March 20, 2023 • 30 mins
Dr. Dan Sutter, of the Manuel Johnson Center for Political Economy, hosts EconVersations, a program that explores the role of free markets in promoting prosperity through conversations with Manuel Johnson Center faculty and guests. In this episode, Dr. Sutter interviews Vincent Miozzi, a PhD student at Texas Tech University. as they discuss economic freedom during COVID.
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(00:00):
The opinions expressed on
this programrepresent the viewpoints
of individual authorsor contributors,
and do not necessarily reflectthose of Troy University.
This is E Conversations,
a joint production of TroyTrojan Vision and Emmanuel H.
Johnson Centerfor Political Economy.
(00:20):
Now here's your host, Dr.
Dan Sutter.
Helloand welcome to E! Conversations.
I'm your host, Dr.
Dan Sutter of the Johnson Center
for Political Economyat Troy University.
Research on economicfreedom is one of the core
missions of the Johnson Center.
And during the pandemic,unprecedented restrictions
were imposed oneconomic freedom.
(00:41):
Measures of economic freedomhave proven enormously valuable
in allowing economiststo confirm the importance
of economic freedom for economicgrowth and human flourishing.
Because the policies imposed to
containCOVID 19 were unprecedented
and they do not fit into
the established measuresof economic freedom.
So what can be done to adjustthese measures?
(01:02):
This is a questionfor economists
to help addressthrough our research
and join me todayon in conversations to discuss
some of the researchon this topic.
As Vincent Mosey
is a doctoral studentin economics
with the Free Market Instituteat Texas Tech University.
VincentSo graduate of Hillsdale College
in Michigan,one of the nation's leading
conservativeand free market colleges.
(01:23):
Welcome to Conversations and.
Thank you, Dan.
Appreciate you having me.
So if you want to
just tell us a little bitabout your background,
how you got into economics
and then sort of lookingat economic freedom.
Sure. Absolutely.
So I like you said,I attended Hillsdale College
and that is where I fell in love
(01:44):
with economics and specificallyfree market economics,
Austrian economics,institutional economics,
and obviously economic freedom,where we hold that in very
high regardat Hillsdale College.
And that led me to Texas Tech
to workwith the Free Market Institute
there, where I've been fortunateenough to work
with a number of scholarsand fellow graduate students
(02:05):
and now, you know, new PhDs
working on these specific topicson economic freedom.
And, you know,that's a little bit about that.
Well, today we're going tobe talking about some research
that you've
coauthored with Ben Powell,who's
been on this program before.
And I've known for years.
And so tell us a little bitabout this
(02:26):
project, how you got into it.
Yeah, absolutely.
So the key idea withthis project is we just wanted
to better measure relativeeconomic freedom in 2020.
And that was obviously tricky
with the coronavirus pandemic
(02:46):
because like you said inkind of the brief introduction,
existing measures of economicfreedom
don't really capture
a lot of these new responsesto COVID 19, particularly
the regulationsthat were put in place
by governments,not just here in the
United States,but across the world.
And so that was kind of this
motivation for this project,because economic freedom,
(03:08):
as I'm sure we'll
discuss, is very importantfor a lot of,
you know, desirableoutcomes for society.
You know, a pandemic like thisthat was met
with such a big regulatoryresponse,
it's very important to kind oflook at those effects,
especially for future work
related to the trade offsbetween,
you know, health concernsand regulation and, you know,
the economic freedomthat we desire here.
(03:31):
So views this termeconomic freedom.
But we should probably explain
a little bit for viewersexactly what we mean,
what we
as economists have in mind whenwe talk about economic freedom.
Yeah, absolutely.
So when speaking about economicfreedom,
at least what
the literature tends to discussis the ability for individuals
(03:51):
and other private groupsto decide how to use their time
and talentsand the resources themselves
without interferencefrom the state
or even from oppressionor violence from others.
So it comes down to reallypersonal freedom, voluntary
exchange,our markets relatively open.
Do you have well-definedproperty rights
so you don't have that coercionfrom other parties?
(04:13):
Basically, can you buy,sell, trade, invest, take risk
without coercionby some other party?
And the folksat the Fraser Institute
and you have their maps up therebehind that.
The Frazier Institutehas been measuring economic
freedom now for, well,close to that 30 years.
And that that's sort ofthe metric that we've used
(04:37):
and economists have usedin hundreds of different
papers now. Right.
Absolutely.
It's a very well-renowned index.
It's used
in all sorts of research,whether it's specific policy
research or academic research,like some of my work.
Yeah, it's it's very wellknown and very credible.
What started offI know initially is
(04:59):
I guess a dozenor so components and variables.
It has expanded nowto 43 different variables.
Looking at the institutionsthat can help measure
what we meanby economic freedom.
They're trying to measureto the extent, you know,
do a country's institutionssupport this thing?
An economic freedomthat we've been discussing.
(05:22):
And, you know, this is importantbecause, I mean, economists
going back all the way to AdamSmith have claimed that markets
lead to prosperityand human flourishing.
But it's a metric like this
that allows us to actuallysort of test that. Right.
Absolutely.
So, yeah, this this economicfreedom index or EPW index
(05:42):
is what it's usually referredto, is exactly that.
It looks at
just the Adam Smith question.
It tests that theory of domarkets do that?
Does economic freedomreally lead to growth
as it lead to prosperity?
But it's also been found to lead
to other thingsthat are good for society, too.
So beyond just things like,you know,
basic economic outcomes, like,
you know, more income,lower taxes,
(06:03):
but health benefits, right?
Access to clean drinking water,political and civil liberties,
all of those sorts of thingsto actually benefit
from increasesin economic freedom as well.
And this EAW measureallows scholars
and other folksto to look and see that.
Now, when we came to 2020,we've had these unprecedented
(06:25):
restrictions on economic freedom
imposed like, say,certain businesses being closed.
And but the problem isthat those don't necessarily
there's no categoriesin the Economic Freedom Index to
to measure out
a lot of these things,which isn't a problem
because up until 2020, noneof these things ever happened.
