WEBVTT NOTE The Role of Freedom in Economic Well Being: A Look at Evidence 1 00:00:00.000 --> 00:00:05.000 Since Ed mentioned that I'm from New Orleans, I have to tell you my New Orleans joke. 2 00:00:05.000 --> 00:00:11.000 George Bush was thinking of invading New Orleans because we have all sorts of weapons of mass destruction 3 00:00:11.000 --> 00:00:15.000 and chemical weapons like Tabasco saw, gumball, and things like that. 4 00:00:15.000 --> 00:00:18.000 And some moderate member of his administration said, 5 00:00:18.000 --> 00:00:25.000 No, no, George, don't invade. Send inspectors as a moderate way of doing that. 6 00:00:25.000 --> 00:00:29.000 And George said, No, no, no, we tried that. We sent inspectors down there. 7 00:00:29.000 --> 00:00:44.000 The talk that I'll be giving today is based on a book that I co-authored with James Wardney and Robert Lawson called Economic Freedom in the World. 8 00:00:44.000 --> 00:00:53.000 Before I go any further, I'm going to be showing some slides later and I looked at them from the back of the room and you can't see them. 9 00:00:53.000 --> 00:01:02.000 So I would ask everyone who's not in the first 10, 12 rows to come down this way if you want to see what I'll be putting up. 10 00:01:02.000 --> 00:01:09.000 And I'm told that there will be test exam questions based on this stuff, so you better get down here so you can see it. 11 00:01:09.000 --> 00:01:15.000 Because it's silly to attend a lecture and not be able to see what the lecturer is trying to show you. 12 00:01:15.000 --> 00:01:32.000 So please, let's say that guy in the back with the yellow shirt and the part with the black, if you're in front of them, you're okay, but if you're behind them, you're not going to be able to see, so please come on down toward the front. 13 00:01:32.000 --> 00:01:42.000 I'll be showing these in about five minutes, so you've got some time to get down toward the front. 14 00:01:42.000 --> 00:01:47.000 What we did in this book is we constructed an index of economic freedom. 15 00:01:47.000 --> 00:01:52.000 We compared 102 countries on the basis of how much economic freedom they had. 16 00:01:52.000 --> 00:02:00.000 And then we correlated economic freedom to try to see if there's any cause or effect relationship between economic freedom and GDP, 17 00:02:00.000 --> 00:02:07.000 or change in GDP, or life expectancy, or income equality, or a whole host of other variables. 18 00:02:07.000 --> 00:02:19.000 That in a nutshell is what we did, but before explaining and going into the statistical details, which I'll be putting up on the screen, I want to talk a little bit for a few minutes about why we did this. 19 00:02:19.000 --> 00:02:24.000 One of the motivating forces for me is a group called Freedom House. 20 00:02:24.000 --> 00:02:32.000 Now, Freedom House has done yielding work and good work in trying to measure not economic freedom but civil liberties and political freedom. 21 00:02:32.000 --> 00:02:44.000 Is there a fair trial in the country? Is there voting allowed? Are there juries of your peers? Is habeas corpus upheld? Do they engage in torture? Is there a rule of law? Things like that. 22 00:02:44.000 --> 00:02:51.000 And on those issues, which you'd call maybe political or civil liberties freedom, they were pretty good. 23 00:02:51.000 --> 00:03:00.000 I had no real objections, even though there was sort of a pinko-lefty group and I'm not usually associated with pinko-lefties, but on this they were pretty good. 24 00:03:00.000 --> 00:03:08.000 Sort of like American Civil Liberties Union. They're good on some free speech issues, but you can only go so far. 25 00:03:08.000 --> 00:03:12.000 But then what the Freedom House did is they launched a new initiative. 26 00:03:12.000 --> 00:03:16.000 And in this new initiative, they were now going to measure economic freedom, 27 00:03:16.000 --> 00:03:20.000 which is a big departure from political freedom or civil liberties freedom. 28 00:03:20.000 --> 00:03:22.000 They're now going to do economic freedom. 29 00:03:22.000 --> 00:03:24.000 And what do they mean by economic freedom? 30 00:03:24.000 --> 00:03:27.000 Well, what they mean by economic freedom is high taxes. 31 00:03:27.000 --> 00:03:57.000 The more economic freedom, or the more welfare payments, the more economic freedom, or the greater the percentage of workers unionized, the more the economic freedom, or if there's environmental protection, I don't mean private property rights, environmental protection, I mean, you know, there's watermelon environmentalists, watermelons who are green on the outside but red on the inside, the economy environmentalists, so that was their vision of economic freedom, and my thought was that if they get away with this, given their 32 00:03:57.000 --> 00:04:07.000 They would then veer the conversation toward this sort of a definition of economic freedom. 33 00:04:07.000 --> 00:04:11.000 And that's the last thing I wanted because I don't believe that that's really what economic freedom is. 34 00:04:11.000 --> 00:04:19.000 Another motivation for going to this book is to write what I thought I saw as an imbalance. 35 00:04:19.000 --> 00:04:23.000 Now, there is a branch of economics called economic development. 36 00:04:23.000 --> 00:04:31.000 Not every school has a course on that. I don't know if you have a course on that here, but if not, I'm sure you implicitly cover that in other courses. 37 00:04:31.000 --> 00:04:45.000 And what it is, is addressing the question is, why is it that we in the West have lights, comfortable existence, you can buy food very cheaply, we live a pretty good life. 38 00:04:45.000 --> 00:04:52.000 I mean, we might not all have Maseratis and Volkswagen, but we can get a Volkswagen or a ten-year-old in the water that gets us around. 39 00:04:52.000 --> 00:05:05.000 Where as in other countries, they're really on the verge of starvation. They have no electricity. Here everyone's got a TV, a radio, a fan, a telephone. 40 00:05:05.000 --> 00:05:16.000 In many countries of the world they don't have these things. Why? Are we so bloody smart? Or is it that we're efficient? Or is it that we have equity? 41 00:05:16.000 --> 00:05:33.000 So, to remind you of the subcategory of economics that addresses itself to these questions is that 90% they think it's efficiency, 9%, this is just numbers right off the top of my head, is equity, and 1% is freedom or economic liberty. 42 00:05:33.000 --> 00:05:45.000 Whereas the way I see it, economic liberty is way, way more important as an explanatory variable for why we have reasonable standards of living, we're not all Bill Gates, we don't have mansions, we don't have a tennis court, 43 00:05:45.000 --> 00:05:50.000 and so on, but by and large, world standards were doing pretty well. 44 00:05:50.000 --> 00:05:52.000 Why is it I contend it's because of economic freedom? 45 00:05:52.000 --> 00:05:58.000 So I'm very passionately interested in measuring what economic freedom is. 46 00:05:58.000 --> 00:06:01.000 Another reason is that economists love to correlate things. 47 00:06:01.000 --> 00:06:06.000 I mean, if you're going to be given econometric tools, you might as well try to correlate things. 48 00:06:06.000 --> 00:06:09.000 Well, the more variables the better, so you can correlate one more. 49 00:06:09.000 --> 00:06:13.000 It makes students' lives miserable, because you have one more variable now to worry about 50 00:06:13.000 --> 00:06:30.600 Another reason is, why climb Mount Everest, because it's there, well, why construct the 51 00:06:30.600 --> 00:06:36.200 newly-next of economic freedom, because it's there in our minds, and we want to give substance 52 00:06:36.200 --> 00:06:40.600 to what's in our minds, put it on paper, make people talk about it, or entice people to 53 00:06:40.600 --> 00:06:57.600 A little bit more about economic development. A lot of the mainstream people think that the way of economic development is government, government, government, have infrastructure, highways, ports, things like that, foreign aid is a big thing. 54 00:06:57.600 --> 00:07:05.600 They say that the more foreign aid an undeveloped country gets, the more economic development you don't have. Socialism sometimes. 