Economic Freedom of the World | Learn Liberty

the great debate that economists and others have had for going on two centuries has been whether we want to have a world that looks like the world Adam Smith advocated or a world that looks like the world Karl Marx advocated and I'm being a little bit unfair to both Marx and Smith but it's just it's just sort of a caricature just sort of get the discussion going Smith's world view was a world of private property and freedom of exchange a world of limited government what today we might call classical liberalism or even libertarianism Smith was no anarchist he did see a role for government but it was a very minimal role for government I suppose I think Smith would be considered a libertarian by today's terminology Smith basically advocated a system of natural Liberty where people should be free to go about their economic lives without much interference from the state in contrast Karl Marx and this is you know again a little bit unfair to Marx and what he wrote but Marx his name anyway has become identified with another worldview a worldview of of centralized planning a worldview that says people should not be allowed to freely make decisions about economic life economic life needs to be controlled with some sort of plan and the plan inevitably and in practice has been a plan instituted by the government so these are the two extreme worldviews and in real life countries all pursue elements of Smith and elements of Marx but this great debate what's better Smith's view of the world or Marx's view of the world is sort of an all-consuming debate for 200 years almost now I remember when I was your age I was a college student at Ohio University in the mid 1980s and most of you were not alive I'm imagined but and we would have these debates amongst my friends now I was a very early adopter of the Adam Smith view of the world I you know I sort of immediately gravitated towards thinking that made a lot of sense to me that a world that relied on private property and markets and and what what I would call economic freedom was a world that was going to do better and look better and feel better than the other view of the world but most of my friends were socialists of some stripe or another or Democrats at least and and I'm not sure that there's much of a difference anymore I oh that's another discussion and and these were good friends of mine and we would have these wonderfully intellectually stimulating debates with the assistance of liquid courage deep into the evening and it was wonderful fun and my most of my best memories of college were arguing these deep philosophical political political philosophy questions and economic questions but one of the things that dawned on me as I was getting older and turning into a graduate student and learning to become a professional economist is that the debate ultimately took us nowhere I cannot remember a single one of my socialist friends who I convinced that I would that I was right and likewise none of them made any headway on me so we had these wonderfully stimulating debates but you know if you think about debating as being some sort of search for truth it sure as heck wasn't getting us there we were arguing and enjoying the argument but it wasn't really getting us to resolution like you think a debate supposed to okay and it got me to thinking as I was in grad school and I was working with Jim Courtney as a graduate student he was my professor the I said how would this sort of thing work if it was a Natural Sciences debate what if we were two chemists what if you had two chemists and one chemist said well I have a theory and I've got some calculus or I've got some analytical chemistry formulas here if you know I don't know anything about chemistry but go with it and I think that if you mix these two chemicals together it will smell like roses I'll have this wonderful aroma of roses and another chemist similarly skilled analytical chemist says Mike I got my formula is my chemistry my theory of the way these think works says if you mix those same two chemicals together you're gonna get a smell of rotten eggs and these two chemists would argue with each other no no my equation see my equations are right and the other guy says no no no your equations are crap my equations are right and with these two guys just argue and argue every night night after night for years and years about whose equations were right nobody gonna do they're gonna go to the lab they're gonna mix the compute chemicals and they're either gonna smell like roses or smell like rotten eggs or smell like neither and they're both wrong but they're gonna settle this debate like scientists they're going to settle it with an appeal to empirical evidence all right and ultimately this economic freedom of the world project that I want to talk about with you today is an attempt to settle the great debate or at least advance the great Debray debate a little further not along philosophical grounds but along empirical grounds okay if Smith is right then countries or places that look like Smith's world view will smell like roses and if Marx is right places it look like Smith's world view will smell like rotten eggs we should be able to tell in practice countries pursue different types of economic arrangements and we should be able to look at the performance and the results in those places to see if they're going to if they work which ones work better so let's leave the philosophical debating about justice and and morality and ethics aside for a moment and let's just act like we're chemists and do some empirical analysis that's the sort of setting point for the for the talk and the project so let's talk about measuring economic freedom and by economic freedom this is the term that I we are using to basically we describe Adam Smith's view of the world it's a world of where people primarily have private property as opposed to safe state or commonly owned property it's a world where people are free to trade with other people without interference in terms of price controls or other regulatory controls it's a world where you can start a business you can compete with other people who have businesses it's sort of a classical liberal free-market framework and we want to measure this and it's pretty complicated it's complex you might say well how are you gonna measure freedoms kind of kind of a fuzzy concept right well you know it is fuzzy but I'm a big fan of measuring things you know if you've all studied G some of you anyway most of you I suspect have studied GDP gross domestic product and your econ classes yeah that's a pretty fuzzy concept to all of the things we make in a year I think about that all the things we make haircuts mowing grass cars washing dishes prostitutes selling sex there's a lot of stuff being produced in this economy it's a big complicated fuzzy blob of stuff and what what are the National accountants do they boil it down to a number 12 trillion dollars or something okay so yeah it's complicated yes it's a little fuzzy but it's really not that much more fuzzy in my opinion than GDP where we try to put a number on the production of all the people in the United States for a year that's a it's