So why would you even attempt
(06:45):
to incorporate theminto an index at all? Right.
Yeah, that's exactly right.
That was, you know,one of the primary motivations
that my coauthor, Ben Powell
and I had withthis project was the novelty.
This was a novel virus,
and it was met with a novelresponse in novel regulations
that, you know,expanded in scope, in size
in many different ways,that you're exactly right.
(07:06):
Do not really get captured inthese existing measures of yet.
W they're you know, they'reall regulations to some extent.
But you know with
even the regulationareas of economic freedom,
those specific componentsdon't actually capture
a lot of these newerregulations.
They might look at,you know, minimum wage laws and
and other things like that,but they're not really capturing
(07:28):
these new things like businessclosures, school closings,
all those sorts of things.
So that was the motivation
as we wanted to, you know,respond to this novel virus.
Right?There is novel regulations.
So how do we capture those
and better measure relativeeconomic freedom in 2020?
Because that was certainly goingto be changed.
And so fortunately,
(07:49):
if you're going to tryto measure something like that,
well, you need to have measuresfor all of the countries
of the worldor are good number of them.
Well,fortunately for you and Dr.
Paul, I know some folks at the
I think at Oxford have worked
putting this together,our World in Data project.
Right.So tell us a little. Absolutely.
(08:12):
Yeah.
Yeah.
So they had this
lockdown stringency indexor specifically
they called it this government
response tracker,and they tracked 13
interventions by the governmentinto nation's economy.
These are, you know, non-health,
you know, non-pharmaceuticalinterventions.
And they trackeach of these indicators
for every single day of the yearfor each nation.
(08:37):
And we wanted to take that dataand merge it into the economic
freedom of the world index
to help better measure relativeeconomic freedom.
So that's what you know,where Dr.
Paul and I work to adjustthat COVID index as well,
because some of the indicators,they weren't
explicit restrictionson economic freedom.
(09:00):
And so, for example,
they had a vaccinationindicator,
but it wasn'ta mandatory vaccine.
It was justare they available or not?
So that'snot a mandatory restriction.
So those are the types of things
that we had to do to adjust theindex to merge it into F.W..
So, yeah,
this is talk a little bit
about what is involved here
because some of you might thinklike, oh, okay,
(09:20):
you get this dataand you'll just
be able to easilyadd it in there.
But there's actually quite a few
things you have to do hereto turn these
measuresfor every country into something
usable you can usefor economic freedom.
Absolutely.
So the Economic FreedomIndex, it's cause countries
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on a scale of 0 to 10, tenbeing the most economically free
you can be in this COVIDindex from the Oxford,
Our World in Data project,
it actually has a0 to 100 scale,
but 100 was their stringentresponse.
So 100 is the most stringentthat a country could be.
And so what we had to do waswe had to invert that.
(10:03):
We did turn it around
to have the higher numberbe the free number,
and we also had to rescale itto a scale of 0 to 10 in order
to fit it into the FraserIndex of economic freedom.
And that's exactly what we did.
And what we also found was
there was a few cases
where the COVID indexhad subnational data.
(10:23):
So for example,in the United States,
a lot of these COVID regulationshappened at the state level.
They weren'tall nationally imposed,
and so there was wide variationacross states.
You know, you can think ofstates like California,
you could think of stateslike South Dakota
or Texas or Florida,New York, all very different.
(10:43):
And so where subnational datawas available, we adjusted
based on populationand created the national score
for the United Statesand other countries
that way to get a more accurate
representationof the policy variation.
But you could only do that
in the caseswhere you had the subnational,
I guess, COVIDstringency data, right?
(11:05):
Correct.
So it was a very so subnationaldata.
That's exactly right.
Was only availablefor the United States
or Canada, for Brazil, for Chinaand the United Kingdom.
At the time of collection,it was not available
for countrieslike India and Australia
who had some variationat the subnational level
that since I know been updated,
(11:26):
but at the time IT collectionthat wasn't available.
So that's why some of thosescores might look a little lower
because the United Statesinitially
before we corrected for that,they had one of
the lowest scores in the world,
and that was because the waythe Oxford index measures it was
they took your most restrictivesubregion for each category
and created kind of aFrankenstein score that way.
(11:47):
So the United States scores
a combination of Californiaand New York, New Mexico,
very regulated statesthat restricted,
you know, economic freedom
and other thingsduring the pandemic.
So we're subnational datawasn't available.
And fortunately,you know, the data was the data,
but we,you know, corrected the data
for where we could usingthat subnational level stuff.
(12:09):
Well, great.
Okay.
So, yeah,
I think you ended upwith like eight different
measures you wanted to include,but that now
you have a COVID stringency,you have a measure
of COVID policy forfor a large number of countries.
And now you have to startto think about,
okay, how do you add thisto the Economic Freedom index?
So if you can tell us,I think there's like
(12:31):
five componentsof the Economic Freedom index.
And what was your thoughtabout how to go about taking
this measure of COVID stringencyand factor it in here?
Yeah.
So those we
you're right, we ended upwith those eight COVID
indicators,those regulatory responses
by governments across the world
(12:51):
into what we called lockdownregulatory freedom.
And yes,we needed to merge it into F.W.,
which as you said,it has five existing areas.
So areaone is size of government,
which looks at things liketaxes, subsidies, transfers.
Then there's a legal system inproperty rights, which is area,
you know, which looks at thingslike our courts in partial.
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Do you havea reliable police force
and how well can you enforcecontracts?
Stable money isprivate. Is area three.
That's primary primarilylooking at inflation.
And then area four is freedomto trade internationally.
So that's very common.
Are there are a lot of tariffsor not
can foreigners easily visit?
And then the last one is areafive regulation of credit,
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labor and business.
And that's where we decided
to work with our Lockdownregulatory
freedom measure because
these were all in a sense,some sort of regulation.
But when you break downthe regulation
components of the DFW index,
you know, there's regulationof credit and labor.
So Labor's
pretty commonly understoodthings like minimum
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wage, collectivebargaining and business,
and that's where we noticeda lot of these measures of code
regulations were not reallygetting picked up.
