The steady stream of current world events provides us with the signs to be read if we only take the time and the intention to pay attention to those lessons. The economic view provides a robust language for understanding the basic physical reality of scarcity, and the varied human beliefs and responses we take as we attempt to deal with that scarcity. As Smith and Ricardo teach us, the subtle and important understanding lies in the space between what human desires dictate in the personal scale, in the short run; and what consequences play out on the grand scale, in the long run. In this paper we look at the proxy effects of policies intended by governments to forge policies in the short run, as compared to the inevitable effects that flow from these policies in the long run.
Our primary tools are the Index of Economic Freedom calculated annually by The Heritage Foundation and the Wall Street Journal, and basic quality of life measures from the CIA World Factbook. Because the Heritage index has gained some criticism as biased, or retro-fitted to a cause, we evaluate it by comparison with other indices: The Fraser Institute, a Canadian based libertarian organization; The Ease of Doing Business Index, created by the World Bank; and the Freedom in the World Index, by the liberal organization Freedom House, primarily focused on political rights and civil liberties.
For our section of study, we selected five countries which range the economic freedom index: Hong Kong, United States, Italy, India, and Haiti. For comparison purposes, and to provide additional points to graph, we chose five additional countries which are equidistant, between the others (or in the case of Burundi, between Haiti and the bottom rank). The five inter-comparison countries are: Ireland, Mexico, Honduras, Cameroon, and Burundi. Using these ten countries to plot correlations, we compare the rankings of the Heritage Index with the other three. The following table shows the results:
Fraser Institute : Heritage Index Correlation: 0.9276
Ease of Doing Business, World Bank : Heritage Index Correlation: 0.9606
Freedom House, Civil Liberties Index : Heritage Index Correlation: 0.8205
This data makes clear that the Heritage Index, even if biased, correlates strongly with measures from other organizations, calculated with different methodologies, for different purposes.
The Heritage Index is calculated using ten sub-indices as measures of relevant components of economic freedom. These sub-indices produce an overall composite score. The list of indices and some detail on what they measure is as follows: Business Freedom; the general barriers to entry and exit of the market,...