an incredibly complicated task okay so let's talk about how we do it I won't bore you too much with the methodology you're welcome to get the book it's it's not an exciting read you can see that this is not something you it's just numbers it's just not pages pages of numbers it's extremely dull what we do is we collect data I collect data like Jim Jim Courtney is actually blind completely blind so as you can imagine he's not very much help when it comes to collecting the data I should mention though that he's he catches typos really well because he has the computer that reads to him and and when I'm going to compute when there's a typo the computer sends like a buzz like beep because it doesn't know what the word is and so he's actually the best proof reader I've ever found has sent a blind man that's fine so we collect data on 141 countries we use 42 different pieces of data 42 different variables they actually get grouped into five areas and I'll describe the five areas next but you probably don't want me to go through all 42 of them will be here for the next three hours I can if you want but I suspect you'll get your extra credit if we do this in 50 minutes or 40 minutes or something okay there you go I get paid the same whether I take you no okay so we have 0 to 10 ratings at the end of the day we get 42 pieces of data a tear our five areas and everything gets converted to zero to tens tens are good I'm good tens are Adam Smith's Butte worldview zeroes or Karl Marx's worldview and if you're a Marxist that good for you you can invert that and make that you I don't care it's just a scale okay but I'm I'm a I like Smith so and my I did the index we're making the big numbers better okay we use third-party data but I by that I mean I don't sit in my office in Auburn Alabama which is not exactly the most cosmopolitan place on earth and I don't sit there and make up numbers for you know my anmar and Namibia and so forth I collect data from evil international organizations like World Bank the IMF some private organizations like the World Economic Forum out of Switzerland IMD is another group in Switzerland PricewaterhouseCoopers provides me with some tax rate data so I just collect data from a multitude of different sources and the entire exercise is me combing through books thank goodness of the internet now I mostly have to get this stuff electronically I don't to type it in anymore like I used to and it all gets put into my huge spreadsheet it's about 15 big spreadsheet and out comes a number so if you know it's sort of a big sausage factory the good news is in the index or in the book every detail that I could document about how the index is constructed where the data come from how you get from the raw data to the zero to tens how the 42 components average up to the big number at the end all of that's described transparency is a really high part of our project when Jim and I set out to do this we didn't want the index that we created to be a black box that you would just open up and you'd see a number for 4.2 or something and where that number comes from we wanted everybody to be able to see exactly how we got the final numbers we got we may have done something wrong you may disagree with some of the way but we did we we wanted at least everybody to know how we did the numbers and what what I'd like to be able to say is that I could give one of you of the assignment to replicate the index if you if you simply have the same recipe that we we described you should be able to go do it yourself collect the data and put it together yourself so it wasn't a beauty contest where Jim and I sat there in true I think El Salvador is doing better this year it wasn't it's nothing like that if the El Salvador number is better this year than last year it's because the underlying data that we pull got better okay so it's not a beauty contest I get a lot of criticism we could talk about that maybe in QA but some of the criticisms we've got people's how'd you rate it so I didn't read it I kind of I'm just the messenger I just collect the data and we put we presented in a usable coherent form these are the five areas it's worth just describing them briefly the first one is basically how big is the government in a fiscal sense when government's tax us they make us less free that doesn't need taxes are always in everywhere bad but when governments take our money we can't spend it so our freedom has been diminished the second area is legal property rights basically we have seven different components in area two from three different sources and they're all survey based really where we have international surveys that ask people how secure property rights how how many days does it take to settle a contract dispute for example something like that how efficient is the court system which is a critical part of the efficient operation of private property the third area is money and inflation basically is how much of a risk is it that the government's going to steal your money by via via and inflation tax and then fourth area is international trade freedom it's basically free trade low tariffs and quotas get you better numbers there's also capital controls and lastly different types of regulations there's a lot of things area five has fifteen or fourteen components fourteen components everything from interest rate controls to price controls generally to minimum wages which is an infringement on labor market freedom to mandatory severance pay all kinds of things difficulty how many days does it take to start a business if it takes a long time sort of business because a government red tape people are are less less free so there's a lot of things in area five although it's it's all it's 120 it's one fifth of the index it's twenty percent of the index but okay so 42 pieces of data all them put into sort of content areas five areas the five areas ultimately are averaged up with equal weighting because I don't know how else to do it and we get a number ready who's number one nice weeds not that bad honk-honk number one Hong Kong's number one always has been number one we've been doing this index for well since 96 we actually had data back tonight to 1970 Hong Kong has been number one since the beginning every year we've done it they will be number one for a long time in the foreseeable future Singapore is number two and that raises a very significant point this is a narrowly defined economic freedom index it deliberately avoids political freedoms and civil liberties and Singapore of course is not highly highly regarded as a place for civil liberties I think if the death penalty for drug possession and there's the elections are sham if they even have them so so this illustrates the point that this is an economic freedom measure in the narrow sense and it doesn't discuss the political and civil liberties regime that may exist there are other indices out there that do those already so we didn't feel the need to sort of get involved in that that measurement issue the rest of the countries are all pretty much understandable Chile is now in the top ten and that's a relatively recent development they've been rising through the 80s and now if Krakens at the top ten quite quite