Expand Economic Freedom in 2009
By Robert P. Murphy

The onset of 2009, with a new president taking office, is a good time
to reconsider the benefits of economic freedom. Contrary to what
partisans of big government claim, the empirical case for economic
freedom has grown much stronger in the last 10 years, due to the
development of objective measures.

In 1995 the Heritage Foundation and Wall Street Journal began
publishing an Index of Economic Freedom that ranked the nations of the
world, and soon after other pro-market organizations followed suit.
The rankings have slight differences in criteria and the weight
attributed to specific factors, but they yield comparable general
results.

By focusing on such factors as a country's tax burden, government
spending as a share of the overall economy, and monetary stability,
the rankings render a quantitative measure of the amount of economic
freedom in more than 100 countries across the globe. Relying on this
relatively new treasure trove of raw data, economists have begun
studying the relationship between economic freedom and various aspects
of the quality of life.

This growing body of empirical work is summarized in The Sizzle of
Economic Freedom, a new study from the Pacific Research Institute.
This work acknowledges the moral and philosophical case for limited
government and individual liberty, but it focuses on something too
often forgotten: the tangible benefits.

The Sizzle of Economic Freedom cites peer-reviewed academic papers to
document the strong correlation between freedom and economic growth
and personal income. The empirical results are quite clear that the
biggest and fastest growing economies tend to be the ones with minimal
government interference. Investors and entrepreneurs are willing to
take more risks and work harder, when they are assured that they will
retain the fruit of their efforts.

The benefits of economic freedom also include lower unemployment rates
and more macroeconomic stability. This finding is no surprise to
economists because flexible wages and minimal red tape allow displaced
workers to quickly find new jobs after a major disruption. The
decentralized market economy relies on millions of professionals "on
the ground" to make business decisions, and so it can adapt to
changing circumstances much more smoothly than a country relying on
top-down planning by the government.

The new PRI report also summarizes other findings that may not be so
obvious. For example, recent studies have shown that freer countries
tend to have less income inequality and more economic opportunities
for women and minorities. People living in countries with more
economic freedom also typically boast higher rates of literacy and
childhood vaccination, and they live longer. The latest research also
suggests that economic freedom, not democracy per se, is a better
predictor of peaceful relations between neighboring regions.

Because of their rich heritage, Americans support the abstract ideals
of limited government and individual liberty. There is nothing
abstract, however, about the benefits of economic freedom. The Sizzle
of Economic Freedom charts those benefits, but also warns that there
is a price to be paid for curtailing economic freedom.

Economists since Adam Smith have understood that government
interventions -- whether price controls, high taxes, or other
paternalist regulations -- can cause more problems than they solve.
However, especially during the 20th century Americans tolerated huge
growth in government power because they believed such compromises were
necessary to achieve a prosperous and secure nation.

According to The Sizzle of Economic Freedom, this apparent tradeoff is
spurious. A sluggish economy is no excuse for further expansion of
government and curtailment of economic freedom. On the contrary, the
time is right to trim government and let economic freedom ring. If
federal and state legislators take that path, all Americans will enjoy
the benefits of richer, healthier, and more secure lives.

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