David R. Henderson  

We're Number 10! We're Number 10!

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The latest issue of Economic Freedom of the World, written by James Gwartney, Robert Lawson, and Joshua Hall, was released this week. You can find the whole thing here. The United States has slipped from #6 last year to #10 this year. Canada replaces the United States as #6, moving up from #7 last year. Hong Kong is still #1.

Note that all the data are from 2009.

On this blog post, one of the authors, Robert Lawson, highlights the areas of U.S. economic freedom where the decline was greatest. Someone asked me at the end of a talk a year ago where I expected the United States to be in a year or two. At the time, the U.S. was #6. Because I knew the data for the 2011 report would be from 2009, I was pessimistic. I said the U.S. would likely be lower, somewhere between #8 and #10. In other words, the U.S. achieved the bottom end of my pessimistic prediction.


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COMMENTS (10 to date)
Shane writes:

Out of curiosity, do you have any preference between this measure and the Heritage Foundation's Index of Economic Freedom? Seem to be some pretty significant differences in the rankings. Thanks.

Brian Moore writes:

Binary enthusiasts are still happy!

steve writes:

I am never quite sure what this means. If you make up definitions that fit your ideological preferences, you can achieve the outcomes you want.

Steve

Kevin writes:
Shane: Out of curiosity, do you have any preference between this measure and the Heritage Foundation's Index of Economic Freedom? Seem to be some pretty significant differences in the rankings. Thanks.

The rankings are a bit different, but scores line up closely. I just ran some correlations between the Fraser and Heritage indices (as well as various 'good outcome' measures out of curiosity) and they're highly related (r = .89), and are unsurprisingly similarly correlated (or uncorrelated) with net migration, infant mortality, GINI coefficients, UN Human Development Index scores, GDP per capita, unemployment, GDP growth, and percentage of population below the international poverty line.

The only difference in the (unadjusted) tests I ran was that the Heritage index was negatively correlated with government spending (as % GDP) while the Fraser index was uncorrelated, and the Heritage index was uncorrelated with taxes as a % of GDP, while the Fraser index was actually positively correlated. These differences may stem from the fact that the data is slightly out of sync - the Heritage index and most of the outcome data seems to be from a couple of years later than the Fraser index.

There might be methodological reasons to prefer one over the other, but as predictive tools they seem to provide basically the same information.

Tom West writes:

Canada ranked above the USA in economic freedom? I guess that proves that an ideological leaning towards freedom doesn't necessarily translate to economic freedom (although realistically, the figures are probably truly comparable to 1, possible 1.5 significant digits).

Still, as a Canadian. I find this worrying. The USA's traditional role in Canadian politics is to act as counterbalance to the natural Canadian cultural pull towards more statism. The USA is supposed to provide a constant reminder that more economic freedom leads to more wealth.

As someone who is fairly happy with the status-quo, I'm not at all happy to see one side of the ever-present tug of war going a bit slack.

However, with David down south of the border, surely he can whip them into shape :-).

David R. Henderson writes:

Tom West writes:
However, with David down south of the border, surely he can whip them into shape :-).
Tom, Thanks for your confidence in me. :-) Actually, on a more serious note, I was blown away by the progress Canada made between 1995 and 2006 under the Liberal Party government. That’s why I wrote my Mercatus study, “Canada’s Budget Triumph."

jc writes:

@shane

Fwiw, some researchers prefer Fraser Institute data since it goes back to 1970 (as opposed to 1995).

(Of course, many (probably most) researchers prefer to disaggregate data and study, say, a specific operationalization of this or that subcomponent (e.g., a specific property rights measure, or a specific govt. size measure), as opposed to using a more powerful but also more blunt summary index. In my readings, regardless of the approach, the general findings do seem fairly similar, though.)

Shane writes:

Thanks fellas. I'm Irish, was surprised to see Ireland at 26th place here, while it is in 7th place on the Heritage Foundation's list. Of course there have been economic earthquakes here so I understand the drop, but not the difference between the two lists.

frankcross writes:

The reason for the difference is that they measure different components. And the overall index really doesn't mean much, many of the components are only arguably libertarian economic freedom. You have to look at the specific components for true comparisons.

Mike writes:

I am currently working in Mauritius. We're #9!

I went to get my work permit yesterday.

If what I've been through here is better than the U.S., the U.S. is in trouble.

My own experience, from running my own business in Dallas from 2001 to 2008 is that there is an ever increasing amount of regulation. Every year there are new requirements to be met. The old requirements never seem to go away either.

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