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Sandra Peart: Economic Freedom, Per Contra Interview with Bill Turner

In 2005, the Index of Economic Freedom, a collaborative effort backed by the Heritage Foundation and the Wall Street Journal, determined that over half of the world's nations were mostly free or free.   In 2006, the number of free or mostly free countries has reduced to less than half of the world's countries.  Paul Gigot, Editorial Page Editor for the Wall Street Journal, states that "Free-market policies allow economies to absorb financial and other shocks more quickly and with less long-term pain."


On an individual level, it would seem that such policies would provide not only economic freedom, but also other freedoms directly associated with economic freedom.   For instance, deprivation of capital through high taxes would seem to limit a person's ability to create more capital or entrepreneurial opportunities that would exist in a system with lower taxes.  But are there other freedoms, less obvious, that are effected by less economic freedom?


Equally important, how do a government's actions limit or facilitate economic freedom, and are there limits outside of regulatory pressure and taxation that limit or facilitate personal economic freedom?


Per Contra asked Sandra Peart, professor of economics at Baldwin-Wallace College and expert in the history of economic ideas, to explain how economic freedom is related to individual freedom as a whole.    



PC-  For the purpose of this interview, how do we define economic freedom?  How is it measured and how does one determine whether or not an individual enjoys economic freedom?  

Sandra Peart

SP- Economic freedom is the ability to make economic choices without interference by others (most importantly, a government).  Such freedom requires well defined property rights and presumes one has the right (which is enforced) to enjoy the fruit's of one's labours.


Practically speaking, measuring economic freedom is no simple matter (consider the number of ways your economic choices are influenced by government regulations!).  Economic freedom is measured by country (for comparative purposes -- so we can say whether one country is more free than another).  The potential influence of government policy on economic activity is first categorized in various ways -- trade policy, regulation, property rights, banking, wages and prices and so on.  Measures of freedom (and interference) are devised for each of these categories.  The total economic freedom is given, empirically, by the combined measure achieved in each category. 


This then tells us how free a country is.  The idea is that a person living in a free country enjoys much economic freedom; while the individual who lives in an economically unfree country does not.


PC- Of all of the measures for economic freedom, which, if any, is/are the most reliable?


SP- I'd need to be a statistician, and to see the raw data, to answer this with some confidence.  I would say that the index should include as many countries as possible and the raw data should always be available for detailed checking.  The methodology should be transparent.  Finally,

I'd look at any number of indices and then see if similar patterns emerge.  The more a particular result appears using different methodology, the more confidence I'd have in it.  


In terms of the categories typically included in a freedom index, the combination (rather than relying on just one or two or even three) is a sound methodology.  Secure property rights are, however, a sort of groundwork -- none of the other categories (trade, fiscal, monetary policy etc.) really matters in the event of insecure property rights. That said, even with secure property rights, citizens can be subject to all sorts of regulatory interventions by policy makers.  Hence, the measure of all sorts of regulations is so important.
Continued Below

PC- Does a lack of economic freedom endanger other freedoms that an individual may enjoy?  If so, how does a lack of economic freedom directly relate to the constraints on other freedoms?


SP- Absolutely.  Suppose one hasn't the ability to keep the income one earns in a marketplace.  Does that imply that one also lacks the freedom to vote?  Or to speak one's mind?  Though of course there are exceptions, it is quite likely.  At one end of the spectrum, where individuals have zero economic freedom (slavery), they have no freedom to vote or to speak.  Moving along a continuum, in a totalitarian regime, individuals again have few economic freedoms; all is controlled by the government. 


Now, in order to maintain such economic despotism -- to continue to take resources from individuals -- a totalitarian regime will need to repress freedom of speech.  And there will be no meaningful elections, for who would vote for the tyrant?  To the extent that elections take place, they will tend to be characterized by intimidation, threats, and fear.   


PC- What circumstances or situations most limit personal economic freedom?


SP- Insecure property rights.  If there aren't well enforced laws securing what's mine and what's yours, then we have no real freedom to make trades, to invest in human capital, or to improve our business or products.  Why should I spend time, money and effort, educating myself, if you can take the entire product of my education from me?  Why would I pay you some money for that house, if you can turn around and take the house back from me?  As long as laws of property are non-existent or not enforced, we have no freedom to make economic decisions.   


PC- What circumstances or situations most facilitate personal economic freedom?


SP- The requisite independent police force to ensure that contracts are enforced - minimal and transparent interventions so that citizens know what to expect and when. 

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