Economic Freedom and a Better Life

Release Date
February 10, 2011

Topic

Free Markets and Capitalism
Description

Economics professor Josh Hall explains that economic freedom leads to greater human well-being. If we look at average income, life expectancy, income of the poorest 10%, and other factors, we see that when governments let citizens make economic decisions for themselves, this leads to greater human flourishing.

Economic Freedom and a Better Life
Everyone wants to make the world a better place. But not everyone understands how economic freedom leads to wellbeing. The cornerstones of economic freedom are personal choice, voluntary exchange, the freedom to compete in markets, and private property rights. These freedoms comprise the core of what’s measured in the “Economic Freedom of the World” report, which provides further evidence of the positive relationship between economic freedom and economic growth.
An easy way to see this positive relationship is by breaking up the countries of the world into four groups based on their economic freedom. In 2008, the 25 percent of countries with the least economic freedom had GDP per capita of just under $4,000. In contrast, the freest 25 percent of countries had GDP levels over $30,000 per person. What emerges from this figure is unmistakable. Freer countries have substantially higher incomes.
But what does economic freedom have to offer those who don’t directly value economic freedom or the higher consumption levels that growth provides? What if, instead, you value living longer, or better health, or the wellbeing of the poor? Economic freedom is positively related to all of those things and more. For example, using the same four groups, let’s look at the relationship between economic freedom and life expectancy. The average life expectancy at birth for those in the least free group is under 60 years. Compare that to the freest countries, where life expectancy at birth is almost 20 years higher. Think about it; that’s almost an entire generation. So one of the differences between economically unfree and economically free countries is how much time average citizens get to spend with their grandparents.
So that was the average person, but what about the poor, the bottom 10 percent? If we look at this relationship, we see that the poor get roughly the same share of income in unfree countries as in free countries. But remember, incomes are higher in more economically free counties. This means that if we look at the actual income level of the poorest 10 percent, we’ll see that they have substantially higher incomes in more economically free countries.
But it’s more than just income. There’s also a strong relationship between economic freedom and other good things, like happiness and life satisfaction. It gets better. The more economically free countries also have less of the bad stuff, from child labor to political corruption. So by expanding economic freedom—the freedom to make personal choices, start businesses, trade with others, and own property—we get less of the bad and more of the good. Even if you could care less about economic growth, there’s abundant evidence that economic freedom gives people both the liberty and wealth to improve the quality of their lives.