55 00:07:05.600 --> 00:07:22.600 The special advisors to underdeveloped countries who have taken the time and trouble to acclaim themselves with a problem all recommend central planning as the first condition of promise. 56 00:07:35.600 --> 00:07:48.600 and we were trying to argue with that. People who, in addition to Myrdal, who are famous for this sort of a thing are F.Z. Delmar and Walter Blosdell. 57 00:07:48.600 --> 00:08:02.600 My favorite economist in the development area is the late Peter Bauer. Peter Bauer was my favorite developmental economic economist. 58 00:08:02.600 --> 00:08:07.600 And he had a very different view as to what creates economic development in these third world countries. 59 00:08:07.600 --> 00:08:11.600 And in his view, it was free enterprise and economic liberty. 60 00:08:11.600 --> 00:08:19.600 Another reason for pushing to get an index which would measure what had been or not been measured. 61 00:08:19.600 --> 00:08:23.600 Peter Bauer is famous for the three M's. 62 00:08:23.600 --> 00:08:27.600 You've heard of M&M candy? Well, this is M&M&M. 63 00:08:27.600 --> 00:08:34.600 And his three M's were in an attempt to indicate what the result of foreign aid was. 64 00:08:34.600 --> 00:08:43.600 And the three M's were first, monuments, second, Mercedeses, and third, machine guns. 65 00:08:43.600 --> 00:08:47.600 And that's what he said that most foreign aid like people are, and I think that's true. 66 00:08:47.600 --> 00:08:51.600 Now it doesn't have to be a monument, it doesn't have to be a statue to the dictator. 67 00:08:51.600 --> 00:08:57.600 It could be a steel bill that makes steel that costs five times as much as the steel that you could import. 68 00:08:57.600 --> 00:09:05.600 Or it could be an airline that has charges, prices due to this so inefficient that ten times the price of any other airline that could have come into the country. 69 00:09:05.600 --> 00:09:07.600 Monuments. 70 00:09:07.600 --> 00:09:10.600 Mercedes is, well that's what the dictators would drive around in. 71 00:09:10.600 --> 00:09:15.600 And we all know what they use machine guns for to keep the people down. 72 00:09:15.600 --> 00:09:23.600 So that's his view of economic development, foreign aid subcategory, and I agree with him entirely. 73 00:09:28.600 --> 00:09:37.600 If one of you wake up tomorrow and find that you're the president, the prime minister, the dictator of a third world country, 74 00:09:37.600 --> 00:09:44.600 if you attend this lecture and pay attention to it, you'll know what to do to bring your country into economic prosperity. 75 00:09:44.600 --> 00:09:57.600 And don't think that this is impossible, you know, we have Star Trek, we have X-Files, we have all sorts of weird things, you know, we have these movies where someone was an actor, a big heavy guy became king of England, so it can happen to you. 76 00:09:57.600 --> 00:10:09.600 And if it happens to you, thanks to this lecture, hopefully, you will have a much better idea of how to lead your country into prosperity and away from starvation and warfare and other horrible things. 77 00:10:09.600 --> 00:10:24.600 namely, to promote economic freedom, which is a lot easier than getting more technology or more education or more investment, all those things cost resources. 78 00:10:24.600 --> 00:10:31.600 It takes a lot of effort to get new investment into the country or to teach people. Education obviously will help. 79 00:10:31.600 --> 00:10:37.600 But economic freedom is the sort of thing that you can do with a snap of a finger. All you have to do is change the laws. 80 00:10:37.600 --> 00:10:43.600 Now, it's not that easy, because the minds of the people are pretty indicative of what's going to happen. 81 00:10:43.600 --> 00:10:51.600 My colleague, Jeff Hummel, is never tired of saying something that has inspired me, namely that the pen is mightier than the sword. 82 00:10:51.600 --> 00:10:54.600 Why does Jeff say that the pen is mightier than the sword? 83 00:10:54.600 --> 00:11:01.600 If you think of a duel between a pen, which is as big as my finger, and a sword, which is as big as my arm, you'd think that the sword would beat the pen. 84 00:11:01.600 --> 00:11:07.600 Professor Hummel's point is that the pen determines in which way the sword is aimed. 85 00:11:07.600 --> 00:11:12.600 If you can convince people's hearts and minds, the sword turns around. 86 00:11:12.600 --> 00:11:15.600 So in that sense, the pen is much mightier than the sword. 87 00:11:15.600 --> 00:11:18.600 And what I'm peddling here is pens, not swords. 88 00:11:18.600 --> 00:11:27.600 The hope is that you can take these ideas and utilize them with the benefit of mankind. 89 00:11:27.600 --> 00:11:31.600 Another motivation for writing this book was to promote economic freedom. 90 00:11:31.600 --> 00:11:37.600 To promote freedom. Does freedom consist of welfare rights? Does freedom consist of equal income? 91 00:11:37.600 --> 00:11:41.600 Or egalitarianism? I don't think so. I think freedom is something different. 92 00:11:41.600 --> 00:11:45.600 Non-invention, non-aggression. 93 00:11:45.600 --> 00:11:53.600 And also, my last motivation, as I'm listing motivation, is that a statistic tends to lend reality to a concept. 94 00:11:53.600 --> 00:12:00.600 Before unemployment was measured, the concept of unemployment was more vague and nebulous than it was after we could measure it. 95 00:12:00.600 --> 00:12:06.600 It's still real to individual people, but when you measure it, it adds some more impetus. 96 00:12:06.600 --> 00:12:13.600 Well, my hope is that when you measure economic freedom, it'll make economic freedom come more alive than it would otherwise be. 97 00:12:13.600 --> 00:12:18.600 Okay, so those are the motivations, and now let me discuss what I think economic freedom is. 98 00:12:18.600 --> 00:12:23.600 As a rough approximation, anyone should be free to do anything they damn well please, 99 00:12:23.600 --> 00:12:29.600 provided only that they respect the equal rights of everyone else to do the same with their person in property. 100 00:12:29.600 --> 00:12:35.600 So the free market consists of the concatenation of all voluntary events. 101 00:12:35.600 --> 00:12:43.600 If I trade you my time for your wristwatch, it must mean on your part that you value the time 102 00:12:43.600 --> 00:12:48.600 I'm more than the wristwatch you give up, and you gain the difference between them and your evaluation. 103 00:12:48.600 --> 00:12:52.600 And it must mean that if I am willing to give up my time for your wristwatch, 104 00:12:52.600 --> 00:12:55.600 that I value your wristwatch more than the time that I'm giving up. 105 00:12:55.600 --> 00:13:02.600 So we both gain. Markets are mutual benefit machines, if I can call them that. 106 00:13:02.600 --> 00:13:07.600 Markets are not exploitation. There's no exploitation. This is the way we cooperate with each other. 107 00:13:07.600 --> 00:13:11.600 And that's exactly what a market is, this sort of bar for a wristwatch for its time. 108 00:13:11.600 --> 00:13:24.600 And every market incident is just like that. I buy a newspaper for a dollar. It must mean that I value the newspaper more than a dollar, otherwise I wouldn't give up a dollar for it. 109 00:13:24.600 --> 00:13:31.600 It must mean that the news vendor values the newspaper less than a dollar. He's got tons of around, he's happy to take a dollar for his newspaper. 110 00:13:31.600 --> 00:13:41.600 I go to work for $20,000. It must mean that my employer values my labor services more than $20,000 and I value them less than my four-door leisure. 111 00:13:41.600 --> 00:13:46.600 So that's what the market is. It's voluntary trade based on private property. 112 00:13:46.600 --> 00:13:51.600 And economic freedom is just the right of everyone to engage in market transactions. 113 00:13:51.600 --> 00:13:55.600 Okay, those are market transactions. What's a non-market transaction? 114 00:13:55.600 --> 00:14:06.600 A non-market transaction is conversion. It's punching. It's shooting. It's raping. It's murdering. It's stealing. It's committing fraud. It's committing counterfeiting. 