How a collection of units doesn’t behave like a sum of units, but something with a mind of its own, and
2) The consequences of much of something called social “science.”
Chapter 2: The Most Intolerant Wins: The Dominance of the Stubborn Minority
It starts with reference to kosher food that majority does not care about, but minority pushed through special designation on packaging. Author provides multiple other examples when minority gets accommodation because majority does not care. Author calls such minority intransient group and majority – flexible group. Author discusses renormalization and provides graphic representation of the process:
Thenauthor discusses Popper-Goedel paradox of tolerance for intolerance. At the end author provides summary:
Society doesn’t evolve by consensus, voting, majority, committees, verbose meetings, academic conferences, tea and cucumber sandwiches, or polling; only a few people suffice to disproportionately move the needle. All one needs is an asymmetric rule somewhere— and someone with soul in the game. And asymmetry is present in about everything.
Appendix to Book 3: A Few More Counterintuitive Things About the Collective:
- The average behavior of the market participant will not allow us to understand the general behavior of the market.
- The psychological experiments on individuals showing “biases” do not allow us to automatically understand aggregates or collective behavior, nor do they enlighten us about the behavior of groups.
- Understanding how the subparts of the brain (say, neurons) work will never allow us to understand how the brain works.
- Understanding the genetic makeup of a unit will never allow us to understand the behavior of the unit itself.
- Under the right market structure, a collection of idiots produces a well-functioning market.
- It may be that some idiosyncratic behavior on the part of the individual (deemed at first glance “irrational”) may be necessary for efficient functioning at the collective level.
- Individuals don’t need to know where they are going; markets do
Book 4: Wolves Among Dogs
This deals with dependence and, let’s call a spade a spade, slavery in modern life: for example employees exist because they have much more to lose than contractors. It also shows how, even if you are independent and have f*** you money, you are vulnerable if evil corporations and groups can target people you care about.
Chapter 3: How to Legally Own Another Person
It starts with reference to church and monks and their relationship with monks being financially free for the lack of financial assets were controlled by the rules. Then author goes to contemporary world when employees are kind of owned by employers and discusses trade-offs between employment and contracting and other peculiarities of contemporary work places.
Chapter 4: The Skin of Others in Your Game
This is about personal responsibility or lack thereof for organization men. This mainly comes in the form of conflict between action of organization and individual’s acceptance/rejection of these action and cost of either option. Then author moves from individual to individual’s important persons and discusses their costs that could be caused by individual’s action. As example he uses suicide bombers who seemingly have nothing to lose, but still have family and/or something that is dear for them.
Book 5: Being Alive Means Taking Certain Risks
Chapter 5: Life in the Simulation Machine
This is about how risk taking makes you look superficially less attractive, but vastly more convincing. It clarifies the difference between life as real life and life as imagined in an experience machine, how Jesus had to be man, not quite god, and how Donaldo won the election thanks to his imperfections.
Chapter 6: The Intellectual Yet Idiot
This chapter “The Intellectual Yet Idiot,” presents the IYI who doesn’t know that having skin in the game makes you understand the world (which includes bicycle riding) better than lectures.
Chapter 7: Inequality and Skin In the Game
This chapter explains the difference between inequality in risk and inequality in salary: you can be richer, but then you should be a real person and take some risk. It also presents a dynamic view of inequality, as opposed to the IYI static one. The most egregious contributor to inequality is the condition of a high-ranking civil servant or tenured academic, not that of an entrepreneur.
Chapter 8: An Expert Called Lindy
This explains the Lindy effect, that expert of experts who can tell us why plumbers are experts, but not clinical psychologists, why The New Yorker commentators on experts are not themselves experts. The Lindy effect separates things that gain from time from those that are destroyed by it.
Book 6: Deeper into Agency
This book looks for consequential hidden asymmetries.
Chapter 9: Surgeons Should Not Look Like surgeons
This shows that, viewed from the standpoint of practice, the world is simpler and solid experts don’t look like actors playing the part. The chapter presents BS detection heuristics.
Chapter 10: Only the Rich Are Poisoned: The Preferences of Others
This shows how rich people are suckers who fall prey to people complicating their lifestyle to sell them something.
Chapter 11: Facta Non Verba (Deeds Before Words)
This explains the difference between threats and real threats and shows how you can own an enemy by not killing him.
Chapter 12: The Facts Are True. The News Is Fake
This presents the agency problem of journalists: they will sacrifice truth and build a wrong narrative because of the necessity to please other journalists
Chapter 13: The Merchandising of Virtue
This explains why virtue requires risk taking, not the reputational risk reduction of playing white knight on the Internet or writing a check to some nongovernmental organization (NGO) that might help destroy the world.
Chapter 14: Peace. Neither Ink nor Blood
This explains the agency problem of people in geopolitics, and historians who tend to report on wars rather than peace, leaving us with a deformed view of the past. History is also plagued with probabilistic confusions. If we got rid of “peace” experts, the world would be safer, and many problems would be solved organically.
