Thursday, March 10, 2016

Economic Freedom in Good Measure

Yesterday I came across The Heritage Foundation’s 2016 Index of Economic Freedom. If you like charts, maps, and visual representations of related data, this is a great playground.

There’s an explanatory video under “About the Index,” that explains how economic freedom relates to other factors of civilization. Freedom, prosperity, and civilization are interrelated, as we assert here at The Spherical Model.

Here are a couple of excerpts from the video:

In addition to enjoying higher levels of financial prosperity, people in these free societies live longer, have better health, are more educated, and, surprisingly, are better protectors of the environment....
So, why does all this matter? It turns out that while there’s no single solution to the world’s major challenges, economic freedom can have a powerful effect on improving society. Our data shows that the five freest economies in each region are significantly more prosperous than the five least free. Every year’s index confirms this point, showing that countries that score higher on the index also perform higher in three key areas: income per capita, social progress, and democratic governance.

For each year, the data includes an overall score, which is made up of data on ten economic freedoms divided into four categories (followed with this year’s US scores, with 80.0 and above qualifying as “mostly free”):

·         Rule of Law
o   Property Rights  80.0
o   Freedom from Corruption  74.0
·         Government Size
o   Fiscal Freedom  65.6
o   Government Spending  54.7
·         Regulatory Efficiency
o   Business Freedom  84.7
o   Labor Freedom  91.4
o   Monetary Freedom  77.0
·         Open Markets
o   Trade Freedom  87.0
o   Investment Freedom  70.0

o   Financial Freedom  70.0
You can get an explanation of their methodology on page 467 of their book, or look around at .

The US ranks only 11th most economically free country this year. A quick snapshot of the US scores reveal the following:

Economic Freedom Snapshot
·         2016 Economic Freedom Score: 75.4 (down 0.8 points)
·         Economic Freedom Status: Mostly Free
·         Global Ranking: 11th
·         Regional Ranking: 2nd in North America
·         Notable Successes: Open Markets
·         Concerns: Management of Public Finance and Rule of Law
·         Overall Score Change Since 2012: –0.9
That last one, because it’s an average, doesn’t show that last year there was a downturn of 0.8 points, after a year of improvement.

I’m interested in, not just change over the past year, but longer trends. So I charted these ten freedoms from 1995-2016, based on the Heritage data. I wondered whether we would see trends toward or away from freedom based on who elected leaders were, and what was going on in the country at the time. (I’m assuming that other years were like 2016, with the information coming out in the first quarter, which means that we’re looking at what happened in the previous year.) Here’s what I see:

·         Property Rights start out consistently high, fully free, until 2010, and then deteriorated further in 2014, so that we now hang at the bottom of the freedom zone, at 80.
·         Freedom from Corruption also started high, but suffered a serious drop in 1997, and declined further, with some ups and downs, to a further drop in 2008, dropping significantly again in 2013, with a slight rise since, leaving us only "moderately free," at 74.0.
·         Fiscal Freedom starts low, at 64.8, and doesn’t show much of a rise until 2004. A slow rise and maintenance continues until a sharp drop in 2014, and another drop in 2016, ending at 65.6.
·         Government Spending (a rise here means the problem is less, because there’s less spending) starts terribly low, at  a "mostly unfree" 57.8, rising sharply in 2000, dropping following the 9/11 attack, but remaining steady until drops changed from slow to sharp in 2010, with a low of  a "repressive" 46.7 in 2012, with slight increases since, ending at 54.7. Changing this factor might do the most in improving US economic freedom.
·         Business Freedom stayed steady at 85.0 until improvement in 2006, maintaining or remaining steady until 2015, with a sharp drop this year, ending at 84.7, still considered free, but lower than ever on record.
·         Labor Freedom wasn’t recorded until 2005. It held around 95.0, with a couple of years higher, until a sudden drop this year, ending at 91.4, still quite free, but trending the wrong direction.
·         Monetary Freedom stayed steady around 84.0 until 2009, with drops continuing through 2014, with slight improvement the final two years, ending at 77.0.
·         Trade Freedom started increasing in 2001, up into the freedom zone, with considerable improvement in 2004, then dropping back out of freedom into moderate freedom in 2009, continuing to drop through 2012, with slight improvement since, ending at 77.0.
·         Investment Freedom stayed steadily at 70.0 until three good years 2006-2008, then dropping back down and remaining at 70.0 since 2011.
·         Financial Freedom stayed steadily at 70.0 until a sharp improvement to 90.0, well into freedom, 2001-2006, dropping to 80.00 for three years, then back down to 70.0 from 2009 to present.
The overall score has a number of ups and downs, but the general trend is up from 2001-2008, then decreasing since, with a slight uptick in 2015 followed by a final drop to a the low 75.4. We were only considered economically free from 2005-2008. It would be interesting to go back further, to see what the measures looked like as we left the Carter administration malaise and entered better economic times under Reagan, even with nothing but Democrat legislators during those years.

For what was set up to be the grand experiment in freedom, with government limited to protecting our rights to life liberty and property, we’re nowhere near as economically free as we ought to be. Because government oversteps.

We know what works, in all of these measures: a lot less government interference; laws that are reasonable, predictable, and fair; in a country that protects itself from attacks. Good people, anywhere in the world, can take it from there.

No comments:

Post a Comment