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To investors,
I have been reading one book per week this year. This past week’s book was Paper Belt On Fire by Michael Gibson. Highly recommend reading it. If you are interested in the individual highlights that I made in the physical book, you can read those here. Hope you enjoy these notes every Monday morning.
Book’s main argument:
Higher education is a massive bubble. Students are taking on tens of thousands of dollars in debt for a chance to be awarded a piece of paper, but colleges and universities are no longer testing for mastery of knowledge - they have become a status filter for those willing to sacrifice years of their life to get a job. This focus on status, rather than measurable value creation, is pervasive from Washington DC to Boston, which is what author Michael Gibson calls the Paper Belt.
After working for Peter Thiel and helping to steer the now famous Thiel Fellowship program, Michael and his colleague, Danielle, left to start a venture capital fund that would effectively short the higher education bubble. They have backed a number of companies that you have probably heard of, but their investment comes with a twist - you have to be a college dropout or never stepped foot on a college campus.
5 Big Ideas:
💡 Idea #1 — Cardwell’s Law explains how creativity and innovation are not default in economies and societies. This is a key premise or problem throughout Gibson’s book (and professional work history). He writes:
This creative life-cycle, this transition from birth to flowering to corruption to decline, from ripeness to decadence, has come to be known as Cardwell’s Law, after an idea that the British historian Donald Cardwell hammered home in his classic 192 book, Turning Points in Western Technology: “no nation has been very creative for more than a historically short period. Fortunately, as each leader has flagged there has always been, up to now, a nation or nations to take over the torch.”
💡 Idea #2 — Michael Gibson takes great issue with the higher education industry. He explains that there are scenarios where it could make sense for an individual (college degrees get paid more at corporate jobs, doctors need to be traditionally educated, etc), but if we are optimizing for solving the world’s hardest problems then we need less college graduates.
Universities today sell pieces of paper at great cost and tell young people that buying them is the only way they can save their souls. Universities call this piece of paper a diploma, and they’re rolling in money selling them, building extravagant monuments to their glory and power.
This doesn’t mean that Gibson is against learning or education, but rather he wants to accelerate it.
That year, in 2010, investment banking and management consulting swallowed up more than half of Harvard and Princeton’s graduating classes.
We think that things have stalled out. And we think we need to go back to some of the hard technologies - space, robotics, artificial intelligence, nex-generation biotech - that will really make living standards better in the next twenty years.
We could be for learning, but against the empty, expensive rituals the world had come to call “higher education.”
💡 Idea #3 — Surrounding yourself with intelligent, hard-working people is a key to success. That doesn’t mean they need to check the boxes of the establishment. These people can come from all walks of life and many times the misfits bring the new ideas.
Peter [Thiel] was never interested in building a cult around himself, much as it makes a neat story for the legacy media to suggest otherwise.
In truth, Peter didn’t just hire libertarians. He hired scapegoats who’d survived a mob. People who felt comfortable being a minority of one. There were some libertarians, certainly more than the average office. But what Peter prized most about them was that they were used to being the only people in a room to believe in something and defend it. There were also monarchists and conservative anarchists like me. There were a lot of oddballs, but the last thing Thiel wanted was to be around someone who was in awe of him.
The principle at play in Peter’s office was to see the wellspring of creativity and dynamism in the unity of extreme opposites, the tension of polarity.
💡 Idea #4 — Most establishment organizations are searching for accomplishment, rather than potential. They ask you what you have done so far in your life - grades, test scores, clubs, sports, etc. The more you can check the box, the more likely you are to gain admission. Admission increases the likelihood of admission to the next level of the corporate game. Silicon Valley investors, including Michael Gibson and the Thiel Fellowship, are searching for the opposite:
We were searching for potential, not accomplishment.
Peter told us: “We’re not looking for Einstein. We’re looking for Howard Hughes.”
The problem is that many young people spend years of their life trying to appease the establishment in a status game, rather than simply working on the hard problems that are addressable today. Society could benefit from getting these innovators and problem solvers started earlier:
The credentialist impulse is to keep every talented young person in a classroom for seventeen years is holding our society back.
“The shorter the period that innovators spend innovating,” [Benjamin] Jones writes, “the less their output as individuals over their lifetime. If innovation is central to technological progress, then forces that reduce the length of active innovative careers will reduce the rate of technological progress. This effect will be particularly strong if innovators do their best work when they are young.”
💡 Idea #5 — Michael Gibson and his partner Danielle have created a fund, called 1517, which is used as a financial instrument to short the higher education bubble. Here is how he describes what they do:
The heart of our idea was that we would discover the world’s best talent as early as possible. We couldn’t trust the cultivation of extraordinary talent to the traditional institutions of learning any longer. They were no longer reliable or trustworthy.
He likes higher education to a single religion:
Our theme was that higher education had become America’s national religion and that we were on a mission to disestablish the monopoly of this single church.
