Tag: economic freedom

Immigration Does Not Decrease Economic Freedom

A common criticism of immigration reform (here, here, and here) is that it will decrease economic freedom in the United States, by increasing the voting pool for the Democratic Party.  Leaving aside the issue of which party supports economic liberty, if any, it’s important to see what the actual impacts of immigration are on economic freedom in the United States and the world.  The political effects of immigrants after they arrive are less certain than the economic benefits.  Do immigrants decrease economic freedom in their new countries?  The bottom line: fears of immigrants decreasing economic freedom seem unfounded.

Since 1980, wealthy countries have seen rises in immigrant populations.  Immigrants are drawn to economic prosperity, higher wages, and better standards of living so it’s not surprising that wealthier countries have higher percentages of immigrants.  I excluded numerous small countries and petro-states like the UAE and Kuwait from the analysis.

I looked at the 25 wealthiest nations in the world in 1980 (by per capita GDP PPP) and considered their economic freedom rating and the percent foreign born.  I then tracked those same countries every 5 years until 2010.  Here are the averages for all 25 nations:

Do Free Markets Tend Toward Concentration? The Case of Banking

Perhaps the most significant difference between my own views and those of my progressive friends is on the relationship between business and government, especially “big business”. I’ve on more than one occasion heard that government needs to be there to off-set the power of big business. That without government, corporations would just continue to grow. Well to me that sounds like an empirical question.

Thanks to the Economic Freedom of the World report, we have some good indicators of just how free-market oriented a country is. What we need are measures of concentration. Unfortunately, these are a little harder to come by. Fortunately, the Office of the Comptroller of the Currency (OCC) did a survey about a decade ago (1999), the data for which are reported in Barth, Caprio, and Levine’s Rethinking Bank Regulation. The measure of concentration is the percent of deposits accounted for by the five largest banks. One could argue for a better measure, but it’s all we have.

The results? It would appear that the freer an economy, the less concentrated its banking system. The chart below offers a scatter diagram, along with a regression line. The vertical Y axis measures concentration and the X axis economic freedom (the higher the number, the freer the economy). Admittedly, the relationship is not a strong one, with a correlation of only -0.11, but it is negative. If anyone knows of comparable measures for other industries, I would encourage them to either send me the data or reproduce this analysis for other industries.

Wednesday Links

  • Next up for marriage equality: Perry v. Schwarzenegger. Please join us at 12:00 p.m. Eastern today as co-counsels for the plaintiffs Theodore Olson and John Boies join Center for American Progress president John Podesta and Cato chairman Robert A. Levy for a panel discussion on marriage equality, exploring legal and moral questions dating back to the landmark 1967 Loving v. Virginia decision that ended state bans on interracial marriage. If you cannot join us here at Cato, please tune in to watch a live stream of the event.
  • “Republicans have an opportunity for a much more important debate, which will frame the election campaign next year.”
  • In President Obama’s next speech, Cato director of foreign policy studies Christopher Preble hopes “that the president reaffirms the importance of peaceful regime change from within, not American-sponsored regime change from without.”
  • What will former Massachusetts governor Mitt Romney’s next position on health care be?
  • Like cleanliness next to godliness, so is democracy next to tyranny.
  • The U.S. hit the debt limit–what’s next?


Occupational Licensing: It Isn’t Just for Doctors and Lawyers Any More

“Cat groomers, tattoo artists, tree trimmers and about a dozen other specialists across the country …  are clamoring for more rules governing small businesses,” reports the Wall Street Journal in a front-page story today. “They’re asking to become state-licensed professionals, which would mean anyone wanting to be, say, a music therapist or a locksmith, would have to pay fees, apply for a license and in some cases, take classes and pass exams.” And despite all the talk about deregulation and encouraging entrepreneurship, “The most recent study, from 2008, found 23% of U.S. workers were required to obtain state licenses, up from just 5% in 1950,” according to Morris Kleiner of the University of Minnesota.

The Cato Institute has been taking on this issue for decades. In 1986 Stanley Gross of Indiana State University reviewed the economic literature on the impact of licensing on cost and quality. Kleiner wrote in Regulation in 2006:

Occupational regulation has grown because it serves the interests of those in the occupation as well as government. Members of an occupation benefit if they can increase the perception of quality and thus the demand for their services, while restricting supply simultaneously. Government officials benefit from the electoral and monetary support of the regulated as well as the support of the general public, whose members think that regulation results in quality improvement, especially when it comes to reducing substandard services.