Book 7: Religion, Belief, and Skin in the (same
This book explains creeds in terms of skin in the game and revealed preferences: how atheists are functionally indistinguishable from Christians, though not Salafi Muslims. Avoid the verbalistics like “religions” are not quite religions: some are philosophies, while others are just legal systems.
Chapter 15: They Don’t Know What They Are Talking About When They Talk About Religion
This starts with author’s motto: “mathematicians think in (well, precisely defined and mapped) objects and relations, jurists and legal thinkers in constructs, logicians in maximally abstract operators, and… fools in words.”
It is an interesting observation that could help understand different approaches to reality and role that worlds play in politics and culture. Author proceeds to discuss the difference in meaning of “religion” for people with different cultural background.
Chapter 16: No Worship Without Skin in the Game
This is about another interesting approach to religion as the method of creating skin in the game, by using high-level demands on resources and dedication that person needs to demonstrate that he is true believer.
Chapter 17: Is the Pope Atheist?
This is very reasonable approach to the posed question: if the Pope really believer, why would he need medical services, security protection and other similarly secular things if everything is under control of the god anyway. In short, the real attitude is demonstrated by deeds, not words.
Book 8: Risk and Rationality
Book 8, “Risk and Rationality,” has the two central chapters, which author elected to leave for the end. There is no rigorous definition of rationality that is not related to skin in the game; it is all about actions, not verbs, thoughts, and tawk.
Chapter 18: How to Be Rational About Rationality
This chapter deals with human perception and its distortions. Author makes an interesting point that these distortions are necessary for survival. It seems to be obvious by definition, but his point is that distortions that exaggerate risks and consequently help to avoid loss much more useful than correct perception that would lead to loss, especially in cases of tail risks. He links it to the idea of bounded rationality that helps to heuristically process overwhelming amount of information at the levels good enough for survival. Here are 3 maxims that kind of formulate this idea:
- Judging people by their beliefs is not scientific.
- There is no such thing as the “rationality” of a belief, there is rationality of action.
- The rationality of an action can be judged only in terms of evolutionary considerations.
Chapter 19: The Logic of Risk Taking
This chapter summarizes all author tenets about risk and exposes the errors concerning small-probability events. It also classifies risks in layers (from the individual to the collective) and manages to prove that courage and prudence are not in contradiction provided one is acting for the benefit of the collective. It explains ergodicity, which was left hanging. Finally, the chapter outlines what is called the precautionary principle. Here is author’s view of this:
At the end author provides his summary:
- One may be risk loving yet completely averse to ruin.
- The central asymmetry of life is: In a strategy that entails ruin, benefits never offset risks of ruin.
- Further: Ruin and other changes in condition are different animals. Every single risk you take, adds up to reduce your life expectancy.
- Finally: Rationality is avoidance of systemic ruin.
The final wisdom:
When the beard (or hair) is black, heed the reasoning, but ignore the conclusion. When the beard is gray, consider both reasoning and conclusion.
When the beard is white, skip the reasoning, but mind the conclusion.
So author finishes this book with a (long) maxim, via negativa style: No muscles without strength, friendship without trust, opinion without consequence, change without aesthetics, age without values, life without effort, water without thirst, food without nourishment, love without sacrifice, power without fairness, facts without rigor, statistics without logic, mathematics without proof, teaching without experience, politeness without warmth, values without embodiment, degrees without erudition, militarism without fortitude, progress without civilization, friendship without investment, virtue without risk, probability without ergodicity, wealth without exposure, complication without depth, fluency without content, decision without asymmetry, science without skepticism, religion without tolerance, and, most of all: nothing without skin in the game.
MY TAKE ON IT:
It is interesting to read something so close to my own thinking, expressed about 37 years ago, that caused some problems for me with KGB and eventually resulted in learning English, getting out from USSR, and drastically improving my live. It is obviously written by much more educated and erudite man, but the core is the same – without “skin in the game” or what I called real responsibility and proper feedback loop, no human system such as society could function efficiently. It does not mean that it would not be able function somewhat effectively, but with huge waste in resources and, most importantly, human lives. Even so this inefficiency would necessarily cause such society to lose competition with any other, even slightly more efficient society, at least over sufficient period of time. Correspondingly “skin in the game” or “proper feedback loop” could be represented as well functioning democracy with complete freedom of speech, association, movement, actions, and availability of enough resources to make all these freedoms real for practically all members of society. Contemporary Western world, especially USA is pretty good on declarative part and opportunities to obtain resources for individuals with average and higher abilities. However, since about half of population has abilities lower than average, it still has a lot to achieve so all declared freedoms become available for everybody.
