[abecedarius]

> The whole point of the article is there is zero correlation between people who've graduated from college and people who haven't in term of how well they do on the job.

This is not what the article says. It's saying employers hire graduates because they're better employees, but college mostly didn't make them better. This is closer to your option 2. (We are talking about the OP, the Caplan editorial, right?)

Caplan is saying college is mostly an expensive arms race. It has to be expensive (in students' time and attrition through boringness/difficulty, if nothing else) to be an effective signal. Subsidies in recent decades have made it even more expensive.