The meritocracy’s failings

Too many of America’s smartest waste their talents, says NOAH SMITH, because of the education system’s perverse rewards

Ahigh-profile court case about meritocracy and college admissions has captured much attention.

group called Students for Fair Admissions alleges that Harvard University uses highly subjective personality ratings to penalize Asian applicants.

The former tend to outperform white applicants on every measure except for so-called personality, but the number of Asian-American students at Harvard has fallen relative to the Asian-American population, while the number for white students has risen, during the last 25 years. Defenders of the policy, meanwhile, say that the personality ratings are necessary to account for the different challenges students face growing up.

While the case is sensational because of the allegations of racism, fundamentally it’s about a deeper question. Does meritocracy still make sense as a guiding principle for the modern American economic system?

The notion that college admissions should be based on objective standards of individual achievement — grades, test scores and performance in extracurricular activities — is predicated on the idea that it’s good for society to identify and funnel educational resources to its brightest, most capable people.

But showering smart kids with educational resources isn’t an end in and of itself. Education is costly to society. Where’s the benefit? The idea of meritocracy is that education both identifies and cultivates the future working elite — after the smart kids get good educations, they will go on to occupy the social roles where their talents are most needed, whether in business, academia or government.

But if that link is broken — if the best and brightest are wasted after they graduate — then educational meritocracy was for naught.

The U.S. economy still does make use of meritocracy, as indicated by the fact that college graduates get paid higher wages. But there are troubling signs that talent is being squandered in large amounts.

For example, many graduates from elite schools end up working on Wall Street. In 2007, half of Harvard seniors took jobs in finance or consulting. That share fell after the financial crisis, but it is still more than a third. It isn’t just Harvard, either — big banks draw large percentages of their workforces from top schools, both public and private.

Some of those workers will be producing real value. But since the 2008 crisis, there has been a growing sentiment that much of what the finance industry does involves siphoning value — which economists call “rents” — from the rest of the economy. Economists such as Thomas Philippon argue that the industry has gotten less efficient. There are many reasons for this — implicit government guarantees propping up unproductive banks, trading activity that wastes resources, and excessive money