David R. Henderson  

We're Number 11, We're Number 11! Eh?

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Me in Michigan... Evidence for money non-neutral...

efw-2017-cover.png

The Cato Institute, the Fraser Institute, and more than 70 think tanks around the world have published the latest edition of Economic Freedom of the World. It's by James Gwartney, Robert Lawson, and Joshua Hall, with the assistance of Ryan Murphy, and contributions from Rosemarie Fike, Richard J. Grant, Fred McMahon, Indra de Soysa, Krishna Chaitanya Vadlamannati. They publish an update every year.

The authors and researchers look at five categories to judge the degree of economic freedom in 159 countries and territories. The latest data are from 2015.

Check this link from the Fraser Institute to see the top 10 countries.

Canada and the United States are tied for number 11 at a score of 7.94 out of 10. That's bad news for Canada; last year it was #5 with a score of 7.98, admittedly a small decline. It's good news for the United States; last year is was 7.75. That seems like a large increase relative to my casual look at the United States. Where does the 0.19 increase come from?

Here are the categories and scores. The scale goes from 1 to 10. The data below are from the 2016 and 2017 reports, which means they are data from 2014 and 2015 respectively.

Size of government: Stayed constant at 6.4.
Legal system and property rights: Rose slightly from 7.1 to 7.2.
Sound money: Rose from 9.4 to 9.8.
Freedom to trade internationally: Fell slightly from 7.6 to 7.5.
Regulation: Rose from 8.3 to 8.8.

Under the Regulation category, there are 3 sub-categories. Here they are with the scores.
Credit market regulation: Rose from 9.0 to 9.3.
Labor market regulation: Rose from 9.2 to 9.3.
Business regulation: Rose a lot from 6.6 to 7.7.




COMMENTS (9 to date)
Thaomas writes:

The "sound money" measurement seems off. The price level continued to drift farther from target.

The measurement also seems to leave out increases/decreases in uncorrected externalities and land use restrictions and state and local government subsidies for locating economic activity.

William Smit writes:

Your numbers for overall regulation and business regulation are not what I see in Chapter 2 - I see overall going from 8.6 to 8.8 and business regulations from 7.5 to 7.7.

Almost all the YoY change in the headline US freedom number seems to me to come from the change in sound money, based on a decrease in money growth and inflation. I imagine Scott Sumner might not think this was the right measure.

Jake writes:

I don't like to be pessimistic but I'm guessing if you graded the current state of policy against a classically liberal set of views -- Milton Friedman, for example -- even the developed world would score fairly low.

The world is better than it has ever been, which is a good thing. And yet it's still a pretty abusive and oppressive place.

Jacob Egner writes:

A snippet from the post:

The authors and researchers look at five categories to judge the degree of economic freedom in 159 categories and territories. The latest data are from 2015.

David Henderson, I think you mean "159 countries", not "159 categories". I figured this was worth mentioning since I was actually confused for a few seconds, and hopefully I can save future readers some time/confusion.

David R Henderson writes:

@William Smit,
Your numbers for overall regulation and business regulation are not what I see in Chapter 2 - I see overall going from 8.6 to 8.8 and business regulations from 7.5 to 7.7.
My numbers are correct. Check p. 14 of the 2016 report.
Almost all the YoY change in the headline US freedom number seems to me to come from the change in sound money, based on a decrease in money growth and inflation.
No. The change in regulation accounted for a 0.5 increase; sound money was next with a 0.4.

David R Henderson writes:

@Jacob Egner,
Correction made. Thanks, Jacob.

William Smit writes:

I see, it looks like I am comparing the 2014 and 2015 columns shown in the 2017 report (P154 of https://object.cato.org/sites/cato.org/files/pubs/efw/efw2017/efw-2017-chapter-2.pdf); the 2014 numbers issued on the same chapter/page of the 2016 report are exactly what you report.

I assume that means, then, the regulatory score improvement reflects a change in the methodology; for example the 2014 number for "Bureaucracy costs" jumps from 2.59 in the 2016 report to 8.00 in the 2017 report, with similar jumps in other developed countries I spot-checked. Perhaps their old measure of bureaucracy costs was getting perilously close to negative territory...

Thaomas writes:

The overall ranking is some kind of weighted an index of individual components. I wonder why they do not use the effect on economic activity?

David R Henderson writes:

@Thaomas,
The overall ranking is some kind of weighted an index of individual components. I wonder why they do not use the effect on economic activity?
That’s easy. It’s because they’re measuring economic freedom, not economic activity.
But take a look at the study. It’s illuminating in showing the high correlation between the degree of economic freedom and per capita income, the situation of the poor, and a number of others.

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