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Archive for the ‘Economic Rankings’ Category

When writing yesterday’s column about new competitiveness rankings from the IMD business school in Switzerland, I noticed that I have not yet written about this year’s edition of the Index of Economic Freedom.

Time to rectify that oversight.

We’ll start with a look at the nations with the most economic freedom. Interestingly, Singapore has now displaced Hong Kong as the world’s most market-friendly jurisdiction (because Hong Kong’s score declined, not because Singapore’s score increased), with New Zealand, Australia, and Switzerland rounding out the top 5.

The United States, meanwhile, isn’t even in the top 10. Instead, America dropped from #12 last year to #17 this year.

The decline is partly due to a lower score (with Trump’s protectionist policies deserving the biggest share of the blame), but mostly caused by better scores from nations such as Chile, Georgia, Estonia, and Lithuania.

What may shock people, though, is that even supposedly socialist Denmark (score of 78.3) ranks above the United States (score of 76.6). Here’s a look at U.S. and Danish scores from 1995-present.

Regular readers already know that Denmark is not a socialist nation. Indeed, it’s never been socialist. By world standards, there’s basically no history of government ownershipcentral planning, or price controls.

The most accurate way of describing Denmark is that it combines laissez-faire economics with tax-and-spend redistributionism.

Since this is a common approach among nations in that part of the world, some people even refer to this set of economic policies as the Nordic model.

So how does this approach compare to policy in the United States? The short answer, as illustrated by this table, is that America generally does better on fiscal policy, but gets lower scores when looking at almost every other type of policy.

The great irony of all this is that Bernie Sanders wants the U.S. to be more like Denmark, but he only says that because he doesn’t realize it would mean reducing the negative impact of government.

P.S. While Denmark has some awful fiscal policies (the tax burden is terrible), there are some bright spots. It has done a good job in recent years of restraining the growth of government, and it also has a partially private retirement system.

P.P.S. Not that any of these will be a surprise, but the three lowest-ranked nations in the Index of Economic Freedom are Cuba (26.9), Venezuela (25.2), and North Korea (4.2).

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When looking at which nations have the best economic policy, the best options are the Fraser Institute’s Economic Freedom of the World and the Heritage Foundation’s Index of Economic Freedom.

But I also look forward to other measures, including the annual competitiveness ranking from the Swiss-based IMD business school, which was just released this month.

We’ll start with a look at the top nations. Singapore remains the most competitive nation, while Denmark made a big jump to #2, and Switzerland climbed a notch to #3.

The United States, which was 3rd last year, dropped to #10.

Only 63 nations are part of the survey, and no sentient being should be surprised about Venezuela being in that final spot. Nor should there be much surprise that Argentina is next-to-last.

Here are some highlights from the accompanying article.

The annual rankings, now in their 32nd year, have been released unlocking a wealth of data on the performance of 63 economies across the globe. Singapore was number one for the second year in a row. In second to fifth place, in order, came: Denmark, Switzerland, the Netherlands and Hong Kong SAR. A marked pattern in this year’s results, which are an amalgam of hard data taken from 2019 and survey responses from early 2020, is the strength of smaller economies. …The number of small economies – broadly defined as such by their GDP –  in the top ten is striking. However, this is not to say that we are seeing a triumph of democracies. Singapore, Hong Kong and the UAE remain in the top ten, whilst some democracies (such as Argentina) sit at the bottom of the scale.

Here are some of the more interesting observations about specific nations.

China this year dropped to 20th position from 14th last year.

My two cents is that China is still overrated.

But I sadly concur that the trendline for Hong Kong is not overly encouraging.

While Hong Kong SAR came in at 5th, this is a far cry from 2nd which it enjoyed last year. The decline can be attributed to a decline in its economic performance, social turmoil in Hong Kong as well as the rub-on effect of the Chinese economy.

It’s worth noting that Brexit is helping the United Kingdom, which is exactly what I predicted.

The UK climbed from 23rd to 19th… One interpretation is that Brexit may have created the sentiment of a business-friendly environment in the making. The UK ranked 20th on the business efficiency measure, compared to 31st least year.

But I take no satisfaction in my predictions that Trump’s protectionism would backfire on the United States.

…For the second year in a row, the USA failed to fight back having been toppled from its number one spot last year by Singapore, and coming in at 10th …Trade wars have damaged…the USA.

In a column for Forbes, Stuart Anderson elaborates on America’s decline.

America used to be number one but not anymore, according to the 2020 rankings of the world’s most competitive economies from the Institute for Management Development (IMD) in Switzerland. The Trump administration’s trade policies are the primary reason given for why America fell from 2018, when it was ranked number one, and from 2019, when it was ranked number three. …Christos Cabolis, IMD’s chief economist and an author of the report, told Fortune that Trump’s trade policies are the main reason for the significant drop in American competitiveness. “One of the pillars of competitiveness is how open an economy is, and we measure that in different ways, from the perceptions of executives, to trade [statistics],” said Cabolis. The trade war Donald Trump initiated with China “brings some of the results we see in how the numbers of the U.S. went down,” he said.

Let’s close with a closer look at IMD’s estimates of what’s good and bad about the United States.

We get very good (though declining in this year’s ranking) scores for economic performance and infrastructure (suggesting, by the way, that we don’t need a new boondoggle package from Washington).

But we’re not quite as impressive when looking at business efficiency and we’re mediocre when measuring government efficiency.

For what it’s worth, I’m not optimistic about America’s trajectory. If Trump gets reelected, I don’t expect big developments in the policy areas where he’s good (taxes and red tape), but I wouldn’t be surprised to see new initiatives in the areas where he is bad (trade and spending).

Biden, meanwhile, has a very statist policy agenda. So if he gets elected, we have to cross our fingers that he doesn’t really believe in his Bernie-lite agenda.

P.S. It is possible, of course, for a nation to adopt additional bad policy and still climb in the rankings. All that’s required is for other nations to adopt an even-greater amount of bad policy. Needless to say, that’s not the ideal way to climb a few spots. Which is why we should consider absolute and relative measures of economic liberty.

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As part of my recent presentation to IES Europe, here’s what I said (and what I’ve said many times before) about the relationship between economic policy and national prosperity.

My remarks focused in part on the difference between absolute economic liberty and relative economic liberty.

  • The absolute level of economic liberty is the degree to which a nation relies on markets or statism (see, for instance, the Fraser Institute’s Economic Freedom of the World).
  • The relative level of economic liberty is a measure of whether one country is more market-oriented than another country (basically a measure of national competitiveness).

Understanding these two concepts explains why it is possible to criticize nations in North America and Western Europe for having too much government while also recognizing that those same nations tend to have better policies than most countries in other parts of the world.

An obvious example is Denmark. It certainly has some foolish and misguided government policies, but it is very pro-market when compared to the 90 percent of nations that have even lower levels of economic liberty (a distinction that Bernie Sanders has never grasped).

The obvious takeaway is that economic liberty matters, regardless of whether we’re looking at absolute levels or relative levels.

During my remarks, the audience got to see a two-question challenge, which asks our friends on the left to give an example of their dirigiste policies generating good economic outcomes.

But I’ve never been happy with the clunky wording of that challenge (just as I wasn’t happy with the original wording of fiscal policy’s Golden Rule).

So here’s a new version, which I’m now calling “The Never-Answered Question.”

I frequently unveil this question during debates.

And it’s quite common that my opponent will claim Sweden.

But as I noted in the above video clip, Sweden became a rich nation when government was very small. It didn’t have an income tax until 1902, and the welfare state was tiny until the 1960s. And I then explain that Sweden’s economic performance has been inversely correlated with the size and scope of government.

Unsurprisingly, the same is true for every other prosperous country in Europe and North America.

The bottom line is that my leftist friends will never successfully answer this question.

P.S. When considering the second part of The Never Answered Question, I don’t want a cherry-picked one- or two-year period. I want several decades of data, so we can be sure of a real trend. Much as I’ve done when making comparisons.

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My favorite publication from the Canada-based Fraser Institute is Economic Freedom of the World, which ranks nations based on economic liberty.

I religiously write about each year’s report (starting back in 2011), and I also cite the data dozens of time each year when analyzing policy in various nations.

The second-best report from the Fraser Institute is Economic Freedom of North America, which ranks economic liberty in all American states, Canadian provinces, and Mexican states. Here’s the headline data from the most-recent edition, with Canadian provinces highlighted in brown and Mexican states highlighted in green.

I’m not surprised to see New Hampshire in first place, and I’m not surprised to see Florida in second place.

Both states rank near the top in various measures of economic liberty in the United States.

I’m also not surprised to see Mexican states clustered at the bottom.

What’s particularly interesting is to see how rankings have changed for the United States and Canada.

…economic freedom had been declining in all three countries until recently. From 2004 to 2013, the average score for all 92 jurisdictions fell from 7.64 to 7.09. Canadian provinces saw the smallest decline, only 0.08, whereas the decline in the United States was 0.59 and in Mexico, 0.63. However, economic freedom has increased in the United States and Mexico since 2013. In contrast, in Canada, after an increase in 2014, it has fallen back below its 2013 level. …on the all-government index the highest ranked jurisdiction is New Hampshire with a score of 8.13. After six straight years in first, Alberta fell to a tie for 6th last year, and fell further to a tie for 24th place at 7.94 in this year’s report. Florida is in 2nd with 8.07… The highest-rated Mexican state is Guanajuato at 61st with 6.49, behind all 50 US states and 10 Canadian provinces, and below 60th place by more than one full point.