And so we what we didwas we created a scalar.
So we took our scoreand adjusted it similarly to
like an area, twoof the existing index adjusting
economic freedombased on gender.
(14:19):
I said to concentrate more aboutbecause Rosemary five
a couple of years agowanted to come in here
and do something to account for
countriesthat have special restrictions
on the economicfreedom of women.
Right? Absolutely.
So that's exactly what she did.
She created this scalarto adjust area to of
legal system of property rights,because in countries
(14:41):
across the world, men and womendon't have equal rights
in the same sense.
And what she didwas she basically created
this averaging
because, you know, roughlyhalf of the population
would not have accessto the same legal system
and property rights.
Now, COVID is a little different
that it affected everybody,men and women.
So we weso we have a similar spirit
(15:02):
of of adjustment,just like I did for gender.
But we don't havethe same averaging effect.
We just kind of multiply itscalar
through areafive of the regulation
and that adjusts the regulation
component, which then adjuststhe overall component.
And that can leadto potentially 10% drop
in a country'seconomic freedom score,
(15:24):
you know, total economicfreedom score.
But it's actuallyhalf of their regulation score.
The area five score.
Now, there werebefore we get into
some of the numbers on this,
there were actually a coupleof air covered policies
that did show up
that would have showed upin the economic
freedom of the worldindex already.
(15:44):
And I think one was
the internationaltravel restrictions, right?
Absolutely right.
So the Oxford indexdid have a measure for
international travelrestrictions,
but we did drop that
from the analysis for this paperbecause F.W.
already calculates that in areafor freedom to trade.
So we would be double countingand we don't
(16:05):
want a double count, of course.
So that was already capturedin the existing area
for specifically their measureof freedom of interest to visit.
And that turned into almost
an entire column of onesand zeros out of ten
pretty much across the globe.
Countrieswere pretty restrictive
as far as like they wantedto close off their borders
(16:27):
to try to preventspread of the virus. Yeah.
And then,
I mean,
another thing inthe United States that we saw,
we had a big increasein the money supply.
And that is going to show up nowin 2020 because inflation
didn't start in 2020.
But that is going to show up
in the monetary areaof of economic freedom, correct?
(16:47):
That is absolutely correct.
So area three sound money,we will see the inflation effect
most likely in the 2021 numbersand 2022 as well.
But in 2020, that wasn'tnecessarily captured right away.
But on that note,if you go to area one two
with size of government,
there's a little bitof an effect being picked up
because there was obviously
(17:07):
a big fiscal stimulus packageand all of that sort of stuff
that'sgetting picked up as well.
But there is stilla lot of things being missed.
And that was the
you know, again,the motivation of this paper.
Was there still a lot of COVIDregulations that is very new
not being capturedin the existing index.
So that's what we wanted to doto better measure
economic freedom.
(17:28):
So there's two sets of numberswe want to look at.
First off, what will bethe actual lockdown freedom
as you measure it here.
So we have the top
the freest countrieson the lockdown, freedom.
And most of these were
smaller countriesor less developed countries
where it seems like they justdidn't do very much right
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off of your list there.
There were some things that werekind of interesting in there,
just sort of lookingat that list to try and eyeballs
like news reports and everythingI did, they line up.
One was that countrieslike New Zealand and Australia,
especially New Zealand,
turn out relatively well interms of the lockdown freedom.
But that was really sort of dueto the the one policy
(18:13):
they were really able to use,especially in 2020,
to protect themselvesfrom COVID, right?
Absolutely.
So New Zealand's lockdownpolicies, at least in 2020,
were relatively concentratedon closing their borders
and limiting foreignersto visit.
The idea was, you know,being like that island nation,
they can limit
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the spread of the viruswithin their borders
if they just kind of closeoff their borders.
And so that was their policyin 2020.
And that's what we noticed inthe data, was
that was really where theytargeted it across the other
you know,
of the eight indicators
that we looked at
for COVID regulations,
they were actually relativelyfree within their borders.
It wasn't until, like yousaid, 2021
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where the virus actually madeits way in New Zealand
and they started to enforcesome other COVID restrictions
as well. Right.
And then in other countries,they got a lot of attention was
Sweden, where they at one levelrejected lockdown policies.
And there were a lot ofcomparison is made
between Sweden and the otherScandinavian countries.
(19:15):
But your measures,you see, like in the top ten,
we have Finlandand then like Sweden and Norway
are right behind,they're just out of the top ten.
They were all sort of
I guess those differenceswere overblown in the media.
The other Scandinavian countrieshad a relatively
light touch as well then.
Yes, absolutely.
(19:35):
So what we actually noticed
is that the Nordic countriesreally stood out as a group.
So it wasn't just Sweden,
but like you mentioned, Finland
actually made its wayin the top ten.
You know, Norway,all of these other countries
in that region,
they actually stood outas a group
as far as having a relativelylight approach to regulations.
It was primarily volunteerand voluntary
(19:55):
as far as their their approach
to responding to the COVID19 pandemic.
But yeah, some of it,you know, was really
because I think Sweden,they did have a ten out of
ten in one of their indicators,which is face coverings, masks.
And so that seemedto be very hot topic issue,
you know,in the news in the media.
(20:16):
So I know that was probably partof why they were held up to
is an example of a
of a relatively free country,which they were.
But again, the Nordic countries
really stood out, you know,overall, not just Sweden.
And so now we were ready to tryacross the economic freedom.
But before we go,
we have the list of thebefore adjustments who were the
(20:38):
the freest countriesand not surprising Hong Kong
led the list, as it usually doesmost years.
All right.
Yes, absolutely.
A Hong Kong historyof high economic freedom.
They were still the towardsthe top of the list.
And, you know,although one thing I remember
had Bob Lawson on here,who who's the lead
(20:59):
authoron a lot of this on this index.
And there was a pretty notabledecline even before you adjust
for COVID in the average scoreacross the globe in 2020.
So now let's look at you.
Let's lookonce we make some adjustments,
who are the who
remain the freest countriesand so have the top ten up here.
