What’s the worst thing about Delaware?

No, not Joe Biden. He’s just a typical feckless politician and the butt of some good jokes.

Instead, the so-called First State is actually the Worst State because almost exactly 100 years ago, on February 3, 1913, Delaware made the personal income tax possible by ratifying the 16th Amendment.

Though, to be fair, I suppose the 35 states that already had ratified the Amendment were more despicable since they were even more anxious to enable this noxious levy.

But let’s not get bogged down in details. The purpose of this post is not to re-hash history, but to instead ask what lessons we can learn from the adoption of the income tax.

The most obvious lesson is that politicians can’t be trusted with additional powers. The first income tax had a top tax rate of just 7 percent and the entire tax code was 400 pages long. Now we have a top tax rate of 39.6 percent (even higher if you include additional levies for Medicare and Obamacare) and the tax code has become a 72,000-page monstrosity.

But the main lesson I want to discuss today is that giving politicians a new source of money inevitably leads to much higher spending.

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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.

In October 2012, I first reported that Iran had experienced hyperinflation. My diagnosis of Iran’s inflation woes has since drawn the ire of Prof. Djavad Salehi-Isfahani, who has written a series of blogs and articles disputing my analysis. Prof. Salehi-Isfahani, an economist at Virginia Tech, has employed a confused (and confusing) mix of half-baked methodologies and selected data to yield unfounded, preposterous claims. Specifically, he claims that Iran never experienced a brief bout of hyperinflation and that Iran’s inflation rate is much lower than the estimates reported by virtually everyone except Iran’s Central Bank. To borrow Jeremy Bentham’s phrase, Prof. Salehi-Isfahani’s claims constitute a series of “vulgar errors.”

What has puzzled me for the past few months is why Prof. Salehi-Isfahani has been so hell-bent on denying Iran’s inflation problems. But finally, in his most recent article in Al Monitor, he showed his hand, revealing his underlying thesis – the same claim propagated by the Iranian regime – that the sanctions imposed by the West have not inflicted economic damage on Iran to the extent that has been reported.

In his most recent blog, Prof. Salehi-Isfahani finally abandons his own confused attempts to calculate Iran’s inflation rate. For his readers, this is a relief, as the variety of methods with which he attempted to calculate inflation in Iran amount to nonsense – and not even good nonsense.

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