Here’s a look at the biennial numbers for the three nations.

I’ve highlighted in green the two recent times Canada ranked about the United States (gee, thanks Obama) and highlighted in red the two recent times Canada ranked below the United States (gee, thanks Trudeau).

In my humble opinion, a key takeaway in the report is what happened to Alberta.

Here are some relevant excerpts.

Alberta, for seven years in a row up to 2015, was the top jurisdiction among the 92 jurisdictions in the index in the all-government index, as it was among Canadian prov-inces in the subnational index. However, in 2015, Alberta elected new political leaders who made changes in taxation, spending, and regulation that have had a significant negative effect on economic freedom. …Since 2015, Alberta has fallen from 1st to a tie for 24th place in the 2017 all-government index. It scored 8.31 in 2014 in this index, falling by 0.37 points in the 2017 index, the largest fall over that period of the 92 jurisdictions in the all-government index. Alberta’s decline in the subnational index, where of course provincial leader-ship has its greatest impact, was much larger, 1.42 points, between 2014 and 2017.

And here’s a table that shows what has happened over the past few years.

I actually warned about Alberta’s fiscal deterioration back in 2015, so I’ll be interested to see if the province can restore some budgetary sanity.

To be sure, Alberta is still the top-ranked province, but that’s more a reflection of bad policy elsewhere in Canada.

P.S. In general, Canada is a sensible, market-oriented nation. Indeed, the United States should copy its northern neighbor on issues such as spending restraintwelfare reformcorporate tax reform, bank bailoutsregulatory budgeting, the tax treatment of savingschool choice, and privatization of air traffic control.

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The World Bank has released its annual report on the Ease of Doing Business.

Unsurprisingly, the top spots are dominated by market-oriented jurisdictions, with New Zealand, Singapore, and Hong Kong (at least for now!) winning the gold, silver, and bronze. The United States does reasonably well, finishing in sixth place.

It’s also worth noting that Nordic nations do quite well. Denmark even beats the United States, and Norway and Sweden are both in the top 10.

Georgia gets a very good score, as does Taiwan. And I’m sure Pope Francis will be irked to see that Mauritius ranks highly.

I’m surprised, though, to see Russia at #28 and China at #31. That’s better than France!

And I’m even more surprised that normally laissez-faire Switzerland is down at #36.

What economic lessons can we learn from the report? First, the authors remind us that less red tape means more prosperity.

Research demonstrates a causal relationship between economic freedom and gross domestic product (GDP) growth, where freedom regarding wages and prices, property rights, and licensing requirements leads to economic development. … The ease of doing business score serves as the basis for ranking economies on their business environment: the ranking is obtained by sorting the economies by their scores. The ease of doing business score shows an economy’s absolute position relative to the best regulatory performance, whereas the ease of doing business ranking is an indication of an economy’s position relative to that of other economies.

By the way, here’s a simple depiction of the World Bank’s methodology.

It’s also worth noting that less intervention means less corruption.

There are ample opportunities for corruption in economies where excessive red tape and extensive interactions between private sector actors and regulatory agencies are necessary to get things done. The 20 worst-scoring economies on Transparency International’s Corruption Perceptions Index average 8 procedures to start a business and 15 to obtain a building permit. Conversely, the 20 best-performing economies complete the same formalities with 4 and 11 steps, respectively. Moreover, economies that have adopted electronic means of compliance with regulatory requirements—such as obtaining licenses and paying taxes—experience a lower incidence of bribery.

Poor countries, not surprisingly, have more red tape.

An entrepreneur in a low-income economy typically spends around 50 percent of the country’s per-capita income to launch a company, compared with just 4.2 percent for an entrepreneur in a high-income economy. It takes nearly six times as long on average to start a business in the economies ranked in the bottom 50 as in the top 20. There’s ample room for developing economies to catch up with developed countries on most of the Doing Business indicators. Performance in the area of legal rights, for example, remains weakest among low- and middle-income economies.

Africa and Latin America are especially bad.

Sub-Saharan Africa remains one of the weak-performing regions on the ease of doing business with an average score of 51.8, well below the OECD high-income economy average of 78.4 and the global average of 63.0. …Latin America and the Caribbean also lags in terms of reform implementation and impact. …not a single economy in Latin America and the Caribbean ranks among the top 50 on the ease of doing business.

I’m disappointed, by the way, that Chile is only ranked #59.

Now let’s shift to some very important graphs about the relationship between economic freedom and national prosperity.

We’ll start with a look at the relationship between employment regulation and per-capita income. Not surprisingly, countries that make it hard to hire workers and fire workers have lower levels of prosperity.

Here’s a chart showing the relationship between employment regulation and the underground economy.

The moral of the story is that lots of red tape drives employers and employees to the black market.

Perhaps most important, there’s a very clear link between good regulatory policy and overall entrepreneurship.

Here’s a bit of good news.

Developing nations have reduced the burden of red tape in some areas, in part because Ease of Doing Business puts pressure on governments.

We can see the results in this chart.

I’ll close with a look at the regulatory burden in the United States, which also can be considered good news.

Here’s the annual score for the past five years (a higher number is better).

I’m frequently critical of this White House, but I also believe in giving credit when it’s deserved. The bottom line is that Trump’s policies have been a net plus for businesses.

In other words, lower tax rates and less red tape have more than offset the pain of protectionism.

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The Tax Foundation churns out lots of good information, but I especially look forward to their International Tax Competitiveness Index.

It shows how nations rank based on key tax variables such as corporate taxation, personal income tax, and international tax rules.

The latest edition shows good news and bad news for the United States. The good news, as you see in this chart, is that the 2017 tax reform improved America’s ranking from 28 to 21.

The bad news is that the United States is still in the bottom half of industrialized nations.

We should copy Estonia, which has been in first place for six consecutive years.

For the sixth year in a row, Estonia has the best tax code in the OECD. Its top score is driven by four positive features of its tax code. First, it has a 20 percent tax rate on corporate income that is only applied to distributed profits. Second, it has a flat 20 percent tax on individual income that does not apply to personal dividend income. Third, its property tax applies only to the value of land, rather than to the value of real property or capital. Finally, it has a territorial tax system that exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions. …For the sixth year in a row, France has the least competitive tax system in the OECD. It has one of the highest corporate income tax rates in the OECD (34.4 percent), high property taxes, a net tax on real estate wealth, a financial transaction tax, and an estate tax. France also has high, progressive, individual income taxes that apply to both dividend and capital gains income.

Here are some other important observations from the report, including mostly positive news on wealth taxation as well as more information on France’s fiscal decay.

…some countries like the United States and Belgium have reduced their corporate income tax rates by several percentage points, others, like Korea and Portugal, have increased them. Corporate tax base improvements have been put in place in the United States, United Kingdom, and Canada, while tax bases were made less competitive in Chile and Korea. Several EU countries have recently adopted international tax regulations like Controlled Foreign Corporation rules that can have negative economic impacts. Additionally, while many countries have removed their net wealth taxes in recent decades, Belgium recently adopted a new tax on net wealth. …Over the last few decades, France has introduced several reforms that have significantly increased marginal tax rates on work, saving, and investment.

For those who like data, here are the complete rankings, which also show how countries score in the various component variables.

Notice that the United States (highlighted in red) gets very bad scores for property taxation and international tax rules. But that bad news is somewhat offset by getting a very good score on consumption taxation (let’s hope politicians never achieve their dream of imposing a value-added tax!).

And it’s no big surprise to see countries like New Zealand and Switzerland get high scores.

P.S. My only complaint about the International Tax Competitiveness Index is that I would like it to include even more information. There presumably would be challenges in finding apples-to-apples comparative data, but I’d be curious to find out whether Hong Kong and Singapore would beat out Estonia. And would zero-tax jurisdictions such as Monaco and the Cayman Islands get the highest scores of all? Also, what would happen if a variable on the aggregate tax burden was added to the equation? I’m guessing some nations such as Sweden and the Netherlands might fall, while other countries such as Chile and Poland (and probably the U.S.) would climb.

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The folks at the Fraser Institute in Canada have just released a new version of Economic Freedom of the World.

As has been the case for many years, Hong Kong is #1 and Singapore is #2, followed by New Zealand (#3) and Switzerland (#4).

Interestingly, the United States improved one spot, climbing to #5.

Here’s the data for the top two quartiles.

The new version includes 2017, so fans of Trump will be able to claim vindication.

But not much.

As you can see, the EFW data shows that America’s score rose only slightly, from 8.17 to 8.19.

My view, for what it’s worth, is that Trump’s economic policy is somewhat incoherent.

He’s been good on taxes and red tape, but bad on spending and trade. So I’m not surprised we’re mostly treading water.

Now let’s look at the bottom half of the ranking.

In last place, unsurprisingly, we find Venezuela.

Let’s close with two final visuals.

Here’s a chart showing that poor people in the nations with the most economic liberty have much higher incomes that poor people in countries with less economic liberty.

The moral of the story, needless to say, is that people who genuinely want to help the poor should support free markets and limited government.

Last but not least, here are two tables I prepared.

The one on the left shows the nations with the biggest positive and negative changes since 2010, while the one on the right shows the biggest changes since 2000.

In some cases, such as Zimbabwe, a nation improved because it was in such terrible shape that it would have been difficult to do worse.

Though Venezuela seems determined to show that a terrible score can drop even farther.

For what it’s worth, Egypt’s slide toward statism is being subsidized by massive amounts of aid from American taxpayers.