(21:22):
And we see that that Hong Kongremains up there as number one
in all of these scoreswent down somewhat.
When you make your adjustmentsright?
Yeah. So most of them gone down.
There is actually a few caseswhere some scores did
increaseand a lot of that had to do.
You know, for example,we are working theories
that some of these countriesthat had relatively freer
(21:44):
responses to
COVID 19, they were lackingstate capacity,
unable to effectively enforcea specific lockdown.
And so they had some very high
lockdownregulatory freedom scores.
And so their scores actuallywent up ever so slightly.
But overall,
it's pretty clear that thatCOVID regulations really lowered
(22:05):
countries.
You know, all around the worldas far as economic freedom.
And interestingly,
Sweden in swingdoesn't quite make the top ten.
But, you know, certainly Finland
and Denmark were in the top ten,and Denmark
actually scoresquite well in economic freedom
otherthan the size of government.
So despite the thought ofof this
(22:27):
Scandinavian countriesas socialist, in some ways
they are quite free otherthan having a big government.
So these aresome of the top scorers.
But probably more interestingis to see the countries
that had big changesin their in their scores
becausethey had sort of a Rick Stasi
what the effect was.
So some of the countriesthat that went down the wall.
(22:49):
So tell us a little
about some of these countriesthat went down
the mostor went up the most or countries
that would be of of notethat we might care about?
Yeah, absolutely.
So Australia wasof course, was held up a lot
as far as a country,
you know, that had a verystringent COVID response
(23:11):
and this was across the board.
So unlike New Zealandthat relatively concentrated
things, you know,
on their border, Australiahad pretty low indicators.
Again, they were lackingsome subnational data,
but they were only made up ofsix states and two territories.
So we don't think those effectsare going to be quite
as big as something likethe United States.
(23:33):
But Australia with beingrelatively free in the past.
In fact, one of the top nationsas far as economic freedom
there drop is arguably
the most shockingas far as moving down the list.
I mean, they fallout of the top ten,
they nearly fallout of the top 25.
So very significant drop.
(23:55):
Other countries that had reallybig drops, you know, countries
like Italy, they they fell 26spots in their ranking.
Peru fell 25 spots.
The Bahamas fell almost 40 spotsin their rankings
where some countries jumped upquite a bit.
Nicaragua was the highest
as far as improvingin their ranking of 43 spots.
(24:16):
And then there's other nations,too, that are not very,
you know, not as developedhistorically unfree.
And again,
our theory is, you know,
they couldn't really enforcelockdowns as well. And
they jumped up in theirrelative rankings around
other countries, countrieslike Seychelles, Tanzania.
They were some of the top moversoverall in their EFA ranking.
(24:41):
And in terms of movement,there's two things there.
One would be the questionof how much you your
your score might have beenadjusted downwards,
but it's also relativeto how many neighbors
are very closebecause if you're in a sport
where the scores are relativelyfar apart,
you know, a 1/10 of a pointadjustment may not drop
(25:01):
you behind very many countries.
So where the countriesare really bunched together,
that'sprobably where you're seeing
more ability to for countriesto have really big changes.
Absolutely.
That's exactly right.
And what's interesting,too, is when we do make our
COVID adjustmentscompared to the index
(25:22):
relative rankings,they change quite a bit.
But as far as the magnitudeof change,
there is quite significantchange as well.
So overall, you know,
of you know, as faras the direction of movements,
almost 30% of countries
change their directions whenwe make our COVID adjustment.
(25:43):
So countriesthat went up in rankings
actually went down the rankingswith our adjustment
and countries that break thingsafter adjustment
and the pure magnitude as well.
Countries,you know, the unadjusted index
might have only went upor down two or three spots,
but in our index,those jumps tend to be very,
you know, for those countries
(26:03):
that did move in the samedirection, you had over 30%
that move in a
prettymuch a standard deviation from
their original ranking spot.
So very big changes once we.
Know just one thing tomention here is that there were,
you know,
some elements,
especially herein the United States,
where economic freedom did
actually sort of improvewith some of our COVID policies.
(26:25):
There were some relaxationsof like occupational licensing
and for restaurantsallowing them
to have takeout serviceor take out
cocktails,which we didn't have before.
Some a lot of restrictionson talent or reduction
of restriction on telemedicine.
So there were
some forms of deregulationduring the pandemic, right?
(26:47):
Absolutely, Yes.
So those are great examplesto go cocktails, right.
Were allowed.
There were some,
you know, easing of restrictionson occupational licensing.
And we acknowledgethat in our paper as well.
But we know, like comparedto just the massive
infringementson economic freedom,
you know,there's those restrictions
(27:10):
likely, you know, far outweighsome of those examples
of of actualeasing of some restrictions.
But that's absolutely right.
And in a few specific areas,it's economic freedom, actually.
What?
Yeah.
Well, and then Iguess another question is like,
you know,
how did these restrictions onfreedom end up translating
(27:32):
into economic performance?
Because we know that there'sa tremendous
lots of paper showing that freer
countries grow fasterand have more prosperity.
So I guess that'sone of the things
where maybe future researchto see how pandemic restrictions
on economic activity impactedcountries economies.
Absolutely.
(27:53):
I know there's certainlysome working papers out there
now that have looked at,you know, things like production
shortages andand health outcomes like these,
you know, restrictionshelp out health outcomes.
Did they contract growth?
Did they contractmarket activity?
And we're hoping that that Dr.
Kent and I we're hopingthat our work here
(28:13):
would be helpfulin that future research.
You know, looking at, you know,relative economic freedom
and looking at the trade offs
between regulationand economic freedom,
especially in the faceof a pandemic. Yeah.
And certainly one of the thingsthat's looming here is the long
running and possibly very longrun impacts of the school
(28:33):
shutdowns and the learning loss,
because we've certainlydocumented a lot of that.
Well, thanks very much forcoming on and talk about this.
This was very enjoyable and I
think it's an importantinnovation in economic freedom.
And thank youall for joining us.
Join us again next timefor another E conversations.