The main idea of this book is to review the field of positive psychology as it developed after WWII, somewhat as reaction to its horrors. Started by to significant extent by Holocaust survivors who were trying to make some sense out of senseless tragedy, it developed into massive industry supporting typical American creed of Pursuit of Happiness with psychological, medical, and statistical research and expressed in nearly infinite number of self-help books. As everything American it expands all over the globe and impacts human behavior and decision making from individual level to all the way up to ruling governmental entities.
It starts with the anecdote about business owner who reduced his salary to $70,000 based on the psychological research claiming that more money does not make people happier. Author uses this to discuss role of psychology, especially positive psychology and happiness studies. He provides a brief overview of happiness discussion in history going all the way back to Aristotle and then moving all the way to contemporary time with its “positive thinking”, “Gross National Happiness”, and such. However, he points out that in our time massive research of happiness coincides with mass unhappiness caused by the great recession, stagnant wages, and political deadlock in USA and other developed countries. Then he brings in Positive psychology that provides highly contested and complex view on human happiness and its relation to material consumption and social environment. Author stresses that Positive Psychology became a powerful movement, which aims not only to help people with problems, but provide tools to regular people without any psychological problems to improve quality of their live through better understanding of what could make them happier.
- From Helplessness to Optimism: Martin Seligman and the Development of Positive Psychology
This chapter starts with reference to Seligman’s address in 1998 to American Psychological Association (155,000 members) when he called to use positive approach to strive for achieving human flourishing and preventing conflicts. One of the most important goals was to handle new situation when increased material affluence led to higher levels of depression and unhappiness. The emphasis should move away from mental illness to wellbeing of all individuals.
After discussing speech and overall new direction of psychology, author moves to review bio of Seligman and some other personalities who created foundational work for positive psychology and happiness studies. Paradoxically quite a few of them were Jewish and, one way or another, related to Holocaust either as survivors such as Victor Frankl or their children and other relatives. Interesting here also is somewhat negative attitude to self-esteem and other “humanistic” psychology movements, which often promoted “unwarranted self-esteem” undermining readiness to apply hard work necessary for achievement. Author, however, stresses connections between earlier humanistic psychology and positive psychology and continuation of its effort to understand people in order to improve their wellbeing.
- Misery and Pleasure in the Origins of Happiness Studies, 1945-1970
This is going to the beginning of positive psychology that occurred in years right after WWII and Holocaust. The interesting point here is that people think about happiness more when they are not happy, especially when their relatives and friends get killed and they find themselves in concentration camps as Victor Frankl. However initial background of positive psychology was in psychological treatment of WWII veterans and victims. Author also discusses here Norman Peale and his Power of Positive Thinking. This movement started in 1952 and was based on the idea that whatever real problems exist in the world; the individual thinking could manage perception and direct action in more productive way than just lamenting uncontrollable events. The next step in this direction was Victor Frankl’s “Search for Meaning”. Here idea was that positive thinking and ability to preserve some internal intellectual freedom and dignity increased chances of survival in concentration camps and eventually allowed person to grow. Frankl also practiced as a therapist, moving away from Freud and concentration on the past to concentration on life’s meaning and future. The next figure author discusses – John Bowlby was member of British elite who suffered corresponding adversities: being sent to boarding school, separation from wife, and other unhappy events, which influenced his work on separation and social isolation. He developed attachment theory especially for small children, which pointed out need for social interaction. The next is Aaron Beck and his work on depression and recovery through cognitive behavioral therapy. This method was based on attempts to help patient to overcome “misconstruction of reality” and develop realistic goals for improvement and handling of life events. Next part of this review is Abraham Maslow and his pyramid of motivation, especially his idea of self-actualization. One of more important points is Maslow’s insistence on analysis of psychology of healthy people in search of understanding what makes them healthy. He also expanded it to societal impact suggesting that self-actualized people are not interested in hate and violence making society better for everybody. The next figure – James Olds had more technical approach – he was searching for pleasure centers in the brain. He found it in rats and proved that direct electric stimulation of the brain could cause all-consuming pleasure. Another researcher Frank Berger moved to chemical stimulation developing drug Miltown to prevent depression and increase happiness.
The next part of review for this period includes discussion of happiness studies that were conducted in USA and other countries. The final part refers to Alan Watts and related move to Asian religions in search of ancient wisdom that would provide road to happiness.
Author concludes that for the period before 1970 the main thrust was to overcome misery of tragedies of war and find way to achieve mental stability and comfort either via positive thinking, meaning of life, and/or anything else available: electrical / chemical stimulation, Asian religions, or whatever else would work. The most important here is that it signified shift from overcoming misery to obtaining happiness.
