I was going to mention that I have two vintage lawn-jart sets.
Do you know what lawn-jarts are?
Lawn-darts or lawn-jarts?
Briggs, do you know what they are? What are they?
Giant metal things that grow in apparently illegal modes of phenomena.
Yeah, they're metal spikes about a foot long.
And it's sort of like cornhole, that beanbag game that plays.
Cornhole was a, you know, a girl's game, I mean, this is a metal spike you would throw through the air and you'd try to get it inside the hole and it was like three points if you got it in the hole or something like that, or in the, like, a round circle, and, you know, three kids died and something like 8,000 emergency room visits or something were associated with this, eyes were put out, and I should mention my mother is here, hi mom, and my aunt. They're visiting for the week, so I, but this was great fun, I mean, if you,
Two perfectly playable vintage lawn jarred sets, and I actually think the Libertarian
Club should have a lawn jarred tournament.
I might say, however, that the university attorney might frown on the practice, but
so you might want to have to sign some waivers or whatever, but so that's my Libertarian
thing.
Playing lawn jars, it's a lot of fun, but truly throwing spikes through the air with
beer involved is not really all that smart, but it was great fun in the 70s and 80s.
okay so with that introduction I'm going to talk about the economic freedom of the
world it's terribly boring I'm sorry it's a project that I've been involved with
forever I'm gonna throw out a shout out to the Mises Institute. Can I do that to the
Mises Institute? You all know because you're at Auburn you must okay I was
actually at the second ever Mises University in 1987 when I was your age
and it wasn't even called the Mises University and it wasn't even in Auburn
The Mises Institute wasn't even at Auburn then. I don't know where it was, but I was out of Stanford.
So if you haven't already made the trek over and met those folks, you should certainly do that.
No Auburn libertarian should not be aware of the Mises Institute, and they're all good friends of
mine. And despite the fact that I published this book with the Cato Institute, the Cato Institute
and the Mises Institute have had some intra-family battles over the years, but that's how these,
Politics, that's how it is.
Okay, I'm going to talk about this now.
This book just came out last week.
The first three people to come to my office,
which is in the third floor of Lauder,
get a free copy of the book.
Okay, first three people.
The only reason I don't have them now to hand to you is because I was too lazy to go to my office before I came here.
But first three people come to my office,
third floor, I don't know what number it is, it's like 320 something,
get to the third floor of Lauder and you'll find me.
You can have a copy of the book for free.
for free. If you don't get there in the first three, you can go online and you can download
it for free. I'll give you the URL later. Okay, so let's talk about economics. Alright,
so when I was a college student like you, I was at Ohio University in Athens, Ohio, which
is a far, far better institution than Auburn, if only because it has about 20 bars and you
guys have like six. We completely win the bar competition. And we used to have these
These great debates, and actually I don't think you all have the debates that we had then,
because when I was a student, it was 1985 or 6, I was a freshman or sophomore or junior,
and the Soviet Union was still a going concern, there were people who wore red armbands on
May Day at campus and had a parade. They don't have that here, do they? There were people
who would proudly call themselves socialists and even proudly call themselves Marxists
For the purposes of a very short evening talk, I'm going to characterize it as the Smith vs. Marx debate.
This is not fair to Smith or Marx. There are many, many other people involved.
But for our shorthand purposes, it's Smith vs. Marx.
Smith, writing in the late 18th century, advocated a system of what he called natural liberty,
a system that you and I would call today libertarianism in one form or another.
Smith was a libertarian. He advocated a system of limited government, private property, freedom of exchange, free trade.
We could argue the details with the anarcho-libertarians and the various other types. I happen to be an anarcho myself, so I would join in some criticisms of Smith myself.
But Smith was a libertarian in today's language. And Smith left a legacy, and that legacy came through economics to Ricardo and to John Stuart Mill,
to Alfred Marshall, all the way into the Chicago School to Milton Friedman's and so on.
A vision of the world that basically says, you know, the world works better if we leave people alone.
If you leave people alone, just give them security and their property and their persons and their places and things,
let them trade with each other, things will pretty much all by themselves handle themselves
and the world works reasonably smoothly.
It's not the Garden of Eden, but it works reasonably smoothly and people will prosper and do just fine.
He said, yeah, but, Marx wrote in the tradition of Smith, he carried Smith's stupid labor theory of value, if you've studied that, but he said, yeah, but, really it doesn't work, the smooth system of natural liberty doesn't work smoothly, in fact you have all these contradictions, all these problems, these exploitations and so on and so forth, and that he advocated, again it's hard to characterize Marx,
and I'm unfair to Marx when I say this, but basically he advocated a system of planning and control and you can name names that go on from Marx forward, of course Keynes ultimately in economics, but guys like John Kenneth Galbraith, today Paul Krugman I guess is the standard bearer, and I think Paul Krugman, it's not fair to call Paul Krugman a Marxist, I mean there aren't many Marxists running around today in that sense, but he's part of that intellectual tradition that basically
is skeptical of the system of natural liberty, so we have these two views of the world, the
system of natural liberty on the one hand, just leave people alone, the world will work
reasonably well, not perfect, not perfect, but it'll work okay, in fact it'll work pretty
doggone good, and then you have this view that says no, we can't let the world run on
its own, we can't leave people free in their affairs, we need a planning agency, we need
The Theory of Money and Credit
The Great Debate
And the interesting thing about that debate is that after four years of undergraduate college,
university, not a single one of my friends was convinced that I was right.
As hard as I tried and as much beer as I poured down their throats, they never once agreed with me.
And at the same time, they had not budged me one bit.
And so it was fun, it was fun, the debate was fun, but it wasn't productive.
It didn't lead us to truth. We didn't actually convince each other of our side being the correct view of the world.
And I bring that up because how would such a debate go on if it was in the natural sciences?
So this is the character of the debate that I had with my friends in college.
I would say, freedom works. They would say, no, it doesn't.