Adjunct scholar Shirley Svorny noted that even in the medical field, “licensure not only fails to protect consumers from incompetent physicians, but, by raising barriers to entry, makes health care more expensive and less accessible.” David Skarbek studied the temporary relaxation of licensing requirements in Florida after Hurricanes Katrina and Frances and concluded that Florida should lift the rules permanently. In his book The Right to Earn a Living: Economic Freedom and the Law, Timothy Sandefur devotes a chapter to “protectionist” legislation such as occupational licensing.

Why Are Statists so Sensitive About Cuba?

I touched a raw nerve with my post about Fidel Castro admitting that the Cuban model is a failure. Matthew Yglesias and Brad DeLong both attacked me. DeLong’s post was nothing more than a link to the Yglesias post with a snarky comment about “why can’t we have better think tanks?” Yglesias, to his credit, tried to explain his objections.

This leads Daniel Mitchell to post the following chart which he deems “a good illustration of the human cost of excessive government.”…this mostly illustrates the difficulty of having a rational conversation with Cato Institute employees about economic policy in the developed world. Cuba is poor, but it’s much richer than Somalia. Is Somalia’s poor performance an illustration of the human costs of inadequate taxation? Or maybe we can act like reasonable people and note that these illustrations of the cost of Communist dictatorship and anarchy have little bearing on the optimal location on the Korea-Sweden axis of mixed economies?

I’m actually not sure what argument Yglesias is making, but I think he assumed I was focusing only on fiscal policy when I commented about Cuba’s failure being “a good illustration of the human cost of excessive government.” At least I think this is what he means, because he then tries to use Somalia as an example of limited government, solely because the government there is so dysfunctional that it is unable to maintain a working tax system.

Regardless of what he’s really trying to say, my post was about the consequences of excessive government, not just the consequences of excessive government spending. I’m not a fan of high taxes and wasteful spending, to be sure, but fiscal policy is only one of many policies that influence economic performance. Indeed, according to both Economic Freedom of the World and Index of Economic Freedom, taxes and spending are only 20 percent of a nation’s grade. So nations such as Sweden and Denmark are ranked very high because the adverse impact of their fiscal policies is more than offset by their very laissez-faire policies in just about all other areas. Likewise, many nations in the developing world have modest fiscal burdens, but their overall scores are low because they get poor grades on variables such as monetary policy, regulation, trade, rule of law, and property rights. This video has more details.

So, yes, Cuba is an example of “the human cost of excessive government.” And so is Somalia.

Sweden and Denmark, meanwhile, are both good and bad examples. Optimists can cite them as great examples of the benefits of laissez-faire markets. Pessimists can cite them as unfortunate examples of bloated public sectors.

P.S. Castro has since tried to recant, claiming he was misquoted. He’s finding out, though, that it’s not easy putting toothpaste back in the tube.

Libertarianism Hits the Big Time

Michael Crowley, late of the New Republic and now with Time magazine, writes thoughtfully about Ron Paul, Rand Paul, and libertarianism. Crowley notes that Rand Paul, “more politically flexible than his father,” has plenty of unlibertarian positions. But both of them are tapping into a real strain in contemporary politics:

But he, like his father, also knows well that a genuine libertarian impulse is astir in America…. polls show an uptick in both social permissiveness and skepticism of government intervention….[Ron Paul] has already waited a long time — and it appears the country is moving his way.

This is a current trend, but it’s also deeply rooted in the American political culture. As David Kirby and I wrote in “The Libertarian Vote”:

It’s no surprise that many Americans hold libertarian attitudes since America is, after all, a country fundamentally shaped by libertarian values and attitudes. In their book It Didn’t Happen Here: Why Socialism Failed in the United States, Seymour Martin Lipset and Gary Marx write, “The American ideology, stemming from the [American] Revolution, can be subsumed in five words: antistatism, laissez-faire, individualism, populism, and egalitarianism.”… Richard Hofstadter wrote: “The fierceness of the political struggles in American history has often been misleading; for the range of vision embraced by the primary contestants in the major parties has always been bounded by the horizons of property and enterprise. However much at odds on specific issues, the major political traditions have shared a belief in the rights of property, the philosophy of economic individualism, the values of competition; they have accepted the economic virtues of capitalist culture.”… McClosky and Zaller sum up a key theme of the American ethos in classic libertarian language: “The principle here is that every person is free to act as he pleases, so long as his exercise of freedom does not violate the equal rights of others.”…

Some people recognize but bemoan our libertarian ethos. Professors Cass Sunstein and Stephen Holmes complain that libertarian ideas are “astonishingly widespread in American culture.”

