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Robert Lawson puts numbers to the economic freedom of the world

I believe in making a bit of a fuss about visiting pro-free-market luminaries. Our movement needs celebs, and one good way to get celebs is to make our own people into celebs. One more photo of whoever it is, on a blog, won’t turn him into a celeb on its own, but every little helps. So, below is a photo I took last week, of Robert Lawson, during the Q&A after a talk that he gave at the Adam Smith Institute office in Great Smith Street, on the subject of the Economic Freedom of the World, and more to the point, on the measuring of it:

robertlawsonasi

He looks like he’s conducting an orchestra, doesn’t he? Actually, he was drawing graphs in the air in front of him. The lighting in the ASI’s upstairs premises where this talk took place prefers to light the walls rather than the speaker, so that was one of the very few semi-adequate photos of Lawson that I managed.

This other photo, on the other hand, which showed the final graphic that Lawson gave us on one of those big telly screens that used to cost a fortune but which are now ubiquitous (thank you: economic freedom), came out much better, because the screen supplied its own light:

freetheworldasi

Free The World indeed.

This work by Robert Lawson, putting numbers to which countries are doing what in the realm of economic freedom, should not be confused with that being done by a rival enterprise, the Heritage Foundation.

It’s good that there is competition in this important intellectual arena, but to me it is very confusing, and I don’t think I am the only one thus confused. The ASI email about the event included the words “Economic Freedom of the World Index”. But googling for that before the event took me to this Heritage site. On the subject of this rivalry, Lawson was very polite, and I think we all sensed some behind-the-scenes animosity there. He described the Heritage Freedom Index as somewhat more speculative and opinion-based and less based on actual data sets, supplied by others, than his own efforts. “Black box” was the phrase he used, by which he meant that it is harder to scrutinise how the decisions were arrived at in the Heritage process than it is to scrutinise the Fraser Institute process. In contrast, all the data that Lawson referred to in his talk, with his other graphic offerings on the screen above, is publicly available.

Here is a .pdf of the Economic Freedom of the World 2016 Annual Report, which tells the story as of 2014, which I believe is the latest date that Lawson has done the sums for. Scroll down to page 8 and you get the big national league table. The positions I notice are: Hong Kong in the lead, the UK at number 11, USA at 16. Hong Kong is top every time. The UK is holding about steady. The USA has been falling steadily during the last couple of decades or so.

Lawson also drew our particular attention to that remarkable ex-USSR-possession, Georgia, which is trying to do a Leicester City and is currently at 6. (Heritage doesn’t include Georgia in its top 10.)

And so on. Hours of fun to be had. The more serious point is that economic freedom the world over had been rising healthily until about 2010, but is now flatlining.

True Believer Austrianists might have winced a little at Lawson’s determination to be empirical, to gather evidence, to test theory against fact. He was quite explicit that social science, broadly defined (in the German manner) to mean systematically gathered and systematically tested knowledge about how the world works, is something that is entirely possible. He pointed out that economics is not the only science that is unable to conduct all the experiments it might like to, but instead must mostly depend on theories, and on observations to test those theories. When was the last time you saw an astronomer conducting an experiment with some planets or stars?

But, please don’t take my word for any of this. Thank goodness for those websites, because if you really want to get to grips with all this stuff, you need not depend on me to tell you about it. All I really want to say here is: interesting man, interesting talk, and well done the ASI for hosting it. Apparently Lawson was only here because he wanted to be at this sporting event, last Sunday. If so, then thank you: sport.

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19 comments to Robert Lawson puts numbers to the economic freedom of the world

  • Snorri Godhi

    I have been eagerly following the EFW index since before this blog existed, and am a bit surprised that not everybody here knows about it. Every year around September, i check whether the country where i live has finally overtaken the US of A in economic freedom, and despite the best efforts of the Obama admin, that hasn’t happened yet; but there is a good chance that it will happen within the next 4 years.

    This post seems to give too much credit to Robert Lawson: the earliest EFW reports that i have on file were not authored by him, but by Amela Karabegovic and Fred McMahon. (Even in the latest report, Lawson is not the only author.)

    It must be said that the economic freedom that i have experienced at first hand, does not always correspond with what the index says. Most important to me, in my experience the Dutch housing market is much more of a free market than the British or Danish housing markets. Too bad that i could not corner Mr Lawson and point out this flaw to him.

