An index of freedom will always have methological problems but surely we can be better. One striking feature of the index is the low ratings of almost all poor countries. Only Estonia and Chile make it into the top 19 countries. What is even more surprising is the high scores of notorius welfare-state countries like Sweden and Denmark. Denmark is considered slightly more free than the United States and Sweden only slightly less free than the US. Many other notorius welfare-state countries like Finland, Holland, Germany and Austria are also considered only slightly less free than America. [Full Article]
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The Failings of the Economic Freedom Index
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Fundamentally I don’t like the concept of using taxation rates as a measurement of monetary freedom. The one thing that all taxes do have in common, regardless of the taxation method, is that the State spends the money it collects via them. This is true for inflation (a hidden tax) as well. I believe that a fair alternative to the Fiscal Burden calculation could be total State spending divided by GDP. This measure is not only simpler and more inclusive then the current calculation, but it at least partially accounts for some of the other variables, such as Monetary Policy, Trade Policy, and Government Intervention.
A measurement of non-monetary freedom might be arrived at through the number of State employees divided by total population, since the State can only interfere with freedom through the actions of individual employees.
These two ratios might make for a simpler and more descriptive index than the current one.
One problem that exists with assuming that somehow Denmark is less economically free than China is that it ignores the lack of transparency that exists in operating real businesses in China: you have to pay off the cops, the water commisioner, the local mayor, etcetera. While China and a number of other poor countries may be more economically free on paper than many rich socialist countries, in the rich countries your actual bill of operation is much closer to the listed price.
To follow up on an earlier blog entry regarding the Heritage Index, how about a Mises Index of Relative Economic and Political Freedom? It should be relatively easy to create, and it should be built from scratch on first principles instead of building on Heritage’s efforts. I am not an economist, so please take the following index suggestions as the ramblings they are:
1) Total government spending as a function of GDP. This is a general gauge of how much money has been plowed into unproductive activities, whether it came directly from a nation’s taxpayers or not. We might find that some developing nations have rankings of nearly 100% when foreign aid (plunder of other nations’ taxpayers) is taken into account.
2) Inflation index. By how much is the central bank robbing the citizenry by inflating the money supply? Of course, any nation with a peg to the dollar automatically inherits the US’s rating!
3) Government debt as a function of GDP. Guess who’s going to be on the hook for that? Usually the hapless taxpayers, if the government should survive so long.
4) Percentage of population working for the State, at all levels. How many are devoted to plunder for plunder’s sake?
5) Incarceration rate. The larger the percentage of the population that is in prison or on parole, the more likely that peaceful acts have been criminalized via legislation.
6) Murder rate. Mass murder is usually a state function, of course, and not always by one’s own state. The non-state murder rate is a good gauge of the criminality of certain vices, like the drug trade.
7) Gun ownership. I’m not sure how one would measure this, though, since in a perfect society, it would be impossible to determine how many of its citizens are armed. One would simply assume everyone else is and act accordingly. Estimates would have to do.
8) Number of days and amount of money (fees/bribes) it takes to start a business. This will be a good test of how much red tape and state regulation of the economy there is. Some nations’ ranking would be infinite since this is not generally an option.
9) Percentage of private land ownership. There may also need to be a corollary index of what one actually owns, i.e., does land ownership include water and mineral rights? What about nonvoluntary land use restrictions?
It’s a start. How would one weight them? While economic and personal freedoms go hand in hand, it may be more useful to have two separate rankings.
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