Much political change in America occurs within those guiding principles. Even our radicals, Lipset and Marks note, have tended to be libertarian rather than collectivist. America is a “country of classical liberalism, antistatism, libertarianism, and loose class structure,” which helps to explain the failure of class-conscious politics in the United States. McClosky and Zaller argue that many of the changes of the 1960s involved “efforts to extend certain values of the traditionalethos to new groups and new contexts”—such as equal rights for women, blacks, and gays; anti-war and free speech protests; and the “do your own thing” ethosof the so-called counterculture, which may in fact have had more in common with the individualist American culture than was recognized at the time.

In a broadly libertarian country most voters and movements have agreed on the fundamentals of classical liberalism or libertarianism: free speech, religious freedom, equality before the law, private property, free markets, limited government, and individual rights. The broad acceptance of those values means that American liberals and conservatives are fighting within a libertarian consensus. We sometimes forget just how libertarian the American political culture is.

And of course American politics and policy deviate a great deal from those fundamental principles, which leaves libertarians feeling frustrated, even angry, and seeming extreme or radical to journalists and others. But as Conor Friedersdorf just wrote in Time’s longtime rival, Newsweek, the media have a bias toward the status quo and establishment politicians, even when current policies and the proposals of elected officials are at least as extreme as libertarian ideas:

If returning to the gold standard is unthinkable, is it not just as extreme that President Obama claims an unchecked power to assassinate, without due process, any American living abroad whom he designates as an enemy combatant? Or that Joe Lieberman wants to strip Americans of their citizenship not when they are convicted of terrorist activities, but upon their being accused and designated as enemy combatants? In domestic politics, policy experts scoff at ethanol subsidies, the home-mortgage-interest tax deduction, and rent control, but the mainstream politicians who advocate those policies are treated as perfectly serious people.

And Fareed Zakaria, the editor of Newsweek International, made the point a dozen years ago in a review of Charles Murray’s book What It Means to Be a Libertarian (in the Public Interest, not online)

The reason that libertarians seem extreme and odd is not that they are a furious minority, angry at a world that seems to have passed them by, but rather the opposite. They are heirs to a tradition that has changed the world. Consider what classical liberalism stood for in the beginning of the nineteenth century. It was against the power of the church and for the power of the market; it was against the privileges of kings and aristocracies and for dignity of the middle class; it was against a society dominated by status and land and in favor of one based on markets and merit; it was opposed to religion and custom and in favor of science and secularism; it was for national self-determination and against empires; it was for freedom of speech and against censorship; it was for free trade and against mercantilism. Above all, it was for the rights of the individual and against the power of the church and the state….

The reason that libertarianism seems narrow and naive is that having won 80 percent of the struggles it has fought over the last two centuries, it is now forced to define itself wholly in terms of the last 20 percent. Extremism in the defense of liberty is no vice if you were in Prussia in the 1850s, but in America in the 1960s? Libertarianism has become extreme because the world has left it no recourse.

Now, I don’t feel furious, angry, or extreme. I think that libertarianism is the philosophy of the American revolution, the basic ideology of America, and indeed the foundation of Western civilization. The concept of personal and economic freedom – giving people more power to pursue happiness in their own way by restricting the size, scope, and power of government – is not extreme. Nor is it reactionary. In fact, it is the direction in which civilization has been heading, with many digressions and blind alleys, since the liberal revolution of the 17th century. I am a progressive. I believe that the simple, timeless principles of the American Revolution – individual liberty, limited government, and free markets – are even more powerful and more important in the world of instant communication, global markets, and unprecedented access to information than Jefferson or Madison could have imagined.  Libertarianism is not just a framework for utopia, it is the indispensable framework for the future.