Economic Freedom Index

The 2014 Index of Economic Freedom has been released by the Heritage Foundation.  Notably, the United States has fallen outside of the top 10 of the most economically free countries, coming in at number 12.

The top spot is held by Hong Kong, which has held that spot for 20 consecutive years.  The top ten countries are as follows:

I think the rankings are somewhat subjective, although many of the measurements are objective.  It is hard to say if the criteria used capture all of the important factors of a free market economy and also if the weighting of each measure is appropriate.

But overall, I think the index is a decent benchmark of figuring out the degree of free markets and property rights in different countries.

While the U.S. is now out of the top 10, it is important to realize that it is still by far the richest country in the world.  But if you measure on a per capita basis, then the U.S. is not the richest.  For example, Singapore has a much higher GDP per capita.

Although government in general has grown beyond belief in the U.S., there is still a lot of wealth from what was accumulated in the past.  And while taxes and regulations are burdensome, there is still a strong rule of law, even if the law isn’t always good.  There is also a strong tradition of property rights and a general appreciation for entrepreneurship and free trade.  For these reasons, it is still an attractive place for investors.

I appreciate the Index of Economic Freedom because it is an easy way to show that free markets work and socialist and centrally planned economies don’t work.

It is always hard to show evidence of capitalism working within a country, or the opposite, in showing that central planning is destructive.  In the U.S. there are so many variables with monetary policy, taxation, government spending, regulation, etc.  They are often all moving in different directions.  When something goes wrong in the economy (or something goes right), it is hard to pin the blame or credit on any one particular thing.

With the Index of Economic Freedom, it is clear cut that the countries that are more economically free are generally much better off.  The people have a much higher standard of living and there is far less poverty.

If you look at the places that are ranked worse than 100 on the index, you can quickly realize that these are absolutely miserable places to live, at least for the most part.  They are countries with little in the way of strong property rights and they all have the characteristic of having oppressive governments.

It is not that all governments do not try to be oppressive, but it is obvious that the economically free countries have governments that are generally the least oppressive and kept somewhat in check.

The next time one of your friends is pushing for more government central planning, point out this index and ask your friend where he would rather live.  The countries in the “free” and “mostly free” categories are generally going to be the most attractive places to most people with any sense.