Economic freedom increases human well-being

How can we improve the quality of life for everyone and help lift the masses out of poverty? 

Economic freedom. But what does that mean exactly? 

economic-freedom.jpgThe classic definition of economic freedom, according to the Fraser Institute, is:

Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.

Now that we've defined economic freedom, let's take a look at the link between liberty and human well-being through both observation (North Korea vs. South Korea) and empirical evidence. 

Michael LaFaive and Jack McHugh of the Mackinac Center capture the importance of economic freedom to human well-being in their recent article

One of the foremost authorities on the data and evidence side is the Fraser Institute, a research organization based in Canada. Since 1996, Fraser has compiled economic freedom indexes comparing all the nations of the world. It also creates indexes that examine nations and states in various parts of the world. The goal is to measure economic liberty. This has enabled Fraser and other researchers to examine the relationship between that freedom and economic well-being — and see whether and how closely they are associated in different countries, states and provinces.

The indexes examine variables that indicate the extent to which the governments of a given region forbid or permit voluntary association in economic matters. For Fraser’s World Index, the relevant variables include “freedom to trade internationally” and “access to sound money.” At the state level, they include labor market freedom, taxes, and the magnitude of government spending.

The economic outcome factors are more straightforward — mostly rates of economic growth and average incomes. Spoiler alert: Most people won’t be surprised to learn that more economic freedom is strongly associated with faster economic growth and higher incomes.

While Fraser focuses most of its efforts on collecting data measuring economic freedom, other researchers have used this data to drill down to economic outcomes. They have found, among other things, that liberty is also associated with a more equal distribution of wealth and income in a society.

In the latest 2015 edition of Fraser’s Economic Freedom of the World, the U.S. ranked only 16th — a lamentable position for the putative land of the free. Given this nation’s history and traditions, we should be the freest country in the world — No. 1 by a wide margin.

In the 2015 Economic Freedom of North America report, Michigan ranked 27th among the 50 states. That’s not good, but it’s a lot better than our ranking in 2010, which was 40th.

These things matter, and in ways that are life-changing for real people. The 10 freest states in the North American index enjoy per capita personal incomes that are 7 percent higher than the national average. Incomes in the 10 least-free states are 8 percent below the national average, a 15 percent difference between the top and bottom.

What would a 15 percent gain or loss in household income mean to your family?

Some try to write off the association between economic freedom and well-being as mere coincidence, but that is becoming an ever-greater stretch given the totality of a growing body of evidence. The people of North Korea, Zimbabwe and Nicaragua weren’t pauperized by coincidences, but by their governments crushing economic liberty at every turn.

It’s worth noting that the opponents of economic liberty do not appear to have any comparable indexes showing that people are better off where their preferred policies prevail. Where, for example, does one find empirical evidence that price controls and the suppression of property rights in Venezuela or Cuba have improved their people’s well-being?

The index methodology developed by Fraser has recently been extended by economist Dean Stansel to another level, municipal regions. In a fascinating report from SMU’s O’Neil Center, “The Wealth of Cities: Pursuing Economic Freedom Closer to Home,” the authors examine Stansel’s work.

Stansel examined 384 “Metropolitan Statistical Areas” in the U.S., including Detroit. The Motor City and its region ranked 345th. Looking at just the 30 largest areas by population, the Tampa Bay region in Florida is the most economically free. New York City’s MSA ranked last. Detroit’s MSA was 23rd out of 30 largest.

Again, this matters for the well-being of the people who live in these areas. According to The Wealth of Cities, the 100 MSAs with greater economic freedom experienced faster economic growth, more jobs, higher pay and less income inequality.

That there are opponents of the policies and ideas that make people more prosperous and free is disappointing but not surprising. But the work of the Fraser Institute is making the work of those opponents more difficult.

Economic freedom matters and benefits everyone. We can see it, and we can measure it too.

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