(28:54):
This has been e conversations,
a joint production of TroyTrojan Vision and the Manuel H.
Johnson Center for PoliticalEconomy at Troy University.
The opinions expressed on
this programrepresent the viewpoints
of individual authorsor contributors,
and do not necessarily reflectthose of Troy University.
This is E Conversations,
a joint production of TroyTrojan Vision and Emmanuel H.
Johnson Centerfor Political Economy.
(00:20):
Now here's your host, Dr.
Dan Sutter.
Helloand welcome to E! Conversations.
I'm your host, Dr.
Dan Sutter of the Johnson Center
for Political Economyat Troy University.
Research on economicfreedom is one of the core
missions of the Johnson Center.
And during the pandemic,unprecedented restrictions
were imposed oneconomic freedom.
(00:41):
Measures of economic freedomhave proven enormously valuable
in allowing economiststo confirm the importance
of economic freedom for economicgrowth and human flourishing.
Because the policies imposed to
containCOVID 19 were unprecedented
and they do not fit into
the established measuresof economic freedom.
So what can be done to adjustthese measures?
(01:02):
This is a questionfor economists
to help addressthrough our research
and join me todayon in conversations to discuss
some of the researchon this topic.
As Vincent Mosey
is a doctoral studentin economics
with the Free Market Instituteat Texas Tech University.
VincentSo graduate of Hillsdale College
in Michigan,one of the nation's leading
conservativeand free market colleges.
(01:23):
Welcome to Conversations and.
Thank you, Dan.
Appreciate you having me.
So if you want to
just tell us a little bitabout your background,
how you got into economics
and then sort of lookingat economic freedom.
Sure. Absolutely.
So I like you said,I attended Hillsdale College
and that is where I fell in love
(01:44):
with economics and specificallyfree market economics,
Austrian economics,institutional economics,
and obviously economic freedom,where we hold that in very
high regardat Hillsdale College.
And that led me to Texas Tech
to workwith the Free Market Institute
there, where I've been fortunateenough to work
with a number of scholarsand fellow graduate students
(02:05):
and now, you know, new PhDs
working on these specific topicson economic freedom.
And, you know,that's a little bit about that.
Well, today we're going tobe talking about some research
that you've
coauthored with Ben Powell,who's
been on this program before.
And I've known for years.
And so tell us a little bitabout this
(02:26):
project, how you got into it.
Yeah, absolutely.
So the key idea withthis project is we just wanted
to better measure relativeeconomic freedom in 2020.
And that was obviously tricky
with the coronavirus pandemic
(02:46):
because like you said inkind of the brief introduction,
existing measures of economicfreedom
don't really capture
a lot of these new responsesto COVID 19, particularly
the regulationsthat were put in place
by governments,not just here in the
United States,but across the world.
And so that was kind of this
motivation for this project,because economic freedom,
(03:08):
as I'm sure we'll
discuss, is very importantfor a lot of,
you know, desirableoutcomes for society.
You know, a pandemic like thisthat was met
with such a big regulatoryresponse,
it's very important to kind oflook at those effects,
especially for future work
related to the trade offsbetween,
you know, health concernsand regulation and, you know,
the economic freedomthat we desire here.
(03:31):
So views this termeconomic freedom.
But we should probably explain
a little bit for viewersexactly what we mean,
what we
as economists have in mind whenwe talk about economic freedom.
Yeah, absolutely.
So when speaking about economicfreedom,
at least what
the literature tends to discussis the ability for individuals
(03:51):
and other private groupsto decide how to use their time
and talentsand the resources themselves
without interferencefrom the state
or even from oppressionor violence from others.
So it comes down to reallypersonal freedom, voluntary
exchange,our markets relatively open.
Do you have well-definedproperty rights
so you don't have that coercionfrom other parties?
(04:13):
Basically, can you buy,sell, trade, invest, take risk
without coercionby some other party?
And the folksat the Fraser Institute
and you have their maps up therebehind that.
The Frazier Institutehas been measuring economic
freedom now for, well,close to that 30 years.
And that that's sort ofthe metric that we've used
(04:37):
and economists have usedin hundreds of different
papers now. Right.
Absolutely.
It's a very well-renowned index.
It's used
in all sorts of research,whether it's specific policy
research or academic research,like some of my work.
Yeah, it's it's very wellknown and very credible.
What started offI know initially is
(04:59):
I guess a dozenor so components and variables.
It has expanded nowto 43 different variables.
Looking at the institutionsthat can help measure
what we meanby economic freedom.
They're trying to measureto the extent, you know,
do a country's institutionssupport this thing?
An economic freedomthat we've been discussing.
(05:22):
And, you know, this is importantbecause, I mean, economists
going back all the way to AdamSmith have claimed that markets
lead to prosperityand human flourishing.
But it's a metric like this
that allows us to actuallysort of test that. Right.
Absolutely.
So, yeah, this this economicfreedom index or EPW index
(05:42):
is what it's usually referredto, is exactly that.
It looks at
just the Adam Smith question.
It tests that theory of domarkets do that?
Does economic freedomreally lead to growth
as it lead to prosperity?
But it's also been found to lead
to other thingsthat are good for society, too.
So beyond just things like,you know,
basic economic outcomes, like,
you know, more income,lower taxes,
(06:03):
but health benefits, right?
Access to clean drinking water,political and civil liberties,
all of those sorts of thingsto actually benefit
from increasesin economic freedom as well.
And this EAW measureallows scholars
and other folksto to look and see that.
Now, when we came to 2020,we've had these unprecedented
(06:25):
restrictions on economic freedom
imposed like, say,certain businesses being closed.
And but the problem isthat those don't necessarily
there's no categoriesin the Economic Freedom Index to
to measure out
a lot of these things,which isn't a problem
because up until 2020, noneof these things ever happened.
So why would you even attempt
(06:45):
to incorporate theminto an index at all? Right.
Yeah, that's exactly right.
That was, you know,one of the primary motivations
that my coauthor, Ben Powell
and I had withthis project was the novelty.
