Some of These Institutions Need to Die (But They Won’t)

I recall an incident on a trading floor at a firm where I once worked. A young man—let’s call him William—got himself too long on the stock of Barclays as it crashed in concert with the collapse of Lehman Brothers on September 15, 2008. William was betting big that Barclays was oversold and that it would rebound. He was sure the U.S. government wouldn’t let a second bank fail, and he figured the British government was even less likely to do so. In the end, he was right, but on that day, he bought so many shares and got so far into the red that we got calls from a third investment bank, the one that capitalized us. Soon the pit boss wanted William to exit his position, and no amount of arguing would save him. His loss put him down in his account by a number that would have made me hang myself from a ceiling pipe in the bathroom. Like most good traders, William was the hyper-rational type, so it didn’t affect him as it would a normal person. He was back pounding the keyboard at his station the next morning. I quit a few months later. The trauma of watching that crisis unfold has never left me. I wish I were more rational, but I’m not. In this one respect, I’m normal. But that doesn’t mean people like William should rule the world. Even geniuses can miss their mark, and bigly.

Lehman wasn’t some regional lender caught up in the shenanigans of a municipality or a state. It was a gargantuan investment bank in New York, the fourth largest in the U.S. It paid the ultimate price for overleveraging its positions in subprime mortgages. When that paper turned out to be junk, clients rushed to withdraw their money and Lehman’s net worth evaporated.

In retrospect, it’s clear the government let Lehman fail.

Regulators wanted to justify their power but also pretend they’d let the market punish an inefficient company. On the one hand, they kept pressure on the banks: “If you don’t do as we say, we’ll let you fail like Lehman.” On the other hand, the event was supposed to incentivize the banks to act more responsibly on their own going forward. And the government, as well as the banks, could claim the sector was both free of corruption and well-regulated. If you believe that, you’re confused, and you’re not alone.

But even from a cynical perspective, letting Lehman fail was good because it saved society from footing the bill, right?

Well, not so fast. One could argue Lehman was too big to fail. If it had just been given a backstop, then the mortgage-backed junk that caused clients and investors to panic would have recovered some of its value. Perhaps a positive feedback loop would have ensued, and we’d have avoided a recession and a lot of home foreclosures. But wait. What if you were waiting to purchase a new home at a reduced price? You might not have appreciated the idea of the government providing a backstop or inducing a positive feedback loop. It might have been better for you if Lehman had failed, along with Barclays, Washington Mutual, and Citigroup.

More generally, do we want markets to function this way?

Backstops cushioning bubbles got us into our sea of tyrannical government agencies in the first place. When we don’t let enterprises fail, we saddle our economy with their costs. Worse, we also make a lot of the citizenry lazy and uncritical regarding financial, political, and social issues that can only be fixed when we’re free to choose among competing alternatives. The mommy state is the essence of that socialist encroachment on freedom which plagues the Western world. We might muddle through, but it’ll mean less growth and less wealth production. Efficient people will shoulder rent-seekers, and we’ll keep expanding debt-financed government programs and corporate welfare.

There’s another inefficient bubble of welfare for elites in the education sector.

I’ve written about how the West suffers from an excess of intellectuals—too many people employed by too many universities that produce too many books that nobody reads, and that nobody should read. The problem is acute in the United States. Around 1970, a guilt-driven fit of egalitarianism made us decide everyone deserved a college degree and good grades. We also prioritized genetic diversity and grievance over merit, ability, and preparation. The result was a huge bubble in the humanities—useless fields like sociology, literature, psychology, and economics.

And we’ve watched the bubble’s effects go further.

The sciences, too, are plagued by virtue signaling. Many people now think truths about biology, weather, and engineering are disclosed by scientists who vote these truths into existence and then write letters about them to the public while boasting about their credentials and grants. But votes, power, money, and advertising don’t create scientific truth. They create bias, ignorance, and corruption among pseudo-scientists who organize politically to repress anyone opposed to their fakery. Their phrase “follow the science” is absurd.

