With 60% of Harvard grades being A's, the university is considering a cap. This situation demonstrates a core economic principle: scarcity creates value. When an accolade or reward becomes too common, it ceases to be a meaningful signal of exceptional performance, making lesser-achieved outcomes (like a 'B') potentially more impressive.

Students often use AI not out of laziness, but as a logical coping mechanism for an educational system prioritizing final grades over the learning process. Facing immense pressure from multiple courses and jobs, they see AI as a tool to produce a required "product" and survive, revealing a flaw in the system's incentives.

Joe Liemandt reveals that students from elite private schools, despite having A's, are often years behind grade level when objectively assessed. This systemic grade inflation misleads parents and makes it nearly impossible for these institutions to adopt transparent AI tutors that would expose these deficiencies.

Individual professors are disincentivized from grading rigorously because students will avoid their classes, negatively impacting their evaluations. This collective action problem means that meaningful reform, such as mandating a 'B' average, must be implemented centrally and uniformly across the institution.

Schooling has become a victim of Goodhart's Law. When a measure (grades, test scores) becomes a target, it ceases to be a good measure. Students become experts at 'doing school' — maximizing the signal — which is a separate skill from the actual creative and intellectual capabilities the system is supposed to foster.

Despite average test scores on a consistent exam dropping by 10 points over 20 years, 60% of all grades at Harvard are now A's, up from 25%. This trend suggests a significant devaluation of academic credentials, where grades no longer accurately reflect student mastery.

AI makes cheating easier, undermining grades as a motivator. More importantly, it enables continuous, nuanced assessment that renders one-off standardized tests obsolete. This forces a necessary shift from a grade-driven to a learning-driven education system.

The primary function of a college degree is to signal desirable employee traits—intelligence, work ethic, and compliance—rather than to impart useful skills. As more people get degrees, the signal weakens, forcing students into an expensive and wasteful 'credential race' for ever-higher qualifications to stand out.

Generative AI's appeal highlights a systemic issue in education. When grades—impacting financial aid and job prospects—are tied solely to finished products, students rationally use tools that shortcut the learning process to achieve the desired outcome under immense pressure from other life stressors.