Arnold’s not too happy about credentialism:

I remember hearing a company founder in the Dotcom era saying that he only wanted to hire MBA’s from top schools. I thought to myself that this was silly. When you are a start-up, you need to find people who are better than their credentials. The last thing you can afford to do is pay a premium for credentials. But this guy, who had an MBA from a top school, was evidently uncomfortable around people with more talent than credentials.

On the surface, Arnold’s complaint and the signaling model of education have a lot in common. Both positions doubt that fancy schools teach much that you need to know in the real world.

However, there is a critical difference between the two views. If Arnold’s story is right, there wouldn’t really be a trap. Some firms are bound to be run by people who value profits more than pride in their alma mater. These firms will do what Arnold recommends: Hire talented people regardless of what diplomas they hold, and make money hand over fist. Faced with such competition, firms run by Harvard men for Harvard men would financially bleed to death.

Think this “just about to happen”? Don’t hold your breath.

In contrast, if the signaling model is right, the Harvard men are, on average, really worth the extra money. Maybe not in every case – Arnold makes a good point about start-ups. But according to the signaling story, the workers who jumped through the toughest academic hoops tend to have the Right Stuff. An idealist who hired based on “talent, not credentials” is destined for disappointment. Simple question:

“If he’s so talented, why did he take the easy way out and go to Podunk State?”

“But he’s a genius!” you reply?

“Well, then it should have been child’s play for him to excel at Harvard. Why didn’t he try?”

If, like me, you’re tempted to answer, “Because he’s a free spirit who didn’t care for Harvard’s attitude,” you’ve hit the pay dirt of the signaling model. Free spirits are an inspiration, but they rarely make good employees.