- Crisis of Confidence? 1970-1983: Providing the Groundwork for the Study of Positive Happiness
This period included growth in happiness research with contemporary decrease in happiness and optimism in the Western world due to economy, Vietnam, and other negative events. It also included new approaches based on rejection of purely materialistic approach, such as “Hedonic Treadmill”. It featured Brickman and Campbell with their Adaptation theory, which denigrating value of achievement because it would never deliver on expected levels of happiness and therefore had no real benefit. Moreover, it was linked to idea of diminishing resources that pointed to counterproductive nature of material improvements. Author then discusses Paul Ekman’s research on evolution of emotions and facial expressions. This demonstrated power of positive emotion transmitted via expressions. The next point is Robert Trivers and his “Reciprocal Altruism” as source of happiness. Moving on it is Edward O. Wilson and his “Sociobiology”, demonstrating Evolutionary processes behind human behavior and conditions. Alisa Iven and Paula Levin then continued it in study “Effect of Feeling good on Helping”. Philip Kunz researched issue of communications for helping in his experiment with Christmas cards. Another classical research was by Richard Easterlin who demonstrated that difference in levels of happiness between rich and poor are small and concluded that money has little impact on happiness. Yet another approach to happiness was demonstrated by Mihaly Csikszentmihalyi who researched condition of deep emersion into productive task and found what he defined as flow – condition of happiness from the process of achievement. Another study by Philip Brickman, Dan Coates, and Ronnie Janoff demonstrated stability of individual levels of happiness by looking at condition of lucky winner of lottery and unlucky individuals who suddenly become paraplegics. In both cases in a few months after big change people return to pre-existing levels of happiness, albeit it was not completely so for incident victims.
The next area of research in these years was about decision making under risk. It was done my Kahneman and Tversky who demonstrated that these decisions were far from purely rational as it was assumed by economic profession. Together with Thaler’s research on consumer choice it practically started behavior economics.
Author also discusses growing number of surveys conducted in these years and their methodology. These surveys generally found decreasing link between material and psychological wellbeing.
Yet another direction was search for better leaving via relaxation and use of Asian religious thought to handle life’s events. Author describes work of promoter of this approach – Herbert Benson.
Somewhat different, but in the same line was an attempt by Timothy Leary to use chemicals such as LSD in search of happiness, which was kind of continuation of popularity of Miltown in 1950s and Valium in 1960s. All this led to extensive research on operation of these drugs and their influence on brain and author provides a sketch of results of this research.
Finally, author discusses popularization of psychological research and increasing search for happiness and dissatisfaction with existing situation that grew in American society. In conclusion of the chapter author refer to other works in psychology not directed at happiness and wellbeing such as Gardner’s work on multiple intelligences, Goleman on Consciousness and Awareness, and some other. Interesting also is reference to Nozick’s “Experience Machine” in which he suggested that humans need more than experiences, they also need real, tangible results for their activities.
- Morning in America, 1984-1998: Assembling Key Elements in the Study of Happiness and Positivity
This part describes period of change from Reagan through Clinton and renewed optimism in America. Author considers this period as turning point in history of happiness studies because of its acceptation by Library of Congress as a separate subfield of psychology. It was also period when thousands of studies were published in this area and field expanded a lot. One of important new areas of research was about the problem of endogeneity – difficulties of separating causation and correlation. Author stresses importance of article by Ed Diener: “Subjective well-being” and discusses it in detail. Especially important was search for link between happiness, age, work environment, family, and social relations.
The second part of the chapter is about brain research that received a big push in late 1980s. It involved experiments with Alzheimer patients, but also famous research with Buddhist monks and meditation. He also discusses careers of Ryff and Peter Kramer who promoted a better life through chemistry of Prozac that he used extensively in his clinical practice.
The next researcher author discusses is Kabat-Zinn who founded the Stress reduction and relaxation program based on meditation, which spawned Mindfulness-Based Stress Reduction (MBSR) programs that promoted idea of close link and unity of mind-body with stress on inner life and somewhat neglect of external circumstances. Author also discusses a few longitudinal studies tracing the same people over long periods of time and Cutler’s work on it with help of Dalai Lama, resulting in bestseller “The Art of Happiness”.
The following part of the chapter returns to behavior economics and discusses it in conjunction with Hedonistic Psychology. One interesting part of this discussion came from Kahneman’s research demonstrating difference between current and later perception of well-being and that duration of condition did not matter that much – discomfort for period of time with improvement at the end was perceived as better event than period of comfort followed at the end by deterioration.
After that author moves to Festinger and comparative evaluation of one’s status in all relevant areas to define own happiness. Yet another approach came from David Lykken and Auke Tellegen was about genetics. Their research on twins claimed to demonstrate that about 50% of happiness level came from genetics.
There is also interesting discussion on international comparison, which demonstrated variance in understanding of happiness between collectivistic and individualistic societies. Overall research demonstrated dependency of happiness levels in different countries on their culture.
- Drawing (and Crossing) the Line: Academic and Popular Renditions of Subjective Well Being, 1984-1998
This period of “morning in America” preceded final formation of positive psychology and included move to popularization of this research by Seligman and Csikszentmihalyi and author reviews their books in details. There were also multiple books on happiness with strong push into self-help format.