significantly okay the United States is down to eighth by the way tied for eighth and they were as high as second once in the year 2000 when George Bush took office they were second - when George Bush left office they were eighth so I have an op-ed that blames George Bush for destroying or not destroy him but for reducing our economic freedom I don't know if it was entirely fair to the former president but it was a good I bet now there's 142 countries or one country's way too many to put up here you wouldn't be able to be like a negative four point font or something but here's a list of some of the larger countries that are most significant countries that are out there Sweden's score is reasonably high I get a lot of questions about Sweden because for a long time Sweden was regarded as sort of the iconic socialist welfare state of Europe but the reality is that Sweden is a market economy private private property dominates the landscape yes they have brutally high taxes but other than high taxes what is how different is Sweden it from the United States private property just like the United States in fact probably better more efficient court system in Sweden than we have in the United States what about money and inflation that's about the same they're about as stable and secure in their monetary area as we are maybe even a little bit better what about free trade they're actually a little bit better regulations it depends if you talk about labor regulations they're worse but another a lot of other regulations in Sweden they're less severe than they are in the United States so when you kind of put it all together net it out Sweden's got higher labor market regulations and worse taxes a lot worse taxes in the United States but everything else is pretty much the same they're not they're a market economy that has high taxes so they come in about 33rd out of 141 that's that's not bad it's really kind of incorrect to put Sweden up there as some kind of great where the government controls everything they take a lot of taxes from people but other than that it's pretty much a free free economy except for the point except for the except on tax day right okay so they don't do as well as the low tax countries like the United States or Kong or the United Kingdom but they don't do too badly okay compared Sweden though to India which is not which is going up because a lot of Indian or economic reforms but in India is 77 you can't do anything in India without a government permission you can't open up a business you can't you know nothing happens in an idio India without deep government control throughout the throughout the day and so it's you know Sweden is a socialist country compared to Switzerland is not where near socialist yes Italy is in that sort of Japan area there they're a little lower there like in the low 20s I think maybe there is lows for tea but maybe there around there might be as low as France but I think they're little higher than France France has been sorry Alex well that's why you left right you so but it's France been going south pretty bad China is moving up the problem with China is that it's a country of about a billion people about 300 million of them are living in free-market capitalism like Hong Kong types situation like Shanghai and so forth and then about 800 million of them are living in a tight totalitarian dictatorship so when you net when I sort of look at overall China stok it's a very low rating but it's hard to rate China because our methodology gives one country one number but China internally has everything from the freest places like Shanghai to the absolute sort of worst most tightly controlled you know go to Outer Mongolia where you can't again you can't do anything without the local commas or whatever they call them in China without his permission so it's a little bit of a strange situation it's question mark really in my mind as to how sustainable that is internally Russia's a disaster Venezuela another disaster Venezuela was I think is highest seventeenth in the world once and now they're almost dead last thanks to show this and Zimbabwe you know you don't really need to pay a lot of attention to the world news to know what a disaster Zimbabwe it's tragedy as in Bob way arguably was one of the highest functioning and richest African countries and people are literally starving now literally starving it was it was an exporter of food fifteen years ago and today people are starving to death I mean it's just unbelievable turn of internal affairs and they're actually dead last in the indexing and if they could go lower if there were more countries in the index they'd be lower I don't have Cuba there 142 I don't have them in the index cuz I don't have data for Cuba I don't have North Korea there 143 I know that but I could put them in by by sort of by Fiat I could just make them go in but again our rules were if you don't have data you don't get into the index so places like North Korea which are so tightly controlled to the point where they don't even have data same thing by the way with Saudi Arabia one of the oil countries that we don't have is Saudi Arabia because they are so closed that it's actually difficult to get quality data out of Saudi Arabia if you have questions about specific country that I probably can answer it off top of my head but is a I don't have them memorized and that's why I bring the book with me though so it's all there that's a little hard to see is there a way to do lights at all yeah that's not it okay well okay there that's a little bit better thanks it's a little hard to see the cover of the book has a map a color map and it's kind of nice to look at sort of by color the distribution of the economic freedom map there blue is is is basically the upper 25% green is sort of the second 25% yellow is the third and then red is the sort of lowest 25% there's some interesting things you'll see one of the starkest contrasts is is Argentina and Chile you know Chile is in the top ten Argentina is deep red and Chileans and Argentinians hate each other of course I mean hate but yeah they don't like each other and so that's interesting I gave that this talk almost exactly the same talk to a group of businessman once and this guy's ah I can't I wish I'd known that he'd worked for Home Depot and he says you know we we built 20 stores in Argentina and within two years they we had to close every one of them down because we just couldn't couldn't get through the government red tape and in the corruption and because we didn't we didn't go into Chile at all well this is not investment advice but if I were an investor I'd I'd avoid the red countries myself the Greens you know you can see Southern Africa doing well South Africa is actually been improving a little bit and Botswana is in green you can't really distinguish them they're doing quite well there's one of my favourite countries is right here it's blue and we know a country that is it's Georgia yeah I was Georgia's the fastest economic reforming country in the world of course they were a former Soviet republic and so in 1990 they were part of the Soviet Union and today I think they're ranked in the low 20s and the index they've come further