Index of Economic Freedom

The steady stream of current world events provides us with the signs to be read if we only take the time and the intention to pay attention to those lessons. The economic view provides a robust language for understanding the basic physical reality of scarcity, and the varied human beliefs and responses we take as we attempt to deal with that scarcity. As Smith and Ricardo teach us, the subtle and important understanding lies in the space between what human desires dictate in the personal scale, in the short run; and what consequences play out on the grand scale, in the long run. In this paper we look at the proxy effects of policies intended by governments to forge policies in the short run, as compared to the inevitable effects that flow from these policies in the long run.

Our primary tools are the Index of Economic Freedom calculated annually by The Heritage Foundation and the Wall Street Journal, and basic quality of life measures from the CIA World Factbook. Because the Heritage index has gained some criticism as biased, or retro-fitted to a cause, we evaluate it by comparison with other indices: The Fraser Institute, a Canadian based libertarian organization; The Ease of Doing Business Index, created by the World Bank; and the Freedom in the World Index, by the liberal organization Freedom House, primarily focused on political rights and civil liberties.

For our section of study, we selected five countries which range the economic freedom index: Hong Kong, United States, Italy, India, and Haiti. For comparison purposes, and to provide additional points to graph, we chose five additional countries which are equidistant, between the others (or in the case of Burundi, between Haiti and the bottom rank). The five inter-com...

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...venues as percentage of GDP: and Government Spending; measuring government expenditures as percentage of GDP. These factors correlate very weakly, ranging close to zero, and slightly negative in some cases. We are forced to admit, that conservative and libertarian arguments against the onerous burden of taxation and government malinvestment show little empirical evidence at least within this model. This does not rule out valid arguments on moral grounds, and it is possible that this index and the correlation with our chosen proxies is too blunt an instrument to measure the negative effects on government taxation and spending.

Having established our premises, we now continue with specific examples of the economic effects on five selected countries. The appended graphs show the correlations between Economic Freedom and GDP per capita, and life expectancy at birth.