PrintJanuary 15, 2008
Lesson Relearned: Freedom = Prosperity
The Heritage Foundation just released its latest Index of Economic Freedom. It provides ever more evidence that economic freedom yields "greater prosperity for the larger society." It also helps bolster the point I made just last weekend that the New York Times' star op-ed columnist (and Princeton University professor) Paul Krugman gets it exactly backward regarding Europe, the "Comeback Continent." The study itself makes clear that the economic theories of Adam Smith still hold.
"Economic theory dating back to the publication of Adam Smith's The Wealth of Nations in 1776 emphasizes the lesson that basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society... The world's freest countries have twice the average per capita income of the second quintile of countries and over five times the average income of the fifth quintile. The freest economies also have lower rates of unemployment and lower inflation."
Regarding Europe, its success is due not to its big government ways, but to cuts in government, resulting largely from internal competition.
"Europe has continued to advance its economic freedom because of policy improvements, such as tax cuts and other business climate reforms, adopted by many of the region's individual economies as they compete with one another to attract more investment."
According to Cassie Biggs at the Associated Press, the study authors attribute the recent success of "old Europe" countries to the competition from the lower, flatter tax countries of new Europe that have recently shed communism and embraced economic freedom.
"What we are seeing is a very strong commitment to economic freedom in the new EU countries, and this is having a positive impact on policies in the some of the older European countries ... such as France," said Edwin Feulner, president of the Heritage Foundation, a Washington-based think tank. "I think we will continue to see this evolve over time and we expect to see gradual improvement in economic freedom throughout Europe as a whole."
I had mentioned Ireland in particular. Among developed countries it had cut government spending the most in the last two decades, and in fact reduced government spending to a smaller fraction of its economy than even that of the U.S.. The Heritage Foundation now ranks Ireland 3rd in economic freedom, higher than the U.S. in 5th place.
Why is this obvious connection between freedom and prosperity, theorized and demonstrated for over 200 years, such a difficult sell? The Heritage Foundation takes a shot at the answer.
"Perhaps the idea of freedom is too sophisticated, as popular support for it seems constantly to erode before the onslaught of populism."
Paul Krugman, the Democratic party and even some in the Republican party are not helping matters.
By the way, Heritage's top five are Hong Kong, Singapore, Ireland, Australia and the United States. The bottom five are North Korea, Cuba, Zimbabwe, Libya and Burma .
