Introduction
We have long romanticized the university as a sanctuary of pure learning, but economists understand it functions largely as an expensive sorting mechanism. This is the "Signaling Theory" of education: a degree is valuable not merely for the specific facts memorized, but because it proves to the labor market that a candidate possesses the cognitive ability and conscientiousness to complete complex tasks.
However, as author and columnist Megan McArdle argued in a recent discussion with Coleman Hughes, Artificial Intelligence is systematically dismantling this signal. We are witnessing a crisis where the "Sheepskin Effect"—the premium placed on a completed degree—is being rendered obsolete by technology that mimics the very skills the humanities claim to teach.
The "Dirty Secret" of the Academy
The immediate threat is obvious: ChatGPT can write the essay. However, the institutional reaction reveals a deeper structural failure. McArdle exposes a "dirty little secret" in academia: professors have almost zero incentive to win the war on cheating (Hughes, 2025).