I would say, yes, it does. And they would say, no, it doesn't.
and they would say well communism or planning works and I would say no it doesn't and we would
just go back and forth and never got anywhere no one ever won the debate and how would natural
scientists if they were if natural scientists or chemists were having a debate suppose you had two
chemists and one chemist had a beaker of some I'm not a natural science guy so forgive me but
we're at the land grant universities half of you are probably biology majors or something
but if we had you know a chemical gunk here and a chemical stuff here and so one chemist says if
If you mix them together, it'll smell like roses.
The other guy says, no, you're crazy.
He says, no, my equations, I've written it all out.
My equations say if you mix these two chemicals, they'll smell like roses.
But the other chemist says, no, no, no, your equations are all wrong.
My equations say if you mix these two chemicals, they'll smell like rotten eggs.
And so what are we going to do?
We're going to argue about this for decades?
No.
At some point, we're going to mix the two chemicals together.
If it smells like rotten eggs, the second guy is right, it smells like roses, the first guy is right, and the debate is over.
We're going to hit the laboratory and decide.
I mean, at the end of the day, in natural sciences, when you have a debate, it's typically settled by an empirical experiment.
Now, you can't do that. We can't not necessarily do that in social sciences, to be fair.
But one of the problems with the social sciences is that we have these people who have these competing theories
of how the world works, and they're arguing, and arguing, and arguing, and arguing,
but they're not convincing each other based on the pure logic or the beauty of their theories, obviously.
And they never take that step that natural scientists would do,
how do we develop an experiment, or how do we collect data, how do we empirically test these theories?
Which is where the project that I'm going to talk about comes in.
So what I'd like to do is forget about libertarian ideology and philosophy as much as I like that stuff and I was like you, I started as a student studying that stuff.
And like I said, let's forget about whether or not we think markets work or don't work or whether or not. Let's just go out and study the world as it is.
Let's collect data. Let's do the best we can to act like natural scientists.
And so that brings us to the project that we're going to talk about, oops, I've got to go back.
Measuring Economic Freedom.
Okay, so the Smithians and the Milton Friedman types, and Milton was a big inspiration to our project.
He was a participant in the project and wrote the foreword to our first edition of the book, which we wrote with Walter Block,
Who comes to Auburn a lot, by the way, if you haven't seen Walter, you should definitely go to one Walter Block speech in your life.
So, measuring economic freedom. We want to try to measure economic freedom.
Well, you know what? The Milton Friedman types, the Walter Block types, the Mises types, they say the world works better if you have more economic freedom.
private property, freedom to trade, libertarianism, small l, we can debate the details, but some version of freedom works better.
Let's go out and measure that and see if it does. I mean, let's mix the two chemicals together and see what happens.
So Jim Gortney, my mentor at Florida State and I, along with Walter Block, who at the time was working for the Fraser Institute of Think Tank in Canada,
set out to try to measure economic freedom. This is too long ago now. It's 24, 25 years ago.
And we published our first edition in 1996. We've been coming out every year since.
And we're trying to measure economic freedom. How do you measure freedom?
It seems kind of very kind of high-falutin, esoteric. I mean, well, how many econ students?
Gross domestic product. It's the value of everything produced in the country.
What do you think is being produced in the country, roughly?
That's pretty esoteric.
That's haircuts and lawn mowing jobs and mechanics fixing brakes
and super colliders and computers.
GDP is an incredibly complex, diverse, huge, difficult thing.
Try to get your mind around what gross domestic product really is.
It's big, it's huge, it's complicated, I don't know.
What do we do every year? We put a number on it. We say it's $12 billion, $1 trillion.
Is that number right? No, it's wrong. We know the number is wrong. But we do our best to
try to measure gross domestic product, the value of everything that's produced in the
country. Well, I don't think freedom is terribly more complicated or complex to measure than
The Theory of Money and Credit
141. We have 42 different components, pieces of data that we collect from all kinds of
different sources. Mostly they're evil organizations like the IMF and the World Bank, or God forbid
the UN. Sometimes they're private, for-profit organizations like the PRS Group, which is
a consulting firm in New York, upper state New York, and they do country risk analyses
and we actually buy their data. They're very nice to us and give us a discount because
There's a group in Switzerland, you may have heard of the World Economic Forum, and they do a survey, international survey every year, and I get their data also. They're kind enough to give it to me.
So I collect data from a range of sources, some of them are public, and frankly not all that libertarian, but some of them are private.
I collect data from PricewaterhouseCoopers, the international tax consulting firm, and things like that.
And things like that. So we collect a lot of data. The data can be objective, like, what's the tax rate? What's the tariff rate? What's the top marginal tax rate? Things that are very hard. You know, hard numbers. Just put in a number. And some of them are subjective, though. They'll be like, how easy is it to open a business? Which is kind of fuzzy, right? So some of the data are really hard, and some of them are a little bit softer, a little bit fuzzier, okay? And the index that we're going to have is 42 variables. Some of them are really hard numbers. Some of them are a little softer.
I put them all these numbers in, and out comes another number, which is on a 0 to 10 scale, 10 is Adam Smith, and 0 is Marx.
If you're a Marxian and you want to invert that scale, you're welcome to do that.
It's simple, simple to do with a spreadsheet. But since I did it, I like Smith. So Smith gets the higher numbers, okay?
And if I don't have a copy of the book because I was too lazy to go to the office,
but if you go to the book or go online and look at it, it's entirely boring. You'll never, it's horrible.
It's just hundreds of pages of numbers. It's all it is, just numbers.
So it's all about transparency and it's all about data collecting, okay?
So the entire operation is simply collecting lots of data
about economic freedom whether in different dimensions and trying to
quantify those things. For our purposes it's easiest to think about these in five
areas so we got we got five basic areas and each of those 42 components is put
into one of these five areas but you don't want to see all 42 it's where
you'll glaze over and your head will hit the desk and you know you all you know
it'll be dead. So we got five areas, size of government, how big is the
What's the government? Taxes, basically. How big is taxes? So who's the worst there?
No, not yet. Give Obama a couple years. No, they're bad. No, China's way low.