115 00:14:06.600 --> 00:14:13.600 There are many, many ways of... No, there are only two ways that we can interact with each other. 116 00:14:13.600 --> 00:14:21.600 One is the voluntary, sometimes called the economic means, where it's based on mutuality and agreement and voluntariness. 117 00:14:21.600 --> 00:14:24.600 That's one way we can interact with each other. 118 00:14:24.600 --> 00:14:29.600 And the other way we can interact with each other is punch each other and grab their stuff. 119 00:14:29.600 --> 00:14:35.600 And what economic freedom says is, let's interact in the first way. The first way is a good way. 120 00:14:35.600 --> 00:14:41.600 The second way is not a good way. 121 00:14:41.600 --> 00:14:46.600 If I had a blackboard here, which I don't, then I ought to. 122 00:14:46.600 --> 00:14:48.600 We're not going to be able to make it. 123 00:14:48.600 --> 00:14:51.600 Wait, wait, wait. Let me move the blackboard. 124 00:14:51.600 --> 00:14:53.600 Move the blackboard towards me. 125 00:15:05.600 --> 00:15:07.600 I didn't. I didn't. 126 00:15:07.600 --> 00:15:10.600 I think I have some way where I can... 127 00:15:10.600 --> 00:15:12.600 Sort of like an attack ball. 128 00:15:12.600 --> 00:15:14.600 You don't have to worry because I can't go... 129 00:15:14.600 --> 00:15:34.600 What some economists do is they draw a curve like this, and this is the percentage of government involved in the economy, and this is economic freedom. 130 00:15:34.600 --> 00:15:40.600 And the contention is, and here we'll see, we'll say 10 percent. 131 00:15:40.600 --> 00:15:43.600 10 percent of the economy is run by government. 132 00:15:43.600 --> 00:15:49.600 And what the contention underlying this book is, is that once you get past this point, 133 00:15:49.600 --> 00:15:53.600 the more government you have, the less economic freedom. 134 00:15:53.600 --> 00:15:57.600 Now there's some people that say that the curve goes like this. 135 00:15:57.600 --> 00:16:15.760 There are other people who say, no, no, no, the curve goes down this way, namely the more 136 00:16:15.760 --> 00:16:20.000 government you have at any range, the less economic freedom, or the less government, 137 00:16:20.000 --> 00:16:24.000 the more economic freedom, and I'm not going to be involved in this range of things, I'm 138 00:16:24.000 --> 00:16:34.000 I'm just concerned we're this way, namely, when government gets past a certain point, the more you have of it, the less economic freedom you have. 139 00:16:34.000 --> 00:16:41.000 Okay, I don't think that there's too much dispute, at least at this point. 140 00:16:41.000 --> 00:16:51.000 Most people, most economists, most economic students, would tend to agree that roughly what I said is correct, they might disagree on some jot or a tittle, 141 00:16:51.000 --> 00:16:59.000 But mainly economic freedom consists of engaging in market activities and non-coercive, non-invasive kinds of activities. 142 00:16:59.000 --> 00:17:04.000 But how do you operationalize this? So far I've just been giving you the theory that talk is cheap. 143 00:17:04.000 --> 00:17:09.000 How do we get down to the nitty-gritty? How do we get a statistic up? 144 00:17:09.000 --> 00:17:16.000 Well, the way we did it was on the basis of 17 sub-components based on four categories. 145 00:17:16.000 --> 00:17:24.000 And before I tell you what they are specifically, they have to meet the following criteria. 146 00:17:24.000 --> 00:17:28.000 First, they have to be objective. They can't be subjective. They can't say, 147 00:17:28.000 --> 00:17:31.000 well, there's more freedom here than there because I feel freer here than there, 148 00:17:31.000 --> 00:17:36.000 because you can't, operational wise, you can't give a number to feelings. 149 00:17:36.000 --> 00:17:42.000 So you have to have some sort of number. I'm losing myself here. 150 00:17:42.000 --> 00:17:55.000 It has to be duplicatable. Namely, we did it, other researchers should be able to get the same numbers as we got if they apply it to our definitions. 151 00:17:55.000 --> 00:18:05.000 Second criteria has to be updatable. Namely, not only do we want to measure economic freedom at a certain point in time, we also want to have what's called a time series. 152 00:18:05.000 --> 00:18:33.000 The third is we want to have a large number of countries. We don't want to just have ten countries, but the more criteria we have, the fewer the countries will have, because each criteria, not every country, will have each statistic that we want. 153 00:18:33.000 --> 00:18:39.000 For instance, in the first iteration of this book, and there have been several subsequent publications, 154 00:18:39.000 --> 00:18:41.000 we couldn't include China. 155 00:18:41.000 --> 00:18:45.000 And that's a problem, because China is one of the biggest countries by population. 156 00:18:45.000 --> 00:18:47.000 It's not the biggest country in the world. 157 00:18:47.000 --> 00:18:52.000 But they didn't have the 17 criteria that we thought were important, so we couldn't include them. 158 00:18:52.000 --> 00:18:54.000 Later on, they were able to. 159 00:18:54.000 --> 00:19:04.000 Okay, what I'm going to do now is show you the results of our research. 160 00:19:04.000 --> 00:19:08.000 Namely, we're going to rank all the countries in the world in terms of economic freedom. 161 00:19:08.000 --> 00:19:16.000 And then later I'll tell you what these 17 criteria are on the basis of which we generated these rankings of the various countries. 162 00:19:16.000 --> 00:19:30.000 So here comes the first flyer. And it's for this reason that I ask people to move forward because they're not going to be able to see everything as clearly as they might be able to see it. 163 00:19:30.000 --> 00:19:58.000 As you can see, the freest country in the world is Hong Kong with a 9.2. If you can't see this stuff, please look forward, you won't be interrupting anyone, and maybe your eyes are better than mine, but mine was in the middle of a place I couldn't see, so please feel free to move up if you can't see this stuff. 164 00:19:58.000 --> 00:20:05.000 Again, I hold this thread over you, that if you don't get these things, you have to memorize every statistic here, otherwise you're going to fail the course. 165 00:20:05.000 --> 00:20:13.000 I'm just kidding, I'm just kidding. You don't have to memorize every statistic, but it's silly to attend a lecture and not be able to see what the lecturer is asking you to say. 166 00:20:13.000 --> 00:20:20.000 I apologize for not making this bigger, but I've never lectured on this in such a big room, and that's the way there could be troubles on that. 167 00:20:20.000 --> 00:20:35.000 So Hong Kong is the freest country. It gets a 9.2 out of a 10 on a 10 point scale. The best you can get is a 10, the worst you can get is a 0. Hong Kong leaves the pack with a 9.2. 168 00:20:35.000 --> 00:20:44.000 Singapore is 8.2. This is when Hong Kong was a country. This was in 1995, long before they became a province of China. 169 00:20:44.000 --> 00:21:03.000 Third is New Zealand. Some people are fond of saying that the United States is the freest country in the world. Well, according to our research, they're only the fourth freest country, or weirdly, only the fourth freest country. Other very free countries, relatively speaking, are Switzerland, Malaysia, United Kingdom, Thailand, Canada, Japan, and Australia. 170 00:21:03.000 --> 00:21:12.360 At the bottom of the pack, the last 10 countries or so are Zimbabwe, Hungary, Nicaragua, Brazil, 171 00:21:12.360 --> 00:21:18.360 Burundi, Ivory Coast, Romania, Haiti, Syria, Iran, Algeria, Saida, and Somalia. 172 00:21:18.360 --> 00:21:22.360 These countries have ratings 3 out of 10 or less. 173 00:21:22.360 --> 00:21:26.360 Now, I have another way of doing this. 174 00:21:26.360 --> 00:21:31.560 It's based on the weighting system, and this is one way of doing it, but we had a slightly 175 00:21:31.560 --> 00:21:36.560 This is a slightly different way of looking at this. 176 00:21:36.560 --> 00:21:45.560 Again, Hong Kong is number one, and Singapore is number two, and New Zealand is number one. 177 00:21:45.560 --> 00:21:53.560 On this one, Hong Kong is number one, New Zealand takes over the number two spot, and New Zealand and Singapore switch around. 