    WRT Lawson’s empiricism, it must be said that not all Austerians adhere to the same epistemology, eg Mises was a Kantian, Hayek was a Popperian, and i believe that Rothbard was an Aristotelian.

  • Paul Marks

    Yes Snorri – the Index is a very good (although difficult) idea, more on that in a moment.

    As for epistemology – Carl Menger set out the basic rules of Austrian School (although he did not tend to use the actual term “Austrian School”), in opposition the German Historical School (the Historicists) – hence the “War of Method” of the late 19th century.

    That the universe, physical reality, is real (objective – that economic value is subjective does NOT contradict this), that there are rules of logic that are universal (that are not dependent on “race”, “class” or “historical stage”), and that human beings are also real, that our choices are real (not “illusions”), indeed that economics is about the choices (the real choices) if individuals – methodological individualism.

    This is all Artistotelian – indeed Carl Menger was influenced by the philosopher Franz Branteno. However, one can follow Kant and come to the same conclusions (contrary to many of his followers Kant did NOT believe that the physical universe was just a figment of the mind – and Kant certainly believed in Agency, Free Will, the capacity for real choice – including moral choice).

    Actually Karl Popper believed in all this as well – he believed that the physical universe was real (objective) and that there were universal rules of logic (Karl Popper was an enemy of Historicism – indeed he wrote a once famous book attacking it “The Poverty of Historicism”, that was well know in my youth). And Karl Popper certainly believed in moral agency (Free Will) – those who think that Popper was a logical positivist are just mistaken.

    The problem with F.A. Hayek is not that he was influenced by Karl Popper – but that, in certain key respects, he was not. Some of the philosophical assumptions that Hayek was taught in his youth are radically incompatible with the Austrian School – and I am not sure he even fully freed himself from these assumptions. Hayek kept saying that the collectivists were making incorrect political deductions from their philosophy – but they were NOT. On the contrary if one accepts their philosophy (for example its determinism – its assumption that humans are just flesh robots) than collectivist politics is perfectly natural. Contra Hayek one can NOT ditch the philosophical foundations of the “Old Whigs” and keep the political conclusions of the “Old Whigs”. If there is no real “I” (no human persons) then why should one care about the “Euthanasia of the Constitution”? And, of course, David Hume was famously indifferent to the “Euthanasia of the Constitution” – and that was logically consistent with his philosophy (if human persons, the “I”, are not actually real, if they are really flesh robots, why is their fictional “freedom” of any real importance – of course it would be of no importance at all).

    As for empiricism – now that is problematic as regards Karl Popper.

    Are the methods that Karl Popper suggested for the natural sciences suitable for economics and politics?

    Contra to Snorri I do not think that Hayek made the mistake of thinking they were – although I am open to correction on this point.

    However, Milton Friedman certainly did try and apply the methods of natural science to economics – indeed he went FURTHER than Karl Popper would ever have done.

    Karl Popper always insisted that a theory must make sense (logical sense) before one tries to refute it – if the theory makes no logical sense it is simply a waste of time (it is not really a theory at all). A theory must be a rational attempt to explain an aspect of reality – not some bit of illogical nonsense, that can be claimed to “predict” X,Y,Z.

    In the early 1950s Milton Friedman comes to very different conclusions – in his Essays on Positive Economics.

    In these essays Milton Friedman seems to hold the position that it does not matter of a theory makes any logical sense at all – as long as it “predicts” accurately.

    That is not really Karl Popper – that is the insanity of Logical Positivism.

  • Alisa

    IMO:

    He pointed out that economics is not the only science that is unable to conduct all the experiments it might like to, but instead must mostly depend on theories hypotheses, and on observations to test those theories hypotheses.

  • Paul Marks

    To use a bit of jargon – Karl Popper was a deductivist not an inductivist.

    The theory (the hypothesis) comes first – from the human mind (the “I” – which really does exist), and must make logical sense before one tests it.

    That does not hold for technology – in technology it does not matter if a theory makes no sense as it long as it works. But technology is not science – technology is “I want something to do X”, science is “I want to know WHY this thing does X”.

    Science is about WHY. Science is about the desire of human agents (or non human agents – if there are any space aliens out there) to understand WHY things happen. The desire of the I to understand the non I. Science is not fundamentally about creating shiny bits of kit – that is technology (a noble calling – but not the same calling). And science is not fundamentally about doing sums – that is mathematics (also a noble calling – but not the same calling).