Sweden and Denmark keep fighting for who's the highest tax. So the first area is taxes and spending.
The US is among high-income countries. The US actually scores reasonably well there, although we're a high-tax country, relative to sort of the high-income, like Western Europe, we're pretty low-tax.
No, we're not even close. Not even close. Even with Obama, we're not even close.
Sweden and Denmark are hitting 50% of gross domestic product with government spending.
We're going to maybe hit, worst case scenario, maybe 40. It's probably going to be in the upper 30s.
So we're nowhere near, I mean, maybe the second term, we'll hit that.
The second area is a very important area. It's property rights and legal structure.
And this is almost all survey day. We have actually seven components from three different sources.
But it's things like how impartial are the judges, how many, there's a great source from the World Bank called the Doing Business Project, if you haven't looked at it, it's a great source of data, they actually present data on how many days does it take to settle a contract dispute, and in some places, in the United States it's about a year, I think it's 365, the estimate is about a year to settle, if you and I have a simple dispute, like I owe you money but I flaked out and didn't pay you money,
How long would it take for you to go to court and get the money?
About a year to settle that, which is too long probably, but in some places it's like 25 years,
which is to say you're never getting your money. In some places it's like six months, which is
pretty good. So there's this great data source on how quickly the legal system works to settle
disputes and so forth. So this is all about security of property rights and the sort of
Ease of operation of the legal structure. It's a very important area of the index, and in this area, who do you think does great there?
Who did worse than number one was Sweden and Denmark. Actually, those are the countries that do the best, actually. Scandinavian countries rock.
If you ever land in court, you want to land in a Finnish court or a Swedish court, because those guys, they may tax the heck out of you,
Man, their judges are quick and fast and sharp and efficient, and they're unbiased, and they're not corrupt, they don't take bribes.
The Scandinavian court systems are, you know, best in the world.
As is true, frankly, of England.
The United States, in a world context, is as bad as our legal system may think it is.
It's still, in a world context, still actually one of the better ones.
Okay, the third area, sound money.
This is sort of a classical, this is a Misesian, this is something near and dear,
at least a Rothbard kind of thing. This is basically how risky is, how much at
risk are you of the government stealing your money through inflation. There's
several different parts of this index, that part of the index, I think we have
four components. Basically it's about inflation and your risk of inflation
stealing your money. If you have money in a bank account and they run a lot of
inflation, they're just stealing from you, they're taxing you. This is not as
This is not as much of a concern today. I used to say that. I should maybe back off on that.
A couple years ago when I gave this talk, I would say this is not as much a concern today as it was, say, in the 1970s, when we had runaway inflation in much of the world, like Latin America.
And we had significant inflation, even in the Western world, like the United States.
In 1978, inflation reached 14% in the United States or something like that, which is not hyperinflation, but it's significant.
There's obviously some worry about inflation in the next few years. We'll see what happens.
So this is about that. And there are still, even today though, a lot of countries have trouble here.
Zimbabwe is the most notable country along those lines.
I think inflation there is like a gazillion percent. It's incalculably high, actually.
The fourth is international trade, free trade. So it's tariffs, quotas, non-tariff barriers, capital controls, different kinds.
This is a very large area, I think there must be like ten of the 42 components, about ten
of them are in area four, because there's so many dimensions to international trade
that we're trying to capture.
And then the last area is also a large area, it's got I think fourteen components total,
it's different types of regulations, regulations by their very nature are very ad hoc and they're
Hard to Characterize, but we have one area on credit, which is sort of like banking regulations.
A lot of countries have banking regulations of different kinds. We try to measure those
a handful of different ways. We have labor regulations. Those are easy, like minimum
wages, hiring and firing regulations. You know, in some countries of the world, you
want to fire an employee, you have to give them six months of severance pay or something
like that. We don't have that in the United States, but a lot of Western European countries,
and then we have general business regulations like price controls, start-up of business restrictions, licenses, things like that.
This is a very short version but there's 42 numbers, they all get put into 5 areas and they all get turned, all these raw numbers, tariffs, tax numbers, different types of survey data, all of them get turned into 0 to 10s.
So we can combine them all into something useful, and out comes a number for every country.
If you read the book, it's all well itemized and documented.
My experience is no one really wants to see those details.
So this is sort of the top group. I forgot, I should have not put that up.
I was going to ask, who's the number one country in the world?
It's Hong Kong. It's not a close call. It's not even close to a close call.
I did not need to do a grand study for two decades of economic freedom to know that Hong Kong is by far the freest economy on earth.
Taxes are no more than 10% of GDP. There is literally zero tariffs in quotas. There is complete free trade.
The monetary system is tied to the United States dollar and therefore is no worse than the US dollar, which at least in the recent period hasn't been awful as far as inflation is concerned.
They have almost no regulations. They just passed the minimum wage for the first time and it's trivial. It's like $2 an hour, which in Hong Kong is not even really effective.
So Hong Kong is by far the number one, and you didn't need a study to know that.
Singapore is number two. If you know a lot about Singapore, you don't need to know that.
This highlights a point, though. This is an economic freedom index, not a political freedom index,
or civil freedoms index. We are very narrowly looking at economic matters in the narrowest sense.
So Singapore is a place that's a little bit weird because they give you a lot of freedom.
If you want to run a business in Singapore, you have no taxes, very low, no, no, low taxes,
is low regulations, complete freedom to buy and sell and do whatever you want in your economic life.
You ought not to criticize the government though in Singapore, that's probably a bad idea.
Or smoke a joint, that's also a bad idea, okay?
So when it comes to political or civil liberties, Singapore does not score well,
but when it comes to sort of the mundane economic in the narrowest sense, they do quite well.