178 00:21:53.560 --> 00:22:00.560 The reason for this slightly different way of looking at it is based on the weightings of the 17 criteria. 179 00:22:00.560 --> 00:22:06.560 If you have 17 criteria, the obvious question is, well, how do you weight them? 180 00:22:06.560 --> 00:22:13.560 The first way is you weight them all by weight. Not w-a-i-t, but w-e-i-g-h. 181 00:22:13.560 --> 00:22:16.560 How important are each of the components? 182 00:22:16.560 --> 00:22:20.560 Now the obvious and easy first crack at it is that they're all equal. 183 00:22:20.560 --> 00:22:27.560 All 17 get one-seventeenth of the weight of the overall index. 184 00:22:27.560 --> 00:22:47.560 Another way to weigh this, and we've tried several different ways, one is based on the inverse of the standard deviation, namely the ones where the countries are very diverse, we give less weight to those, and the ones where they're more narrow, the variance of the standard deviation is narrow, but we give a bigger weight, that's one way of doing it. 185 00:22:47.560 --> 00:23:04.560 Another way of doing it is we took a survey of people in the Ron Pellerman Society, which is an organization which has three enterprise types, and we just said, well, here are our 17 criteria, what do you think is the most important, and all the weight should add to 100, obviously. 186 00:23:04.560 --> 00:23:13.560 So we have different ways of doing this, and on the first one, countries like France and Denmark were timed for 32. 187 00:23:13.560 --> 00:23:17.560 Here, Denmark is 16 and France is 20. 188 00:23:17.560 --> 00:23:25.560 And the reason for it is that this one here, the one that's now on the board, has less weight to transfers. 189 00:23:25.560 --> 00:23:33.560 Because one of the indices or indications of lack of economic freedom is the government taking money from Peter and giving to Paul. 190 00:23:33.560 --> 00:23:50.560 And Denmark and France do that a lot. So this one, they're ranked higher because this doesn't give as much weight to income transfers as the other one, which ranked them lower, does. Is that clear? 191 00:23:50.560 --> 00:23:57.560 If you're using a weighting system that gives great weight to income transfers, then negative. 192 00:23:57.560 --> 00:24:01.560 Then countries like France and Denmark that do it will be lower. 193 00:24:01.560 --> 00:24:06.560 Here, they're a little bit higher. This will give you a little less weight to that criteria. 194 00:24:06.560 --> 00:24:27.560 Here is an indication of the weights. Those are the 17 criteria up and down, monetary expansion, etc. I'll get into these 17 in a little bit. 195 00:24:27.560 --> 00:24:32.560 We have different ways of doing it. The first way is the standard deviation way. 196 00:24:32.560 --> 00:24:45.560 And then we had various surveys. The first one is E for equal, and the other two were one survey of the Montgomery Society, one survey of the people that worked with us in generating this volume of research. 197 00:24:46.560 --> 00:24:52.560 Okay, now at long last, I'm ready to get into the 17th criteria. 198 00:24:56.560 --> 00:25:00.560 I must be dyslexic or something. Let's stroll along. 199 00:25:02.560 --> 00:25:10.560 Getting this going. What I'm going to do is go over the 17 illustrated with four different countries. 200 00:25:10.560 --> 00:25:17.560 The first country is the United States, and I'm going to illustrate the first four, namely money and inflation. 201 00:25:17.560 --> 00:25:23.560 And I'll talk about rule two, three, and four, illustrating the different countries. 202 00:25:23.560 --> 00:25:29.560 Okay, so what's going on here? You can see that the United States is a pretty free country. 203 00:25:29.560 --> 00:25:39.560 In 1975, we had a 6.0. Can you see that? If you can't see it, move forward. I'll continue over the frame. 204 00:25:39.560 --> 00:25:48.560 It went up to 6.2, 6.5, 7.177 in 1993-95, the last year for which we had data at this time. 205 00:25:48.560 --> 00:25:54.560 So, the United States is pretty free with the 4th greatest in the world, and we're getting freer over time. 206 00:25:54.560 --> 00:26:08.560 The summary ratings to the left of that indicate the various waiting schemes for the various years. 207 00:26:08.560 --> 00:26:12.560 But now let me talk about the four components of money. 208 00:26:12.560 --> 00:26:19.560 The four main headings are money, government operation, free takings, and for the international sector. 209 00:26:19.560 --> 00:26:22.560 First, money. 210 00:26:22.560 --> 00:26:26.060 What we're saying is that money is an important part of economic freedom. 211 00:26:26.060 --> 00:26:28.060 Money is the lifeblood of the economy. 212 00:26:28.060 --> 00:26:31.560 Money is to the economy as the bloodstream is to the body. 213 00:26:31.560 --> 00:26:36.060 The bloodstream circulating facilitates movement. 214 00:26:36.060 --> 00:26:38.560 Well, money facilitates trade. 215 00:26:38.560 --> 00:26:43.060 It's very hard to trade the swatches for time. 216 00:26:43.060 --> 00:26:46.060 The problem is that all coincidence of wants, 217 00:26:46.060 --> 00:26:49.060 if I have a chicken and I want a pickle, 218 00:26:49.060 --> 00:26:55.060 You know the odds of finding a pickling chicken hunter? Very low. 219 00:26:55.060 --> 00:27:02.060 So what I do, instead of looking for a guy who's got a pickle and wants a chicken, is I make a two-stage trade. 220 00:27:02.060 --> 00:27:10.060 First, instead of bar, this is the beginning of money, first I trade in my chicken for something that I think will be acceptable to most people. 221 00:27:10.060 --> 00:27:19.060 It could be fish hooks, it could be silver, it could be calorie shells, and in history various things have functioned as the money. 222 00:27:19.060 --> 00:27:22.060 And then I take the money and then I go buy pickles. 223 00:27:22.060 --> 00:27:27.060 Now you think it's difficult, it's silly on my part to make two trades when I could have made one, 224 00:27:27.060 --> 00:27:34.060 but due to the lack of dull coincidence at once, it would be very hard to trade pickles for chickens. 225 00:27:34.060 --> 00:27:42.060 Much easier to go chickens to, I don't know what, the silk, and then silk for the pickle. 226 00:27:42.060 --> 00:27:47.060 Now, over the course of history, various things have tried to be money. 227 00:27:47.060 --> 00:27:51.060 You can see why bananas wouldn't make a good money, because they get rotten. 228 00:27:51.060 --> 00:27:55.060 You know, who must be left holding the banana when it gets rotten? 229 00:27:55.060 --> 00:27:58.060 So, certain things are good monies and certain things are bad monies. 230 00:27:58.060 --> 00:28:05.060 And in the free enterprise community, one of the best things that ever became money was gold. 231 00:28:05.060 --> 00:28:08.060 Gold is good because it's portable. 232 00:28:08.060 --> 00:28:13.060 Cement isn't portable because per unit value, you need a ton of it to make any value at all, 233 00:28:13.060 --> 00:28:18.060 and it's hard to transport a ton of cement, whereas an ounce of gold would be worth as much as that, 234 00:28:18.060 --> 00:28:20.060 or a tenth of an ounce of gold. 235 00:28:20.060 --> 00:28:25.060 Plus gold is malleable, you can cut it pretty easily without losing value. 236 00:28:25.060 --> 00:28:34.060 Diamonds, you can't make small change in, because if you break up a diamond, the two halves are not equal to all, they're equal to much less value than the whole, 237 00:28:34.060 --> 00:28:39.060 whereas if you break up a gold bar, the two bits of it are equally valuable as the whole thing. 238 00:28:39.060 --> 00:28:51.060 So, gold had advantages that other materials didn't have, and in the heyday of free enterprise in the, I guess, 18th and 19th century, gold was pretty much the money. 239 00:28:51.060 --> 00:28:54.060 How many countries are on the gold standard now? 240 00:28:54.060 --> 00:28:55.060 None. 241 00:28:55.060 --> 00:28:59.060 So what we could have done is given every country a zero. 242 00:28:59.060 --> 00:29:01.060 I mean, that would be the just solution. 243 00:29:01.060 --> 00:29:02.060 Give all a zero. 244 00:29:02.060 --> 00:29:03.060 That would. 