    Still I am boring people – so I will get on to the index.

    The index is important (I agree with Brian and Snorri) – but very difficult to construct.

    For example taxes in most Latin American countries look low – because the demands for BRIBES (which are de facto taxes) are not included.

    And how could one include them? It is indeed hard to quantify them.

    Also regulations are hard to quantify. Here is where the work of the people who make the Index is indeed important.

    It is very hard to be able to put numbers on the effects of regulations – but it has to done if an index is to be constructed.

    The increase in the regulation of American life has been dramatic in recent decades.

    Many business people (in all area of the economy) say they could not possibly have prospered (expanded their business over time) under the level of regulation that exists now.

    Compared to (say) 1985 the United States is a vastly more regulated place.

    This is why (for example) the gap between the United States and Denmark may not be as big as government-spending-as-a-proportion-of-the-economy would suggest.

    Some of the Nordic Countries may actually be less regulated than the United States – i.e. their economies are (in this respect) more free.

    Especially when one includes State and local regulation.

    Is the People’s Republic of California more free than (say) Iceland? Of course not. A handful of internet zillionaires (normally Democrats) do not alter the fact that for most people California is a government dominated place. And, as one would expect, California is becoming a Third World Place – with masses of very poor (and government dependent) people. The cost of living in California (housing costs and so on) mean that “higher wages” are really lower wages.

    How about socialist ruled New York City? Again – obviously not. The Wall Street richlings may carry on picking up their huge sums of funny money from the Federal Reserve, but for an ordinary business person New York City is a nightmare of statism.

    It is very hard for an index to reflect all this – but the people who construct the index try to do so.

  • Paul Marks

    By the way – I think the index generally does a very good job (I often use their work myself – and I should thank them for this).

    Hong Kong is not really an independent country – the PRC could end its autonomy at any time (in relation to any aspect or person).

    But New Zealand is an independent country.

    And a good example to the United States (and the rest of us) that “time can run back” – such things as farm subsidies are not eternal.

    Statism can be reversed.

    History does (not does not) have a “reverse gear”.

    We are agents – we can make different choices.

  • Alisa

    And science is not fundamentally about doing sums – that is mathematics

    Mathematics is not about doing sums (that is arithmetic), it is a tool – a language, really – used to express science in terms understandable to other “speakers”, i.e. other scientists.

    Science is about WHY. Science is about the desire of human agents (or non human agents – if there are any space aliens out there) to understand WHY things happen.

    No. Science is first and foremost about what (what actually happens – empirical evidence, even if not obvious to the “naked eye”), and only then about why (analysis and conclusions).

    Technology (by means of engineering) is using those scientific conclusions (AKA unfalsified theories) to get ‘something to do X’.

  • Alisa

    Plus, spot-on remarks about economic indexes and indicators in general, Paul.

    For example taxes in most Latin American countries look low – because the demands for BRIBES (which are de facto taxes) are not included.

    And how could one include them? It is indeed hard to quantify them.

    I’ve never quite thought of it this way – indeed.

  • Alisa

    …actually, not so much why, but rather how.

  • IMO:

    He pointed out that economics is not the only science that is unable to conduct all the experiments it might like to, but instead must mostly depend on theories hypotheses, and on observations to test those theories hypotheses.

    Quoted for truth!

    And science is not fundamentally about doing sums – that is mathematics

    Mathematics is not about doing sums (that is arithmetic)

    As a mathematician trained in mathematical logic and model theory, I oddly enough have to disagree with you there.
    It turns out that the language of arithmetic is Turing Complete, so anything anyone has so far been able to describe with rigorous definitions can be described with arithmetic. Of course, actually doing so is about as prohibitively awkward as programming a web server with a hex editor, but it can be done.

    it is a tool – a language, really – used to express science in terms understandable to other “speakers”, i.e. other scientists.

    Back to agreeing, although I’m increasingly suspicious that “scientists” understand the mathematics they speak.

  • Alisa

    I was referring to real scientists (AKA physicists – as everyone knows that physics is the only real science 😛 ).

    In any case, my statement was only meant within the comparatively narrow context of Paul’s original comment.

    No disagreement from me on anything else though.