Having said that, the rest of the countries are all, with the exception of Chile,
which has risen significantly in the last few year index years they're all
Western European countries that are basically liberal market democracies and
the United States is sixth they were eighth last year they notched up a bit
but the US is on a bit of a slot and if I have time for any questions maybe I'll
talk a little bit what's going on in the United States in the last few years of
what I think might happen in the next few but basically you'll see this is a
list and it you know if you were putting together a list of what are the freest
This is just some of the other countries. The colors will be meaningful in just a second, but this is just some of the other large-scale countries.
and by far the most reforming towards liberalism, towards market economic freedom in the last 20 years and they privatized social security,
they reduced their tariffs and quotas dramatically and have done a lot of good stuff.
This is just some of the other countries, the colors will be meaningful in just a second but this is just some of the other large countries,
it may be a little hard to read them, sorry, but some of the larger more significant countries,
There's 141 countries in the index, I can't list them all, it'd be like negative two font or something, you know, you couldn't read it.
But just see, you know, Japan and Germany come in around the 25, or 27, 28, this is the most recent numbers, this is the first time I've actually used the 2009 results.
And that's a typo, it should say for the year 2007.
So we released the index on Monday of last week, but the data are for 2007, because we're always two years behind, just FYI. I need to change that slide.
So Germany and Japan, you know, they're market economies, they're not socialist, communist rat holes, but you know, they're not Hong Kong either, so there you see them.
Then you see the sort of France, Sweden, the sort of social welfare states of Western Europe come in, sort of that next tier of countries.
And then you get into the South Africa's and Mexico's of the world where you're in sort of the middle group.
What is South Africa? Is it a capitalist country or is it essentially...
It wants to be both and it comes out sort of very much in the middle on the index, maybe a little bit on the upper middle.
Same thing with Mexico.
I mean, they want to have a market economy but the politicians just can't restrain themselves from passing a new law every three days to regulate this or that.
And that's Mexico's experience.
Then you get in China.
India is really close to China and Russia there.
Those are the three largest economies in the world in terms of people.
And they've all come up a lot, actually.
Even Russia finally is starting to move upward a little bit.
But for all the talk about economic reform in China and India,
let's face it, they're still very much government-controlled economies.
China only looks liberal today because it started in abject communism.
This is the scale. This doesn't work on the thing, does it?
They started down here, they came up to here.
Well, that still means Hong Kong is up here. They've got a long, long way to go.
I get a lot of questions about why China doesn't score so much higher,
because you read all these things about how China is now a free market economy,
China has more rules and regulations and government interference in business than all but 81 countries, at least according to our measure.
That's way better than they were 20 years ago. Where they would have been at the bottom of the list was Zimbabwe.
So you have to give credit where credit is due, but let's not overblow the reforms in China or India or Russia for that matter.
And then you see some countries that are just, they didn't get the memo.
The memo that went around about 20 years ago that said free markets works better.
Brazil and Chavez and Venezuela and Mugabe and Zimbabwe, they didn't get it.
There are other countries down there and those countries are really just disasters.
Venezuela and Zimbabwe are truly tragic because we actually have data going back as far as 1970 for both of those countries.
And if you go back to the 1970s, Zimbabwe would have been one of the highest functioning countries in Africa.
Now maybe that's faint praise because Africa is not a high functioning continent, but Zimbabwe would have been considered a really decent place.
Well, say, 75 right after the creation of, right after the Rhodesian, it's a lot of history, but right after the creation of the country of Zimbabwe.
They would have been considered a garden spot of Africa.
in America. Relatively rich, relatively stable, relatively prosperous, a food exporting nation,
and today people are literally starving to death in Zimbabwe. It's a true tragedy, and
it's not because of the weather, it's because of an idiot named Bugabe who's ruined the
country. Venezuela is very similar. It's an oil rich country, Latin American or Central
American, South American standards, a high income country. It was one of the highest,
I think it was the richest country in South America in 1970-75, and it has had negative 1% growth every year for the last 25 years.
It's like having your money in a bank account that was going south 1% a year, compounded for 25 years.
That's Venezuela. And they have oil.
It's inexcusable to have negative economic growth, long-term economic growth for a country that's oil rich.
Absolutely inexcusable. You actually have to work hard to have negative growth in a country
like Zimbabwe when you're sitting on oil reserves like they sit on. It's truly tragic.
The reason is because they're just taxing, they've nationalized the oil industries, they're
taxing. You all know what Chavez is doing. But it actually, it even was before Chavez.
He's a symptom, really. I don't think he's completely the cause. So this is a map, the
The most recent map, this gives you a sort of a broad brush picture. Again, I can't put 141 countries on things, so this gives you an idea of where, what's going on.
You can see, so blue is good. Blue is the upper 20th, upper quartile, upper 25th percent group. The greens are the second 25 percent, the yellows are the third, and the reds are the bottom 25 percent, so that's sort of the scale there.
So you can see, blues like the United States, most of Western Europe, Australia and New Zealand, they're all upper 20, they're market economies, yeah they're not free market Rothbardian paradises, but they're market economies, you can see Chile's blue, you can see Arab Emirates is blue, Israel blue, South Korea, Japan,
Taiwan, blue, some countries aren't rated. You'll see we don't have North Korea rated
because we're data driven and North Korea doesn't release data and they don't let people give
surveys in North Korea. Now if we were putting them in we all know they would be the deepest
shade of red we could find but you know that's why you'll see some holes there. Undoubtedly the
countries that we don't have there are probably reds also. I mean we don't know that for sure I
One of my favorite countries in the world is this country right here. It's green.
Do you know what that country is right there? It's Georgia. I do a lot of consulting in Georgia.
Georgia is the fastest economic reforming country of the old Soviet Union.
You see Kazakhstan is also green, but Georgia by far is the fastest reforming country of the old, true Soviet Union.
through Soviet Union. Some countries in the old former Soviet bloc like Estonia have done
really well as well, but of the former Soviet Socialist Republics, Georgia has come the
farthest from central planning to a market economy. I do a lot of consulting there. I
was actually there last year when the Russians invaded, so that was kind of fun.
I can probably answer specific questions. If you have a country that you love or care
There is good news in the world. It's worth mentioning some good news because the age of Obama doesn't leave libertarians with a lot of happy news.