245 00:29:03.060 --> 00:29:05.060 There are a bunch of commie pinkos, you know. 246 00:29:05.060 --> 00:29:06.060 They get a zero. 247 00:29:06.060 --> 00:29:08.060 But let's get back to reality. 248 00:29:08.060 --> 00:29:11.060 What we're trying to do is distinguish between countries. 249 00:29:11.060 --> 00:29:17.060 And if we give all countries a zero, we might as well toss that criteria out, 250 00:29:17.060 --> 00:29:20.060 because it doesn't make any distinctions between countries. 251 00:29:20.060 --> 00:29:31.060 So when you get into empirical research, it's a lot dirtier than pure theory. You have to make compromises, you have to sell out, you have to do all sorts of things. And we did it. 252 00:29:31.060 --> 00:29:37.060 What we said is, look, one of the bad things that the government does with money is it inflates it. 253 00:29:37.060 --> 00:29:52.060 One of the, and this is serious business, you might think, well, you know, it's a little boring crap economics, but you know, it's really important, because one of the causes of World War II was the German hyperinflation of 1923, which ruined the German economy, which allowed Hitler to come in. 254 00:29:52.060 --> 00:29:59.060 Now, I'm not saying that we know antecedents to that. Historians might say, well, it's the Treaty of Versailles, maybe you can go back further. 255 00:29:59.060 --> 00:30:08.060 But the economic cause of Hitler's rise was the hyperinflation of the 1923, where the value of the money just dissipated. 256 00:30:08.060 --> 00:30:15.060 People would take wheelbarrows full of money to buy a loaf of bread, and instead of working on producing things, they were oriented. 257 00:30:15.060 --> 00:30:21.060 It's as if the blood wasn't circulating. You sort of have to push the blood around instead of it automatically circulating. 258 00:30:21.060 --> 00:30:25.060 So the whole economy sort of bombed around. 259 00:30:25.060 --> 00:30:29.060 So one of the worst things that a government can do with money is inflate. 260 00:30:29.060 --> 00:30:35.060 Now again, we can't give every country a zero because that's in effect saying we're not using that criterion. 261 00:30:35.060 --> 00:30:39.060 We need some monetary criteria. So we decided inflation. 262 00:30:39.060 --> 00:30:45.060 The higher the inflation, the lower the value the country got in terms of the monetary freedom. 263 00:30:45.060 --> 00:30:51.060 It's a little bit of a reach because it's not exactly directly related, but that's what we did. 264 00:30:51.060 --> 00:31:04.060 The second criteria is inflation variability. The more variable the inflation, the worse, because people depend upon money to do a certain job, and if the value of it keeps going up and down wildly, it's not going to do its job. 265 00:31:04.060 --> 00:31:14.060 The third one is ownership of foreign currency. By the way, we started at 5.20, I'm supposed to go about 45 minutes, so I've got another 15 minutes, is that right? 266 00:31:14.060 --> 00:31:16.060 15 minutes to 29. 267 00:31:16.060 --> 00:31:20.060 I got 15 minutes, I got 15 more criteria, I'll race right through them. 268 00:31:20.060 --> 00:31:25.060 1c is ownership of foreign currency. This we give a dummy variable. 269 00:31:25.060 --> 00:31:30.060 Either you're allowed to own foreign currency, in which case you get a 10, or you're not, in which case you get a 0. 270 00:31:30.060 --> 00:31:33.060 The fourth one is maintenance of the bank account abroad. 271 00:31:33.060 --> 00:31:37.060 Are you able to maintain a bank account abroad? You get a 10, if not you get a 0. 272 00:31:37.060 --> 00:31:45.060 Okay, so much for the first criteria. We're up to the first four of them. Now I'll use 273 00:31:45.060 --> 00:31:57.060 speed to illustrate the second group, number two, the government operation business. 2A 274 00:31:57.060 --> 00:32:02.060 is government consumption as a percentage of GDP. And by the way, all of our statistics 275 00:32:02.060 --> 00:32:11.060 The statistics are from places like the World Economic Forum, Pricewaterhouse, the World Bank, Freedom House. Freedom House supplies some of the data. 276 00:32:11.060 --> 00:32:17.060 So what we're doing here is not so much creating new data, although we do it in some of the criteria. 277 00:32:17.060 --> 00:32:23.060 What we're doing is using extant data to define economic freedom. 278 00:32:23.060 --> 00:32:30.060 So the higher the percentage of government consumption, the lower the economic freedom. 279 00:32:30.060 --> 00:32:42.060 And you can see that Sweden is doing pretty badly. They get a zero because of, in parentheses, that's the percentage that they use, or percentage of the government in the GDP. 280 00:32:42.060 --> 00:32:54.060 The third one is government enterprises. Do you have a lot of government enterprises? Well, you get a lot more. If you have very few government enterprises, you get a higher market. 281 00:32:54.060 --> 00:33:19.060 2C is price controls. Price controls are a violation of economic freedom. If the government says, no, no, it's got to be two ties for one risk watch, or we have a price control on beer or something like that, or on record units, rent control, that's a lack of economic freedom. That's not allowing people to trade on a mutually agreeable basis. 282 00:33:19.060 --> 00:33:28.060 Entry into business. There's this guy, Hernando de Soto, who wrote very glowingly or very tellingly about Peru. 283 00:33:28.060 --> 00:33:33.060 And what he did is he tried to open up a store in Peru selling, I don't know, shoes or something. 284 00:33:33.060 --> 00:33:39.060 And it took him three years of intensive effort and a lot of bribery to get a legal shoe store open in Peru. 285 00:33:39.060 --> 00:33:44.060 Which is one reason that the Peruvian economy is not a good one. 286 00:33:44.060 --> 00:33:53.060 Whereas here, you want to open up a shoe store, you open up a shoe store. There might be some government permit you have to get, but it takes, you know, 20 bucks in one day. 287 00:33:53.060 --> 00:34:02.060 Places like India, it's like Peru. So you have economic arteriosaparosis, you know, frozen economy, and you just can't open up a business. 288 00:34:02.060 --> 00:34:10.060 And that can't help economic development, and it also is, we operationally define economic freedom in that way. 289 00:34:10.060 --> 00:34:16.060 The legal system, is there a rule of law that does the government just throw you in jail or banning an eyelash? 290 00:34:16.060 --> 00:34:19.060 Well, in Sweden, no, they get a 10. 291 00:34:19.060 --> 00:34:23.060 Notice Sweden in terms of the four major categories. 292 00:34:23.060 --> 00:34:27.060 They get a 6.9 in money and inflation. 293 00:34:27.060 --> 00:34:31.060 They get a 6.7 in government operation, which is pretty good. 294 00:34:31.060 --> 00:34:34.060 They get a 0.5 in takings. They're big takers. 295 00:34:34.060 --> 00:34:37.060 And in the international sector, which I'll get, they get a deep 0.7. 296 00:34:37.060 --> 00:34:43.060 In the 1970s, they were very economically free internationally, which is what you'd expect as Sweden is a small country. 297 00:34:43.060 --> 00:34:48.060 And if they don't engage in international trade, they're not going to have much of an economy. 298 00:34:48.060 --> 00:34:52.060 So a lot of people say Sweden is a socialist economy. They're not. 299 00:34:52.060 --> 00:34:58.060 In three out of four of these criteria, Sweden is a very free enterprise economy, relatively speaking, to other countries. 300 00:34:58.060 --> 00:35:01.060 Not relative to the ideal, but relative to other countries. 301 00:35:01.060 --> 00:35:05.060 It's only in these takings, which I'll get to when I illustrate the next country, 302 00:35:05.060 --> 00:35:11.700 that sweep the falls down because they redistribute a ton of money. That's the big thing. 303 00:35:11.700 --> 00:35:23.700 Okay, the next one we'll get into is redistribution, and here we'll use the case of Israel. 304 00:35:23.700 --> 00:35:27.940 Sorry, I'm losing it. Pretty soon I'm going to start drooling. So you'll love me if I drool again. 