And speaking of America, I’m embarrassed to acknowledge that the United States has suffered the 10-largest drop when looking at changes since 2000. That’s a legacy of the bad policies we got from George W. Bush and Barack Obama. Thanks for nothing, guys!

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I periodically mock the New York Times when editors, reporters, and columnists engage in sloppy and biased analysis.

Now we have another example.

Check out these excerpts from a New York Times column by Steven Greenhouse.

The United States is the only advanced industrial nation that doesn’t have national laws guaranteeing paid maternity leave. It is also the only advanced economy that doesn’t guarantee workers any vacation, paid or unpaid, and the only highly developed country (other than South Korea) that doesn’t guarantee paid sick days. …Among the three dozen industrial countries in the Organization for Economic Cooperation and Development, the United States has the lowest minimum wage as a percentage of the median wage — just 34 percent of the typical wage, compared with 62 percent in France and 54 percent in Britain. It also has the second-highest percentage of low-wage workers among that group… All this means the United States suffers from what I call “anti-worker exceptionalism.” …America’s workers have for decades been losing out: year after year of wage stagnation.

Sounds like the United States is some sort of Dystopian nightmare for workers, right?

Well, if there’s oppression of labor in America, workers in other nations should hope and pray for something similar.

Here’s a chart showing per-capita “actual individual consumption” for various nations that are part of the Organization for Economic Cooperation and Development. As you can see, people in the United States have much higher living standards.

By the way, I can’t resist pointing out another big flow in Greenhouse’s NYT column.

He wrote that the U.S. has “the second-highest percentage of low-wage workers.” That sounds like there’s lots of poverty in America. Especially since the U.S. is being compared to a group of nations that includes decrepit economies such as Mexico, Turkey, Italy, and Greece.

But this statement is nonsense because it is based on OECD numbers that merely measure the percent of workers in each nation that earn less than two-thirds of the national median level. Yet since median income generally is much higher in the United States, it’s absurd to use this data for international comparisons.

In other words, Greenhouse is relying on data that deliberately confuse absolute living standards and relative living standards. Why? Presumably to try to make the United States look bad and/or to advance a pro-redistribution agenda.

P.S. You can find similarly dishonest ways of measuring poverty from the United Nations, the Equal Welfare Association, Germany’s Institute of Labor Economics, the Obama Administration, and the European Commission.

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I’ve applauded China’s economic progress.

It’s economic liberty score jumped from 3.64 in 1980 to 6.46 in the most recent edition of Economic Freedom of the World.

That shift toward markets (which started in a village) helped to dramatically reduce poverty and turn China into a middle-income nation.

That’s the good news.

The bad news is that most of China’s economic liberalization (from 3.64 to 6.15) occurred between 1980 and 2003.

Since that time, China’s score has improved at a glacial pace. Moreover, because other nations have been more aggressive about reducing the burden of government, China’s relative ranking has actually dropped (from #88 to #107) since 2003.

Which is why I’ve warned that China needs another burst of pro-market reform if it wants to become a rich country.

Regarding this issue, the Wall Street Journal has a very interesting report about how China is under-performing.

The country’s state-led growth model is running out of gas. A recession or crisis may not be imminent, but the long-run implications are just as serious. Absent a change in direction, China may never become rich. …First, official statistics probably paint too flattering a picture. Per-capita income may be a quarter lower than reported, based on a study of nighttime light co-authored by Yingyao Hu of Johns Hopkins University. …Second, it doesn’t measure up to the economies China seeks to emulate. Taiwan, South Korea and Japan all opened their economies to global trade and investment, enjoyed superfast growth for several decades… In fact, China seems to be slowing sooner than the others.

Why is China underperforming?

Too much statism. Simply stated, the government has too much control over the allocation of labor and capital.

For 30 years the Communist Party opened ever more of the economy to private enterprise, trade, foreign investment and market forces. Yet it never relinquished its commitment to socialism and Mr. Brandt says that since the mid-2000s the government has tightened control over sectors… An inefficient state sector matters less if the private sector grows fast enough. But in recent years, private firms in China have faced multiple headwinds. State-controlled banks prefer to lend to state-owned enterprises… The domestic private sector’s share of total sales has dropped about 5 percentage points since 2016, according to Goldman, while the state sector’s share has risen roughly as much.

By the way, many observers (from the American Enterprise Institute, Peterson Institute for International Economics, the New York Times, the New York Post, and Investor’s Business Daily) echo the concern about China becoming more statist in recent years.

I’ll make a more restrained point.

I’ll start by sharing this very interesting chart from the WSJ story. It shows how China’s growth, while impressive, has not been as rapid as the growth enjoyed by other Asian economies.

If you look below, you’ll see I’ve now augmented the chart to explain why China has under-performed.

On the right side, I’ve added the historical rankings from Economic Freedom of the World. As you can see (and just as theory and evidence teaches us), the other nations on the chart enjoyed more growth because they had more economic freedom.

These numbers reinforce my argument that China needs more pro-market reform. Though I should add the caveat that EFW has added more nations over time, so this comparison overstates the degree to which China is lagging.

But it is lagging. The bottom line is that China needs to copy Hong Kong and Singapore if it wants to become a rich nation. Or even Taiwan, which is an under-appreciated success story.

P.S. Keep in mind that China also faces demographic decline, which makes good policy even more necessary and important.

P.P.S. Amazingly, both the OECD and IMF are trying to sabotage China’s economy.

P.P.P.S. The WSJ story is an example of good reporting. If you want an example of bad reporting about China, check out this bizarre story from the New York Times.

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It’s not easy picking the most pessimistic chart about Japan.

The country suffered several decades of economic stagnation following the collapse of a bubble about three decades ago.

That means it’s a bit of a challenge to identify the worst economic numbers.

  • Is it the data on ever-rising levels of government debt?
  • Is it the data on an ever-rising burden of taxation?
  • Or is it the data on an aging population and falling birthrate?

For what it’s worth, I thought the tax data was the most depressing.

But now there’s a new challenger for the grimmest chart.

I’m currently in Japan, where it’s almost bedtime. I just heard a speech from the governor of the Tokyo Prefecture.

As part of her remarks, she shared a slide showing how Japan has plummeted in the IMD competitiveness rankings.

I don’t have her chart, but I found another version with the same data.

And Japan has dropped to #30 in the recently released 2018 version.

By the way, you won’t be surprised to learn that Economic Freedom of the World shows a similar decline.

Japan was ranked in the top-10 back in 1990, but now it’s dropped to #41.

This is not quite as pronounced as Argentina’s drop in the rankings for per-capita GDP, but it’s definitely a sign that something’s gone wrong in the Land of the Rising Sun.

P.S. Japan has a very strong entry in the contest for the world’s most inane regulation.

P.P.S. And if there was a contest for the most ineffective form of government waste, Japan would have a very strong entry for that prize as well.

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Because they directly measure economic liberty, my favorite global rankings are Economic Freedom of the World and the Index of Economic Freedom.

But I also like the World Economic Forum’s Global Competitiveness Report and the Institute of Management Development’s World Competitiveness Rankings, both of which basically measure the degree to which a nation is hospitable to business activity (which is correlated with economic liberty).

The United States dominated the IMD rankings until 2010, and America managed to reclaim the top spot for 2017. But according to new numbers from IMD’s World Competitiveness Center, Singapore and Hong Kong are now at the top.

I’m also not surprised to see Switzerland ranked highly.

And it’s worth noting that the Netherlands, Ireland, and Denmark are top-10 nations, similar to their scores in the Human Freedom Index.

Here’s some additional information from the press release.

Singapore has ranked as the world’s most competitive economy for the first time since 2010, according to the IMD World Competitiveness Rankings, as the United States slipped from the top spot… Singapore’s rise to the top was driven by its advanced technological infrastructure, the availability of skilled labor, favorable immigration laws, and efficient ways to set up new businesses. Hong Kong SAR held on to second place, helped by a benign tax and business policy environment and access to business finance. …The IMD World Competitiveness Rankings, established in 1989, incorporate 235 indicators from each of the 63 ranked economies. The ranking takes into account a wide range of “hard” statistics such as unemployment, GDP and government spending on health and education, as well as “soft” data from an Executive Opinion Survey covering topics such as social cohesion, globalization and corruption. This information feeds into four categories – economic performance, infrastructure, government efficiency and business efficiency – to give a final score for each country. There is no one-size-fits-all solution for competitiveness, but the best performing countries tend to score well across all four categories. Switzerland climbed to fourth place from fifth, helped by economic growth, the stability of the Swiss franc and high-quality infrastructure. …The United Arab Emirates – ranked 15th as recently as 2016 – entered the top five for the first time. …Venezuela remains anchored to the bottom of the ranking, hit by inflation, poor access to credit and a weak economy. The South American economy ranks the lowest for three out of four of the main criteria groups – economic performance, government efficiency and infrastructure.

Venezuela in last place? I’m shocked, shocked.

There are two specific items from the report I want to highlight.

First, notwithstanding the bleating from Trump and others about a supposed crisis of inadequate spending, notice that the United States is in first place for that category.

Also, notice that the jurisdictions with high scores for government efficiency are all places with (by modern standards) small government.

This is very similar to the “public sector efficiency” scores from the European Central Bank.

The moral of the story is that small government is the way to get competent government. It’s almost as if there’s a recipe that generates good outcomes.

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I’m in Sydney, Australia, but not because I’m confirming that this country will be my escape option if (when?) the United States suffers a Greek-style fiscal collapse.