Estonia is actually the other one but Georgia in the last ten years has made the most rapid reforms away from Marx's vision and towards Smith's vision I've been the George a number of times so I've got a sort of personal attachment to the place I was actually there during the Russian invasion in August of last year I'm going again in this August and if they invade again I'm I'm not going back that was there was nothing between where I was and and the Russian army except like one Georgian cop you know he parked his car across the road that was our you know that was it for thankfully they didn't come anyway so there's there's some really neat things going on and the break up in the Soviet Union is sort of the biggest event in this this sort of copy this sort of debate and you see Georgia and Estonia in blue and then you see Ukraine and in red and then you see some of them really really moving towards to Adam Smith to use my my debate metaphor and some of them just sort of circling and staying where they where they came from it's the contrasts are our stark the economic performance the results are also quite stark as Estonia and Georgia have put up extremely rapid growth rates even Georgia's growth rate this year despite the Russians is that it going to be six percent in a context of not too many countries growing at all so that's very good okay let's talk about whether about the you probably already figured out the answer to the to the to the question but at the end of the day the reason we built the index was because we wanted to ask some basic questions and and we can do this in a sophisticated way with econometrics if you'd like but I don't think this is the time or place to go over regression results and T statistics and our squares and things I unless you want I can pull them up and you probably don't so we're just going to look at some basic data mostly telling the story that I think we've learned and a lot of this stuff I think we already knew so most of the charts that we're going to present have break up the world into those quarters quartile shit's a quarter really but the first twenty five percent the second twenty five percent group the third and the fourth and then you get the average within each group and so this is the average level of income its GDP per capita measured in purchasing power parity dollars if you care the average in her person in the top free quartile is most three quartiles about 30,000 and it's about one ninth of that in the lowest quartile it's a very something I think most of us knew but you know this is not this was not obvious to my friends in 1985 in 1985 when I was a college student it was a legitimate debatable question as to whether or not market oriented societies would be more productive or less productive than command and control and regulated economies people smart people Paul Samuelson Nobel Prize winning economist smart people claimed that centrally-planned regulated government-run economies could outperform market economies I think that is complete I thought it was wrong then but now I'm pretty doggone sure it's wrong the data don't back that up at all it's a very very strong relationship this is one way of showing it you could show it other ways but bottom line is places that look like Adam Smith's world view are richer in places that look like Marx's world view the economic growth thing is a little bit more more difficult there because growth the growth process is more that growth is how quickly you're getting richer it's more complicated but there's a recent survey by a guy in Doha named de Haan who I don't like by the way but I quote him because he I like he's he's right on this that is economic freedom has a positive relationship with growth he surveyed like 30 articles and all 30 of them had the same result that it looks like countries that are freer are also growing more rapidly so they're richer and they're growing more rapidly as well and that that's a result that it's a little harder to show with a graph but because you really need to do those regressions to show that I'm afraid this is the fallback position my socialist friends if I ever cornered them I would I would sometimes you'd get one of my socialist friends to to say yeah you're right Lawson markets they do seem to be a little bit more productive it does look like market economies are richer than command and control economies economies I I'll concede that but here's the but the but is but market economies screw the poor there's too much inequality of income right that's the that's the fallback position for my socialist friends they may admit that market economies are productive but then they'll say but they're unfair there's too much inequality so again number of ways to show this my favorite way is this way this is the income held by the lowest 10% if you look at the bottom 10% of any society you can ask what share of all income does the bottom tenth earn and what do you see there there's not a lot there the bottom line is income inequality exists all over the globe and you can look at all the countries in the world and you're going to find basically the bottom tenth of the population earning somewhere between 2 and 3% 1.5 maybe 3 point 5 percent of total income it doesn't matter whether you're in a market economy or a planned centrally-planned regulated economy it seems that there's inequality and it runs it's everywhere some places have less inequality than others but the key is it doesn't correlate at all with whether you're a market economy or not so it's simply not true that market economies are dramatically less equal in the distribution of income than non market economies and you can you can show this with other data like Gini coefficients and so forth I use this because it's easier for most people who don't know economics to understand what if the tenth is or Gini coefficients you know that unless you've had a class and you know what that is it's not so easy to to explain that to a journalist for example what a Gini coefficient is so it's not true that market economies will have more inequality simply not true I think it's a lie you hear it a lot though you hear a lot and it's just something it's not true there is one thing that I do know is true that if you are in the lowest if you are in the bottom tenth of the part of the population you you're better off being in the bottom tense in a free country because the bottom tenth in a free country is also going to be most likely in a richer country so this is the income level of the people bottom 10 the income level the people in the bottom 10th is is $8,000 in that top groove versus about 900 in the bottom group in the united states the the bottom 10th of the population the united states despite income inequality united states being what it is earns i think about $12,000 per person for people in the lowest tenth of the population that's not great i would much rather be rich than poor but i guess I'd rather be I'd rather have twelve thousand dollars and nine hundred and sixty one dollars you know okay my favorite chart is this one economists are criticized accurately justice justly criticized for emphasizing numbers and dollars and you started off with dollars GDP per