Saturday, October 11, 2014

Economic Freedom of the World

The Cato Institute, my favorite think tank, has just published their annual Economic Freedom of the World report. It starts with a terrific summary of the importance of economic freedom:

The foundations of economic freedom are personal choice, voluntary exchange, and open markets. As Adam Smith, Milton Friedman, and Friedrich Hayek have stressed, freedom of exchange and market coordination provide the fuel for economic progress. Without exchange and entrepreneurial activity coordinated through markets, modern living standards would be impossible. 
Potentially advantageous exchanges do not always occur. Their realization is dependent on the presence of sound money, rule of law, and security of property rights, among other factors. Economic Freedom of the World seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and the other dimensions of economic freedom.

Here's one sobering excerpt:

The United States, once considered a bastion of economic freedom, now ranks 12th in the world, tied with the United Kingdom at 7.81. Due to a weakening rule of law, increasing regulation, and the ramifications of wars on terrorism and drugs, the United States has seen its economic freedom score plummet in recent years, compared to 2000 when it ranked second globally.

Here's why economic freedom is so important: it brings greater prosperity and higher living standards:

Nations in the top quartile of economic freedom had an average per capita GDP of US$39,899 in 2012, compared to US$6,253 for bottom quartile nations. Moreover, the average income of the poorest 10 per cent in the most economically free countries in 2012, US$11,610, was almost double the overall average income in the least free countries. Life expectancy is 79.9 years in the top quartile compared to 63.2 years in the bottom quartile, and political and civil liberties are considerably higher in economically free nations than in unfree nations.

Below is a graphic showing the rankings (click to enlarge). Sadly, I note that Argentina, my wife's native country, ranks #149 out of 152 countries. The bane of Argentina is Peronism, which eschews the rule of law, relies heavily on income redistribution, thrives on crony capitalism, and professes to be all about helping the poor. I've remarked in several posts over the years about the disturbing parallels between the policies of the Obama administration and those of Argentina's President Kirschner.


William McKibbin said...

Glad to see another CATO member -- one of my favorites as well -- and the economic freedom stature of the US is sobering -- something is amiss in America...

steve said...

amazing that US ranks so high. I suspect that if there were a "trending" chart we'd be much lower. what's really sad is that the vast majority of americans have no clue what this even means.

Benjamin Cole said...

Ditto and amen.

I would go further---economic freedoms are human rights, like speech, religion, dress, privacy etc.

Whenever a government proposes to restrict any freedom, the onus should be on those who would take away that freedom.

As Benjamin Franklin said, if you trade freedom for security, you will end up with neither. Not much prosperity either.

amritsari said...

If this ranking table is a good thing then we can perhaps follow the example of those above us by having socialized medicine (New Zealand, Canada, finland) or an Obamacare model (Switzerland) :)). Be careful what you wish for :). And Jordan is 9 ??? You are welcome to move there. I'll stick to the US of A.

William said...

Having lived in Europe (Germany & The Netherlands) for 5 years and spent at least 4 months in various regions of Canada, I question the validity of table's results. Canada not only has a single payer national health plan but its banks are among the most heavily regulated in the world (which served them well during the 2008 financial crisis). And their mutual fund industry is very heavily regulated and access primarily through one's local bank with very high fees on top of fees.

As for Switzerland, they also have a single payer health system and mandatory military service for all men. Want to go hunting, join a very restrictive hunting club with very proscribed methods for hunting and dressing each species of animal. Now their banks are heavily regulated just like ours.

And the big Conservative knocks on the Obama administration are the health insurance mandate of ObamaCare and the heavy regulation of banks under the Todd Frank bill.

William said...

PS: The more I look at the table the more I realize, it's a joke. Singapore, United Arab Imirates, Jordan, Qatar??? Imagine what the Economic Freedoms are for half their populations, namely WOMEN, who are excluded from many jobs??

And, what about the fact that the Muslim Religion prohibits bonds as we understand them. If an entity wants to float something like a bond in those countries, it incurs incredible legal costs and goes through a very complicated process to disguise the true nature of the "bond" to make it religiously acceptable.

Give me a break!! CATO must be putting a huge weighting on some low tax rate or the other.

Scott Grannis said...

I suggest eyeballing the Country Data Tables.

Healthcare and bond markets are not included in Cato's measure of economic freedom.

The 5 areas measured are: 1) size of government, 2) legal system and property rights, 3) sound money, 4) freedom to trade internationally, and 5) regulation.

William said...

Scott, thanks for your clarification. It speaks profoundly to the CATO Institutes' value system.

george_formerly_of _the jungle said...

Countries where women are men's property score very well by Cato's criteria.