Arizona Gov. Jan Brewer (R) recently set aside her vociferous opposition to ObamaCare’s costly Medicaid expansion by announcing she will support implementing that expansion in Arizona. A significant factor in her reversal, she claimed, was that if Arizona did not expand its Medicaid program, then some legal immigrants would receive government subsidies while U.S. citizens would get nothing.

Brewer’s analysis of this “immigration glitch,” and her remedy for it, are faulty. Fortunately, she, Arizona’s legislature, and its attorney general have better options for stopping it.

An odd and unforeseen result of the Supreme Court’s decision upholding ObamaCare is that, in certain circumstances, the law will now subsidize legal immigrants but not citizens. What triggers this inequity is a state’s decision to implement an Exchange – not the decision to opt out of the Medicaid expansion. (Even if a state implements both provisions, legal immigrants would still receive more valuable subsidies than citizens.) The good news is that states can therefore prevent this inequity simply by not establishing an Exchange. If Brewer wants to avoid this “immigration glitch,” there is no need to expand Medicaid. She already blocked it when she refused to establish an Exchange.

The bad news is that the Obama administration is trying to take away the power Congress granted states to block those discriminatory subsidies, and the punitive taxes that accompany them. Contrary to both the statute and congressional intent, the IRS has announced it will impose that witch’s brew in all states, even in the 32 that have refused to establish an Exchange.

Oklahoma attorney general Scott Pruitt has filed suit to stop that stunning power grab. If Brewer is serious about stopping the “immigration glitch,” the way to do it is by filing a lawsuit similar to Oklahoma’s, while adding a complaint that the Obama administration’s illegal subsidies also violate the Equal Protection clause.

Read the rest of this post »

Every year, Microsoft founder Bill Gates drafts a letter charting the course for the foundation he created with his wife, Melinda. This year, the focus is on the value of precise measurement in driving innovation and progress. His inspiration was the book The Most Powerful Idea in the World, “a brilliant chronicle by William Rosen of the many innovations it took to harness steam power.”

Certainly mensuration was important to the development of the steam engine, but there was a much more crucial ingredient, and unless we understand the role that it played, solutions to the world’s most pernicious problems will remain elusive. The key to grasping this missing ingredient is the aeolipile. As shown in the accompanying video, the aeolipile is a hollow metal reservoir with multiple radial “exhaust pipes,” all of whose spouts point off tangentially from the hub. To make it work, you simply suspend it, fill it with water, and light a candle under it. And… Voila! You’ve harnessed steam power to generate rotary motion.

This device is also known as Hero’s Engine, after Hero of Alexandria—who invented it over two thousand years ago…. Despite its seemingly obvious practical applications, Hero’s Engine was never more than a party favor. It had not the slightest impact on the course of human history. Why not?

The ultimate causes are contentious (Deirdre McCloskey will give you one answer), but the proximate one is obvious: the aeolipile was never commercialized. There wasn’t a sufficient network of entrepreneurs and investors toiling away in ancient Alexandria to relentlessly seek out, capitalize, and commercialize new technologies and innovations. The steam engine was refined and widely deployed during the Industrial Revolution only because such an entrepreneurial network had come into existence by the late 18^th century, first in England and soon thereafter, elsewhere.

And that’s the real key to massively disseminating the benefits of innovation: enlisting the assistance of the free enterprise system. It is not a coincidence that the productivity of elementary and secondary education has collapsed while productivity in virtually every other field has steadily improved. Education has been largely excluded from the free enterprise system for the past 150 years.

So, while precise measurement certainly has its role to play, I hope someday to read an annual letter from Bill Gates that focuses on the need to harness all the freedoms and incentives of the marketplace for the betterment of education the world over.

Fighting against statism in Washington is a lot like trying to swim upstream. It seems that everything (how to measure spending cuts, how to estimate tax revenue, etc) is rigged to make your job harder.

A timely example is the way the way government puts together data on economic output and the way the media reports these numbers.

Just yesterday, for instance, the government released preliminary numbers for 4th quarter gross domestic product (GDP). The numbers were rather dismal, but that’s not the point.

I’m more concerned with the supposed reason why the numbers were bad. According to Politico, “the fall was largely due to a drop in government spending.” Bloomberg specifically cited a “plunge in defense spending” and the Associated Press warned that “sharp government spending cuts” are the economy’s biggest threat in 2013.

To the uninitiated, I imagine that they read these articles and decide that Paul Krugman is right and that we should have more government spending to boost the economy.

But here’s the problem. GDP numbers only measure how we spend or allocate our national income. It’s a very convoluted way of measuring economic health. Sort of like assessing the status of your household finances by adding together how much you spend on everything from mortgage and groceries to your cable bill and your tab at the local pub.

Wouldn’t it make much more sense to directly measure income? Isn’t the amount of money going into our bank accounts the key variable?

The same principle is true - or should be true - for a country.

That’s why the better variable is gross domestic income (GDI). It measures things such as employee compensation, corporate profits, and small business income.

These numbers are much better gauges of national prosperity, as explained in this Economics 101 video from the Center for Freedom and Prosperity.

The video is more than two years old and it focuses mostly on the misguided notion that consumer spending drives growth, but you’ll see that the analysis also debunks the Keynesian notion that government spending boosts an economy (and if you want more information on Keynesianism, here’s another video you may enjoy).

The main thing to understand is that GDP numbers and the press coverage of that data is silly and misleading. We should be focusing on how to increase national income, not what share of it is being redistributed by politicians.

But that logical approach is not easy when the Congressional Budget Office also is fixated on the Keynesian approach.

Just another example of how the game in Washington is designed to rationalize and enable a bigger burden of government spending.

Addendum: I’m getting ripped by critics for implying that GDP is Keynesian. I think part of the problem is that I originally entitled this post “Making Sense of Keynesian-Laced GDP Reports.” Since GDP data is simply a measure of how national output is allocated, the numbers obviously aren’t “laced” one way of the other. So the new title isn’t as pithy, but it’s more accurate and I hope it will help focus attention on my real point about the importance of figuring out the policies that will lead to more output.