capita growth rates you know this is life expectancy from birth on average for the four groups you can see it's extremely sharp relationship probably is just reflecting income but nevertheless this illustrates that we're not just talking about dollars and cents here we're talking about how long you live for example and living seventy-nine years versus living 58 years and that's the difference between knowing between seeing your grandchild getting married or not and that's a that's not just dollars and cents that's not whether you you have a car in the driveway that's whether you get to watch your granddaughter get married in a lot of places in the world you are dead statistically before your grandchildren grow up and that's that's it that's a huge human loss to so many people around the world and it runs with economic freedom probably again this is reflecting income richer countries can buy more health care and refrigeration and all kinds of things but nevertheless it's it puts a more human face on it than dollars have cents notwithstanding my mountain-climbing fetish I'm I don't claim to be much of an environmentalist but I appreciate I understand there are people out there who place high value on the environment this is an environmental performance index some group some left-wing commie pinko group I'm exaggerating I know okay well I apologize some group I think it's a Columbia University puts out this environmental performance index they do a zero to 100 scale higher numbers are better they there's a whole bunch of things that go into it it's everything from air pollution to to land in water pollution and different things and I just on a whim threw this in and again I think this is reflecting income more than anything else but places that have more economic freedom have better economic environmental performances on average the again mostly again probably reflecting higher income higher places that are more productive can afford water treatment plants and scrubbers and catalytic converters in their cars and and a number of other things and in poorer countries simply simply can't so again I don't think this is directly causal but it's reflecting the fact that you know it's it's not obviously the case that market oriented con amis and rich economies are have worst performance environmental and some things they probably do but aren't and general they generally don't and that's the result from that there are a few academic studies have come out recently a friend of mine named Mike Stroupe has a few papers on this showing that same thing now this is a this takes a little explaining this is political rights and civil liberties I mentioned that our index doesn't include democracy freedom to own a party or freedom to you know enter politics freedom of speech religion so forth there's a group called freedom house in New York which does indexes along those lines I should mention that their index is kind of I think it's backwards for them lower numbers are better and I guess I could have inverted it but to make it run like the other charts but but so lower numbers mean better democracy better political freedom better civil liberties okay so this is this is the pattern here is the one I I hope to show right I hope to show that more economic Liberty there's not a great trade off the bottom line is not a great trade off if you're going to pursue a market economy you don't have to give up your democracy you don't to give up your civil liberties Singapore stands out as one of the countries that's really off the charts they're very high on our economic Freedom Index but fairly low especially on the political and the both of these political rights and civil liberties index but Singapore is an outlier there just aren't that many cases most countries that are free canonically also pursue relatively liberal political and civil regimes there have been other examples of weird cases Chile of course began in second on reforms under Pinochet who was no liberal and so you have other examples like that but you also have cases of liberal regimes you could politically like India that have been pretty tightly on tightly controlled economically so there are exceptions but the general pattern is quite strong democracy and economic freedom basically go together there's no great conflict at least in the aggregate between those two this is a different chart I just copy this out of one of our Indian reports from 2005 there's a collie a guy at UCSD Eric Garcia is his name he's a top political scientist the US UCSD might be the number one rated ph.d program in political science and he is there and he studies war and they had these wonderful databases in political science facility had some definition of war I think it took political scientists war is when two nation states have a battle have a conflict and something like a thousand people die that's a war I think it's the sort of textbook political science you know definition and so he's got you know there's hundreds of countries in the world and so this there's all these opportunities that countries can go to war and they've some of most of them dolt most of the if you look at you know country pairs it's usually zero there's no war US and Canada zero no war you asked Iraq one they got a war okay so uh so he has this huge database over time looking at the propensity of two nations nation pairs to fight they call dyads to go to fight a war and he looks at the indexof II cannot are index of economic freedom and as you go the black lines the main line the dark line as you go from less economic freedom to more the probability of having a military conflict drop drops dramatically okay one of the competing hypotheses in political science was what political scientists called it the capitalist peace hypothesis you may have studied that if you take international relations in political science and the capitalist peace hypothesis is difficult to describe in 30 seconds but basically it says democracies are not as warlike as non-democracies especially against each other roughly speaking that's basically democracies don't fight wars as much as non-democracies that's not entirely the precise way that they talk about it but that's close enough for us and so one of the things that Eric was interested in is is what's the difference between economic freedom economic liberalism as a predictor of the probability of going to war and you see here that Eman Morgan AMA freedom means it's fairly quick drop in the probability of conflict what is it if you look at capitalism assuming what if you if you look at democracy and that's basically a flat line and this is the sort of shocking result for Eric and he is a political scientist and as you if you know political scientist sort of like democracy it's kind of the holy grail for political sciences and he's actually gotten a lot of heat a lot of criticism from colleagues because he's daring to say that maybe what we thought was democratic peace was really capitalist peace maybe it really was that free market economies are less warlike versus and maybe it's not so much an effective democracy as such yeah yeah there's there's two competing there is a literature on both sides though in the in the well