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Trivia Tidbit Of The Day: Part 168 -- Economic Freedom.

The Power Of Economic Freedom-

Economic freedom is a powerful force. The Cato Institute explains that economic freedom is a key that can unlock the greatness of a society. Indeed, there is power in economic freedom:

The experiences of Ireland, New Zealand and Iceland illustrate the importance of economic freedom.

In the mid-1980s all these countries were characterized by large and growing governments, high taxes and substantial restraints on international trade.

In 1985, Ireland's economic freedom rating was 6.2, New Zealand's was 5.9 and the rating for Iceland was 4.9.

Between 1985 and 1995, however, each of these countries moved substantially toward economic freedom and their ratings increased accordingly.

Today, each of the three ranks among the world's freest economic. And they have reaped substantial benefits.

During the last dozen years, the growth rate of per capita GDP of each of these countries has been more than double the rate of the 1980s. In recent years, the unemployment rates of Ireland and New Zealand have been about 5%, less than half the rate of most European countries.

And Iceland's unemployment rate is even lower, a minuscule 2.6%.

Estonia also vividly illustrates the power and potency of economic freedom. In this year's index, it ranks 9th (ties with Australia, Luxembourg, and the United Arab Emirates).

Thus, it is the freest of the former Soviet bloc countries.

A decade ago, inflation in Estonia was over 1,000%, the economy was declining, unemployment was over 30% and 95% of the enterprises were owned by the government.

But Estonia moved quickly. Government enterprises were privatized, a flat rate tax was adopted, government spending was sliced and trade barriers were eliminated. In the short space of eight years, Estonia's economic freedom rating rose from 5.3 to 7.8 on the 10-point EFW scale.

Today, inflation is 2.5%, Estonia's economy is growing at an annual rate in excess of 6% and unemployment is low.

And the rankings for 2005 are out. There's reason for optimism:

This year’s report notes that economic freedom remains on the rise. The average economic freedom score rose from 5.2 (out of 10) in 1985 to 6.4 in the most recent year for which data are available. In this year’s index, Hong Kong retains the highest rating for economic freedom, 8.7 of 10, closely followed by Singapore at 8.5. New Zealand, Switzerland, and the United States tied for third with ratings of 8.2. The United Kingdom, Canada, and Ireland ranked 6th, 7th, and 8th, respectively. Australia, Estonia, Luxembourg, and the United Arab Emirates tied for 9th.

Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property.

While sometimes it may not seem like it, the good guys are winning.

And this is good news for more than just ideological warriors, who like the philosophy of smaller government. It is good news for the day-to-day lives of the citizens of countries moving toward greater economic freedom.

I. Greater economic freedom coincides with greater per capita income (.pdf):


II. Greater economic freedom coincides with greater economic growth (.pdf):


III. Greater economic freedom coincides with greater levels of investment (.pdf):


IV. Greater economic freedom coincides with lower levels of unemployment (.pdf):


V. Greater economic freedom coincides with greater life expectancy (.pdf):


But what about equality? Aren't all men created equal? Doesn't terrible inequality take root in nations with a great deal of economic freedom?

VI. Less economic freedom does necessarily lead to the poorest earning a greater share of national income (.pdf):


The answer for poverty is not to destroy and constrain and shackle wealth. The solution is to grow the economy. With the growing economy, the poorest benefit accordingly.

VII. In countries with greater economic freedom, the poorest enjoy a far greater per capita income than in countries with less economic freedom (.pdf):


The poor in economically free countries have cars and televisions and cell phones; better yet, they have food and clothing and shelter. In economically unfree countries, the poor have just about nothing.

VIII. Greater economic freedom coincides with higher literacy rates (.pdf):


Professor Rudy Rummel, meanwhile, has some issues with the claim that economic freedom is a more effective deterrent to war than democracy:

...there are NO (zero) wars between democracies over almost two-centuries. How can economic freedom improve on that, not to mention being 50 times better?

The information on economic freedom is still valid, but Rummel does make an important point about the Cato Institute's libertarian-inspired isolationist leanings in world affairs. The Cato Institute holds quite a bit of skepticism-- even hostility-- toward the liberation of places like Iraq. Those leanings likely made the Cato authors get a little carried away with themselves, rhetorically.

But it's hard not to get carried away. Economic freedom is truly awesome.

Stay tuned later this week for more benefits of economic freedom.


Previous Trivia Tidbit: Senator Landrieu's 2008 Hopes.

Posted by Will Franklin · 13 September 2005 10:48 AM