But in the long run, if you have a little bit more time horizon than maybe you all have, it's so much better.
The world of intellectual, and the debate is much better today than it was then.
I mean, today the debate is, yes, we're debating this healthcare stuff.
There's always a policy debate du jour.
But when I was a student at your age, there was a legitimate intellectual debate
about the wisdom of Soviet-style central planning.
Soviet-style central planning was considered to be an intellectually respectable opinion to hold.
Today, no one, no one, your worst, most communist professor doesn't come into class and say he thinks we should have Soviet-style central planning.
No one says that. It's completely discredited.
That's good. That's good. That means we've shifted the debate in our direction.
The world is today much freer than it was economically, freer than it was 20 years ago.
We don't worry about inflation like we used to. We have much freer trade.
Marginal tax rates, and generally the growth of government has slowed.
It's almost zero now around the world.
Now the United States is trying to buck that trend, I know.
Regulations on some margins have gone down, some margins have gone up.
But in general, the climate of intellectual opinion and policy world that we see today in 19, or 2000, whatever it is,
2000, what year is it, 2009, is so much better.
Compare this to 1979, where we had waging price controls and people were lining up the street to get gas.
you know seriously we had we had a big gas price run up last year
nobody even the craziest politician in washington
nobody came out and said we should have price controls on gasoline again
because we've learned that price controls on gasoline makes people line up
down the street my mom's not here she's like she remembers doing that
i was a kid i remember doing that remember lining up for gas no one said
that so price controls for gasoline is off
off the table. That's huge progress. So I think the world is better. Not in every dimension.
There are many, many areas of our economic lives that are more controlled today, like
the environmental rules and so on. But in general, I think we are living in a more free
and economic environment today than we had in the 1970s. And the data are showing that
if you look, this is the average of the index of all the countries in the index. It's gotten
It's gotten higher, and I think that's true. Again, not in every dimension, but in most dimensions it's gotten better.
So let's talk about that beaker thing. I'm going to try to wrap up real quick, Hilary.
So the great debate was, if you mix the two chemicals together, does it smell good or does it smell bad?
And in our context, if you have economic freedom, does it work or does it not work?
I don't know why we need to argue until 3 in the morning and drink beer all night, although that's fun, to answer that debate.
Let's go out and collect some data, which I've done, and let's try to figure out.
This is the Economic Freedom Index, this is by quartile, so this is the reds, or the lowest, the bottom 25%, second 25%, third, and then the highest 25% is blue.
And this is income per capita, it's GDP per capita, it's not a perfect measure, but that's a nice picture.
That was Milton Friedman's favorite picture. I dropped a name. He loved that picture. He says, look, we're right.
That's not an obvious picture 25 years ago. There were people who would argue that if you have centralized planning, if you have less economic freedom, you should have a richer economy.
It's going to work better, we'll have more prosperity if we have centralized planning. They were projecting that it should step down the other way.
And they're wrong. They're flat out wrong. We all know that today, but this was an open question not too long ago.
People who really debated, who really thought economic freedom didn't work and made us poorer.
Growth is a little harder.
You really need to do econometric studies of growth, but even, and that's what that
quote's all about, but if you do it, even with growth, you'll see you'll have higher
growth with more economic freedom.
It's not as clear a relationship as before.
Growth is fuzzier, and you really need to do formal studies.
All the formal studies that have been done with the economic freedom index and growth
have shown that more economic freedom means more growth.
Every one of them.
not a single one, and there are dozens out there now, so that's cool.
Alright, so what did my friends say when I would corner them?
I'd say, you know, economic freedom, markets, capitalism, it works better,
people are richer, and they would say, yeah, people are richer, but
it screws the poor, or the income distribution is too unequal.
That's what they say, right? Guess what?
That's a lie, it's not true. This is the share of income
The share of income held by the lowest 10%, the share of income held by the poorest 10%,
bi-quartile. So if you look around the world, you've got 140, there's actually, yeah, there's,
I think that data set has about 100 countries in it. Got 100 countries, you look at the
100 countries in the world, you look at the share of the income held by the bottom 10%,
the bottom quartile, the third, the second, the most, what do you see? It's really about
It's about 2-2.5%, which sucks. That means 10% of the people have 2-2.5% of the money.
The news there is being poor is no fun. But guess what? It really doesn't matter in terms
of the share of income, in terms of the distribution of income. Whether you're in a high economic
freedom country or a low economic freedom, you're going to have about 2-2.5% of income.
If anything, it looks a little bit better in the high income, but I'm not going to push
It really doesn't matter. The evidence is overwhelming that market-oriented, liberal market economies, free market capitalist economies, do not have, in general, more unequal distributions of income.
They just don't. So it's a great lie. And leftists get away with this lie. They just get away with it. We all got our heads, oh yeah, that's a problem we should deal with.
No, it's a lie. Don't let leftists say that capitalism creates unequal distribution. It's a simply, it's a bald lie.
And the only reason they get away with it is because no one ever argues from data.
They just argue from rhetoric and just they throw things out. The data tell us it's not true.
So burn that one in your brain and bring it up the next time you tell them it's a lie.
You can't get away with those kind of lies. This one really annoys me.
But guess what? If you want to be poor, where do you want to be poor?
You want to be poor in a free country, because why? Because free countries are rich.
I'd rather be poor in a rich country than poor in a poor country.
I'd actually rather be poor in a rich country than rich in a poor country, probably, but that's debatable.
In any case, this is the actual level of income earned by the average person in the bottom 10%.
It's about a tenfold, it's about an order of magnitude, it's more than an order of magnitude difference between the bottom and the top, okay?
So, you know, the average per... actually, in the United States, the average income, just for record, the average income for people in the United States, in the bottom 10% of the U.S. income distribution is about $13,000 per person.
Which sucks, I wouldn't want to live on $13,000 in the United States, right?
But I would rather have $13,000, which is, by the way, $13,000 per person for the poorest 10% of the United States is better.
That's the average income in Mexico.
And it's about 10 times the income, say, in Haiti.