a lot of the socialist critics of capitalism argued that capitalism was was was inherently warlike that the you know the you could sort of in the 20th century the sort of the idea of the military-industrial complex that markets economies would be warlike so there was an element that there were there you know the old socialist you know the sort of the old-style socialist oftentimes argued that socialism was going to be peaceful and capitalism was warlike and on the other hand there is also in the classical liberal tradition there's a long tradition that argued the opposite that trading you know trade traders don't fight wars with each other and so there is actually arguments on both sides anyway we're now trying to get some empirical so the resolution to that this is really one of my favorite papers because again it's not dealing with dollars and cents and economic growth it's talking about something like war so it's pretty cool okay last I think the last the website that is some marketing genius that at the Fraser Institute which is our publisher came up with this I really dislike it the free the world calm I really think it sounds cheesy but anyway that's our website and you can go there you can download the book you can download the data if you're taking econometrics or data analysis type class there's a wealth of data that you can download and play with run regressions or whatever it is you do you can also download the previous reports one thing I'll put a plug in is that each report has a special topic chapter this last year's report had a chapter on poverty so if you're really into in poverty there's a chapter on that last year we had one on foreign aid written by Bill easterly we had the one on war wouldn't wouldn't written by gar it's key so each year there's a topical chapter that accompanies the the data the reason we do that actually is because the data are pretty much the same every year some changes so we needed to put a topical chapter in the book every year to give somebody a reason to check it out every every year but that's become a everybody thought this could be coming up kind of a big deal in our base kinda mention what the next topic is the next this year's topic is you might not be surprised to learn is the financial crisis and economic freedom some topical chapters on that okay and I think that's it I'll just leave the map for now I'd have to go back and look at the chapter there were other control variables in the study a variety of control variables I think he used some of the normal ones like ethno-linguistic fractionalization proximity is a variable actually countries that you know new zealand is not likely to fight a war with luxembourg if only because it'd be tech it'd be logistically difficult you know so you know so there were control variables in there I don't know about size of military or whatnot that that's an interesting question one of my favorite countries is Botswana which spent the first twenty five years or so of his existence without a national army and I'm intrigued by nations who simply say we're not going to have an army and surprisingly no one invaded them I mean it's in Bob way or South Africa could have just rolled the tanks up and taken him any time they want there was nothing stopping but no one did so it's kind of interesting example if I need to go to the microphone though well I think it's being taped that's the only issue yeah although I can repeat the question too I was just wondering if you took a look at interstate disputes versus in your span speeds and the possibility of interests a dispute right I know there are data on that I don't haven't seen a study on that's a short answer there are there are there are people that study what common people call civil wars but I haven't seen one that used economic freedom anyway and again I don't really follow the instability of wow I'm teaching financial markets and banking right now but I don't think I've really not thought about Islamic banking I can tell you that in the context of the economic freedom index it's a little bit of a challenge for example there's a for example one of our variables deals with interest rate controls well in a nominal sense Pakistan for you or you know Oman they're a better example there's no interest there's no such thing as interest technically now we all know what happens in Islamic banking they get around it by calling it a fee or some other you know some other way of doing it you you treat everything like a discount bond or something is there all kinds of ways around it without calling it interest so it turns out in the index it actually surprisingly doesn't really hurt them that type of banking structure doesn't hurt them in the area where we deal with credit market regulations but I haven't really studied the details on sort of how the balance sheet of a Islamic structured bank would be versus an American commercial bank I really hadn't thought about it I should I'm teaching that now so it's 20% of the factor for them yeah well they get they get a low rating in every every year it's no bother gets a low rating in every area really I mean it's obviously the the recent inflation is the thing that gets the headlines but I mean prior to that the the ejection of landowners I mean you should see their property or area to their property right ratings are just I mean as low as any country in the world the price controls which is related to the inflation question but when they put in the price controls the store shelves went bare in two days I mean there's nothing left on the stores which is what you get when you do price controls at that of that type so it's really an across-the-board phenomenon and again it's what's shocking about it is how at least in comparative sense Zimbabwe would have been considered a high functioning liberal regime economically and politically at least by African standards which isn't saying a lot maybe but and how how that has completely come undone in a short period of time I've recently encountered some some wonderfully shocking quotes about Mugabe from what just after he took office and he he didn't go insane right away either but the fact is early on he was considered via you know a sort of a cosmopolitan liberal who's gonna you know not get embroiled in the the tribal you know ISM that had heard a lot of African countries and of course it all has turned out horribly wrong do you have to add our conclusions that I've shed any light on differences between the Democratic Marxist model in dealing with the pressures of extraordinary population growth right I know I've really haven't thought about it no story answer's no I don't I have an opinion maybe but in population growth is really only a big problem when you're in a regulated state that that makes it difficult for the economy the economic growth process to match the pace of the population growth exceeds by a certain factor those who are producing right revenues generated right yeah the demographic problems that face a lot of countries are severe I just haven't really thought of it in this in this way yeah no thank you you guys are all asking question about the you know yeah because it's all about stability thank you so much for