This was a novel virus,
and it was met with a novelresponse in novel regulations
that, you know,expanded in scope, in size
in many different ways,that you're exactly right.
(07:06):
Do not really get captured inthese existing measures of yet.
W they're you know, they'reall regulations to some extent.
But you know with
even the regulationareas of economic freedom,
those specific componentsdon't actually capture
a lot of these newerregulations.
They might look at,you know, minimum wage laws and
and other things like that,but they're not really capturing
(07:28):
these new things like businessclosures, school closings,
all those sorts of things.
So that was the motivation
as we wanted to, you know,respond to this novel virus.
Right?There is novel regulations.
So how do we capture those
and better measure relativeeconomic freedom in 2020?
Because that was certainly goingto be changed.
And so fortunately,
(07:49):
if you're going to tryto measure something like that,
well, you need to have measuresfor all of the countries
of the worldor are good number of them.
Well,fortunately for you and Dr.
Paul, I know some folks at the
I think at Oxford have worked
putting this together,our World in Data project.
Right.So tell us a little. Absolutely.
(08:12):
Yeah.
Yeah.
So they had this
lockdown stringency indexor specifically
they called it this government
response tracker,and they tracked 13
interventions by the governmentinto nation's economy.
These are, you know, non-health,
you know, non-pharmaceuticalinterventions.
And they trackeach of these indicators
for every single day of the yearfor each nation.
(08:37):
And we wanted to take that dataand merge it into the economic
freedom of the world index
to help better measure relativeeconomic freedom.
So that's what you know,where Dr.
Paul and I work to adjustthat COVID index as well,
because some of the indicators,they weren't
explicit restrictionson economic freedom.
(09:00):
And so, for example,
they had a vaccinationindicator,
but it wasn'ta mandatory vaccine.
It was justare they available or not?
So that'snot a mandatory restriction.
So those are the types of things
that we had to do to adjust theindex to merge it into F.W..
So, yeah,
this is talk a little bit
about what is involved here
because some of you might thinklike, oh, okay,
(09:20):
you get this dataand you'll just
be able to easilyadd it in there.
But there's actually quite a few
things you have to do hereto turn these
measuresfor every country into something
usable you can usefor economic freedom.
Absolutely.
So the Economic FreedomIndex, it's cause countries
(09:41):
on a scale of 0 to 10, tenbeing the most economically free
you can be in this COVIDindex from the Oxford,
Our World in Data project,
it actually has a0 to 100 scale,
but 100 was their stringentresponse.
So 100 is the most stringentthat a country could be.
And so what we had to do waswe had to invert that.
(10:03):
We did turn it around
to have the higher numberbe the free number,
and we also had to rescale itto a scale of 0 to 10 in order
to fit it into the FraserIndex of economic freedom.
And that's exactly what we did.
And what we also found was
there was a few cases
where the COVID indexhad subnational data.
(10:23):
So for example,in the United States,
a lot of these COVID regulationshappened at the state level.
They weren'tall nationally imposed,
and so there was wide variationacross states.
You know, you can think ofstates like California,
you could think of stateslike South Dakota
or Texas or Florida,New York, all very different.
(10:43):
And so where subnational datawas available, we adjusted
based on populationand created the national score
for the United Statesand other countries
that way to get a more accurate
representationof the policy variation.
But you could only do that
in the caseswhere you had the subnational,
I guess, COVIDstringency data, right?
(11:05):
Correct.
So it was a very so subnationaldata.
That's exactly right.
Was only availablefor the United States
or Canada, for Brazil, for Chinaand the United Kingdom.
At the time of collection,it was not available
for countrieslike India and Australia
who had some variationat the subnational level
that since I know been updated,
(11:26):
but at the time IT collectionthat wasn't available.
So that's why some of thosescores might look a little lower
because the United Statesinitially
before we corrected for that,they had one of
the lowest scores in the world,
and that was because the waythe Oxford index measures it was
they took your most restrictivesubregion for each category
and created kind of aFrankenstein score that way.
(11:47):
So the United States scores
a combination of Californiaand New York, New Mexico,
very regulated statesthat restricted,
you know, economic freedom
and other thingsduring the pandemic.
So we're subnational datawasn't available.
And fortunately,you know, the data was the data,
but we,you know, corrected the data
for where we could usingthat subnational level stuff.
(12:09):
Well, great.
Okay.
So, yeah,
I think you ended upwith like eight different
measures you wanted to include,but that now
you have a COVID stringency,you have a measure
of COVID policy forfor a large number of countries.
And now you have to startto think about,
okay, how do you add thisto the Economic Freedom index?
So if you can tell us,I think there's like
(12:31):
five componentsof the Economic Freedom index.
And what was your thoughtabout how to go about taking
this measure of COVID stringencyand factor it in here?
Yeah.
So those we
you're right, we ended upwith those eight COVID
indicators,those regulatory responses
by governments across the world
(12:51):
into what we called lockdownregulatory freedom.
And yes,we needed to merge it into F.W.,
which as you said,it has five existing areas.
So areaone is size of government,
which looks at things liketaxes, subsidies, transfers.
Then there's a legal system inproperty rights, which is area,
you know, which looks at thingslike our courts in partial.
(13:14):
Do you havea reliable police force
and how well can you enforcecontracts?
Stable money isprivate. Is area three.
That's primary primarilylooking at inflation.
And then area four is freedomto trade internationally.
So that's very common.
Are there are a lot of tariffsor not
can foreigners easily visit?
And then the last one is areafive regulation of credit,
(13:37):
labor and business.
And that's where we decided
to work with our Lockdownregulatory
freedom measure because
these were all in a sense,some sort of regulation.
But when you break downthe regulation
components of the DFW index,
you know, there's regulationof credit and labor.
So Labor's
pretty commonly understoodthings like minimum
(13:57):
wage, collectivebargaining and business,
and that's where we noticeda lot of these measures of code
regulations were not reallygetting picked up.
And so we what we didwas we created a scalar.
So we took our scoreand adjusted it similarly to
like an area, twoof the existing index adjusting
economic freedombased on gender.