Science is about negating the findings of others by exposing flaws in their theories and experiments. So, you don’t follow science, much less vote on it; you demonstrate it.

The University of Pennsylvania (UPenn), Columbia, Harvard, and the Massachusetts Institute of Technology (MIT) are examples of the bubble in the humanities that bleeds over into the sciences. Beyond teaching weak minds how to signal moral superiority in a corrupt society, such schools have proven themselves inept at preparing people for reality or the future.

In response, opportunistic alumni like Bill Ackerman and Robert Kraft now voice nostalgia for the value of their degrees. They want to save the schools they’ve always cited to certify their prowess. But when such schools are rescued after doing so much damage for decades—damage funded by Ackerman and Kraft—the message sent to the public, and to elites in particular, is that there are no consequences for the immorality and waste involved in broadcasting falsehoods from formerly respectable institutions.

More bluntly, those who want to save Upenn, Columbia, Harvard, and MIT are not reformers but reactionaries who long for a return to the myth of virtuous elites validating the virtues of elites. But those same elites—smarmy and unctuous, not virtuous—got us where we are.

Like the media and cocktail Republicans, most of America’s intellectuals are fake, at least until the ridicule is too much to stomach. At which point, they redefine themselves as reformers. From a stock jobber’s perspective, their goal is to recover the negative returns on their cultural capital, the same cultural capital they’ve consistently misallocated for more than half a century.

The alumni at Upenn, Columbia, Harvard, and MIT would do better to let those institutions fail and use their money to create new ones. That would be more American. The essence of the Tenth Amendment is to learn from error and move on, not to dwell on the unfixable past. Like Lehman in 2008, these schools need to collapse. Salvaging them sends the wrong signal, and donors who try to do so should be called on it and mocked. There’s an idiocy to elitism, which, although unavoidable, must be checked. Such institutions’ faculty, staff, students, and administrators should experience severe consequences. They should think twice before giving in to the temptation to endorse collectivist, neo-racist, and totalitarian policies that win them funding from governments, political activists, and virtue-signaling corporations.

Other institutions have embraced the free market of ideas.

Hillsdale, Purdue, Chicago, and the public systems of states like Florida, Texas, and North Carolina signal real educational reform. They’ve demonstrated they’ll respond to distortions in the sector and right their ships. Musk’s engineering university, online research units like Cloud Lab, and fresh liberal arts schools like the University of Austin also make sense.

Upenn, Colombia, Harvard, and MIT have more money than the Vatican, so they’re too big to fail. Not that they might cause a deflationary panic in writing and math instruction; they just have too much status and too many mega-donors to go under. But if they were to continue admitting students and hiring professors to teach and do research as they have since 1980, they’d become academic versions of the artificial intelligence debacle at Google. Google broke its ability to generate information such that the damage seems irreversible. Without changing its corporate culture and hiring practices, how will it produce information that isn’t absurd? Google might have to outsource its technology for it to work. That would be good. Likewise, Upenn, Colombia, Harvard, and MIT should consider paying other providers for their humanities instruction. Nobody should be rewarded for what has happened, including tech types. Those schools’ scientists, engineers, and mathematicians should also be made to reflect on their inaction and cowardice. Otherwise, the higher education market won’t respond to reason or adapt to reality. Elites won’t fix the problem; they’ll cloak it.

I was once a humanities professor. I participated in the elite education bubble. It shames me to no end. I bought in on the way down. I let people with fancy degrees convince me that Judith Butler’s half-baked ideas were reasonable. Others talked me out of buying Bitcoin at $400. But arriving late to the truth ought to be costly. Otherwise, nobody learns. My scholarship was awful for decades, and I’m not as rich as I should be. But I write better now and I still think I’ll get rich eventually. All I can do now is warn people not to let the high priests who staff, attend, and manage their elite institutions make dumb decisions without consequences. But it might be that the majority of U.S. citizens actually want more stupefied savants in more ivory silos. Only time will tell. To expand Joseph de Maistre’s dictum: people get the governments and the elites that they deserve.

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