305 00:35:27.940 --> 00:35:49.940 The Israeli economy, you'll notice, that the Israeli economy is very, very hungry, and later on you'll see that their income is not very high. 306 00:35:49.940 --> 00:36:01.940 This is an interesting, instructive country, because Israel has probably got a much higher proportion, per capita, of people with an engineering degree, PhDs in chemistry, PhDs in physics. 307 00:36:01.940 --> 00:36:16.940 They're a very smart people. And yet, their economy is intolerable. Part of it is because of the wars, but I think an awful lot of it is because of the socialism that they inherited from the beginning of their country. 308 00:36:16.940 --> 00:36:21.940 Who do you think would win in a regatta, you know, an eight-band show? 309 00:36:21.940 --> 00:36:29.940 Eight little nerds, all rolling in unison, or eight Mike Tysons, all rolling in different directions? 310 00:36:29.940 --> 00:36:37.940 Well, obviously the eight nerds who were coordinated, because the eight Mike Tysons would just cancel each other out. 311 00:36:37.940 --> 00:36:42.940 Well, economically speaking, Israel is like a bunch of Mike Tysons, they're very powerful, they're very strong, 312 00:36:42.940 --> 00:36:47.940 But they are discoordinated, and the price system in economic freedom is the way you coordinate them. 313 00:36:47.940 --> 00:36:55.940 There are two ways to coordinate. One, an orchestra conductor. I conduct you, and now you're the flute, and I tell you to play, and you're the violin, and you play. 314 00:36:55.940 --> 00:37:04.940 I used to play the violin, and every time I'd play a bad note, the guy would turn this baton and say, you know, block, shape up, do it better, and start again. 315 00:37:04.940 --> 00:37:09.940 You know what they did with the wind players? They would tell them when to breathe. 316 00:37:09.940 --> 00:37:12.940 Anyone play a wind instrument here in an orchestra? 317 00:37:12.940 --> 00:37:14.940 It's written in the music when you're supposed to breathe. 318 00:37:14.940 --> 00:37:17.940 Now, you can't get more totalitarian than that. 319 00:37:17.940 --> 00:37:19.940 They didn't tell you when to breathe. 320 00:37:19.940 --> 00:37:24.940 I mean, even doing slavery in 1850, the boss didn't tell the slave when to breathe. 321 00:37:24.940 --> 00:37:26.940 I mean, he could breathe whenever he wanted. 322 00:37:26.940 --> 00:37:29.940 But in an orchestra, they tell you when to breathe. 323 00:37:29.940 --> 00:37:31.940 But it's solitary, so it's okay. 324 00:37:31.940 --> 00:37:42.940 The point is, that's one way to coordinate activity, and the analog of the orchestra is central planning. 325 00:37:42.940 --> 00:37:49.940 Well, what's the decentralized way of coordinating? The decentralized way of coordinating is through the market. 326 00:37:49.940 --> 00:37:55.940 Look, suppose we decide to do a big fat swap, so we've got to stop eating chocolate, we've got to start eating celery. 327 00:37:55.940 --> 00:38:05.940 Do we have to position George Washington and say, George, please get him to produce more chocolate or less chocolate and more celery? No. That's the central planning way. We don't do that. 328 00:38:05.940 --> 00:38:13.940 Rather, we just stop buying chocolate and start buying celery. What happens if the price of chocolate falls? What happens if the price of celery arises? 329 00:38:13.940 --> 00:38:22.940 Entrepreneurs are led by Adam Smith's invisible hand to stop making so much chocolate and start making more celery. And that's the way we could make it, in a decentralized way. 330 00:38:22.940 --> 00:38:30.940 Well, Israel doesn't do much of that, which is why they have a very poor economy. 331 00:38:30.940 --> 00:38:37.940 And you can see that they don't do too well in takings just like Sweden. 332 00:38:37.940 --> 00:38:45.940 Okay, let's now take Hong Kong to illustrate the last four in the last four of the criteria. 333 00:38:45.940 --> 00:38:47.940 This is an international trade. 334 00:38:53.940 --> 00:38:55.940 It's so humiliating. 335 00:38:57.940 --> 00:39:01.940 I'm trying to pass off as a guy who's, you know, with it. I can't even... 336 00:39:01.940 --> 00:39:15.940 The last one is the international sector. Hong Kong, as you can see, has got 92, 94, 95, 93, 91. They're always good. This is the first slight variation. They're way at the top. 337 00:39:15.940 --> 00:39:29.940 And in terms of the last four, there are taxes in international trade, tariffs, the black market exchange rates, which is exchange rate control, which is another interference with trade. 338 00:39:29.940 --> 00:39:36.940 The third one is our attempt to measure non-tariff barriers, and since I'm running out of time, I'm not going to get behind that one. 339 00:39:36.940 --> 00:39:38.940 You have plenty of time. 340 00:39:38.940 --> 00:39:45.940 Oh, okay. I'll speak slower, and I'll do more now. I've been given an extra five minutes, I guess. I don't know. 341 00:39:45.940 --> 00:39:50.940 And the last one is, are you allowed to engage in capital transactions with foreigners or not? 342 00:39:50.940 --> 00:39:54.940 And you can see Hong Kong is getting nines and tens all over the place. 343 00:39:54.940 --> 00:40:00.940 And now what I've done, I've completely described, at least roughly, what the 17 criteria are. 344 00:40:00.940 --> 00:40:08.940 And now we come to Exhibit A. Exhibit A is to relate economic freedom with a whole bunch of other things. 345 00:40:08.940 --> 00:40:17.940 Remember, we said one of the purposes of inventing this new statistic is to see whether and to what extent it explains things that we're interested in. 346 00:40:17.940 --> 00:40:20.940 So let's look at some of these things that we might be interested in. 347 00:40:20.940 --> 00:40:30.940 And obviously, one of the things that we're interested in is GDP. 348 00:40:30.940 --> 00:40:33.940 There we go. 349 00:40:33.940 --> 00:40:44.940 Now, what we have here is A is an eight or more, B is a seven, C is a six, D is a five, F is a four, and F minus is a three or less. 350 00:40:44.940 --> 00:40:51.940 So we're converting our numbers into grade point averages, or the kind of letter grades that you get in college. 351 00:40:51.940 --> 00:40:58.940 And notice that all of those countries that have A level of economic freedom, 8, 9, or 10, 352 00:40:58.940 --> 00:41:04.940 there are no 10s, but there are 8s and 9s, their per capita income is almost $16,000. 353 00:41:04.940 --> 00:41:11.940 Whereas the next freest set of countries, their income is almost $14,000 per capita. 354 00:41:11.940 --> 00:41:20.940 The C's get about $8,000, the D's get about $3,700, the F's get $3,000, and the F minuses get $1,600 per capita. 355 00:41:20.940 --> 00:41:26.940 So the A's get about 10 times as much as the F minuses. 356 00:41:26.940 --> 00:41:29.940 Is that all clear? 357 00:41:29.940 --> 00:41:40.940 Now notice, when we defined economic freedom, we didn't, what's the word, bunch the books, cook the books, we didn't engage in chicanery. 358 00:41:40.940 --> 00:41:46.940 We didn't put in a definition of economic freedom if you think that has to do with GDP. 359 00:41:46.940 --> 00:41:52.940 We didn't put in wealth, we didn't put in investment, we didn't put in human capital or education. 360 00:41:52.940 --> 00:41:56.940 We didn't put any of that. We just said, is the country economically free or not? 361 00:41:56.940 --> 00:42:01.940 And if it is, they're very rich. And if it's not, they're very poor. 362 00:42:01.940 --> 00:42:06.940 And this is what I call our exhibit end. This shows that economic freedom really means something. 363 00:42:06.940 --> 00:42:13.940 And remember, what economic freedom is, is a, if you become the dictator of some country, it's a guide for your action. 364 00:42:13.940 --> 00:42:23.940 And the guide is, free up the place. Free up the place and the people, your citizens, your family members, your tribe, what have you, your clan, will be richer. 365 00:42:23.940 --> 00:42:28.940 Now, richness isn't the greatest thing, you know, there's love and other things around there. 366 00:42:28.940 --> 00:42:34.940 But if you can't eat it, you're hungry, the rest of life isn't going to be good either. 