- Building a Positively Happy World View
This is about events and discussions after Seligman’s presidential address in 1998 that established Positive Psychology as clearly defined field of research. It starts with description of reaction in mass media – articles in Time and such. It also refers to Jeffrey Kluger’s essay about American pursuit of Happiness and Happiness of Pursuit mainly about relation between consumption and happiness. Then author moves to discuss development of professional infrastructure for positive psychology: university programs, training classes, textbooks, and such. Author allocates lots of attention to Martin Seligman’s work during this period. He also discusses “How to” literature, such as work of Sonja Lyubomirsky who provided kind of formula for happiness (50/40/10 – genetics / intentional activity / circumstances), and quite a few of other books on the happiness topic published in early XXI century. Author also identified the key 3 issues around which all discussion is mainly conducted: Money, Measurement, and Meaning of Happiness.
- The Future Is Here: Positive Psychology Comes of Age
Here author reviews the key findings and directions of research related to different parameters of happiness: Character, Gratitude and Altruism, Resilience, and Spirituality and Religion, Author also discusses the latest scientific tools used in happiness research. Part of this is international research and he provide an interesting statistical graph:
There is also interesting discussion here on political ideology and positive psychology noting that it is somewhat related to neoliberalism that he defines as self-government by individual rather than by group or government. At the end author discusses in details critic of positive psychology which grew exponencially with the growth of its popularity.
- The Business of Happiness
This is about business of promoting positive psychology and overall happiness. Whether it is TED talks or “Happy Corporate Life” or Oprah. Author also discusses penetration of these ideas in schools, mass media, and all kinds of Happiness coaching. As any other mass movement, positive psychology has philanthropic support in form of foundations, government organizations, and Academic entrepreneurship.
Coda: The Happiest Place on Earth
This starts with description of author’s attendance of the Fourth World Congress of Positive Psychology in 2015. It included 1,200 participants from 48 countries. After that author discusses how big become this movement and how much happiness it created at least for people who making living from positive psychology. Author ends on very interesting note that out of some 800 people present at presentations on positive psychology influence on culture only some 20 were conservatives. Others were mainly center left and they did standing ovation to the speech of Csikszentmihalyi about need to increase push for equality, social justice, and environment.
MY TAKE ON IT:
The pursuit of happiness in last 70 years moved away from simple strive to be well fed, have decent shelter, and maintain positive social connections with other people; to much more sophisticated strive to achieve psychological satisfaction with one’s life in which these simple things are taken for granted. This naturally caused serious research in what it means to be happy and the whole industry of advisory services to help people in this. I think eventually the biggest discovery still ahead of us and it will be discovery of simple fact that happiness is deeply, individual condition that occurs even for the same individual differently in different moments of time and space in this individual’s life. As such no statistical and/or psychological help could work consistently because of this dynamic character of the state of happiness. The most that could be done is to assure that all individuals have resources to do whatever makes them happy, agency to be able to use this resources the way they want to do it, and protect them from external violent interference in their live by other individuals who are in control of whatever the powers are in society.
The main ideas of this book are very clearly presented in introduction:
- Contemporary education educates in areas that have little relation to realities of life when it goes beyond literacy and numeracy.
- It is not disputable that education provides high returns on investment, but it comes not from acquired knowledge, but from signaling that the person with educational credentials is more valuable employee, than person without.
- Consequently, massive investment in education does not produce any returns for society overall because it just inflates cost of signal – where bachelor degree was a pretty good signal in the past, now, when everybody has bachelor degree, one needs master degree to send the same signal.
CHAPTER 1 – The Magic of Education
This chapter starts with confirmation of education value for individual career and statement that statistics proves that. It follows by review of what is actually taught, including author’s own experience as economics professor and conclusion that it really has nothing to do with the skills required to do a job. These real skills are acquired on the job, not in the classroom. The author asks the question – what is the magic that turn diploma into higher income? The answer is – signaling. Employees look for individuals with specific personal qualities: intelligence, consciousness, conformity, and so on. Possession of these qualities is not obvious and it requires some investment of time and money to recognize them in individual. Education provides short cut to this information. Author specify what qualities education signals and why it so in some details, such as individual’s ability to apply raw intelligence to achieve the specific objectives. For example, two individuals with high IQ, easily tested in a couple hours, would signal completely different level of job fitness if one of them has PhD in some esoteric area and another one did not move beyond high school diploma. This job fitness includes the whole package of traits, which author again boils down to trifecta: intelligence, consciousness, and conformism. Author also discusses objections to the signaling. One objection he actually accepts is that signaling is not the only one thing and education sometime does provide valuable skills and knowledge. However, he believes the signaling is the thing because it allows recognizing absence of easily fakeable traits: consciousness and conformity. Individuals who spend years getting diplomas are not faking these traits. Author also provide an interesting point in support of signaling: education is practically free if one wants to listen to lectures, read books, and do exercises. Nevertheless, people are paying huge money for credentials, which are nothing more than confirmation that one did all this. This refers to author’s main contrarian idea – human capital model, which states that it is knowledge and skills obtained via education that creates value for employee. His interesting reply: what would be better for getting the job: Princeton diploma without knowledge or knowledge without diploma – the answer is obvious: diploma wins.
