The Cato Institute

Global Economic Freedom Up Slightly

For the first time in almost a decade, the United States  ranks within the top ten economically freest countries…

The Economic Freedom of the World — an annual report, co-published by the Cato Institute, the Canada-based Fraser Institute, and the Economic Freedom Network, a group of independent research and educational institutes in nearly 100 nations and territories worldwide — seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and the other dimensions of economic freedom.

Based on data from 2016 (the most recent year for which comparable data is available), the report is the world’s premier measurement of economic freedom, using 42 distinct variables to create an index ranking countries around the world based on policies that encourage economic freedom.

Economic freedom is measured in five different areas: (1) size of government, (2) legal system and property rights, (3) access to sound money, (4) freedom to trade internationally, and (5) regulation of credit, labor, and business.

Each country is rated on a 0-10 scale where a higher value indicates a higher level of economic freedom.

The United States returned to the top 10 with the 6th freest economy after an absence of several years, with an overall rating of 8.03, according to the 2018 Index.

“The increase in the United States’ economic freedom score is welcome, but it remains notably below the level it enjoyed at the beginning of this century,” said Ian Vasquez, director of the Center for Global Liberty and Prosperity at the Cato Institute.

During the 2009-2016 term of President Obama, the U.S. score initially continued to decline as it had under President Bush. From 2013 to 2016, however, the U.S. increased its rating from 7.74 to its current standing. This is still well below the high-water mark of 8.62 in 2000 at the end of the Clinton presidency.

Hong Kong and Singapore occupy the top two positions. The next highest scoring nations are New Zealand, Switzerland, Ireland, United States, Georgia, Mauritius, United Kingdom, Australia and Canada, the last two tied for 10th place. Venezuela is again ranked as the lowest in economic freedom out of the countries of this year’s report. 

The rankings of some other major countries are Germany (20^th), Japan (41^st), Italy (54^th), France (57^th), Mexico (82^nd), Russia (87^th), India (96^th), China (108^th), and Brazil (144^th).

Three new countries — Belarus, Iraq, and Sudan — were added to the Index this year, bringing the total number of jurisdictions measured to 162. The Index also integrates differential legal treatment according to gender, thus taking into account the fact that women do not have the same level of economic freedom as men do in all nations.

”Women benefit from greater economic freedom as there is greater gender equality in countries that are more economically free,“ continued Vasquez.

The cornerstones of economic freedom include personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property. The data shows people living in countries with high levels of economic freedom enjoy greater prosperity, more political and civil liberties, and longer life spans.

Nations in the top quartile of economic freedom had an average per capita GDP of US $40,376 in 2016, compared to $5,649 for bottom quartile nations. Moreover, the average income of the poorest 10% in the most economically free nations is almost twice the average per capita income in the least free nations. Life expectancy is 79.5 years in the top quartile compared to 64.4 years in the bottom quartile, and happiness levels are much higher in economically free nations than in unfree nations.

Learn more…

How Free Is Your State?

Florida is the freest state, while New York is, by far, the least free in the nation…

The latest edition of Freedom in the 50 States — authored by William Ruger and Jason Sorens — looks at state and local government intervention across a range of more than 230 policy variables — from taxation to debt, eminent domain laws to occupational licensing, and drug policy to educational choice — and ranks each U.S. state by how its public policies promote freedom in the fiscal, regulatory, and personal freedom spheres. 

Ruger and Sorens score all 50 states on their overall respect for individual freedom, and also on their respect for three separate dimensions of freedom: fiscal policy and regulatory policy (which are combined to create the economic freedom score) and personal freedom. In the 2018 edition, Florida, New Hampshire, Indiana, Colorado, and Nevada sit at the top of the rankings. New York again has the dishonor of being the least free state, preceded by Hawaii, California, New Jersey, and Vermont. 

In addition to providing the latest rankings for 2016, this edition for the first time provides freedom scores for all years since 2000. The ability to sift through 17 years of data, enables Ruger and Sorens to identify the causes and consequences of changes in freedom. For instance, over the 2000-2016 period, Oklahoma is the most improved state, while over the 2015-2016 two-year period, New Hampshire has risen the most.

Ruger and Sorens find that the average state has seen increases in economic freedom since 2011 because of rapidly improving state fiscal policies and average improvement in regulatory policy. However, the authors discover that when federalized policies are accounted for in the economic freedom rankings, the average state score in 2016 falls below its score in 2000. 

Since 2010, states have also experienced substantial increases in personal freedom. This is largely the result of ballot initiatives loosening cannabis regulations; the spread of legal gambling; and legislative criminal justice and asset forfeiture reforms. Unlike economic freedom, when federalized policies are included in personal freedom scores, states scores improve even more dramatically. The authors argue that this improvement is a result of judicial engagement on personal freedoms, such as the freedom to marry.

Although not always the case, conservative states tend to score better on economic freedom overall. In reviewing this relationship over time, the authors find that this correlation was weaker in 2000 than it is now. By contrast, personal freedom tends to be higher in progressive states. However, this connection is noisier and more uncertain than that between partisanship and economic freedom. When economic and personal freedom scores are combined conservative and moderate states fare much better in the rankings than strongly left ones.

There is strong evidence that states with more economic freedom attract more residents. The authors find a solid correlation between both lighter fiscal and regulatory impact of government policy and net migration, although evidence also suggests that personal freedom plays a role in attracting residents. For example, New York, the least free state, has lost more than 14% of its 2000 population in net migration to other states, while Florida, which ranks at the top, has attracted net in-migration from other states equal to more than 13% of its 2000 population. In fact, Florida is the second-most popular destination for fleeing New Yorkers, and the five-year age group most likely to move from New York to Florida is individuals who are 20–24 years old.

An in-depth comparison of New York to Florida reveals in greater detail why many may be flocking to the Sunshine State. While #50 New York has the highest tax burden in the country along with rent control, pro-union labor laws, and no restrictions on eminent domain for private benefit, #1 Florida has no individual income tax and has right-to-work, the toughest restrictions on eminent domain for private benefit in the country, and a panoply of school-choice programs for parents. Although every state has room to improve, Florida manages to be better than average in fiscal policy, regulatory policy, and personal freedom, while New York is below average in all three dimensions.

Measuring freedom is important because freedom is valuable to people. State and local governments ought to respect basic rights and liberties, such as the right to practice an honest trade or the right to make lifetime partnership contracts, whether or not respecting these rights ‘maximizes utility.’ Even minor infringements on freedom can erode the respect for fundamental principles that underlie our liberties. This index measures the extent to which states respect or disrespect these basic rights and liberties; in doing so, it captures a range of policies that threaten to chip away at the liberties we enjoy.

Learn more, then share your thoughts on Twitter with #FreeStates…