Instead, I’m Down Under for the annual Friedman Conference.

This gives me an excuse to write about Australia, especially since national elections just took place this past weekend. Interestingly, the incumbent, right-of-center government retained power in an upset, winning 77 or 78 seats (out of a possible 151).

Here’s the breakdown.

The folks at Slate lean to the left, so their article is understandably riddled with anguish.

Australia’s dysfunctional, unpopular, conservative government…held onto power for a third term in Saturday’s national election. This happened despite the fact that most analysts expected it to lose a large number of seats; despite being (seemingly) out of step with the nation’s emerging consensus on climate change.. A Labor Party win had been anticipated for three years, with the opposition winning every single poll of the last term. …Expected swings against the coalition in several regions of the country didn’t materialize, while there was a crucial 4 percent swing against Labor in the state of Queensland (alternately described as Australia’s Alabama or Florida). …Progressive Australians are—to understate things—“hurting,”…(only they’re threatening to move to New Zealand instead of Canada). …Labor’s environmental stance, while not actually all that bold, hurt it in coal-friendly Queensland and among voters worried about the costs of acting on climate change… Progressive Australians are reeling because any lingering illusions that we were a “fair” nation have been shattered. Whatever Labor’s political shortcomings, Australians in general voted against a detailed platform that aimed to seriously address climate change, raise wages, increase cancer funding, make child care free or significantly cheaper, close tax loopholes for corporations and the wealthy, fund the arts, fund the underfunded public broadcaster… Instead, they voted for … not much of anything (other than some tax cuts).

Since I’m a wonk, I’m much more interested in the policy implications rather than the political machinations.

The good news is that Labor’s defeat means Australia will be spared some costly tax increases and some expensive green intervention.

But it’s unclear whether there will be many pro-growth reforms.

The right-of-center Liberal-National Coalition has promised some tax relief, but I don’t know if it will be supply-side rate reductions or merely the distribution of favors using the tax code.

For what it’s worth, Australia needs to lower its top tax rate on households, which is nearly 50 percent. European-type tax rates are always a bad idea, and they are especially senseless for a country that has to compete with Hong Kong and Singapore.

It would also be nice if the newly reelected government chooses to fix some of the housing policies that have made Australian cities very unfriendly to families.

Joel Kotkin explains why this is a problem in an article for City Journal.

Few places on earth are better suited for middle-class prosperity than Australia. From early in its history, …the vast, resource-rich country has provided an ideal environment for upward mobility… Over the last decade, though, Australia’s luck has changed… Despite being highly dependent on resource sales to China—largely coal, gas, oil, and iron ore—Australia has embraced green domestic politics more associated with Manhattan liberals or Silicon Valley oligarchs than the prototypical unpretentious Aussie… Historically, the Australian Labor Party, like its counterpart in Britain, was a party of the working class. …These views seem almost quaint today, particularly for a Labor Party increasingly dominated by those operating outside the tangible economy, as part of the professional class—media, finance, public service—and concentrated in the largely family-free urban cores. …Australia’s commitment to renewable energy dwarfs that of even the most committed green-leaning countries. Per capita, Australia has installed roughly five times as many renewable-energy installations as the E.U., the U.S., or China, and even two-and-a-half times more than climate-obsessed Germany. …The most pernicious assault on Australia’s middle class comes from regulation of land and expenditures to promote urban density. …In Australia, only 0.3 percent of the country is urban. As in major cities in Great Britain, Australia, the U.S., and Canada, “smart growth” has helped turn Australia’s once-affordable cities into some of the world’s costliest. …Sydney’s planning regulations, according to a Reserve Bank study, add 55 percent to the price of a home. In Perth, Melbourne, and Brisbane, the impact exceeds $100,000 per house. Australian cities once filled with family-friendly neighborhoods are becoming dominated by dense apartments. …Today, many Australians face an uncharacteristically bleak future. Urged to settle where the planners and pundits prefer, they’re stuck in places both unaffordable and inhospitable, as part of a needless governmental drive to make life there more like that of the more congested, socially riven metropoles of Britain.

For all intents and purposes, I want Australian lawmakers to rekindle their reformist zeal.

If you look at the historical data from Economic Freedom of the World, you can see that Australia enjoyed a big jump in economic liberty between 1975-2000.

Basically climbing from 6 to 8 on a 0-10 scale.

Sadly, there hasn’t been much reform this century. That being said, Australia’s era of liberalization last century is still paying dividends. The country is routinely ranked in the top-10 for economic liberty.

Interestingly, many of the changes between 1975-2000 happened when the Labor Party was led by reformers such as Bob Hawke and Paul Keating.

Mr. Hawke, incidentally, just passed away. His obituary in the New York Times acknowledges that he liberalized the economy.

Bob Hawke, Australia’s hugely popular prime minister from 1983 to 1991, who presided over wrenching changes that integrated his nation into the global economy…, died on Thursday… Rising to power as a trade union leader, Mr. Hawke led his center-left Australian Labor Party to four consecutive election victories in a tenure of nearly nine years, in which Australia emerged dramatically from relative isolation… Confronting chronic strikes, soaring inflation, high unemployment and trade deficits, Mr. Hawke revolutionized the economy. He cut protective tariffs, privatized state-owned industries…reined in powerful unions… “We are now living in a tough, new competitive world in which we have got to make it on our own merits,” Mr. Hawke told The New York Times in 1985.

I’m irked, though, that the article doesn’t mention that Hawke (in power from 1983-91) began Australia’s system of personal retirement accounts.

That excellent reform, which was expanded by the Keating government (in power from 1991-96), is paying big dividends to Australia.

Indeed, let’s wrap up today’s column with some excerpts from a laudatory article in the Economist.

The last time Australia suffered a recession, the Soviet Union still existed and the worldwide web did not. …No other rich country has ever managed to grow so steadily for so long. …Public debt amounts to just 41% of GDP—one of the lowest levels in the rich world. That, in turn, is a function not just of Australia’s enviable record in terms of growth, but also of a history of shrewd policymaking. Nearly 30 years ago, the government of the day overhauled the pension system. Since then workers have been obliged to save for their retirement through private investment funds.

It’s noteworthy that the system of personal accounts, known as superannuation, manages to attract praise from unlikely quarters.

And it is one of the reasons for the country’s success. Here’s an accompanying chart showing that Australia has enjoyed more growth, higher wages, and less debt than other major nations.

Is Australian policy perfect? Of course not.

But does the data from Australia show that better policy leads to better results? Definitely.

P.S. The Aussies also reaped big benefits by unilaterally reducing trade barriers (it would be nice if a certain person residing at 1600 Pennsylvania Avenue learned from that experience).

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Looking through an economic lens, what’s the best country in the world?

If your benchmark is economic liberty, then Hong Kong is the answer according to both the Fraser Institute and Heritage Foundation.

If per-capita GDP or per-capita wealth is your benchmark, then Monaco wins the prize.

And you get different answers if you focus on specific features such as competitiveness (the United States) or ease of doing business (New Zealand).

You can also measure national performance by looking at key economic variables.

And that’s what Professor Steve Hanke of Johns Hopkins University has done.

In the sphere of economics, misery tends to flow from high inflation, steep borrowing costs and unemployment. …Many countries measure and report these economic metrics on a regular basis. Comparing them, nation by nation, can tell us a lot about where in the world people are sad or happy. …To answer this question, I update my annual Misery Index measurements.

Hanke explains the evolution of the Misery Index and how he puts together his version.

The first Misery Index was constructed by economist Art Okun in the 1960s as a way to provide President Lyndon Johnson with an easily digestible snapshot of the economy. That original Misery Index was just a simple sum of a nation’s annual inflation rate and its unemployment rate. The Index has been modified several times, first by Robert Barro of Harvard and then by myself. My modified Misery Index is the sum of the unemployment, inflation and bank lending rates, minus the percentage change in real GDP per capita. Higher readings on the first three elements are “bad” and make people more miserable. These are offset by a “good” (GDP per capita growth), which is subtracted from the sum of the “bads.”

You can see the entire list of 95 nations (some countries don’t report adequate data, so they aren’t counted) by clicking here.

And here are the nations with the best scores (remember, this is a Misery Index, so the top results are at the bottom of the list).

Professor Hanke comments on Thailand’s first-place results and Hungary’s second-place results.

Thailand takes the prize as the least miserable country in the world on the 2018 Misery Index. It’s 2018 rank of No. 95 out of 95 countries is a stunner. …Hungary delivered yet another stunner, making a dramatic improvement from 2017 to 2018.  It comes in at No. 94 as the second least miserable country in the world. While the European Union and the international elites have thrown everything they can throw at Prime Minister Viktor Orbán, it’s easy to see why he commands a strong following at home.

Keep in mind, by the way, that Hanke’s list is a measure of annual economic outcomes.

So a relatively poor country can get a very good score. Indeed, they should get comparatively good scores according to convergence theory.

Assuming, of course, that they have decent policy.

However, if you look at the nations with the most miserable outcomes, you can see that many countries don’t have decent policy.

Here’s Hanke’s analysis of the world’s worst performers.

Venezuela holds the inglorious title of the most miserable country in the world in 2018, as it did in 2017, 2016, and 2015. The failures of President Nicolás Maduro’s socialist, corrupt petroleum state have been well documented… Argentina jumped to the No. 2 spot after yet another peso crisis. Since its founding, Argentina has been burdened with numerous economic crises. Most can be laid at the feet of domestic mismanagement and currency problems (read: currency collapses). To list but a few of these crises: 1876, 1890, 1914, 1930, 1952, 1958, 1967, 1975, 1985, 1989, 2001, and 2018.