CHAPTER 2 – The Puzzle Is Real: The Ubiquity of Useless Education
This chapter looks in details at curriculums to demonstrate how little it relates to real life. Here is breakdown for high school:
Discussing signaling author points out at legal limitations on use of cheap methods like IQ and other tests. However he rejects this, pointing out that huge difference between cost of formal credentials as signaling and cost of test so much different that people would find way to avoid laws if the test’s signal would be comparable.
Author also discusses positive impact of eduction on unemployment numbers.
At the end of chapter he presents what he believes are real rewards of education: signaling.
CHAPTER 4 – The Signs of Signaling: In Case You’re Still Not Convinced
Here author provides additional support for this signaling theory. He discusses the Sheepskin effect when value added not by years of education, but by credentials only. The estimate of this effect is highest for High school diploma and Bachelor degree – about 30%. Interesting also is analysis of misemployment when people work jobs where their education is irrelevant. Author demonstrates that even in this case High school graduates command premium of about 100% over dropouts, but even more amazing is that college graduates command 30-40% premium over High school graduates. Author summarize Human capital vs. Signaling in such way:
CHAPTER 5 – Who Cares If It’s Signaling? The Selfish Return to Education
Here author stresses benefits of educational credentials for individuals, regardless of reason it happens. He does somewhat funny math calculating total cost of education not only in payments, but also in cost of sitting in boring classes, enduring stupidity of professors, and lost opportunities of doing something productive. He concludes that it is definitely worth it and provides a bunch of nice graphs to support this conclusion. Here is one of them:
A very interesting point author makes when he shares his experience of discussing this issue. Typically people relatively easily agree that educatinal spending is wastful, but strongly resist to any cuts. After that author reviews a number of related issues, mainly demonstrating that governemnt interference makes things worse by removing incentive to select meaningful forms and subjects of education that would provide good returns, and substituting them with easy subjects that would not provide good returns, if any. At the end he states his recommendation – austerity in eductional expenses.
CHAPTER 8 – 1>0 We Need More Vocational Education
This chapter on vocational training makes a very interesting point: students are underachievers before they start vocational training, but then get much better. Overall this small table summarizes the comparison:
Author also discusses child labor that was substituted by eduction and reasonable claims that on job training superior to formal education for learning this job and should not be limited by age. Finally he quite reasonbly points out that learing Latin or Medival history is really not generic education, but is rather technical education of very narrow specialty with little application in real live.
CHAPTER 9 – Nourishing Mother: Is Education Good for the Soul?
This is discussion of the very notion of Alma Mater that every college trying to develop in their students and alumnus. Author clearly and strongly support humanitarian side of education, but separates it from practical education. The first one requires students consciously and enthusiastically participate, otherwise being just waste of time – which does regularly occur in contemporary educational system. After that author reviews what is popular: books, other cultural artifacts, and demonstrates that it is far from high culture taught in schools. There is also very funny part of this chapter referencing political correctness as paper tiger. Mainly the point here is that Marxist professors are not capable to instill their ideology into students and therefore are somewhat benign. The final part basically demonstrates that force-feeding culture and ideas does not produce cultural and idealistic people. It produces cynics and manipulators, trained to demonstrate characteristics and believes that are required for achieving their objectives regardless of possession of these characteristics or real support for this believes.
CHAPTER 10 – Five Chats on Education and Enlightenment Conclusion
The final chapter is about interaction between education and enlightenment. Author presents it in the form of 5 chats with invented character:
- Education what is good for
- College and Catch-22s
- How Educational Investments Measure Up
- Why Do You Hate Education?
- Education Against Enlightenment
Here author repeats the main points: Education is overrated from social and humanistic point of view, but beneficial from individual materialistic point of view by providing necessary and important signal to employees about this individual’s abilities and characteristics. Author expresses pessimism that anything will ever happen to change this, but he does hope that some austerity in educational expenses will eventually arrive.
MY TAKE ON IT:
Signaling is a pretty good explanation of economic function of higher education in USA and I believe that author absolutely correct that education provides individual benefit, while causing societal loss of resources. What in my opinion is missing here is more clear presentation of welfare aspect of education. Out of nearly trillion dollars spent every year, only a small fraction supports transfer of real knowledge and skills to next generation of producers, but huge proportion goes to providing income to non-educators, administrators, and others not related to any instruction: from new school building to professors’ pensions. It is by far the biggest welfare program that exists and the question is what would happen to all these people if USA moves to education austerity. The answer is – millions of semi educated people often trained in some kind of socialistic thought, deprived of expected levels of income and therefore extremely angry at the society and political system that caused their grief. It is hard to imagine better receipt for revolutions and civil war. On other hand the current trends are unsustainable not because education costs too much – a small number of effective producers with support of technology so far were able produce enough goods and services for all including welfare recipients from bottom dwellers of slums with their $4 dollars / day food stamps to women/ethnic/diversity/lgbtqqcc studies professor with 400k income. It is not sustainable because society in which huge number of people doing something meaningless, while being included in some hierarchy, meaning suffering all indignities of being dependent on superior bureaucrat and consequently losing their agency as human beings, could eventually produce an explosion as powerful as they could produce if deprived of income.
