Friday, December 18, 2009

Economic Freedom and Quality of Life

I'm in favor of improving the lot of life for everyone the world over. I think a lot of people are. The disagreements occur regarding the best means for improving people's quality of life. How do we best help people move from poverty to wealth? To move from starvation to satiety, from satiety to abundance?

Some believe that governmental intervention is an absolute requirement - the welfare state, social democracy, call it what you will. These people, from what I can tell, believe that a free market will not help all people to improve their lot - only some people. This is an ongoing argument, but I don't think they are correct. I have all kinds of reasons to think that, but I will only offer one element here that I haven't seen elsewhere.

I was discussing this point with a fellow the other day, and I pointed out the importance of economic freedom for development. He then forwarded me the Economist's Quality of Life index and said that economic freedom was unimportant for quality of life. Well sir, that's just not so.
The Economist's Quality of Life index is from 2005 - I don't think they maintain a time series. So, I grabbed the Heritage Foundation's Index of Economic Freedom (which they have from the early 1990s to 2009) and matched them up. Turns out the correlation between the two indices is 70%. That ain't not bad.

There are methodological differences that can explain the lack of a higher correlation, though. First, the Quality of Life index includes climate and geography, stuff that economic freedom can't change. And, frankly, has little or any relationship with. The Quality of Life index also includes a "community life" measure, which is equal to one if the country has high church involvement /or/ trade union membership. Obviously this latter works against labor freedom. The rest of the elements, like health, material well being, political stability, and political freedom tend to be consistent with ideas captured by the economic freedom index.

I have a serious objection to how the economist captures community life - the church side I can see. Trade unions though? What have these got to do with community life? They foster an atmosphere of exclusion and elitism, not inclusion and camaraderie. Surely there must be better ways of measuring community life. How about volunteer hours/person? Museums, art galleries, and other art projects add to a spirit of community too. I'm not sure how to measure all this, but I'm sure others have good ideas here.

Anyway, the long and short of it: economic freedom and quality of life are positively correlated. To me, this is not surprising. Hopefully this will cause people who think more governmental control is the answer to poverty to think twice.

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