For what it’s worth, if you look at the actual Misery Index numbers, Venezuela is in first place by an enormous margin. Chalk that up as another “victory” for socialism.

Moreover, I’m not surprised to see that Jordan, Ukraine, and South Africa are doing poorly. Sadly, there’s not much hope for improvement in those nations.

It’s also not a surprise to see Brazil on the list, though there may be room for optimism if the new government can adopt meaningful reforms.

P.S. Professor Hanke noted that Arthur Okun created the first Misery Index. Okun also is famous for his explanation of the equity-efficiency tradeoff. Okun supported redistribution in order to increase equality of outcomes, but he was honest and admitted that this would mean less prosperity. Too bad international bureaucracies such as the OECD and IMF don’t share Okun’s honesty.

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Over the past four days, I’ve looked at the supposed socialism of Venezuela, the Nordic nations, Greece, and France.

And I chose those nations deliberately because I used them as examples in this clip from a recent interview.

All of them are sometimes labeled as socialist countries, but if you look at the rankings from Economic Freedom of the World, you notice that this analysis doesn’t make much sense.

For example, the Nordic nations have a lot of economic liberty and are only slightly behind to the United States, which is why I explained last year that if those nations are socialist, then so is America.

And there is a big gap between the Nordic nations and France. And then another big gap before getting to Greece, and also a big gap before reaching Venezuela at the bottom. Should all of those nations get the same label?

So where do we draw the line to separate socialist nations from non-socialist nations?

I confess that I don’t have an answer because (as I’ve noted many times) we don’t have a good definition of socialism.

If socialism is central planning, government-determined prices, and government ownership of the means of production, then the only nations that really qualify are probably Cuba and North Korea. And they aren’t even part of the rankings because of inadequate economic data.

But if having a welfare state is socialism, then every jurisdiction other than Hong Kong and Singapore presumably qualifies.

Given this imprecision, I’m very curious to see where people think the line should be drawn.

P.S. This is why I usually just refer to statism or statists.

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I wrote a couple of days ago about America’s best and worst cities for pro-market policy, and I noted that there are several rankings of economic liberty for states and nations.

But what if you want to know the place with the most overall freedom? In other words, what is the most libertarian place to live based on both economic liberty and personal liberty?

If you don’t mind a bit of travel, the answer is New Zealand.

For those who prefer to stay in the United States, Will Ruger and Jason Sorens periodically crunch numbers to calculate Freedom in the 50 States.

Their previous edition had New Hampshire in first place, so let’s take a look at the newest version.

This 2018 edition of Freedom in the 50 States presents a completely revised and updated ranking of the American states on the basis of how their policies promote freedom in the fiscal, regulatory, and personal realms. …More than 230 policy variables and their sources are now available to the public on a new website for the study. …the 2018 edition provides annual data on economic and personal freedom and their components back to 2000. …Freedom in the 50 States is an essential desk reference for anyone interested in state policy and in advancing a better understanding of a free society.

The publication is loaded with data, as you’ll see from the following charts.

To put all this data in context, the report separately calculates fiscal freedom, regulatory freedom, and personal freedom.

We’ll start with the fiscal section, which includes variables about taxes and spending, as well as other measures such as debt and government employment.

For those interested, the report has plenty of analysis and explanation about the variables that are used and the weights that are assigned.

Most of us, though, simply want to see which states get good scores and which ones get bad scores.

I’m not surprised to see that zero-income-tax states – led by Florida – are at the top. And I’m also not surprised that flat-tax states – led by Pennsylvania – also are well represented.

I assume nobody is surprised to see New York in last place.

Now let’s shift to regulatory policy and see where the burden of red is most onerous.

This part of the ranking covers a range of issues, most notably controls on land use and restrictions on the use of markets in health care.

But there are other important variables, including the extent and burden of occupational licensing.

Indeed, before getting to the overall rankings for regulation, I want to share those scores because it is so galling and upsetting that politicians impose barriers that limit the freedom of people to earn income.

Colorado deserves hearty applause for being at the top, edging out Idaho by a narrow margin. And even though Vermont was near the bottom of the fiscal rankings, it merits a mention for being good on the issue of occupational licensing.

California deserves hearty condemnation for being in last place. And I’m not surprised to see states like Illinois and New Jersey near the bottom.

I’m very disappointed, however, that Texas and Florida have such a dismal record.

But let’s not fixate on just one of the variables. If we look at the rankings for all regulatory issues, Kansas is in first place, followed by Nebraska and Idaho.

The worst states (hardly a surprise) are New York, New Jersey, and California.

Now let’s combine fiscal policy and regulatory policy and see the report’s ranking for overall economic freedom.

Florida is in first place by a comfortable margin, followed by three other zero-income-tax states (though the absence of a state income tax does not guarantee a good score, as you can see from the poor performance of Alaska, Wyoming, and Washington).

New York wins the Booby Prize by a large margin.

Hawaii and California also stand out in a bad way.

The above table tells us which state enjoys the most economic liberty, but that doesn’t tell us where to live if you want the maximum amount of overall freedom.

To identify the nation’s most libertarian state, we also need to look at rankings for personal liberty.

This means, in part, whether people are harassed and persecuted for victimless crimes, but it also includes measures of educational freedom and gun rights.

Speaking of which, I can’t resist sharing the data on which states most respect the 2nd Amendment.

Kansas gets the best score, followed by Vermont(!), Arizona, Idaho, and Mississippi.

Hawaii is the worst state by a significant margin and we (again) find California near the bottom.

Another issue which is near and dear to my heart is asset forfeiture.

I am nauseated and disgusted that governments are allowed to steal property from people who have not been convicted of any wrongdoing.

So let’s applaud New Mexico, Nebraska, and New Hampshire for putting limits on this awful practice.

And let’s heap unending scorn on Rhode Island for having the nation’s worst track record on this issue.

But what happens when we combine all issue relating to personal freedom?

Well, that’s exactly what the authors did, which means we get a comprehensive ranking for personal freedom. I’m not surprised that Nevada, Colorado, and New Hampshire are in the top 5, but I’m surprised to see that Maine leads the pack.

Likewise, I guess I’m not too surprised that Texas and other bible-belt states are socially conservative.

But Hawaii next to last?!?

In any event, the report combines economic freedom and personal freedom and tells us which state could be considered the most libertarian.

And the winner is the Sunshine State of Florida, followed by New Hampshire, Indiana, Colorado, and Nevada. I’m surprised that Florida does so well, though some of the other high-scoring states make sense (especially when I look at data on who reads these columns).

By contrast, the most dirigiste state is New York. That doesn’t surprise me, and I’m also not shocked by some of the other bottom dwellers.

I’m tempted to end here since we’ve already surveyed so much information.

But there’s one final chart which hopefully should be very fascinating.

We just looked at the data on how states currently rank for overall liberty.

This final selection tells us which ones have been moving in the right direction and wrong direction since the turn of the century.

Kudos to Oklahoma for adopting a lot of good reform. Same for New Mexico. And it’s also interesting to see that several states from the Great Lakes region boosted their scores (with Illinois being a laggard, of course).

Vermont has the dismal distinction of having moved the fastest in the wrong direction (No wonder it’s the Moocher State).

Hawaii also deserves an unfavorable mention, while the deterioration of New Jersey and New York is hardly a surprise.

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There are several options if you want to measure economic freedom and competitiveness among nations (rankings from the Fraser Institute, Heritage Foundation, and World Economic Forum).

You also have many choices if you want to measure economic freedom and competitiveness among states (rankings from the Tax Foundation, Mercatus Center, and Fraser Institute).

But there’s never been a good source if you want to know which local jurisdiction is best.

Dean Stansel of Southern Methodist University is helping to fill this gap with a report looking at the relative quality of government policy in various metropolitan statistical areas (MSAs encompass not just a city, but also economically relevant suburbs).

…the level of economic freedom can vary across subnational jurisdictions within the same country (e.g., Texas and Florida have less-burdensome economic policies and therefore much greater economic freedom than New York and California). However, levels of economic freedom can also vary within those subnational jurisdictions. For example, the San Jose metro area has substantially higher economic freedom than Los Angeles. The same is true for Nashville compared to Memphis. In some places, metropolitan areas straddle state borders, skewing state-level economic data. This report quantifies those intra-state disparities by providing a local-level version of the EFNA, ranking 382 metropolitan areas by their economic freedom levels.

So who wins this contest?

Here are the five most-free MSAs. It’s worth noting that all of them are in states with no income tax, which shows that good state policy helps.

What if we limit ourselves to large cities?

Here are the five most-free MSAs with population over 1 million. As you can see, Houston is in first place and zero-income-tax Texas and Florida are well represented.

Now let’s shift to the localities on the bottom of the rankings.

Which MSA is the worst place for economic freedom in America?

Congratulations to El Centro in California for winning this booby prize. As you can see, jurisdictions in New York and California dominate.

What if we look are larger jurisdictions, those with over 1 million people?

In this case, Riverside-San Bernardino-Ontario is the worst place to live.

Though if you want to focus on big cities, the NYC metro area deserves special mention.

Now let’s consider why economic freedom matters.

I’ve shared charts showing how more economic freedom leads to more prosperity in nations.

The same thing is true for states.

So you shouldn’t be surprised to discover that it also is true for metro areas.

Last but not least, here’s a map showing freedom in all MSAs.