367 00:42:34.940 --> 00:42:44.940 I'm not saying that wealth is the be-all and end-all. Although I'm an economist, I'm supposed to have a cash register for a heart and dollar signs on my eyeballs and stuff. I don't. 368 00:42:44.940 --> 00:43:01.940 But the point is that wealth is important. If you want to have medical care, if you want to have a Stradivarius violin, if you want to have culture, you have to have some wealth more than the animals have. 369 00:43:01.940 --> 00:43:11.940 And there are people that are living a jungle-like existence. It's a horrible existence. They die like flies, their child mortality is horrible. That's no way to run a place. 370 00:43:11.940 --> 00:43:21.940 So what I'm saying is, if you want to run a good, taut ship, you have to have some sort of economic freedom. You have to have some sort of decentralization without this command and control, where you're more and more sure. 371 00:43:21.940 --> 00:43:28.940 Now more somebody tells you what to do and has price controls, but Hillary runs the health care industry and what not. 372 00:43:28.940 --> 00:43:37.940 Okay, so that's Exhibit A. Exhibit B is the relationship of economic freedom, and not with GDP, but changes in GDP. 373 00:43:37.940 --> 00:43:49.940 In the diagram below, what we have is the growth rate of a country, or the growth rates of the A, B, C, D, F, and F- countries, 374 00:43:49.940 --> 00:43:56.940 and you'll see that the rich, that the more free the country is, the faster it's growing. 375 00:43:56.940 --> 00:44:04.940 And the less free it is, the lower it's growing, or in the case of the F-minuses, they're not growing, they're retrogressing. 376 00:44:04.940 --> 00:44:13.940 Sometimes they call them the developing countries. That's just PC crap. You're not developing, they're retrogressing. 377 00:44:13.940 --> 00:44:21.940 Now, you know, they call them developing, maybe if you call them that, that they'll be there, you know, you say, here's this rotten kid, you call him a good boy, maybe he'll behave. 378 00:44:21.940 --> 00:44:27.940 But that's not a scientific way to approach this. You want to be accurate in your assessments of what's going on. 379 00:44:27.940 --> 00:44:34.940 These are retrogressive countries, and the reason they are retrogressive countries is they don't have any economic freedom to speak of. 380 00:44:34.940 --> 00:44:39.940 Okay, so that's Exhibit A and B. 381 00:44:39.940 --> 00:44:47.940 And I have an econometric regression that I suppose I could toss at you. 382 00:44:47.940 --> 00:45:14.940 I think I can. There. It's at the bottom of that econometric equation. What it does is it relates LEF as the level of economic freedom, CEF as the change in economic freedom, and I divided by GDP as the percentage of investment or rather investments percentage in the GDP. 383 00:45:14.940 --> 00:45:23.940 Now, all these have a t-value above 1.96, which is the statistically significant level, the 5% level. 384 00:45:23.940 --> 00:45:27.940 Those are the numbers in parentheses underneath, those are the t-values. 385 00:45:27.940 --> 00:45:31.940 For those of you that are into this statistics stuff, how many know what I'm talking about? 386 00:45:31.940 --> 00:45:35.940 Oh, okay, well that's kind of through to the group. 387 00:45:35.940 --> 00:45:37.940 The rest of you I can bring along. 388 00:45:37.940 --> 00:45:47.620 See, I, investment, the mainstream investment, the mainstream development economists focus 389 00:45:47.620 --> 00:45:50.740 almost totally on I over GDP. 390 00:45:50.740 --> 00:45:55.980 What they say is that the more investment a country has, the richer it'll get, and 391 00:45:55.980 --> 00:46:03.100 the bigger the growth rate, the deeper the growth rate, the more likely the equations. 392 00:46:03.100 --> 00:46:10.500 And it's true that it is statistically significant, but notice that the correlation coefficient 393 00:46:10.500 --> 00:46:20.220 is only 0.19 or roughly 0.2 or 0.50, whereas the level of economic freedom is roughly twice 394 00:46:20.220 --> 00:46:21.220 as high. 395 00:46:21.220 --> 00:46:27.300 So the level of economic freedom contributes twice as much, roughly, as an investment as 396 00:46:27.300 --> 00:46:39.300 and the change in economic freedom is very, very powerful. It's five times more powerful than the percentage of investment in GDP. 397 00:46:39.300 --> 00:46:49.300 And this is something that the development economists are even knit out just to become aware of because we've just invented this statistic. 398 00:46:49.300 --> 00:46:56.300 By the way, the publisher of my publication is called the Braser Institute, or Braser Cato. 399 00:46:56.300 --> 00:47:03.300 There is another group, the Heritage Group, which is also doing the same thing from pretty much our perspective. 400 00:47:03.300 --> 00:47:11.300 And only they have, instead of 17 criteria in 100 countries, they have like 9 or 10 criteria in 200 countries. 401 00:47:11.300 --> 00:47:15.300 See, the idea is that more countries, the fewer the criteria, 402 00:47:15.300 --> 00:47:19.300 because fewer countries have that many criteria that you can get data for. 403 00:47:19.300 --> 00:47:26.300 And these are two different ways of looking at it, and the correlation of countries that we rank and they rank is very, very high. 404 00:47:26.300 --> 00:47:30.300 So we're doing the same thing in different ways, and one is sort of a check on the other, 405 00:47:30.300 --> 00:47:34.300 so each one sort of lends support to the other. 406 00:47:34.300 --> 00:47:37.300 Okay, so much for the econometrics. 407 00:47:37.300 --> 00:47:47.300 What I now have is a whole bunch of very detailed country analyses, and I think I'll skip most of these, I'll just show you one. 408 00:47:49.300 --> 00:47:57.300 What this is, is the level of incomes and growth rates of persistently high and persistently low rated countries. 409 00:47:58.300 --> 00:48:04.300 So we have the, in other words this is a breakdown of our exhibits A and B respectively, 410 00:48:04.300 --> 00:48:24.300 In the United States, Hong Kong and Singapore are growing much faster than Switzerland, the U.S., Canada, and Germany. 411 00:48:24.300 --> 00:48:38.300 So there's more than economic freedom that determines the growth rate, and when there are other things beside economic freedom, economic is important, economic freedom is important, but there are other things too, might be necessary but not sufficient. 412 00:48:38.300 --> 00:48:51.300 But look at these other countries on the right side. There you have countries that are very low in economic freedom, and their capital GDP in the upper right hand box is very low, 413 00:48:51.300 --> 00:48:57.300 So, in the lower right hand box, they're retrogressive. 414 00:48:57.300 --> 00:49:04.300 Now, I have a whole bunch of slides that I can show you, and I will just humiliate myself further by the middle left side of the screen. 415 00:49:04.300 --> 00:49:14.300 So, I'm going to go past all of them, and I'm going to go to something of maybe more interest to you. 416 00:49:14.300 --> 00:49:19.300 Let me see where I am. Oh, here we go. 417 00:49:19.300 --> 00:49:26.300 And I'm going to first talk about economic freedom and serial deals, if I could find a view from skipping way ahead. 418 00:49:28.300 --> 00:49:32.300 And here we go, we've got serial deals. 419 00:49:36.300 --> 00:49:45.300 Economic freedom and serial deals. You can see that the more economic free the country is, the more serial it produces. 420 00:49:45.300 --> 00:49:56.300 Why are we worried about cereal? Well, cereal is important. Before the communists took over the Soviet Union or Russia, they were exporters of grains. 421 00:49:56.300 --> 00:50:07.300 During the communist 70 years, they were importers. And now that they've thrown off communism, they are again becoming exporters of grain. 422 00:50:07.300 --> 00:50:18.300 So, great is nothing to write home about. You don't write home about me while I had my cereal. It's no big deal if you have cereal. But if you don't have cereal, then it's a very important mission. 423 00:50:18.300 --> 00:50:30.300 The next indication is economic freedom in life expectancy. Now, again, the way we define economic freedom has got nothing to do with life expectancy. We didn't say, well, how many childhoods are you having? 