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Notes -
I think that this is the real problem.
It is not that Harvard is ten times as efficient at teaching, so if I randomly send one student to Harvard and another to a decent state school, the Harvard alumni will totally destroy the other one on merit.
Or at least, it is not only that. Swimming in money and being able to attract the very best people as tutors will likely help education quality some.
But mainly, I think it is a mixture of two things. First, the pure signaling value. 'That student did something which is very difficult to do and vaguely related with merit, namely getting into an elite school, so we should update towards them being competent'.
The other thing is that you can form connections to other people with high signaling value who have already achieved or will likely achieve positions of power.
I want to contrast this a bit with the system we have in Germany. Here, the choice of university matters a lot less. For example, if you look at the currently serving SCOTUS Justices, you will notice that eight out of nine of them went to either Harvard or Yale. Compare this to the number of universities where the judges of the German Bundesverfassungsgericht studied law. For sixteen judges, I counted some eleven different places of study -- there is remarkably little clustering. Study at Kiel or Konstanz, it will not open or close any doors for you.
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