Similar to the belief that certain students would be better suited to operate outside the classroom, Gibson also references the idea that many concepts or theories would be better off if they were created and tested in the real-world:
The philosopher Isaiah Berlin, paraphrasing the German poet Heinrich Heine, once observed that “philosophical concepts nurtured in the stillness of a professor’s study could destroy a civilization.”
Memorable quotes:
We were searching for potential, not accomplishment.
Who we might become, after all, begins with who we are.
“I took a year off to travel the world and relax on a beach. It was probably the most miserable year of my life. I was consuming things while all my friends were building great companies.” - Max Levchin
Era by era, innovation has been concentrated geographically, like a hive.
Innovation always dries up.
College graduates earn more income on average than those who only have a high school diploma.
Competition is for losers.
American ingenuity was - and is - running dry.
The credentialist impulse to keep every talented young person in a classroom for seventeen years is holding our society back.
There’s no need to buy advertising when scandal is free.” - Jim O’Neill
I came to see that the types of people who are good at pleasing admissions committees are not the types of people who are good at founding companies.
A master craftsman doesn’t dumb down his craft.
The best founders have the charm of a huckster and the rigor of a physicist.
Raw high IQ, straight As, and perfect test scores are the tokens of a cardboard elite.
“The strong do what they can, the weak suffer what they must.”
Within any country, political resistance to progress grows stronger over time as more interest groups form to protect the status quo.
Pomp’s Takeaways:
This book generally aligns with my world view, so I found it to be quite compelling. It feels important to call out upfront that some of you will heavily disagree with the book’s assumptions and conclusions. Regardless of your agreement level, I think everyone can learn something from reading Gibson’s writing.
My first takeaway is how important bursts of innovation and creativity can be for a society. (known as Cardwell’s Law). History tells us that these periods of time are rare, so when we see them forming, we should pour immense amounts of resources into the entrepreneurs and creatives who are driving change. Whether we analyze ancient Rome with the benefit of hindsight, or we evaluate the last 50 years in the modern United States, we must step on the gas when we have the opportunity.
My second takeaway was how spot-on the concept of the Paper Belt appears to be. I left Silicon Valley’s Facebook in 2015 and visited a number of politicians in 2019 at their offices in Washington DC. Not only are these two environments on different sides of the country, but you can literally feel the difference in the culture. The corridor between DC and Boston is filled with status-seeking. Silicon Valley is filled with an obsession to build products and services that people love. You can imagine which culture is likely to drive true innovation, economic growth, and the promise of the American Dream over long periods of time.
My third takeaway was Peter Thiel’s focus on surrounding himself with people who think differently. He, along with many other members of the PayPal mafia, has proven to be an exceptional talent evaluator throughout his career. Anytime I can better understand how someone does this, I pay close attention. It was inspiring to hear the anecdotes about hiring misfits who turned out to be incredibly intelligent and effective, but also the fanatical obsession with a war of ideas - the expectation was that you contributed to the conversation and made people think.
My fourth takeaway was how absurd the education system seems when analyzed from an outcomes perspective. Gibson makes the point that most colleges don’t actually award diplomas based on mastery of knowledge, but rather the amount of time that someone was willing to sacrifice in order to obtain the piece of paper. Instead, how many of those individuals would be better off simply working independently, or with a small team, on a hard problem? I don’t know the exact answer, nor a specific number, but it seems there is a strong argument for tens or hundreds of thousands of students who could pursue a different path. That would have a major impact on various parts of the economy.
My fifth takeaway was how obvious the line in the sand has become for college. If you want to become a doctor or lawyer, go to college. If you want to work at a corporation, go to college. If you want to mitigate risk, go to college. But, on the crazy chance that you want to attempt the insanely small possibility of solving one of the world’s hardest problems, you should start working on it today outside of a classroom. This path is not for everyone, in fact, I would argue it is not for most people, but the select few entrepreneurs who end up building industry-defining companies, it may be the most trodden path.
My sixth, and final, takeaway was Gibson’s approach to investing. I don’t know him personally, but it appears that he is willing to do the unscalable things that most investors believe to be beneath them (visit college campuses, sponsor hackathons, etc). He makes a point to call out his goal of avoiding trends in pursuit of finding young people who create future trends. That is a nuanced view, but one that could end up being the difference between hundreds of millions of dollars for a venture investor.
There are different kinds of people - young & old, inexperienced & experienced, native citizen & immigrant, college educated & dropout, etc - that can create innovations or build large technology companies. We need as many investors providing capital to these various entrepreneurs as possible. Seeing Gibson and his 1517 fund focused on college dropouts and those who didn’t attend college is incredibly helpful to that cohort of people. It will be interesting to see their success and failures over the coming years.
As I mentioned, this past week’s book was Paper Belt On Fire by Michael Gibson. Highly recommend reading it. If you are interested in the individual highlights that I made in the physical book, you can read those here. Hope you enjoy these notes every Monday. Feel free to leave a comment - I read all of them.
-Pomp
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