Class dismissed

America has been losing undergraduates and gaining entrepreneurs at the same time, and the two trends are easy to tell as one story. On 2nd February the National Student Clearinghouse reported that undergraduate enrolment fell by 0.6% in the autumn of 2022,^{1The Boston Globe (Associated Press)College enrollment stabilizing after years of steep declines, data show2 Feb 2023} though total enrolment was still 5.8% below 2019.^{1The Boston Globe (Associated Press)College enrollment stabilizing after years of steep declines, data show2 Feb 2023} Over the same stretch Americans filed applications to form businesses at a pace never seen before.^{2US Census BureauBusiness Formation Statistics, monthly series (BA_BA and BA_HBA, US, not seasonally adjusted; summed by calendar year)} Here is the paradox. The one field students are flocking to is the one that makes leaving look easiest. Undergraduate enrolment in computer and information sciences rose by about 10%, adding some 54,000 students.^{1The Boston Globe (Associated Press)College enrollment stabilizing after years of steep declines, data show2 Feb 2023}

Start with the founders. The Census Bureau counted about 3.5m business applications in 2019.^{2US Census BureauBusiness Formation Statistics, monthly series (BA_BA and BA_HBA, US, not seasonally adjusted; summed by calendar year)} By 2021 the figure had reached 5.4m.^{2US Census BureauBusiness Formation Statistics, monthly series (BA_BA and BA_HBA, US, not seasonally adjusted; summed by calendar year)} Last year it cooled only slightly, to 5.1m, according to the Economic Innovation Group, a think-tank.^{3Economic Innovation Group2022 business formation: another strong year24 Jan 2023} Nearly 1.7m of those were for firms likely to hire staff, 27.8% above the pre-pandemic baseline^{3Economic Innovation Group2022 business formation: another strong year24 Jan 2023} and the second-largest total on record (see chart).^{3Economic Innovation Group2022 business formation: another strong year24 Jan 2023} Many are one-person shops and side hustles. Even so, the pandemic seems to have shaken loose a lasting appetite for working for oneself.

• All applications
• Likely to hire employees

Open for business. America, applications to form a business, m

	All applications	Likely to hire employees
2015	2.8	1.2
2016	2.9	1.2
2017	3.2	1.3
2018	3.5	1.3
2019	3.5	1.3
2020	4.4	1.5
2021	5.4	1.8
2022	5.1	1.7

Source: US Census Bureau, Business Formation Statistics²

The cost of acting on that appetite is falling fast. ChatGPT, released by OpenAI late last year, reached an estimated 100m monthly users in January, according to a UBS note based on Similarweb data.^{4ReutersChatGPT sets record for fastest-growing user base - analyst note1 Feb 2023} “In 20 years following the internet space, we cannot recall a faster ramp in a consumer internet app,” the bank’s analysts wrote.^{4ReutersChatGPT sets record for fastest-growing user base - analyst note1 Feb 2023} Tools that draft text and code for $20 a month^{9OpenAIIntroducing ChatGPT Plus1 Feb 2023} lower the price of a first prototype. If a teenager can ship a product for the cost of a laptop and a subscription, the argument for spending four years and a large sum before trying looks weaker.

That is the argument the Thiel Foundation has been making since 2011.^{8BetaKitThree Canadian companies among 2018 Thiel Fellows} On 8th February it named 20 new Thiel Fellows.^{5Business WireThiel Foundation Announces Next Thiel Fellow Class8 Feb 2023} Fellows receive $100,000 over two years, with mentoring, to build companies instead of sitting in lectures;^{5Business WireThiel Foundation Announces Next Thiel Fellow Class8 Feb 2023,6Business WireThiel Foundation Announces Next Thiel Fellow Class6 Jan 2022} the class named in January 2022 numbered 23 and joined 228 earlier fellows.^{6Business WireThiel Foundation Announces Next Thiel Fellow Class6 Jan 2022} For a gifted 19-year-old, cheap AI tools and a no-strings cheque make an attractive package.

The strongest objection is that the numbers above describe a small, unusual group, and the median student is not in it. Economists at the New York Fed estimated in 2019 that a bachelor’s degree returns about 14% a year, roughly twice the long-run return on shares (7%).^{7Liberty Street Economics, Federal Reserve Bank of New YorkDespite Rising Costs, College Is Still a Good Investment5 Jun 2019} Nothing in the enrolment data suggests that the missing undergraduates left to found software firms; the Census figures cannot say who filed those 5.1m applications, or how old they were. Treating one trend as proof of the other flatters the Thiel model.

We think both points are right, and they fit together better than the culture war over college suggests. AI lowers the fixed cost of building a first product, which makes an early attempt cheaper and a failed one less ruinous. It does little for the things a degree still supplies: a network, a credential that employers trust, and a few years of being around people who know more. The rush into computer science suggests students understand this. They want the skills that make founding easier and the safety net if the company dies.

The sensible policy response is to make the option cheaper on both sides. Universities could let students take a year out to build without losing their place. Lenders and investors could stop treating a missing diploma as either a red flag or a badge of honour. Neither proves much about a founder.

For now the evidence says that the young are hedging, not quitting. In a market this volatile, that may be the smartest thing anyone learns at college.