424 00:50:30.300 --> 00:50:37.300 and if you do your exercise and you eat the bacon foods or whatever, we didn't have any of that. 425 00:50:37.300 --> 00:50:42.300 We talked about monetary policy and tariffs and government intervention and taxes. 426 00:50:42.300 --> 00:50:47.300 And lo and behold, the countries that are the most economically free, you live the longest. 427 00:50:47.300 --> 00:50:55.300 And in those countries that are the lowest quintile, that are not economically free, you don't live that long. 428 00:50:55.300 --> 00:50:57.300 And it's no accident. 429 00:50:57.300 --> 00:51:02.300 Okay, now the last one I'm going to show you, I think is sort of the peace state of existence. 430 00:51:02.300 --> 00:51:08.300 My French isn't that good, but here we go. 431 00:51:08.300 --> 00:51:18.300 Where are we? Ah, there are a lot of people that worry about income inequality. 432 00:51:18.300 --> 00:51:23.300 They say, well yes, the capitalist system can produce the goods, but there's someone there, 433 00:51:23.300 --> 00:51:26.300 The rich get richer and the poor get poorer. 434 00:51:26.300 --> 00:51:31.300 Well, here is the statistical reputation of that. 435 00:51:31.300 --> 00:51:36.300 What we have here is the ratio of the top 10% of income earners to the bottom 10%. 436 00:51:36.300 --> 00:51:41.300 Namely, the higher the ratio is, the more unequal you are. 437 00:51:41.300 --> 00:51:45.300 The higher the percentage of the top 10, these would be the bottom. 438 00:51:45.300 --> 00:51:48.300 There are various ways to do it. You can do it with a cheating coefficient. 439 00:51:48.300 --> 00:51:51.300 You can do the top quintile versus the bottom quintile. 440 00:51:51.300 --> 00:51:56.300 The top half versus the bottom half, they all come out the same, probably the same. 441 00:51:56.300 --> 00:52:00.300 And you can see that there's not a perfect correlation. 442 00:52:00.300 --> 00:52:08.300 If you were to draw a least squares line, touching the tops of all these, you know it would be downward slope. 443 00:52:08.300 --> 00:52:12.300 Which means that the freer the country, the more equal it is. 444 00:52:12.300 --> 00:52:21.300 So, our friends on the left, whom egalitarianism overpowers, should be satisfied with this. 445 00:52:21.300 --> 00:52:25.300 They won't be, but they should be, if they were consistent with their own views. 446 00:52:25.300 --> 00:52:28.300 It's just that their own views are just to bash capitalism. 447 00:52:28.300 --> 00:52:32.300 We don't care what the results are, but we don't have to worry about such a thing. 448 00:52:32.300 --> 00:52:37.300 Let me explain to you why it is that this way, why this makes sense. 449 00:52:37.300 --> 00:52:47.300 Look, if I'm in real gains, I get fabulously rich. But how do I get fabulously rich? I get fabulously rich by enriching everyone else. 450 00:52:47.300 --> 00:52:56.300 By making their life a little bit better, because remember they pay a thousand for a computer, it means that they value that computer at a thousand and a penny or more. 451 00:52:56.300 --> 00:53:01.300 So they gain consumer surplus. So by enriching myself, I enrich everyone else. 452 00:53:01.300 --> 00:53:10.300 Take Henry Ford. Before Henry Ford, automobiles were a plaything of the rich. They were a luxury. 453 00:53:10.300 --> 00:53:15.300 You wanted a car, you'd get a Rolls Royce or a Stutt's Bearcat or a Camelac or something like that. 454 00:53:15.300 --> 00:53:17.300 And only the rich could do that. 455 00:53:17.300 --> 00:53:22.300 Now it's true that Henry Ford, when he made his Model T and his Model A, didn't get many people into cars, 456 00:53:22.300 --> 00:53:26.300 but he got middle class people into cars, which is the way these things start. 457 00:53:26.300 --> 00:53:33.300 The poor don't get it first, and that's why the critics of the market say, well, the poor don't have a cause. 458 00:53:33.300 --> 00:53:43.300 Well, I remember when they used to show the Olympics, and right after the Olympics, some Soviet, some person would win a gold medal, 459 00:53:43.300 --> 00:53:52.300 and they'd sort of give you a behind-the-scenes look at his life, and you'd see what it was like, you know, if he was from the U.S. or New Zealand or the Soviet Union. 460 00:53:52.300 --> 00:53:54.300 The Soviet Union, you know what they don't show? 461 00:53:54.300 --> 00:53:58.300 They show the gold medal winner of a little car and an apartment. 462 00:53:58.300 --> 00:54:03.300 And I wonder why? What's the big deal? 463 00:54:03.300 --> 00:54:07.300 You know, you can work in McDonald's and have a little car and an apartment. 464 00:54:07.300 --> 00:54:09.300 What's the big deal? The big deal is that in the Soviet Union, 465 00:54:09.300 --> 00:54:12.300 to have a car and an apartment, you've got to be fantastically wealthy. 466 00:54:12.300 --> 00:54:16.300 And the gold medal winners in the Soviet Union, which were your moral people. 467 00:54:16.300 --> 00:54:19.300 But so is anyone with an high school education. 468 00:54:19.300 --> 00:54:25.300 If you work at McDonald's, you get a carpool of money, maybe not the richest area. 469 00:54:25.300 --> 00:54:30.300 Look, Ray Kroc, the creator of McDonald's, got fabulously wealthy. 470 00:54:30.300 --> 00:54:34.300 How did he get fabulously wealthy? He got fabulously wealthy by enriching the lives of everyone else. 471 00:54:34.300 --> 00:54:39.300 It's not like when you're drowning and you push someone down so you get up. 472 00:54:39.300 --> 00:54:41.300 That's not the way capitalism works. 473 00:54:41.300 --> 00:54:47.300 The way capitalism works is you get up and you pick everyone else with you, behind you, on your hometown. 474 00:54:47.300 --> 00:54:57.300 Ray Kroc enriched the lives of millions of people. Before Ray Kroc, a poor family could not go out to a restaurant and kill them. They had to eat at home. 475 00:54:57.300 --> 00:55:08.300 Now they can go out to a restaurant. It's not the greatest thing, but it's nice. It certainly attracts people in France and Russia and China and everywhere around the world. 476 00:55:08.300 --> 00:55:22.300 So the reason for this curvature of these squiggly lines here is because in a free economy that relies for the majority of its economic activity on markets, rich... 477 00:55:22.300 --> 00:55:24.300 No, no, you're fine. 478 00:55:24.300 --> 00:55:30.300 Oh, okay. Just another few minutes and then I'll call for questions. 479 00:55:30.300 --> 00:55:45.300 The reason that the rich countries have more egalitarianism, not as an adult, but as a side byproduct, or by benefit, or whatever, is because in capitalism, to become rich, you enrich other people. 480 00:55:45.300 --> 00:55:54.300 How does EDM then get rich? How do these dictators get rich? How do these 3M types, Mercedes, machine guns, monuments, how do they get rich? 481 00:55:54.300 --> 00:55:57.300 Do they get rich by enriching everyone else? No! 482 00:55:57.300 --> 00:56:00.300 They get rich by ripping off everybody else. 483 00:56:00.300 --> 00:56:02.300 They get rich the way a guy with a gun comes up to you and says, 484 00:56:02.300 --> 00:56:04.300 give me your wallet or I'll plug you. 485 00:56:04.300 --> 00:56:07.300 Well, you give me your wallet, and I'm richer, but you're poorer. 486 00:56:07.300 --> 00:56:13.300 And that's what governments, they're kleptocracies, governments like that, 487 00:56:13.300 --> 00:56:17.300 that just engage in lack of economic freedom. 488 00:56:17.300 --> 00:56:21.300 So, to conclude my remarks and I'll call for questions and discussion and dialogue, 489 00:56:21.300 --> 00:56:23.300 if that's your pleasure, 490 00:56:23.300 --> 00:56:33.300 is that economic freedom is a good thing, and that we've tried to find a new statistic to develop students and make them correlate in one more thing. 491 00:56:33.300 --> 00:56:42.300 And we're very happy because a lot of PhD students are now using our indices to study all sorts of things that we never contemplated that they correlated with. 492 00:56:42.300 --> 00:56:47.300 But that's what you do when you have a successful new statistic. So thanks for your attention. 493 00:56:53.300 --> 00:56:55.300 Thank you very much.