I’m not surprised to see so much red in California and New York, but I didn’t realize that Ohio (thanks for nothing, Kasich), Oregon, and West Virginia were so bad.

And the good results for Texas and Florida are predictable, but I didn’t think Virginia would look so good.

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My favorite annual publication from the Heritage Foundation, the Index of Economic Freedom, has just been released.

Like the Fraser Institute’s Economic Freedom of the World and, to a lesser extent, the World Economic Forum’s Global Competitiveness Report, the Heritage Foundation survey is filled with interesting data on economic liberty in various nations.

We’ll start by sharing the global map. It’s good to be green, especially dark green. But it’s bad to be orange and even worse to be red.

Sadly, there are only six “free” jurisdictions.

Unsurprisingly, Hong Kong and Singapore are at the top, and I’m also not surprised to see New Zealand and Switzerland in the next two positions.

What’s especially impressive is that four of the six jurisdictions managed to increase their score.

Now let’s look at the “mostly free” nations.

Note how the Nordic nations all get reasonably good scores. As I’ve repeatedly explained, they have onerous welfare states, but they largely compensate by being very pro-free market in other policy areas (one interesting quirk is that Iceland ranks #11 in the Heritage Index but only #59 in the Fraser rankings).

The United States, for what it’s worth, improved its score but still doesn’t crack the top 10.

Since a majority of readers are from the United States, let dig into the details.

Here’s a breakdown of America’s score. I am befuddled at how the U.S. improved on government spending, but all the other variables make sense.

Pay special attention to the decline in trade freedom.

Now let’s look at a few other countries that merit special attention.

Here’s data for the past 15 years on Iceland, Taiwan, and Chile.

I include Iceland merely because I’m intrigued by the wide divergence in how the country is ranked by Heritage and Fraser.

And I include Chile because I’m worried about the decline in recent years.

Taiwan, meanwhile, deserves mention because it continues to slowly but surely improve – a process that hopefully won’t stop, thus allowing Taiwan to eventually converge with Hong Kong and Singapore.

Now let’s shift to the Baltic nations.

I’ve been a big fan of Estonia, Latvia, and Lithuania, but I’ve been worried about a recent drift in the wrong direction.

And that’s apparent in the Heritage data. This worries me since those countries should be further liberalizing and reforming to help counteract grim demographic trends.

By the way, I have similar concerns about Slovakia, though that nation’s drift in the wrong direction started several years sooner

Let’s close our discussion by looking at the unfortunate nations in the bottom category.

If you guessed the North Korea was the most repressed of the “repressed” nations, congratulations. It’s not just that it’s in last place, it wins that dubious distinction by a wide margin.

Though at least the North Koreans are trending in the right direction, albeit with an almost-too-small-to-measure improvement of just 0.1.

Cuba is #178 out of #180, yet still managed to go from absolutely awful to breathtakingly terrible with a -4.1 change in its score.

Speaking of awful and terrible, Venezuela is next to last. It remains even below Cuba, notwithstanding a small increase of 0.7.

P.S. I’m saddened, but not surprised, that there was a big drop in the score for South Africa. The only good news is that it still is nowhere close to being another Zimbabwe. At least not yet.

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My favorite publication every year is Economic Freedom of the World.

It’s filled with data on fiscal policy, regulatory policy, trade policy, monetary policy, and quality of governance for 162 jurisdictions, and it provides an unbiased way of gauging the degree to which they allow economic liberty.

It also allows readers to slice and dice data, which is very helpful for doing analysis.

For instance, as illustrated by this 2×2 matrix, I claimed in 2016 that nations with small fiscal burdens aren’t necessarily pro-free market (meaning they would belong in the top-right quadrant) and countries with large fiscal burdens aren’t necessarily in favor of intervention and planning (so they would belong in the lower-left quadrant).

But that matrix was speculative.

Which is why I downloaded the EFW dataset. I then removed the fiscal policy variable and created new rankings so I could see which nations relied most on unfettered markets.

As you can see, Singapore barely edges out Hong Kong for first place in this “Laissez-Faire Index,” with New Zealand in third place. In other words, the top three nations in the overall EFW rankings stay the same, though Hong Kong and Singapore trade places (in the far-right column, I compare each nation’s rank to its EFW score for overall economic liberty).

The most dramatic results are for some of the welfare states in Northern and Western Europe. Denmark jumps 12 spots to #4 and the Netherlands soars 18 spots to #5. Other nations with big increases include Finland (up 14 spots to #8), Luxembourg (the world’s freest economy as recently as 1985, moves up 14 spots to #11), Sweden (up 30 spots to #13), Norway (up 11 spots to #14), and Belgium (up 32 spots to #20).

Looking at this list, it’s easy to understand why the combination of big government and free markets is sometimes called the “Nordic Model” (defined by Wikipedia as “a comprehensive welfare state…on the economic foundations of free market capitalism”).

And Japan could be considered an honorary member since it jumps 22 spots in the Laissez-Faire Index, up to #19.

I’ve argued that such nations compensate for the damage of high taxes and big welfare states by being very market-oriented in other ways. And the EFW data supports that assertion.

Though it’s worth noting that their large fiscal burdens do have a negative impact.

P.S. Looking at other nations in the Laissez-Faire Index, Switzerland, the United Kingdom, Ireland and Canada all remain in the top 10, though the United States falls six spots to #12. Georgia, Mauritius, Taiwan, and Lithuania all drop by double-digit amounts.

P.P.S. I did a version of the Laissez-Faire Index in 2015.

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California is like France. Both are wonderful places to visit.

They’re also great places to live if you’re part of the elite.

But neither is the ideal option for ordinary people who want upward mobility.

Back in 2016, I shared Census Bureau data showing that income was growing much faster for people in Texas, especially if you focus on median income (and this data doesn’t even adjust for the cost of living).

So why is Texas growing faster?

Unsurprisingly, I think part of the answer is that the burden of government is significantly greater in California.

Take a look at this table from the most recent edition of Freedom in the 50 States.

Texas is not the freest state, but its #10 ranking is much better than California’s lowly #48 position.

If you’re wondering why Illinois isn’t at or near the bottom, keep in mind that this is a measure of overall economic freedom, not just fiscal policy.

In other words, California doesn’t just have onerous taxes and an excessive burden of government, it also has lots of red tape and intervention.

These numbers presumably help explain why Babylon Bee came up with this clever satire.

The Texas legislature has approved construction of a border wall surrounding the state in order to keep out unwanted refugees fleeing the rapidly crumbling dystopia of California. …The wall will run around the entirety of Texas, with extra security measures on the west side of the state to ensure undesirable Californian immigrants can’t make it across. …the west side will feature a 10-foot-thick concrete wall with laser turrets, barbed wire, and a moat filled with sharks to stop residents of the coastal state from slipping in undocumented and undetected. …“Far too many immigrants from California come here, take advantage of our pro-business, pro-liberty laws, and refuse to adjust to our way of life,” one Texas state rep said in an address to the assembly. “It is time for us to build a wall and make Governor Jerry Brown pay for it.”

This is the flip side of Walter Williams’ joke about California building a wall to keep taxpayers imprisoned.

But let’s return to serious analysis.

Writing for Forbes, Chuck DeVore highlights some differences between his home state and his new state.

Over the past decade, the top states by GDP growth are: North Dakota, Texas, Nebraska, Washington, and Oregon. …When using Supplemental Poverty Measure, the states with the highest poverty as averaged from 2014 to 2016, are: California (20.4%); Florida (18.8%); Louisiana (18.4%), Arizona (17.8%) and Mississippi (16.9%). The national average Supplemental Poverty rate over the last three years reported was 14.7%. Texas’ poverty rate was at the national average. …Combining two key factors, economic growth from 2007 to 2017 and the Supplemental Poverty Measure from 2014 to 2016, provides a better look at a state’s economic wellbeing.

Here’s a table from his column, which looks at growth and poverty in the nation’s five-largest states.

Texas wins for prosperity and California “wins” for poverty.

If you want more data comparing Texas and California, click here, here, and here.

P.S. Texas gets a bad score and California gets a middle-of-the-road score when looking at personal freedom, so the Lone Star State is not a libertarian paradise. If you do the same thing for international comparisons, Denmark is the world’s most libertarian nation.

P.P.S. Here’s my favorite California vs Texas joke.

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I’m glad the United States is now ranked #1 in the World Economic Forum’s Global Competitiveness Report, though I point out in this interview that Trump’s performance is mostly a net wash.

His sensible approach to tax and regulation is offset by his weak approach to spending and his problematic view of monetary policy.

I’m embarrassed to admit that I forget to mention protectionism as another area where Trump is pushing in the wrong direction.

But let’s not focus on Trump. Instead, let’s take a closer look at the new data from the World Economic Forum.

And we’ll start with a look at the top 20. You’ll see some familiar jurisdictions, places that always get good grades, such as Singapore, Switzerland, and Hong Kong.

But you’ll also notice that there are several European welfare states with very good scores.

That’s because the GCR – unlike Economic Freedom of the World or the Index of Economic Freedom – does not rank nations based on economic policy. It’s more a measure of the business environment.

But since good policy tends to create a good business environment, there is a connection. Nations such as Germany and the Netherlands, as well as Scandinavian countries, have big welfare states. But the damage of those policies is offset by a very laissez-faire approach to businesses. So the big companies that help put together the GCR understandably give those places good scores.

By the way, it’s also worth mentioning that the 2018 edition uses a revised methodology. And based on this new approach, the United States retroactively gets the top score for 2017 as well.

