What do the freedom indices measure?

Here is a must-read post from StatsGuy, via James Kwak.  I don't agree with everything he says (e.g., Singapore, Wagner's Law) but here is his conclusion:

The Heritage Freedom Index is really a composite of measures that get at two different things: Good Government, and Less Government. Overall, the Good Government factors tend to dominate, and drive a lot of the correlation with good economic and quality of life outcomes. When one splits out the factors, the case for Less/Weaker Government weakens substantially, and the case for Clean/Non-Corrupt/Efficient government strengthens considerably.

Addendum: Here is a related discussion, especially in the comments.

Comments

do you want to read the absolute best critique of the heritage index?? here it is. it's an absolute masterpiece

http://redalyc.uaemex.mx/redalyc/pdf/419/41901015.pdf

the author is a colombian economist (it's in spanish but i'm sure that won't be a problem)

I haven't really read the article yet, or the Heritage data, but the paragraph posted here makes sense.

There's plenty of comparative anecdotal evidence to support it. I suspect it would also get a nod of approval from leading quantitative analysts of institutional correlations/causations, beginning with Barro.

Above all, it is consistent with quality theory and logic in political economy and economic sociology.

However, you'd have to look closely at the types of sequencing strategy that might be implied by the analysis (some features of Good Government should probably get causal priority over others). You'd also need to decide in which specific areas More Government might initially be necessary in order to achieve Less Government (paradoxical but realistic). Finally I'm not sure what exactly the writer means by Less Government.

On a related issue, there is often lack of precision in use of the term neoliberal. It could mean one thing in US context, and another in most developing countries. For example in a Latin American or Asian context I narrow 'neoliberalism' down to this -- proto-capitalist policies that cope with failed state activism in the wake of crises by restructuring economies along market lines, but without prompt and corresponding reforms to the institutional framework of economic regulation.

Brandon,

You are correct; "liberal" and "neoliberal" can often be used interchangeably without loss of meaning.

People often use "neoliberal," however, to designate the epoch of government downsizing that came with Reagan/Thatcher, IMF structural adjustment, Washington Consensus, etc. The stakes, the opposition, and the size of the stage are all different, and with regards to any of those, "neoliberal" can be meaningfully construed.

Maybe, but can you separate them? The best government is a market, right? That's why democracy doesn't totally bite. The progressives turn themselves blue telling us that Democracy is a market, but they also tell us markets don't work.

It's a bogus distinction. We read:

Where are the highest correlations? Property Rights and Freedom from Corruption. . . . Again, our best measures of ‘Good Government’ in this index.

The second strongest pair of measures – Business Freedom and Trade Freedom – does seem to support the neo-liberal case. I will note, however, that Business Freedom is primarily determined by the speed/cost of starting, licensing, and closing a company. I will further note that this is heavily influenced by the efficiency of licensing agencies and the court system (especially bankruptcy courts). Again, these are measures of ‘Good Government.’ The neo-liberals do seem to have a case for lower trade barriers (‘Trade Freedom’), although a huge part of this correlation is driven by the fact that the entirety of Europe has relatively low trade barriers.

On what planet are these not all considered important by free market advocates (who I have to presume are the sort of person being labeled "neoliberal", since otherwise "neoliberal" is just a straw man category based on a trite interpretation of a soundbite).

Free market advocates don't consider property rights to be important? What?

They don't consider the heavy cost of business regulation (reflected in licensing etc.) to be important? Huh?

The importance of property rights and the importance of the cost of regulation were even the focus of one of the most famous market-advocate books of the past several years, Hernando de Soto's The Mystery of Capital.

Statsguy points out something well known, and invents a straw man to beat with it.

Soooo...they take 10 sub-categories, group them into two categories, and complain about the conclusions people make from looking at the 10 sub-groups? Just sayin'.

What I always liked about The Heritage index is that at least it was a methodology. That is, it is like good government.

If you have bad government, shouldn't you want less of it? If you have really good government, a little more probably won't kill you (literally and figuratively).

It's probably true that good government is better than less government, but less government is better than bad government. The real issue is that less government is easily achieved - you just have less government. Good government is much harder to achieve and depends on difficult to control factors, such as culture. Scandinavian socialism seems wonderful. The Mediterranean version seems less so. When considering a new social program, it's always probably best to assume you'll end up closer to the latter than the former.

I have always viewed the Heritage indices as containing some subjective metrics, and for even objective ones, metrics whose dividing lines are determined subjectively.

I place as much reliance in a Heritage Index as I place in indices created by the United Nations.

Both are tinker toys for like minded people.

To just say "weak or strong" government, or even "good or bad" government is going to confuse everyone. Everyone would agree that we wanted a weaker government when they were rounding up Japanese people, and everyone would like a stronger government when it comes to preventing armed bands running about killing people.

When Kwak says:
"When one splits out the factors, the case for Less/Weaker Government weakens substantially, and the case for Clean/Non-Corrupt/Efficient government strengthens considerably."

... then libertarian people will respond: this makes no sense. We want more "Clean/Non-Corrupt/Efficient government" for some things, and we totally agree that those things help countries be more free, political and economically, and "Less/Weaker Government" for other things, which we feel don't help countries be more free.

Like Constant said above:

"The importance of property rights and the importance of the cost of regulation were even the focus of one of the most famous market-advocate books of the past several years, Hernando de Soto's The Mystery of Capital."

Libertarian/free market/neoliberal people love good government in property rights and freedom from corruption; to talk of "good government" without referring to what is being governed defeats the entire point of analyzing it.

Whether you agree with them or not here is a great way to sort through the Heritage Index and compare specific countries:
http://index-of-economic-freedom.findthebest.com/

and here is a specific comparison of the US and Singapore from the Heritage Index:
http://index-of-economic-freedom.findthebest.com/saved_compare/Singapore-vs-United-States

The case for Less/Weaker Government only weakens if you believe that More/Stronger Government doesn't tend to have inherent incentives that prevent Clean/Non-Corrupt/Efficient Government.

The efficiency of government is measured by its opportunity to create incentives and kind of protection for people. Most of them don't interested in specific government programs or regulation, people just want their future to be sure in. And that is the indicator of Strong/Weak Government.

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