(14:19):
I said to concentrate more aboutbecause Rosemary five
a couple of years agowanted to come in here
and do something to account for
countriesthat have special restrictions
on the economicfreedom of women.
Right? Absolutely.
So that's exactly what she did.
She created this scalarto adjust area to of
legal system of property rights,because in countries
(14:41):
across the world, men and womendon't have equal rights
in the same sense.
And what she didwas she basically created
this averaging
because, you know, roughlyhalf of the population
would not have accessto the same legal system
and property rights.
Now, COVID is a little different
that it affected everybody,men and women.
So we weso we have a similar spirit
(15:02):
of of adjustment,just like I did for gender.
But we don't havethe same averaging effect.
We just kind of multiply itscalar
through areafive of the regulation
and that adjusts the regulation
component, which then adjuststhe overall component.
And that can leadto potentially 10% drop
in a country'seconomic freedom score,
(15:24):
you know, total economicfreedom score.
But it's actuallyhalf of their regulation score.
The area five score.
Now, there werebefore we get into
some of the numbers on this,
there were actually a coupleof air covered policies
that did show up
that would have showed upin the economic
freedom of the worldindex already.
(15:44):
And I think one was
the internationaltravel restrictions, right?
Absolutely right.
So the Oxford indexdid have a measure for
international travelrestrictions,
but we did drop that
from the analysis for this paperbecause F.W.
already calculates that in areafor freedom to trade.
So we would be double countingand we don't
(16:05):
want a double count, of course.
So that was already capturedin the existing area
for specifically their measureof freedom of interest to visit.
And that turned into almost
an entire column of onesand zeros out of ten
pretty much across the globe.
Countrieswere pretty restrictive
as far as like they wantedto close off their borders
(16:27):
to try to preventspread of the virus. Yeah.
And then,
I mean,
another thing inthe United States that we saw,
we had a big increasein the money supply.
And that is going to show up nowin 2020 because inflation
didn't start in 2020.
But that is going to show up
in the monetary areaof of economic freedom, correct?
(16:47):
That is absolutely correct.
So area three sound money,we will see the inflation effect
most likely in the 2021 numbersand 2022 as well.
But in 2020, that wasn'tnecessarily captured right away.
But on that note,if you go to area one two
with size of government,
there's a little bitof an effect being picked up
because there was obviously
(17:07):
a big fiscal stimulus packageand all of that sort of stuff
that'sgetting picked up as well.
But there is stilla lot of things being missed.
And that was the
you know, again,the motivation of this paper.
Was there still a lot of COVIDregulations that is very new
not being capturedin the existing index.
So that's what we wanted to doto better measure
economic freedom.
(17:28):
So there's two sets of numberswe want to look at.
First off, what will bethe actual lockdown freedom
as you measure it here.
So we have the top
the freest countrieson the lockdown, freedom.
And most of these were
smaller countriesor less developed countries
where it seems like they justdidn't do very much right
(17:49):
off of your list there.
There were some things that werekind of interesting in there,
just sort of lookingat that list to try and eyeballs
like news reports and everythingI did, they line up.
One was that countrieslike New Zealand and Australia,
especially New Zealand,
turn out relatively well interms of the lockdown freedom.
But that was really sort of dueto the the one policy
(18:13):
they were really able to use,especially in 2020,
to protect themselvesfrom COVID, right?
Absolutely.
So New Zealand's lockdownpolicies, at least in 2020,
were relatively concentratedon closing their borders
and limiting foreignersto visit.
The idea was, you know,being like that island nation,
they can limit
(18:33):
the spread of the viruswithin their borders
if they just kind of closeoff their borders.
And so that was their policyin 2020.
And that's what we noticed inthe data, was
that was really where theytargeted it across the other
you know,
of the eight indicators
that we looked at
for COVID regulations,
they were actually relativelyfree within their borders.
It wasn't until, like yousaid, 2021
(18:53):
where the virus actually madeits way in New Zealand
and they started to enforcesome other COVID restrictions
as well. Right.
And then in other countries,they got a lot of attention was
Sweden, where they at one levelrejected lockdown policies.
And there were a lot ofcomparison is made
between Sweden and the otherScandinavian countries.
(19:15):
But your measures,you see, like in the top ten,
we have Finlandand then like Sweden and Norway
are right behind,they're just out of the top ten.
They were all sort of
I guess those differenceswere overblown in the media.
The other Scandinavian countrieshad a relatively
light touch as well then.
Yes, absolutely.
(19:35):
So what we actually noticed
is that the Nordic countriesreally stood out as a group.
So it wasn't just Sweden,
but like you mentioned, Finland
actually made its wayin the top ten.
You know, Norway,all of these other countries
in that region,
they actually stood outas a group
as far as having a relativelylight approach to regulations.
It was primarily volunteerand voluntary
(19:55):
as far as their their approach
to responding to the COVID19 pandemic.
But yeah, some of it,you know, was really
because I think Sweden,they did have a ten out of
ten in one of their indicators,which is face coverings, masks.
And so that seemedto be very hot topic issue,
you know,in the news in the media.
(20:16):
So I know that was probably partof why they were held up to
is an example of a
of a relatively free country,which they were.
But again, the Nordic countries
really stood out, you know,overall, not just Sweden.
And so now we were ready to tryacross the economic freedom.
But before we go,
we have the list of thebefore adjustments who were the
(20:38):
the freest countriesand not surprising Hong Kong
led the list, as it usually doesmost years.
All right.
Yes, absolutely.
A Hong Kong historyof high economic freedom.
They were still the towardsthe top of the list.
And, you know,although one thing I remember
had Bob Lawson on here,who who's the lead
(20:59):
authoron a lot of this on this index.
And there was a pretty notabledecline even before you adjust
for COVID in the average scoreacross the globe in 2020.
So now let's look at you.
Let's lookonce we make some adjustments,
who are the who
remain the freest countriesand so have the top ten up here.
(21:22):
And we see that that Hong Kongremains up there as number one
in all of these scoreswent down somewhat.
When you make your adjustmentsright?