I believe that austerity would not help. It is rather creation of opportunities outside of rigid educational system, including teaching and learning opportunities and slow and deliberate movement of resources from governmental redistribution to voluntary market exchange could resolved this growing danger of explosion. As to signaling, employers would not need credentials if they can easily admit people on voluntary basis to work for them in exchange for skill acquisition and productivity linked on profit share basis. With current level technology it would be not a problem to keep databases with reliable auditing, maybe even by government bureaucrats providing records of projects participation and detailed activities of all people willing to have such proved record. This would eliminate need for employer to look at credentials from college and allow them to select the best people for a job at any time and at marketable price. In any case I think this book will generate lots of discussion and will be an important input into coming huge societal change.
The main idea of this book is that the Era of reform in China ended. The result is advanced economy with authoritarian government, which is, while very impressive from outside, it nevertheless contains huge internal pressures probably not easily controllable by communist party in power. It is not clear what will be next, but it is clear that this “next” will be very different from “now” and probably not very happy.
The introduction starts with reference to Three Gorges dams as symbol of contemporary Chinese society – huge but fragile construct that changed natural flow of things, providing benefits at first but threatening catastrophic consequences in the future if dam breaks. The author’s point is that economic success of Chine hides internal tensions that are moving the country closer to explosion as evidenced by growing unhappiness on social media that from time to time leads to protests and even violence. Author also briefly summarizes content of the chapters that follow.
- Overview: The End of China’s Reform Era
This chapter starts with discussion of the raise of authoritarianism elsewhere in the world, which is fed by seemingly miraculous success of China model. After that author looks in details of China’s development from late 70s on when Den’s reform opened China to foreign investment and kind of capitalism controlled by communist party. Author makes point that during reforms communist party moved to building institutions for collective control for its rule, including changeable leaders with term limits. It also included expansion of education and bureaucratization of society at the same time opening some space for private business and civil society as long as it was not threatening party’s control. It worked fine for a while, but at the early XXI century system run out of steam due to increase in dissatisfaction of population with corruption, environmental degradation, pressure from the bottom to increase quality of live, especially in provinces, increased unhappiness of western companies with illegal technology transfers, and slowdown of economy. The response, so far was concentration of power at the top, removal of restrictions on personal rule, massive stimulus of economy, and complains against corruption of intraparty competitors. Also revived was ideological push, this time in the form of Chinese Dream and great leader Xi’s writings. Author characterizes all this as the beginning of counter reform era.
2.Society and Economy: The Closing of the Chinese Dream
Here author looks on Chinese Dream development. First it was Imperial Dream – meritocratic raise through education and exams going back to the 900-1000 AD. The raise mainly meant high place in Imperial bureaucracy. It lasted until 1911 when resulting relative military and economic degradation led to revolution and fall of Qing dynasty. The following up power play practically lasted until reforms end of 1970 and included wars, interventions, and such ideology-made disasters as cultural revolution. The reform somewhat restored road to success via education, albeit restricted for provincials by hukou (individual’s assignment to locality), causing mass illegal migration to cities. Also, huge increase in number of college graduates put a lot of pressure on society because it produced entitled intellectuals with not enough place in bureaucracy and lack of marketable skills. Another point author makes is growing differentiation between educated elite and educated non-elite that undermines meritocracy when inequality is growing:
The inequality during reform period was aliviated by opportunities in private business, but party response to slowdown of economy decresed these opportunities leading to frustration and sometimes to violent outbursts. At the end of chapter author discusses XI’s Chinese Dream of innovation society and hope to supplunt USA as preeminent source of new technology rather than cheap labor, but author is sceptical that it would be possible.
3.Politics: Internal Decay and Social Unrest
Here author suggests that China’s resent success was linked to “Partial political institutionalization”, meaning somewhat stable norms of party’s bureaucratic machine. However, it did not go anywhere close to establishment of at least somewhat democratic institutions and all attempt to their establishment like local election or independent courts eventually failed when bumping into supremacy of one party rule. Consequently, attempts of technocratic organization turned into mass corruption problem as it is supposed to according to theoretical agent-principal problem. Author looks at recent history and, interestingly enough, points to Mao’s Cultural Revolution as attempt to solve this problem by mass removal of corrupt bureaucrats. After Mao initial development of institutions stopped in 1989 when it clashed with communist party controls. After tracing the failure of institutional development author moves to increased tensions in Chinese society linked to conditions of migrant workers and labor over all. It is represented by the growth for legal and labor disputes:
The situation become quite dangerous, stressing and undermining bureaucratic and technocratic cohesion that mainly maintained over the period of reform. Eventually, now it looks as the solution the party leaders came up with is mainly return to upgraded to contemporary conditions Mao’s practices with the new leader XI esteblishing himself as the leader for live and significant number of top level party oficials purged via anti-corraption compain.