So would you rather be a rich person in Haiti?
I mean, I don't mean super rich, but would you rather be upper income in Haiti or poor in the United States?
It's a no-brainer to be poor in the United States.
It's not even a close call.
I don't want to make light of that. I don't want to make light of being poor in the United States is no fun.
I'd rather be rich in the United States than poor in the United States.
I don't want to make light of the fact that being poor isn't fun.
But this is simply calling for some perspective on the fact that, you know,
what we live in the most free quarter like the people in the United States,
what we call poor is actually pretty doggone good in any kind of sense.
Alright, let's get away from money. This is my favorite chart. This is life expectancy from birth.
I would like to do life expectancy from different ages, but the birth life expectancy is the best data you have.
It's about a 20-year difference between the top and the bottom quartiles, and this is huge.
I mean, if you think, what's the difference between living to 60 and living to 80?
If you live to 60, you probably don't get to know your grandchildren. You don't get to see your grandchildren grow up.
And if you lived to 80, you do. This is not about money. This is about quality of life. This is way beyond money.
And this is my favorite chart because anyone who's a grandparent will tell you that it's pretty cool to live to 80.
I hope you lived to 80. You're not there yet. But it's way better than living to 60.
It's literally different from knowing your grandchildren or not knowing your grandchildren.
This is my favorite because I think it puts a more human face on it. We talk about GDP per cap and all these numbers. I throw this up for my liberal green friends. I like to climb mountains but I'm not much of an environmentalist, I must confess.
Anyway, there's an environmental quality index put out by some kind of group, I don't know, Columbia or some place, some kind of tree-hugger group in the northeast.
in the Middle East, and they have an environmental quality index, I think it's on a scale of 100 and so higher numbers are better, and you'll see again.
One of the other great lies is that people will say, well, you have to have government control of the economy to protect the environment.
Well, if you look at the actual data and you find the places that have the least government have the best environments,
places that have the most governments have the worst environments, you know, again, you can argue about some of the details on some of those margins,
The fact is you can't let someone say free market economies or market-oriented economies hurt the environment.
On net, they actually help the environment. They have better scores.
And this is a group that is a bunch of left-wing kind of environmental types.
And I'm just using their data and their data tells the story that says economic freedom works better for the environment.
It also works better if you care about political rights like voting, freedom of speech, civil
liberties, freedom from search and seizure.
This is the index from the Freedom House Group.
Their index is backwards, so lower numbers are good, so I flipped the index so it looks
right to our eyes, but the bottom line is that more economic freedom also correlates
very strongly with more political rights and civil liberties and less torture.
I've got a paper on torture, there's a great data set on torture, and those kinds of things.
So if you care about those things, as you probably, if you're a human being, you probably
should, then economic freedom works with those too.
There really isn't much of a trade-off.
One of the things that I've, one of the themes I've advanced is that there isn't a trade-off
with economic freedom.
You might say, well, we'll get more economic freedom, we'll have to sacrifice some, something.
No, I'm not, if you look at the data, you don't find those trade-offs.
In fact, economic freedom seems to be a reinforcing element in whatever it is that you care about.
If you happen to care about the environment, you should like the environment. You should like this.
I've got a paper on feminists right now on beauty contests. You know feminists hate beauty contests, right?
They hate them. I kind of like them, personally, but feminists hate beauty contests.
And guess what? Beauty pageant success is negatively correlated with economic freedom,
Which means, if you have more economic freedom, you have fewer beauty pageant winners.
Controlling for population and all this other stuff, it's all.
And so feminists should like economic freedom, because economic freedom means people will be less interested in joining up with beauty pageants.
That's my latest paper.
Alright, and this is just going to conclude. This is our website.
Some marketing whiz at the Frasier Institute came up with this freetheworld.com, which I think is the stupidest
URL I've ever heard, but there you have it.
So if you want to look at the book, if you are one of the first to read in my office, you can have a book,
but if you want to look at it, you can download the whole thing for free and print it out.
And you can, the data, if you're doing a paper,
like, you know, any kind of paper, if you want to download the data, there's a huge Excel file
I've been in Spanish classes here at the University, and it's pretty common for Spanish teachers to talk about how terrible that is, how the U.S. goes in and ruins the economy.
So they say that, well, maybe we have a good environment, but what really happens is that the U.S. goes into these countries that have less economic freedom and we destroy theirs instead of ruining our own. So how would you like that?
5, that's the actual number, 5 times, or destabilized El Salvador several times, so if by we they mean the U.S. government, I'm on board, the U.S. government has done everything it can.
But if by we you mean me, buying coffee, I completely disagree, I don't see how we make people in Colombia better by not buying coffee from them.
If you don't buy coffee for them, they go to their next best alternative, which is cocaine or something, I guess.
But, you know, you have to, yeah, it's important to distinguish.
I mean, most, your Spanish teachers probably have this sort of holistic view of the United States as one thing.
And it's not. We have the government. Government policy has been, in general, bad for Latin America.
But concluding that trade with Latin America is bad, I think is just horribly wrong.
In our book, each year we have a special chapter.
There's a great article in, I think, two years ago by Bill Easterly that I would recommend to you.
It's a great article about how the U.S. foreign policy and foreign aid has been bad.
So there have been a lot of bad policies.
How would the United States have grown without foreign trade?
The United States started out extremely poor.
We grew because we traded with Europe.
We imported capital from the Netherlands and the United Kingdom to build factories.
and we exported our goods, our timber, you know, most of Western Europe is built with timber that was
cut down in Pennsylvania, New York, and Virginia, and I'm sure if they were around then they would
have talked about how we're, you know, the Europeans are exploiting the poor North Americans, but that's
how the North Americans grew their economies and prospered. You know, we don't live in the land of
And the milk and honey. You just don't go from poor to rich overnight.
It takes years of capital investment and a cursor trade.
So I think you have to be real careful about who's we.
That's the thing. And you ought not to confuse the we of the government
with the we of just consumers and people privately trading, which is good.
