Is Economic Freedom Necessary for Prosperity? New Data Says Yes!

Once again, economists and others can see the relationship between economic freedom and prosperity by reviewing the 2011 Index of Economic Freedom released today by The Wall Street Journal and the Heritage Foundation.  In a powerful article in The Wall Street Journal, Terry Miller, Director of the Center for International Trade and Economics at Heritage, details the data.  Economic freedom and prosperity are closely related.  Let’s talk more about it now …

What is the Index of Freedom?  How often does it come out?  It’s a yearly index that measures the commitment of a nation to economic freedom, free enterprise, and capitalism.  It does so by looking at metrics (measures) of ten different important components of economic freedom - Property Rights, Investment Freedom, Business Freedom, Labor Freedom, Financial Freedom, Trade Freedom, Fiscal Freedom, Monetary Freedom, Government Spending, and Freedom from Corruption.  The scores are ranked with #1 being the nation deemed to be most free, and #179 being the least free.  Incidentally, Hong Kong is ranked #1 and North Korea is ranked #179.

Looking at the data, there’s a major difference between nations that have high economic freedom and those countries that lack economic freedom.  For example, nations that have more economic freedom are recovering faster from the recent recession and financial crises.  Nations, too, that live on a reasonable budget had an average growth rate 4.5% higher than big governments that pursued policies of big spending.

Unfortunately, the United States fell to #9 on the 2011 Index of Economic Freedom.  We are currrently not listed as a “Free” nation on the Index, only as a “Mostly Free” nation.  That’s not good news for Americans or for our economic recovery.  In fact, it signals America’s move away from American Capitalism, economic freedom and prosperity, to Welfare State Socialism and an anemic economy.  Our persistently high unemployment numbers and the lack of recovery in the very important housing industry reinforce the results found in the Index.

Of course, this is all consistent with the message of my 2010 book, Choosing the Good Life.  America can choose the good life with the right fiscal, monetary, and regulatory policies that focus on economic freedom as my new book discusses.

Is economic freedom necessary for prosperity?  It certainly is, as we can definitely see from this latest data.

Choosing the Good Life Blog by Gerard Francis Lameiro, Ph.D.