Economic Freedom Works. (Here’s the data)

A few weeks ago at my university, I attended a talk given by Robert Lawson of Southern Methodist University. He holds the Jerome M. Fullinwider Endowed Centennial Chair in Economic Freedom and is director of the O’Neil Center for Global Markets and Freedom at the Southern Methodist University Cox School of Business. This talk, titled “Economic Freedom and the Wealth and Health of Nations”, was part of The Entrepreneurs and Economics Speaker Series presented by The John H. Schnatter Institute for Entrepreneurship and Free Enterprise. He shared the plain truth: capitalism saves and improves lives.

Professor Lawson began his talk with a brief assessment of the fields of economics and physics as social science and natural science respectively. The point of this was to compare and contrast the ways in which economists and physicists argue with each other. He said he spends a good deal of time with physicists at his university in Texas and they argue just as fiercely as economists do, but the difference in his experience is that the physicists have a stronger and more consistent tendency to head back to empirical data while economists love to focus on the philosophy of the arguments. That segued perfectly into the reason for his visit: to share his data measurements and conclusions from his work with the Economic Freedom of the World Index.

Before diving into the charts and graphs, he first set the stage for the most basic battle of ideas within economics: the theories deriving of Adam Smith versus the ones deriving from Karl Marx. To settle this dispute, he appealed to the data, just as he recommended earlier. The Economic Freedom of the World Index, just as it suggests, measures the degree to which nations are economical free. More freedom aligns with Adam Smith, and less aligns with Marx. To measure this, the index uses twenty-four components, each with its own sub-components. In total, there are forty-two distinct variables, but for the sake of accessibility, these variables are usually presented in five major categories. [1] Size of Government; [2] Legal System and Security of Property Rights; [3] Sound Money; [4] Freedom to Trade Internationally; [5] Regulation. Once they gather and process all of the needed statistical data, the nations of the world are ranked from most free to less free. However, they only rank nations they can gather information from, so for example, North Korea is not on this list. Their most recent rankings placed Hong Kong first and Venezuela last at 159th. The United States is 11th, which is down significantly since 2000. The ranked list alone does not necessarily mean much.

This information becomes very powerful when the world’s nations are divided into quartile’s from more to less free, and then each quartile is compared to others based on measurements of quality of life. Virtually every measurable aspect of life is substantially better in the countries who are economically free, and poorer countries who are implementing economic freedom are rapidly reaping the results. Income per capita is twice as high in the first quartile than in the second and almost eight times higher than the fourth. Other results for the most free countries include economic growth is higher, the bottom 10% of the population is much richer, both extreme and moderate poverty are extremely low, political and civil liberties are more protected, gender equality is greater, life expectancy is higher, and even levels of self-reported happiness are higher.

incomegrowth10percentpovertycivilgenderlife expectancyhappy

“Okay” say the communists, “All of that very well may be true, but in ‘capitalist’ countries… the poor have less of the total share.” 1) That is frankly stupid given that the poor are richer overall in economically freer countries, and 2) That is not even statistically true. The bottom 10% of the population in every country gets about 2.5% of the total pie. But obviously, not every 2.5% is equal.

inequality

Source of photos: Economic Freedom of the World: 2017 Annual Report

The merits of economic freedom cannot be denied. Nations that adopt these policies achieve much higher qualities of life. Period. Take a look at the map. It works from England, to Costa Rica, to Rwanda. If you stand in the way of economic liberty, you stand in the way of happiness and prosperity for all of humanity. The facts are in.

This general information was something that I already knew, but this hard, empirical data is extremely useful and inspiring. I am thankful that I went to this talk. It gave me a fresh outlook on economic freedom, a new consideration for debating, and a fun chat with Professor Lawson after his talk was over.

 

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