  • Mr Ed

    Nice to see Georgia up there, I do like the odd bottle of Georgian wine. I have found a supplier locally. Rather odd how low Hungary is, equal 57 with France, and below Rwanda, Kazakhstan and Uganda. Nice to see Armenia a respectable 18th. South Korea at 42 is storing up problems.

    Sadly with Ukraine at 135, might a Russian (103) takeover be an actual economic liberalisation?

  • Alisa, November 4, 2016 at 3:04 pm: “I was referring to real scientists (AKA physicists – as everyone knows that physics is the only real science ? ).”

    All science is physics. All physics is mathematics.

    (At least, so say mathematicians – one of which I was, in decades gone by.)

    🙂

  • Paul Marks

    “What” rather than “why” – perhaps.

    For example, someone who looks up in the sky and sees lighting and says “what is that?” is asking a scientific question.

    I would classify such a question as a “why” question (“why did light just streak across the sky”), but I have no great dispute with calling it a “what” question.

    As for mathematics – it is indeed a tool.

    That is why mathematics (the tool) must never be mistaken for understanding – which is the objective should be helping with.

    When people give up trying to understand the material universe they are giving up on science.

    But that is another thread.

  • Snorri Godhi

    One more reason Paul Marks should at least try a low carb diet: without him, this discussion would have stayed on topic, which would be a tad boring.
    I cannot possibly express all the thoughts that went through my mind while reading the comments, but i feel the need (no free will?) to express a few.
    This comment is about the index.

    Georgia: weren’t it for the war, i’d consider moving there. Wine, mountains, economic freedom, and probably attractive brunettes as well. (In order of increasing importance.) What ‘s not to like?
    Mauritius also looks good, and Israel, while still behind, has been noticeably improving.

    It must also be noted that 5 of the top 11 spots are English speaking countries, and the top 2 spots are former British colonies.

    WRT Paul’s remark on bribes being a hidden tax: very true, but it must be said that the index accounts for that to some extent, by trying to quantify the enforcement of property rights. A precise assessment is of course impossible, as Paul pointed out.
    My opinion is that the index is better as a guide for producers (people who want to set up a business, or to get a private-sector job) rather than consumers (people who are looking for more consumer choice, especially in the housing market).

    People interested in comparing the economic freedom of US States to other countries, might want to check out the Economic Freedom of North America on the freetheworld website.

    Maybe tomorrow i’ll comment on science, epistemology, and other broader philosophical issues, but i don’t promise (nor threaten) anything.

  • Jacob

    “For example taxes in most Latin American countries look low – because the demands for BRIBES”

    Au contraire. Under a bribe system the official level of taxation in irrelevant. You never pay the official (high) tax, you just pay some bribe instead.
    A bribe system also enhances freedom of doing business – it also overcomes hindering regulation.

    Bribes is the normal way of doing business not only in Latin America, but in 95% of the world, including China, Russia, etc,.
    I don’t know how the “freedom of economy” index was calculated, but if it is based on official data and figures, if it assumes that taxes are paid and regulations enforced, and if it ignores bribes, than it isn’t worth much.

  • Mr Ed

    Au contraire. Under a bribe system the official level of taxation in irrelevant. You never pay the official (high) tax, you just pay some bribe instead.

    How about?

    Au contraire. Under a bribe system the official level of taxation in irrelevant. You never just pay the official (high) tax, you pay some bribe as well.

  • A bribe system also enhances freedom of doing business – it also overcomes hindering regulation.

    Having done business in Africa over the years (from corrupt but friendly Ghana or Kenya, to the festering rancid violent sociopath filled shit hole that is Nigeria), I would have to say nothing could be further from the truth.

    Bribing an official attracts more officials just as surely as tossing a coin to a beggar in a souk in Morocco attracts dozens more beggars who seemingly appear out of nowhere as if by magic. If you think being at the mercy of (often armed) state functionaries leads to freedom of doing business, you have clearly not done much business in places where that happens. There is a reason such countries are invariably poverty wracked shit holes and not wealthy bastions of commerce.

  • Rich Rostrom

    I notice much chatter about rankings. I find rankings much less important than ratings.

    When it comes to income, it is socialists who are obsessed with comparisons, instead of looking at quantities. I don’t care if the U.S. has slipped from (say) 8th to 11th, if its rating has improved. The fact that other countries have improved more matters no more than someone having more income than me while my income increases.