You know, at some point you have to just say you're nuts, too. I mean, at some point you have to say, look, what you're saying is that these people should stay poor and should have their children die from diseases so that they can live in a rainforest.
Even from the Austrian perspective, you can't even extrapolate to say that a tin would even raise life expectancy, it would raise income, you know, it's not sort of empirical when people want to believe they're going to live with it.
is this, some people will respond to a pure logic, you know, sort of a Rothbardian sort of line of logic,
and I was one of them myself, but let's admit reality. Reality is that line of logic has not, and will not, convince most people.
And so that's why I think as a sort of second line of defense, the empirical arguments are the best you can do.
At the same time, you're not going to convince everybody of this.
There are going to be people who simply have their head in the sand.
There are people, for example, right now that freak out with Chile being number six, because of Pinochet.
Pinochet was an ugly man, but as dictator goes, he wasn't that ugly.
That right there would get me a firing squad with some leftists, I know.
But the fact of the matter is, Pinochet was a bad guy, but the fact of the matter is also, Chile liberalized its economy and the people of Chile are living vastly better lives than they otherwise would have.
So that sort of empirical thing will sway some people who are at least open to that kind of argument. Not everybody is, of course.
I think that's not the whole point of that. They feel like they're just having to accept to us being there to some extent.
Right, to make some choice.
Generally, we go to them and we talk to their government and they let us do that, and people are not happy to say anything to us.
I mean, if they really wanted to, if they were that concerned about their environment or whatever, they would bar centers and we can't do much short work actually invading them with an army to do whatever.
Well, what you find mostly is that it's Americans who value those natural amenities, who want
to see them protected, but the locals don't really care, because they would rather make
the trade-off between temporary trade-offs of their environment with prosperity, and
that seems to be perfectly reasonable, it's exactly the trade-off that we made in the
in the 19th century, in our country.
So with your income data, are you adjusting to purchasing power, or is that...
Those are all, those are all PPP, purchasing power numbers, yeah.
And you made other charts also for, I mean, you had the five quarters, do you also have other charts for within the top quarter?
Within the top quarter?
Yeah.
Not really, and I could do it, but...
Right. Right. Actually, one of the questions I sometimes get in these things is, what have
I learned from this index, doing this thing for 20 years? One of the things I've learned
is not really to sweat the small stuff. If you look at the countries in the top quarter,
you're going to have everything from the United States, you know, at the near the top, to
The bottom of the quarter is probably Taiwan, huge differences really between Taiwan and the United States, but in the context of the world, they're small, and I just, I don't get nearly as uptight about the small stuff as I used to, because I don't think this stuff really matters, so I don't, you know, there are differences between the United States, for example Sweden, Sweden is in the second quartile, but the differences between the United States and Sweden are small, in comparison to the differences between Sweden and the United States and Kenya.
That's the real differences in the world. The real battle isn't between whether our taxes are 30% of GDP or 40%, the real battle are between can I open a business without a guy with a billy club going to hit me over the head if I don't give him a bribe today?
That's the real problem for economic liberty for most people living on the planet.
So what we think of it being our big problems, they're problems, but most people would trade 30% taxes or 40% taxes for the rule of law and the open trade and the security that we have any day, that kind of liberalism.
You've been looking at us for a long time. You said you don't sort the small stuff anymore?
No, yeah.
In the most recent times, we've had a lot of the buy-in-out, and we've seen the trend of possibly more buy-in-out.
I agree with you on a lot of stuff. What's your opinion on what we're going to be expecting?
It's testing my optimism, and there's no question. Again, the chips will fall where they chip.
I just put the numbers in the computer, and we'll see what happens.
The numbers we just have are for 2007, which is before most of this really took off.
A year from now, we'll be putting out the 2008 data, and a year from that, the 2009 data.
So within a year or two, we'll see what's going to happen.
Obviously, on the fiscal side, the United States numbers are going to just take a hit.
There's simply no question.
The deficit right now is 11 percent.
The deficit, the federal government's deficit, is 11 percent of GDP.
As far as I'm concerned, that should be the budget.
And, actually, that's about 11% more than I would have the budget, but still, I mean,
that's the deficit.
I mean, you know, government spending in the United States is just shooting through the
roof.
The inflation risks, which may or may not occur, depending on your point of view, are
huge.
So I don't see there's anywhere for the United States ranking to go up.
If I was a betting man, I should not be betting on this.
I'm the one that puts this together, I mean.
But if I was a betting man, I'd say we're going to hit, we're going to go into the next
I don't see how it can be avoided except for the fact that everybody else is screwing up, too, and rankings are like that. If everybody else goes down, when you go down, your ranking doesn't necessarily change, but I see the rating, at least the numerical rating for the United States, can only go downward. It's already gone downward. In 2000, in the year 2000, which for us would have been the
2002 report. But in the year 2000, we had the United States rate second in the world,
and it's gone down to six or eight or so. It's clearly moved, and a big part of the
move was area two on legal structure and property rights. And I really think that George Bush
has taken your shoes off at the airport, and wireless taps, Guantanamo, and torture, and
Kilo and a whole host of things really took a hit on the United States on those things.
Obama actually may improve on some of those margins, but it's not so far really.
So I think the U.S. is going to get worse.
The current report actually has two essays, the one that just came out last week has two
essays on it about financial crises and the whole what happens to economic freedom when
And we have recessions and crises like this, and you know, it's hard to...
That's the good news, there's almost no countries that have really gone down a lot.
I think if you go from 1980 to the present, there's only like five or six countries that have actually had negative rating changes.
Zimbabwe, Venezuela, Democratic Republic of Congo, which used to be
Zaire, Myanmar, which is a
complete disaster.
So, two of those countries, by the way, changed names. It's in my working theory
that changing names is never good.
If a country decides to change names, it can't be for a good reason. It's usually some new guy took over and
decided, I'm going to change the name of the country.
Well, it's now the Bolivian Republic of Venezuela, if you want to be precise.
So there's actually, the good news is there's very few.