4.Religion and Ideology: What Do We Believe?
This is about religion in China, which is, as in all formerly communist countries, a mess. China is still communist country, but official communist religion of atheism mainly become meaningless so both top and bottom of society are looking for something else. There is an attempt to go back to Confucian teachings, but it is not that forceful yet. Author provides estimate for religious affiliation: 300 mil folk religions, 250 mil Buddhists, 68 mil Christians, and 25 mil Muslims. Author reviews religious history, stressing that government usually selected one and suppressed others. Communist party did the same, but its official religion – communism become quite hollow, opening space for others. Party’s attitude represents wide variety mainly of neglect, but sometimes strong, even violent response when popularity of some believes system becomes too big, creating potential competition. Author discusses in details Falun Gong as one example of this. Overall party is looking for some effective substitute for dead Marxism, which would support its current nationalistic direction.
5.China in Comparative Perspective
It starts with reference to Americans inability to understand that people in other countries often do not have real experience of democracy and often used democracy-like institutions such as election, formal division of power, and independent judiciary only for show without investing them with meaning and real power. Author in depth discusses some Asian countries like Taiwan transfer to democracy, only to demonstrate huge difference between circumstances of these countries and China, which are so much different that their example is not applicable.
The last chapter is about different versions of future that author foresees:
- Demise of liberal dream, complete elimination of possibility of democratization, and continuation of authoritarian rule
- Rejection of established by reforms semi-capitalism with private property and return to totalitarian system
- Populist Nationalism with anti-foreigner tint.
- New Dynastic cycle as it usually happened in China before
- Regime collapse leading to civil war and war lords taking different parts of the country.
At the end author analyses what would be meaning of this for the world and how USA could respond.
In conclusion author makes a valid point that society’s governmental system is highly dependent on overall culture. So, in America democracy does not start at the top, it starts at the level of individual experience – high school elections, PTA meetings, and infinite number of events of collective decision-making and elections of individuals into position of power, however small or big power it is. These institutions are foundation of democracy and China’s reforms failed to develop such institution. Author compares result of this failure with Three Gorges Dam and expresses fear that the big earthquake is coming. On the bright side he offers, as an alternative, example of another project – Dujiangyan irrigation system built around 256 BC, which successfully merged with environment regulating water flow without dams, regulating water flow by the using topography enhanced my multiple channels. Author ends stating that it is up to Chinese to decide which way to go.
MY TAKE ON IT:
I think that it is correct that the era of reform ended, but it is not actually Chinese decision or even purely Chinese development. This Era is ending because it was based on integration of China into Western capitalist world as provider of low cost labor and environmentally indifferent manufacturing network. As such it was built on the number of historically abnormal circumstances:
- Ability of communist party elite to obtain both wealth and security by receiving share of proceeds from western investment into China, while buying popular support with material improvements
- Acceptance by Chinese people, who were providing this labor, dramatically lower wages comparatively to people doing the same work in western world, corruption and limitation of their human rights, and decrease in quality of live due to environmental disaster caused by industrial production not burdened by limitations on pollution.
- Willingness of Western businesses to investing in China even if it meant sacrificing some intellectual property and creating new competitors
- Willingness of Western population to tolerate deindustrialization and massive loss of jobs in exchange for cheap goods made in China, at least until enough money provided to buy them via government transfers and make-believe jobs.
- Support of Western elites that were happy to have well-paid governmental and semi-governmental (education, healthcare, non-profits, and such) jobs and really did not care about their less well-heeled compatriots.
All above is not valid anymore Instead new factors are playing increasing role:
- The labor cost in China rose to levels that become comparable to the West: 7/1 instead of 15/1, but much more important – recent developments in AI that are making labor cost much less potent issue.
- Chinese people are in process of withdrawing acceptance of much lower quality of live than it is in Western countries, while elite is in search of substitute to non-ideological support based on material improvements it was able obtain from population until now with something else- probably nationalist ideology and aggressive posture that would cause pushback by the West that elite could use to justify call for sacrifices.
- Western businesses increasingly recognize downside of technology transfer, which already put quite a few out of business, population is becoming restless in search of economic improvements in form of more income rather than cheap goods, and politicians recognize military downside of technology transfer
In short China will probably have a few tough years and only decisive behavior of Western powers – mainly USA, could prevent catastrophic unwinding of current global system, which is quickly becoming become unsustainable.