coming to appreciate it and very interesting presentation I do have a few things I'd like to bring up that I practice that we do still have a pretty powerful well financed military industrial complex in this country River three trillion dollar budget from the military it's the defense budget is probably bigger than any other budget in terms of our in terms of our government I think that you've used a lot of emotional which today and I'm sure that that's you know intended to you know we've speaking to you know who your audiences are most of us who study economics Europe you know trained in the deal econ school so I understand that I'm looking to break that you know my whole point is to study this and then supernat entirely but and I think that that's I'm not the only one in this room that has that attitude I'm willing to say so and then so this whole emotional thing of the command-and-control centrally-planned bad bad like carbon and then capitalism good good you know I mean it's just it's very emotional incendiary inflammatory and it's there to sort of bring your audience in the audience that you know you have here and speak to them and so I mean it's just what you're telling us by talking about this left-wing Komi environmentalist thing I know that that was a joke I know what it was intended that's fine but how important the environment is and I also believe that you started out by saying that ethics and humility morality out of the data think the data is completely skewed and by us without without without free market economics in our country and around the world they actually advised to Pinochet so if I start to team advised Bolivian advised to the South American dictators created the kind of dictatorships and tyrannies in South America that cause so many people to die in to suffer so you know all this stuff needs to be taken into account in terms of these kind of you know we talked about economic freedom of the world if freedom is is far more than just who has who has the most right who has the most money because most people most people are most people are suffering deeply from from these kind of policies so can I can I have a quick reaction it is there's a lot there's a lot there and I appreciate it all you know just a couple of quick responses and I appreciate their remarks I think we actually might be closer on the military thing than you appreciate all those social security is larger than the Department of Defense but as a matter of fact but leaving that issue aside I think it's unconscionable fact the u.s. is a huge outlier US has both a capitalist country relatively speaking and a democracy relatively speaking and it is extremely warlike and so the Contra Eric Garcia the United States is the one very big outlier in his in his analysis so you have to understand that and I think it's a tragic it's a shame I'm embarrassed to be an American on that front now I think your Friedman thing at the 180 just completely wrong but I want to actually address the emotionalism saying because I actually you're right i'm i undergraduate lectures it's usually more affected to be a little flippant and and fun but actually if one of the things i've learned from this project that i it's taken me some years to develop an appreciation for is how much more civilizing it is when we talk about data what was uncivilized was those arguments in the 80s with my friends those were heated I mean people got angry at each other and so not only was it uncivilized and angry and just you know didn't come to blows but it was also unproductive it really didn't seem to advance the the argument debate where as I really do firmly believe that we talk about numbers it changes the tone of the debate in a way that takes a lot of the heat and ideology out of it at the end of the day there's still going to be and I there's going to be a judgement call your and that judgment call is normative and ethical and so forth at the end of the you have to come down and say okay I like this I don't like that you can't avoid that ultimate judgment call that human beings have to make but in the process of getting to the point where you're going to make that judgment call my experience is that that looking at numbers and and and it has been incredibly civilizing it's taking a lot of the anger out of out of it and when I engage people who I who don't see the world exactly the same way I see at normatively I think it's I'm much more comfortable I think as much more civilizing talking numbers so at the end of the day people are not always going to reach the same conclusions even when we look at the same set of numbers but I think it's it's a much more productive way of engaging each other as we debate these questions than the old days where we just argued you know your economy you're a greedy bastard that was the sort of the tone of the old debate whereas now it's you know what about income inequality what about these things much more fruitful the freedom house indexes are I have no criticisms but all there they do political and economic political and civil liberties we do narrowly defined economic so I look at them as companion fellow-travellers and I use their data extensively and my research there are other data out there that do like polity for which is a good data set to but it does political stuff which affect heritage so that they are competitor with with me and so take everything I say with the appropriate grain of salt the Heritage Foundation index started about the same time our index did we were running sort of parallel paths some of the participants that started their index actually participated in our series of developed projects that led up to the art for index so there was a lot of overlap you know in terms of personnel and so forth ultimately they decided to do an index and we decided to do an index and we've been going separately since needless adding Mars is veteran yeah that's gonna be obvious but the big difference between the two indexes is that ours is is this transparency and data-driven aspect of it where you open up the book and you just see gobs of numbers and citations so you you know exactly why India got that number and it's because this underlying number from this source was this and so and the formulas are all in there so ours is a very transparent open data-driven exercise for better or worse the Heritage Foundation's index is more of a if I'm unshared what I call it a beauty contest but what it is really is a an expert panel of people a group of people at the Heritage Foundation they read a lot of data they look at the lot of the same things we look at they don't have a mechanical process for going from raw data to a final index they sort of sit in a room they look at a lot of things they talk about it they argue and then they say it's a four okay and so my criticism of them is that it's it's at the end of the day that they have a much harder time justifying their index because it really was sort of a panel of experts that that arrived at it to be fair they're usually pretty good I mean they have Hong Kong number one too you know and Zimbabwe is pretty much dead last now there is an advantage to their approach the advantage to their approaches they can put