All that being said, does it matter if a nation is ranked higher rather than lower?

Based on this strong relationship between competitiveness scores and economic output, the answer is yes.

The bottom line is that there’s a very meaningful link between economic liberty and national prosperity.

Now let’s take a closer look at the scores for the United States. As you can see, our top score is mostly due to our market efficiency and innovation environment.

For what it’s worth, I don’t fully agree with the report’s methodology. But that’s mostly because I prefer to look at the degree of economic liberty rather than whether a nation is business friendly. There’s an overlap, of course, but it’s nonetheless important to distinguish between pro-market and pro-business.

In any event, here are a couple of additional findings that caught my eye.

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Since I’ve been writing a column every day since 2010, you can imagine that there are some days where that’s a challenge.

But not today. The Fraser Institute has released a new edition of Economic Freedom of the World, which is like a bible for policy wonks. So just like last year, and the year before, and the year before, and so on (you may sense a pattern), I want to share the findings.

First, here’s what EFW measures.

The cornerstones of economic freedom are personal choice, voluntary exchange, open markets, and clearly defined and enforced property rights. …The EFW measure might be thought of as a measure of the degree to which scarce resources are allocated by personal choices coordinated by markets rather than centralized planning directed by the political process. It might also be thought of as an effort to identify how closely the institutions and policies of a country correspond with the ideal of a limited government, where the government protects property rights and arranges for the provision of a limited set of “public goods” such as national defense and access to money of sound value, but little beyond these core functions.

Now let’s get to the good stuff.

Unsurprisingly, Hong Kong is at the top of the rankings, followed closely by Singapore. Those jurisdictions have been #1 and #2 in the rankings every year this century.

The rest of the top 5 is the same as last year, featuring New Zealand, Switzerland, and Ireland.

The good news for Americans is that we’re back in the top 10, ranking #6.

Here’s what the report says about the United States.

…the United States returned to the top 10 in 2016 after an absence of several years. During the 2009–2016 term of President Obama, the US score initially continued to decline as it had under President Bush. From 2013 to 2016, however, the US rating increased from 7.74 to 8.03. This is still well below the high-water mark of 8.62 in 2000 at the end of the Clinton presidency.

It’s important to understand that the improvement in the U.S. score has nothing to do with Trump. The EFW ranking is based on America’s economic policies as of 2016 (there’s always a lag in getting hard data).

President Trump’s policies may increase America’s score (think taxes and regulation) or they may decrease America’s score (think trade and spending). But we won’t know for sure until we see future editions.

Here’s what’s happened to economic liberty in America between 1970 and 2016.

As you can see from the historical data, the U.S. enjoyed progress through the Reagan and Clinton years, followed by decline during the Bush years and early Obama years. But we’ve trending in the right direction since 2013.

Let’s look at other nations that get decent scores.

Here are the other nations that are in the top quartile.

Canada and Australia were tied for #10, so the rest of the rankings start with the under-appreciated success story of Taiwan at #12.

All the Baltic nations do well, especially Estonia and Lithuania. Chile also remains highly ranked, as is the supposedly socialist nation of Denmark.

Luxembourg, which was ranked #1 as recently as 1985, is now #25.

I also noticed that Rwanda (#40) has eased past Botswana (#44) to become the highest-ranked nation in Sub-Saharan Africa.

By the way, I’m not going to bother showing the bottom nations, but nobody should be surprised to learn that Venezuela is in last place.

Though that may simply be because there’s isn’t adequate data to include North Korea and Cuba.

Let’s close by including a chart that hopefully will show why economic liberty is important.

Simply stated, people enjoy much higher living standards in nations with free markets and small government. Conversely, people living under statist regimes suffer from poverty and deprivation.

The bottom line is that Economic Freedom of the World shows the recipe for growth and prosperity.

Sadly, very few nations follow the instructions because economic liberty is not in the interests of politicians.

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Whether I’m writing about a rich country or a poor country, my research starts with a visit to Economic Freedom of the World. Published by the Fraser Institute in Canada, EFW uses five major factors (fiscal, regulatory, monetary, trade, and quality of governance) to rank nations based on the overall amount of economic liberty.

The rankings go as far back as 1970, so you can see how a country has changed over time (and the good news is that scores have improved in most nations).

Today, let’s look at a history of the freest nations. We’ll start with the table from 1970.

Unsurprisingly, Hong Kong was at the very top. But who would have guessed that Luxembourg would be second? Canada ranked #3 and the United States was in 4th place, followed by Japan and four European nations.

Perhaps the most shocking bit of news is that Venezuela was ranked #10.

All the more reason that Venezuela’s last-place status in the most-recent edition is so depressing. That must be a record for the biggest-ever decline for a country.

If we look at the data for 1975, 1980, and 1985. Luxembourg continues to get very high scores, along with Hong Kong and the United States.

Panama and Guatemala ranked amazingly high in 1975, while the United Kingdom finally appears in 1985 (thanks to Margaret Thatcher’s reforms).

Here’s the data for 1990, 1995, and 2000. You’ll notice that New Zealand and Australia enter the top 10 while Luxembourg begins to drop (at least relatively speaking) and Singapore begins to climb.

Now let’s look at what has happened this century.

Hong Kong and Singapore have a lock on the top-two slots, with New Zealand and Switzerland controlling the third and fourth positions. Luxembourg, meanwhile, has vanished.

In 2010 and 2015, we see some nations appear from the developing world and the post-communist world. Most notably, Chile, Estonia, and Georgia.

For a policy wonk, these are fascinating numbers. I enjoy looking how relative rankings have changed, as well as what’s happening to absolute scores.

It’s such good source of data that I’ve always wished there were pre-1970 numbers as well.

Well, my wish has been granted. Ryan Murphy and Robert Lawson, two of the scholars who put together Economic Freedom or the World, have cranked out estimates for the entire post-World War II era.

Based on their retroactive assessment, they show that the United States had the world’s freest economy back in 1950.

Switzerland was in second place, followed by a bunch of European and Anglosphere nations.

If you want to understand why Luxembourg, Belgium, Norway, and Sweden are rich today, notice that they have a history of being among the world’s most pro-market nations.

Incidentally, due to inadequate data, Singapore wasn’t included in the retroactive data until 1960 and Hong Kong is complete absent from this historical dataset.

We don’t have top-10 lists for the other years, but the authors shared a table with all their numbers, so I created my own versions for 1955, 1960, and 1965.

As you can see, congratulations to Switzerland and Luxembourg (twice). The United States and Canada get very high marks. And Belgium and the Netherlands get good scores as well.

There are so many implications to this data, but I’ll close with three simple observations.

  • First, these numbers help to explain why Europe is a relatively rich continent. European nations traditionally have dominated the top-10 rankings. It’s not a good continent for fiscal policy, but those countries dominate the scores in other policy areas.
  • Second, you can fall behind by standing still. If you take a close look at data for Luxembourg, Belgium, and the Netherlands, you’ll notice their absolute scores haven’t really changed. But all of those nations have dropped out of the top 10 because other countries improved.
  • Third, global economic liberty is increasing. The top scores in the 1950s and 1960s wouldn’t get a country into the top 10 this century.

P.S. A Spanish academic also has produced some very interesting historical estimates for economic freedom, but his numbers are only averages for western nations.

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My favorite annual publication is the Fraser Institute’s Economic Freedom of the World, which measures the amount of economic liberty that exists in 159 nations. The rankings are based on five equally weighted categories, though I’ve always viewed “Legal System and Property Rights” as being the most important because even low taxes and light regulation won’t produce much growth if investors and entrepreneurs have no faith in the rule of law or the quality of governance.

This is why the annual International Property Rights Index is another one of my favorite publications. It provides a detailed look at why the right to own, utilize, and trade property is essential to a free society.

Property rights are accepted as a linchpin for human beings’ liberty, acting as a catalyst for economic and societal growth , and as a defense against authoritarian temptations. …Property is the basis of the freedom to contract, which is simply liberty in action. Without freedom to exchange, a third party, generally the government, intervenes through the political-bureaucratic ruling class. Freedom is more than the right to own property or the right to make transactions, to exchange, to buy and sell. Once citizens lose the right to own, they lose the ability to control their own lives. …This Index was developed to serve as a barometer of the state of property rights in all countries of the world.

Here’s the methodology of the Index. There are three main categories, each of which is comprised of several indices.

Now let’s get to the rankings.

As you might expect, Nordic nations and Anglosphere jurisdictions dominate, along with a smattering of other European countries.

…the top 15 countries for this year’s IPRI edition. Finland leads the 2018 IPRI (8.6924)… New Zealand ranks second (8.6322)… Next come Switzerland (8.6183), Norway (8.4504), Singapore (8.4049), Sweden (8.3970), Australia (8.3295), Netherlands (8.3252), Luxembourg (8.2978), Canada (8.2947), Japan (8.2315), Denmark (8.1640), United Kingdom (8.1413), United States of America (8.1243), and Austria (8.0050).

Congratulations to Finland, New Zealand, and Switzerland for winning the gold, silver, and bronze medals.

If you peruse the full rankings below, you’ll see that the United States is #14 (the same as last year).

Haiti is in last place, below even Venezuela.

It’s also worth noting that Chile is the highest-ranked Latin American nation.

Now let’s look at the nations with the biggest movement in the right direction and wrong direction. It’s easy to make a big jump for nations that are ranked very low, so Cyprus (which is now near the top of the 3rd quintile) probably deserves the most applause.

