If pg believes what he's saying in this essay, I have two questions:
1. why did he design a testing system that was easily hacked?
2. why does YCombinator itself focus so much on hacking the venture capital system, as opposed to making great products? [1]
I think the answer to both is that the ideas presented in this essay don't scale. If you can't create a 200 person per year startup incubator that focuses on true learning instead of process hacking, then how could someone do it for a 20,000 person university? Things get boiled down to metrics like grades and valuations because they are the only way to measure/manage the productive output of a large number of people.
The insight that I've had is that as long as large civilizations and organizations exist, there will be easily hackable systems. There is a direct relationship between the number of humans involved in a thing, and the number of opportunities to hack that thing. Understanding and exploiting this seems like a valuable ability.
[1] I was personally struck by how much of YCombinator was (in 2008) oriented around learning what magic words to say to investors and exactly when to time techcrunch launch articles, etc. There seemed to be no time given to "how to make a great product", likely because this is something that can't be taught