There's very few. I mean, again, if you look at the hard numbers, there's been a
general trend for lower taxes, more stable money
for your trade and mostly lower regulations. Again,
that's
uneven.
It's, again, compared to where we were, both in terms of the actual evidence and
I think in terms of the rhetoric going around, the intellectual climate,
I think we're better off today than we were then.
That's horrible to say, because I'm as depressed as the next guy about reading the paper right now.
This car thing, I'm kind of a car guy.
Watching a guy destroy a car is just, it absolutely is the most offensive thing I've ever seen in my life.
So I've got to destroy a Corvette. It's just criminal. It's absolutely criminally insane to destroy a Corvette.
Too many 19-year-old boys would like to take that car for free, and they destroyed it.
We don't make ourselves richer by destroying stuff, I mean, that's just the most stupid
thing.
So I'm absolutely, I'm vacillating right now, but you know, this project, which is sort
of the long view, makes me look sort of optimistic.
And then I open the paper, and I see, or I hop on YouTube, and I see him destroying a
perfectly good car, which is just, I mean, no version of economics makes that make sense.
So, I'm currently, I guess I'm going through a pessimistic phase, but again, overall, the climate of opinion has just changed so much since when I was a student, like you, and we have these vacillations and stupid ideas will never go away.
And the number of variables has changed since you started.
Yeah, it's changed a lot. We've gotten a lot more sophisticated, which has presented a little bit of a challenge for comparing years. We actually have a way of doing that, dealing with that.
What about places like the office in Luxembourg that have a lot of Americans and other citizens
hiding their money there? Is that a three year rating or a lot of times four?
Most of the real tax havens aren't in the index, like Cayman, for example. Lichtenstein is not in the index.
Lichtenstein didn't even have GDP calculated until about five years ago. God bless them.
The little side story, I was drinking with the Prince of Lichtenstein once, how's that cool?
In his castle, and he said that he had fought, he's a banker by day, but he's actually the prince of the country also.
also. And he says, well, I fought them. I fought them and fought them and fought them.
They finally made us start calculating GDP. This is a couple of years ago. So the real
tax havens, we don't know where they really rank. I'm sure they're all Hong Kong-like
though. But the Bahamas, for example, is not. I mean, Bahamas is a terrible place to hide
your money. They're corrupt. They have capital controls. It's not a tax haven in any sense.
It's surprising they shouldn't be. If they had half an ounce of brains down there, they would be a tax haven, because that would be a great asset for them.
They have beaches, and if they could combine their beaches with some good safe banking, that would be a great asset, but they actually are horrible.
It's a very difficult place to park your money.
Caymans, I'm sure, would do well, but we don't...
We do resident Luxembourg and they score, you know, I'm going to guess 16 or 17 or 20. They're in that, they're in that tier, but you know, they're also a social welfare state. I'm sure they have national health, they have high taxes, they've got all the usual pathologies of Western Europe that Switzerland and Liechtenstein managed to avoid, for the most, relatively speaking, managed to avoid. But Luxembourg is very French in its approach, really. Belgian, really. Same thing.
In your definition of what a free country is, you factor in when a government prohibits something out of a mix of people like example frauds, does that factor in?
There's really no variation there. Essentially, with minor variations like Holland, it's prohibited everywhere, so adding a variable that is a column of zeros doesn't do anything to the index.
So for us, one of the criteria that we look for when we think about a variable in the index is we're looking for variation. There has to be some countries that do it right and some that don't.
And in drug policy, everybody does it wrong, from a libertarian point of view.
Now, one of the things I sort of worry about sometimes is what would happen if a few countries did actually liberalize in a real way, not even like the stupid Netherlands way.
But then, what would happen? I suspect one of my co-authors would not be real happy with that. He's kind of a more conservative guy.
But the answer for me is I would push to include such a variable if it became meaningful to do so.
It would have no meaning in the index today. Again, if 20 countries tomorrow said we're going to legalize drugs so that we would have like 10, 20 with 10s and the rest with 0s, I would push to include that in the index.
We have some variables that are almost like that, that are almost zero ones. I mean, you have or you don't. One example is conscription. We have military conscription, one of the 42 variables.
This is somewhat in homage to Milton Friedman, who was a big figure in eliminating the draft in the United States.
But, I mean, it's a violation of economic freedom to take your body and force you to go into the army.
It's a violation, a clear violation of economic freedom, and it's something that leftists should applaud.
So again, I would include drugs. If we had anybody legalizing drugs, I'd include it, but I'm not going to hold my breath for that either. I'm afraid it'd be hard to even score places like Netherlands, where it's such a half-assed legalization.
you can do it on like that street but not that it's just very I don't even know
if you can how I would score a place like Holland I mean guess it's like a
it's not a ten it's a that's the other thing is the measurement issue would be
an issue for us how about one more question or no more yeah
Where would the Federal Reserve, missing out a lot of money to other central banks, where would that play in?
monetary reserves that ended up creating M1 type money, it would show up in the index as well.
You know, again, time will tell. I'm holding my breath on that. I don't know.
I'm not 100% willing to say we're going to have inflation.
I guess if you forced me to bet, I would say, yeah, we're going to have some pretty serious inflation.
It's hard to imagine how we avoid it, but, you know, and to the extent that was exported around the world, it should show up, and it'll show up. If it shows up, it'll show up.
I don't know, though, until I see it. There are some pretty reasonable people who are smart who say it may not be as inflationary as it appears to be on paper, but I mean, the Fed's balance sheet is a scary thing.
I didn't pull up the Wi-Fi, but you got to take a look at the Fed's balance sheet, it's just, I mean, it's just, I mean, it's, you know, it went vertical, I mean, it's just the shockiest thing in the world, and it's not, it's not treasury bills, it's all kinds of crap that they're holding that I don't, I don't even know what that stuff's worth. I mean, actually, I hope it's worth nothing, because if it's worth nothing, then maybe it didn't go up as high as it. I mean, I hope the Fed lost all that money, really,
That would not be inflationary, maybe, I don't know.
Alright, thanks.