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Friday, March 06, 2009

Economic Freedom vs The Recession

Here's a debate piece for you.  Each year the Wall Street Journal publishes a ranking of countries by degree of 'Economic Freedom'. They define the term in these words:

"The highest form of economic freedom provides an absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself."

Here is a list of Eurozone countries ordered according to the Wall Street Journal's rankings . Their GDP growth or decline in the 4th quarter of 2008 is shown in brackets next to their name (NB - some Eurozone countries were left off the list because I couldn't find 4th quarter numbers.)

12 - Netherlands (-0.9%*)
17 - Finland (-2.4%*)
20 - Belgium (-1.3%*)
23 - Austria (-0.2%*)
24 - Cyprus (+0.6%*)
25 - Germany (-2.1%*)
29 - Spain (-1.0%*)
36 - Slovakia (+2.1%*)
53 - Portugal (-2.0%*)
64 - France (-1.2%*)
76 - Italy (-1.8%*)
81 - Greece (+0.3%*)

Anyone have an idea what these numbers mean for Economic Freedom?  Any explanations for the growth of oppressive Greece, and the recession in the free-wheeling Netherlands?

Posted by Robert Jago on March 6, 2009 in Economic freedom | Permalink


Anything tied into the central bank system should be on the decline right now as the Keynsian economic system's most recent bubble explodes.
Anything showing growth is probably an anomaly and will be joining the rest shortly,

Posted by: JC | 2009-03-06 5:01:14 AM

Hard to read much into quarterly GDP numbers. Socialism is a function of affluence, the idea that Netherlands is easier, and cheaper, to do business in than, say, St. Lucia or Thailand is laughable, as would be apparent to anyone who has lived and worked there.

The OECD countries will be hit hardest should a recession persist because they are the most socialist and will not be able to compete with less socialist and less developed states.

Posted by: Eglinton | 2009-03-06 7:28:39 AM

Easy to argue:

In terms of statistics, one quarter does not make a trend.

What does Greece produce? Maybe their domestic wine harvest popped up the GDP for the fourth quarter?

I wouldn't worry too much. Free market countries climb out of depressions eventually. Socialist countries are always mired in a depression.

Posted by: V65Magnafan | 2009-03-06 8:30:04 AM

I would say that more free market economics don't shield you from any economic downturns, and there are legitimate reasons for economic contraction around the world as the market realigns. For instance, even if Canada was a completely free market economy, we would be experiencing a significant downturn because of decreased global demand for raw materials.

I'll be more interested in the length and depth of any recession than simply the fact that it's happening.

It would be interesting to see if there's something common going on in countries that are still growing. It could be possible that they were growing very quickly before and have taken a comparable hit to growth without going into the negatives as a result. I'm not sure of the numbers.

Posted by: Janet | 2009-03-06 8:48:44 AM

Oh for Heaven's sake, Greece is not repressive. They elected a free enterprise gov't in their last election 2 years ago.

But I agree quarterly numbers mean nothing. Especially Q4 when so many tourist purchase decisions were already made and were not yet subject to expectations of bad news. The Greek economy is heavily based on tourism and it will suffer badly.

The numbers for Cyprus likely parallel the Greek numbers.


Posted by: epsilon | 2009-03-06 8:49:28 AM

Greatest risk = greatest rewards? Greece risks not much, doesn't get rewarded much, but doesn't risk failure either?

As argued above, the same can be seen in micro for Canada. Saskatchewan, Manitoba, PEI and New Brunswick will apparently miss the recession.

Posted by: James Goneaux | 2009-03-06 8:50:10 AM

You are comparing relative decline.

Let's say country X has a high degree of economic freedom with a GDP per capita of $50000, and country Y has a low degree of economic freedom with a GDP per capita of $25000.

Even if X's economy declines 2% one quarter and Y's economy declines only 1%, you're still better off living in country X.

I'm no economist, but my understanding of things is that having a high degree of economic freedom will enable you to use your resources in an optimal way thereby generating an higher level of output than a country with access to the same resources but with less economic freedom. In the short term, it doesn't mean that you will be less affected if the general economic conditions deteriorate. However in the long term, you will probably adapt to the new conditions faster because government won't get in the way.

Posted by: Maxime Rainville | 2009-03-06 8:52:36 AM

Not really sure this is relevant. Recessions should not be regarded as failures but a necessary part of the economic cycle. Economic freedom normally results in higher volatility both on the up and downside. Of course, the danger lies in listening to those people who tell us we should avoid a recession at all costs.

Posted by: Charles | 2009-03-06 9:10:24 AM

"Economic Freedom" is alive and well in the offshore banks and tax havens. These places are also havens for dictators money, drug dealers,currency speculators and money launderers. Meanwhile, taxpayers billions or should that be trillions are given to banksters and currency speculators who have subsidiaries offshore. But hey, that is: "Economic freedom" while the serfs oops I mean the taxpayers pick up the tab.

Posted by: Stephen J. Gray | 2009-03-06 10:59:01 AM

Well Stephen, if you want to eliminate tax havens perhaps we could simply lower the tax rate here? And taxpayers money given to banks to bail them out is not economic freedom ... that's corporate welfare.

Posted by: Charles | 2009-03-06 11:59:48 AM

You got that right Charles "corporate wefare" it is.

Posted by: Stephen J. Gray | 2009-03-06 12:52:28 PM


Greek wine propping up the economy? You must be kidding. Greek wine tastes like turpentine.

Posted by: Grant Brown | 2009-03-06 2:15:37 PM


Yes, but their Calamari is fantastic.

Posted by: John Chittick | 2009-03-06 4:25:53 PM

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