Yeah. So most of them gone down.
There is actually a few caseswhere some scores did
increaseand a lot of that had to do.
You know, for example,we are working theories
that some of these countriesthat had relatively freer
(21:44):
responses to
COVID 19, they were lackingstate capacity,
unable to effectively enforcea specific lockdown.
And so they had some very high
lockdownregulatory freedom scores.
And so their scores actuallywent up ever so slightly.
But overall,
it's pretty clear that thatCOVID regulations really lowered
(22:05):
countries.
You know, all around the worldas far as economic freedom.
And interestingly,
Sweden in swingdoesn't quite make the top ten.
But, you know, certainly Finland
and Denmark were in the top ten,and Denmark
actually scoresquite well in economic freedom
otherthan the size of government.
So despite the thought ofof this
(22:27):
Scandinavian countriesas socialist, in some ways
they are quite free otherthan having a big government.
So these aresome of the top scorers.
But probably more interestingis to see the countries
that had big changesin their in their scores
becausethey had sort of a Rick Stasi
what the effect was.
So some of the countriesthat that went down the wall.
(22:49):
So tell us a little
about some of these countriesthat went down
the mostor went up the most or countries
that would be of of notethat we might care about?
Yeah, absolutely.
So Australia wasof course, was held up a lot
as far as a country,
you know, that had a verystringent COVID response
(23:11):
and this was across the board.
So unlike New Zealandthat relatively concentrated
things, you know,
on their border, Australiahad pretty low indicators.
Again, they were lackingsome subnational data,
but they were only made up ofsix states and two territories.
So we don't think those effectsare going to be quite
as big as something likethe United States.
(23:33):
But Australia with beingrelatively free in the past.
In fact, one of the top nationsas far as economic freedom
there drop is arguably
the most shockingas far as moving down the list.
I mean, they fallout of the top ten,
they nearly fallout of the top 25.
So very significant drop.
(23:55):
Other countries that had reallybig drops, you know, countries
like Italy, they they fell 26spots in their ranking.
Peru fell 25 spots.
The Bahamas fell almost 40 spotsin their rankings
where some countries jumped upquite a bit.
Nicaragua was the highest
as far as improvingin their ranking of 43 spots.
(24:16):
And then there's other nations,too, that are not very,
you know, not as developedhistorically unfree.
And again,
our theory is, you know,
they couldn't really enforcelockdowns as well. And
they jumped up in theirrelative rankings around
other countries, countrieslike Seychelles, Tanzania.
They were some of the top moversoverall in their EFA ranking.
(24:41):
And in terms of movement,there's two things there.
One would be the questionof how much you your
your score might have beenadjusted downwards,
but it's also relativeto how many neighbors
are very closebecause if you're in a sport
where the scores are relativelyfar apart,
you know, a 1/10 of a pointadjustment may not drop
(25:01):
you behind very many countries.
So where the countriesare really bunched together,
that'sprobably where you're seeing
more ability to for countriesto have really big changes.
Absolutely.
That's exactly right.
And what's interesting,too, is when we do make our
COVID adjustmentscompared to the index
(25:22):
relative rankings,they change quite a bit.
But as far as the magnitudeof change,
there is quite significantchange as well.
So overall, you know,
of you know, as faras the direction of movements,
almost 30% of countries
change their directions whenwe make our COVID adjustment.
(25:43):
So countriesthat went up in rankings
actually went down the rankingswith our adjustment
and countries that break thingsafter adjustment
and the pure magnitude as well.
Countries,you know, the unadjusted index
might have only went upor down two or three spots,
but in our index,those jumps tend to be very,
you know, for those countries
(26:03):
that did move in the samedirection, you had over 30%
that move in a
prettymuch a standard deviation from
their original ranking spot.
So very big changes once we.
Know just one thing tomention here is that there were,
you know,
some elements,
especially herein the United States,
where economic freedom did
actually sort of improvewith some of our COVID policies.
(26:25):
There were some relaxationsof like occupational licensing
and for restaurantsallowing them
to have takeout serviceor take out
cocktails,which we didn't have before.
Some a lot of restrictionson talent or reduction
of restriction on telemedicine.
So there were
some forms of deregulationduring the pandemic, right?
(26:47):
Absolutely, Yes.
So those are great examplesto go cocktails, right.
Were allowed.
There were some,
you know, easing of restrictionson occupational licensing.
And we acknowledgethat in our paper as well.
But we know, like comparedto just the massive
infringementson economic freedom,
you know,there's those restrictions
(27:10):
likely, you know, far outweighsome of those examples
of of actualeasing of some restrictions.
But that's absolutely right.
And in a few specific areas,it's economic freedom, actually.
What?
Yeah.
Well, and then Iguess another question is like,
you know,
how did these restrictions onfreedom end up translating
(27:32):
into economic performance?
Because we know that there'sa tremendous
lots of paper showing that freer
countries grow fasterand have more prosperity.
So I guess that'sone of the things
where maybe future researchto see how pandemic restrictions
on economic activity impactedcountries economies.
Absolutely.
(27:53):
I know there's certainlysome working papers out there
now that have looked at,you know, things like production
shortages andand health outcomes like these,
you know, restrictionshelp out health outcomes.
Did they contract growth?
Did they contractmarket activity?
And we're hoping that that Dr.
Kent and I we're hopingthat our work here
(28:13):
would be helpfulin that future research.
You know, looking at, you know,relative economic freedom
and looking at the trade offs
between regulationand economic freedom,
especially in the faceof a pandemic. Yeah.
And certainly one of the thingsthat's looming here is the long
running and possibly very longrun impacts of the school
(28:33):
shutdowns and the learning loss,
because we've certainlydocumented a lot of that.
Well, thanks very much forcoming on and talk about this.
This was very enjoyable and I
think it's an importantinnovation in economic freedom.
And thank youall for joining us.
Join us again next timefor another E conversations.
(28:54):
This has been e conversations,
a joint production of TroyTrojan Vision and the Manuel H.
Johnson Center for PoliticalEconomy at Troy University.
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