This year, five countries show the highest absolute improvement in their IPRI score: Azerbaijan (1.09), Ukraine (0.86), Russia (0.85), Moldova (0.82), and Cyprus (0.79); while the ones with highest decreases in their 2018 IPRI scores were South Africa (-0.65), Ethiopia (-0.3), Liberia (-0.27), Uganda (-0.25), and Uruguay (-0.22).

And South Africa’s decline is very tragic since it historically has been one of the best African nations.

By the way, if you want to know why property rights are so important, this chart is all the evidence you need.

And we’ll close today’s column with a bit of good news.

We don’t have decades of data, but the numbers that do exist show continuous improvement.

And since we also have evidence that overall global economic liberty is increasing, there are reasons for optimism.

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Move over, Crazy Bernie, you’re no longer the left’s heartthrob. You’ve been replaced by Alexandria Ocasio-Cortez, an out-of-the-closet socialist from New York City who will enter Congress next January after beating a member of the Democratic leadership.

Referring to the boomlet she’s created, I’ve already written about why young people are deluded if they think bigger government is the answer, and I also pointed out that Norway is hardly a role model for “Democratic socialism.”

And in this brief snippet, I also pointed out she’s wrong to think that you can reduce corporate cronyism by giving government even more power over the economy.

But there’s a much bigger, more important, point to make.

Ms. Ocasio-Cortez wants a radical expansion in the size of the federal government. But, as noted in the Washington Examiner, she has no idea how to pay for it.

Consider…how she responded this week when she was asked on “The Daily Show” to explain how she intends to pay for her Democratic Socialism-friendly policies, including her Medicare for All agenda. “If people pay their fair share,” Ocasio-Cortez responded, “if corporations paid — if we reverse the tax bill, raised our corporate tax rate to 28 percent … if we do those two things and also close some of those loopholes, that’s $2 trillion right there. That’s $2 trillion in ten years.” She should probably confer with Democratic Socialist-in-arms Sen. Bernie Sanders, I-Vt., whose most optimistic projections ($1.38 trillion per year) place the cost of Medicare for All at roughly $14 trillion over a ten-year period. Two trillion in ten years obviously puts Ocasio-Cortez a long way away from realistically financing a Medicare for All program, which is why she also proposes carbon taxes. How much she expects to raise from this tax she didn’t say.

To be fair, Bernie Sanders also didn’t have a good answer when asked how he would pay for all the handouts he advocated.

To help her out, some folks on the left have suggested alternative ways of answering the question about financing.

I used to play basketball with Chris Hayes of MSNBC. He’s a very good player (far better than me, though that’s a low bar to clear), but I don’t think he scores many points with this answer.

Indeed, Professor Glenn Reynolds of the University of Tennessee Law School required only seven words to point out the essential flaw in Hayes’ approach.

Simply stated, there’s no guarantee that a rich country will always stay rich.

I wrote earlier this month about the importance of long-run economic growth and pointed out that the United States would be almost as poor as Mexico today if growth was just one-percentage point less every year starting in 1895.

That was just a hypothetical exercise.

There are some very sobering real-world examples. For instance, Nima Sanandaji pointed out this his country of Sweden used to be the world’s 4th-richest nation. But it has slipped in the rankings ever since the welfare state was imposed.

Venezuela is another case study, as Glenn Reynolds noted.

Indeed, according to NationMaster, it was the world’s 4th-richest country, based on per-capita GDP, in 1950.

For what it’s worth, I’m not familiar with this source, so I’m not sure I trust the numbers. Or maybe Venezuela ranked artificially high because of oil production.

But even if one uses the Maddison database, Venezuela was ranked about #30 in 1950, which is still impressive.

Today, of course, Venezuela is ranked much lower. Decades of bad policy have led to decades of sub-par economic performance. And as Venezuela stagnated, other nations become richer.

So Glenn’s point hits the nail on the head. A relatively rich nation became a relatively poor nation. Why? Because it adopted the statist policies favored by Bernie Sanders and Alexandria Ocasio-Cortez.

I want to conclude, though, with an even better example.

More than seven years ago, I pointed out that Argentina used to be one of the world’s richest nations, ranking as high as #10 in the 1930s and 1940s (see chart to right).

Sadly, decades of Peronist policies exacted a heavy toll, which dropped Argentina to about #45 in 2008.

Well, I just checked the latest Maddison numbers and Argentina is now down to #62. I was too lazy to re-crunch all the numbers, so you’ll have to be satisfied with modifications to my 2011 chart.

The reverse is true as well. There are many nations that used to be poor, but now are rich thanks to the right kind of policies.

The bottom line is that no country is destined to be rich and no country is doomed to poverty. It’s simply a question of whether they follow the right recipe for growth and prosperity.

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What’s the best argument against statism?

As a libertarian, my answer is that freedom is preferable to coercion. Freedom also ranks higher than prosperity. For instance, the government might be able to boost economic output by requiring people to work seven days a week, but such a policy would be odious and indefensible.

As an economist, I have a more utilitarian perspective. The best argument against statism is that it simply doesn’t work. Nations with bigger government and more intervention routinely under-perform compared to otherwise-similar countries with small government and free markets.

That’s why I often present my leftist friends with my two-question challenge. I ask them to name a country, anywhere on the planet and at any point in history, that either become rich with statist policies or has experienced superior levels of growth with statist policies.

They never have an answer. Or, to be more specific, they never have an accurate answer since Sweden (their reflex response) became rich when government was small and has stumbled ever since a large welfare state was imposed.

And if they are willing to have an extended discussion, my next step is to compare the long-run performance of market-friendly jurisdictions with statist jurisdictions. Whether we’re looking at Chile vs. Venezuela, North Korea vs. South Korea, or Hong Kong vs. Argentina, the results always show that economic liberty is the recipe for growth and prosperity.

When I ask them to show a statist nation with decades of good results, they don’t have an answer. Or, to be more specific, they never have an accurate answer since China (their reflex response) only started to grow once the economy was partially liberalized.

I’m pontificating on this topic because a reader sent me this very stark contrast between market-friendly Botswana and the statist hellhole of Zimbabwe. I can’t vouch for the specific numbers, though it appears some of them are from the Heritage Foundation’s Index of Economic Freedom.

The obvious lesson is that good policy is producing vastly superior results in Botswana.

But I wanted independent confirmation since not everything one sees on the Internet is true (shocking!).

So I checked Human Progress, the invaluable data portal created by Marian Tupy, and downloaded more than 50 years of data for inflation-adjusted ($2010) per-capita GDP in Botswana, Zimbabwe, and South Africa.

The results, to put it mildly, are stunning. Botswana has enjoyed much faster growth than South Africa and Zimbabwe has suffered horrible stagnation.

South Africa’s anemic performance doesn’t surprise me.

And I guess the gap between Botswana and Zimbabwe shouldn’t surprise me, either. After all, Marian wrote about the difference between Botswana and Zimbabwe back in 2008.

How different, I thought, was Zimbabwe from Botswana, the latter of which is safe and increasingly prosperous. But what accounts for such striking differences between the two neighbors? It turns out that much of the difference stems from the degree of freedom that each populace enjoys.

Here’s some of what he wrote about Botswana.

As Robert Guest of The Economist noted in his 2004 book, The Shackled Continent, “In the last 35 years, Botswana’s economy has grown faster than any other in the world…” According to Scott Beaulier, an economist at Beloit College, “Khama adopted pro-market policies on a wide front. His new government promised low and stable taxes to mining companies, liberalized trade, increased personal freedoms, and kept marginal income tax rates low to deter tax evasion and corruption.” …Economic openness served Botswana well. Between 1966 and 2006, its average annual compound growth rate of GDP per capita was 7.22 percent — higher than China’s 6.99 percent. Its GDP per capita (adjusted for inflation and purchasing power parity) rose from $671 in 1966 to $10,813 in 2005.

And here are some of his observations about Zimbabwe.

…almost all of the country’s 4,000 white-owned farms were invaded by state-organized gangs. Some of the farmers who resisted the land seizures were murdered, while others fled abroad. …The agricultural sector soon collapsed, and with it most of Zimbabwe’s tax revenue and foreign currency reserves. …the government ordered the Reserve Bank of Zimbabwe (RBZ) to print more money, sparking the first hyperinflation of the 21st century. …Mugabe’s answer to the falling economy was to increase state patronage and the intensity of the looting.

Needless to say, nothing has changed in the decade since that article was published. Though hopefully Mugabe’s recent ouster may lead to better policy in Zimbabwe (it would be difficult to move in the wrong direction, though Venezuela is evidence that further deterioration is possible).

Let’s conclude with a video I shared three years ago, but it’s worth a second look since we’re considering Botswana’s comparative success.

By the way, none of this suggests Botswana is perfect. Indeed, it’s not even close.

According to the Fraser Institute’s Economic Freedom of the World, it is ranked #50, which means it isn’t even in the top quartile. And its latest score of 7.37 (out of 10) is well below top-ranked Hong Kong’s score of 8.97.

But you don’t have to be fast to win a race. You simply need to be quicker than your competitors. And, on the continent of Africa, Botswana has the most economic freedom.

P.S. I fully expect South Africa to move in the wrong direction, at least in relative terms if not absolute terms.

P.P.S. If you liked the “story of two neighbors” comparison of Botswana and Zimbabwe at the beginning of this column, you’ll probably enjoy this comparison of Detroit and Hiroshima and this comparison of Hong Kong and Havana.

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