Hong Kong or they can put North Korea in there I can't put North Korea in there because I don't have the requisite hard data to do so but lets you know if you're if you're doing it with more of a panel of experts sort of let's read everything we can read about her about North Korea and put them on a scale well yeah you know 180 out of under an 80 or whatever many they have it's an easy call so the advantage of theirs is that they they can rate more countries than we rate ends a rate of 180 song we're 140 so there are some trade-offs in the two methodologies scholarly scholars tend to prefer our index if you look at the academic literature we get a lot more attention than they do I have to be the Heritage Foundation I've also got a lot more funding than we do and so in journalistic circles you'll see a lot more I think more references to them and like newspapers because they just have a much more sophisticated PR staff and that's not a bad thing just that we're a bunch of a guide academics we don't you know we don't think about press releases and things like they do I think it's safe stay with the direction issues essentially plant economy sir I've been watching discredit you know for so it unit version of China and all those kind of stuff but that doesn't by default validate like if it's marks and adamant that that seems like a false dichotomy so I guess the name free-market capitalism you have examples of sales in this bill or vocal which people have that used but they've pulled down legally over hundred million dollars which is 2500 times forty thousand dollars which let's take that as a medium to be for a person I think said that in a minute of the time if somebody can be two three five times the average person $2,500 seems to me preposterous on its face so I guess my question is how are you validate a system that validates that this is absolutely possible well Oprah is twenty five thousand times more productive than than me I'm teaching sixty people right now she will teach sixty million today I mean so I mean the fact is these these superstars touch a lot of lives and if you sort of say what's it worked every one of Oprah's you know every one of her her viewers you know a quarter so if each of her viewers only likes her to the tune of a quarter add that up and she's you know if my students like me at $10 a piece I still don't even come close and I don't think I do by the way so I mean the fact is these people are highly productive as demonstrated by the choices of the customers who they serve you know yeah again well they're gonna you know that baseball player gets two and a half you know the average baseball team gets two and a half million people paying tickets to go to again the season during the season I mean I teach a hundred students this semester so you know it at the end of the day I mean the way the market economy works is people's earnings are based on other people's willingness to give them money I mean that's the bottom line that's how the market economies work and Oprah Winfrey has convinced without force or fraud a lot of people to give her money indirectly perhaps through the customers who watch her and then the advertisers who pay our sponsors and so forth but and the baseball player is the same thing I personally see that for I see nothing ethically wrong with someone being very good at convincing lots of people to give them money as long as they don't use force or try it's shocking but you know if I'm afraid it doesn't offend my sensibilities like it's offends yours but that's I mean I I know it offends a lot of people's sensibilities I appreciate it I don't discredit it doesn't it really doesn't bother me that much I do get bothered when kings and queens have that kind of wealth because they don't acquire their kings get a lot of people to give them money as well but they don't do so voluntarily they steal it they threaten people with imprisonment and that's a completely different process that I do have an ethical concern about our economic basis benefiting from some type of an anti-competitive situation which allows them to redistribute income and no costs themselves the supports impediment systems cost basis for cost of not twenty five hundred times much so therefore by definition she's probably benefiting from some manner of income redistribution Vietnam deep edited well it's clear that she is an economics term she's earning rents she's earning a rate of return on her human capital in excess of what's necessary for her to stay in business and that's because she has this unique skill a talk or whatever route Rodriguez has this unique skill of being able to hit a ball 500 feet or something and that is not competitive as try really was a I wanted to be a baseball player I grew up in Cincinnati so I'm a huge baseball I mean but try as I might and hard as I worked it wasn't going to happen for me and most of us end up in environments that are more competitive she they earn rents they earn rents market economies tend to dissipate rents but not 100% in every case okay they're recommission taking appetizer baskets in 2004 to reform they have a government that is their banks are owned by the state and they're kind of making fun of us and now the g20 knows we'll take our bread we're going to be able to do that with our controllers our hands and pray the answer I have is not really China specific but there is a considerable amount of empirical study and finance about different banking systems and the performance of those banking systems and it's not even a close call empirically that state-owned banks and economies that banking systems that are dominated by state-owned banks do not have efficient you know financial any mediation systems I mean they do not they have more financial crises more frequently and deeper so China may be smug but the evidence around the world is exactly the opposite my colleague Jim bar that Auburn is probably the best guy in the world on international banking regulations and and it's also the fastest growing economy in the world it's pretty easy to have good returns when you're investing in China in the last 120 years so you know again but the problem is you know the the state-owned enterprise debate or state-owned Bank debate isn't just China I mean a lot of African countries have stayed on banking and a lot of a lot of the poor Indonesia get a lot of state-owned banks and you know if you study the whole world and try to generalize from the available data state-owned banking systems have again more financial crises more frequently and deeper and they have less less credit flowing through this it's just that everything every measurable aspect of the fish sort of the efficiency of the banking system will be fine in the end I don't know how long did in the long run we'll be fine I just don't know when the long run happens

Channel: Learn Liberty

Views: 42,477

Rating: 4.7274075 out of 5

Keywords: government, wealth, GDP, liberty, standard, libertarianism, economics, freedom, video, what is a libertarian, economic, of, libertarian, libertarianism explained, living, smith, limited, learn, adam, economy, property

Id: qcXtYXUCOMY

Length: 66min 19sec (3979 seconds)

Published: Wed Sep 07 2011