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Fun with numbers

Hey, you know how all those wimpy leftist economies are trounced by the powerhouse right wing economies?

Yeah, not so much.

Every year since 1995, the Heritage Foundation and the Wall Street Journal put out an Index of Economic Freedom, ranking countries on their fealty to the precepts of free markets and free trade….

A more interesting test than Heritage’s would be to see how countries’ scores in a base year correlated with subsequent growth. Investments are planned and career choices made on the basis of expectations for the future, and expectations are formed mainly by conditions in the present and recent past. And it’s rare that political, economic, and social structures change radically over a few years. So assuming the index means anything at all, it should have some bearing on future performance.

Let’s see how scores in 1996 correlate with economic growth in the following years. And we’ll take a closer look at a version the Heritage/WSJ measure, the change in freedom and its correlation with growth.

And what did he find?

…For the statistically inclined, the correlation is -.02, which means that the association is actually in the opposite direction – more “freedom” means less growth – but the correlation is meaninglessly small.

Running the numbers on the report’s measure, the improvement in the index vs. GDP expressed in 1995 U.S. dollars, produces somewhat better correlations (.33, to be precise). But that’s still very far from impressive;…

(via MaxSpeak)

UPDATE: I misread the second chart. It looks like this is pretty much meaningless.

Categories: Economy
  1. Rocky Smith
    March 29, 2005 at 3:20 pm

    I’d rather live in a free nation, even if the economic picture there was worse than world averages. A statistician once told me that you can manipulate numbers to show whatever result you want. Of course the fine nation of North Korea can’t even feed their people- but have the resources to make nuclear weapons…

  2. March 29, 2005 at 4:57 pm

    It only means economic freedom; obviously, any place with no civil liberties is going to suck, good economy or not.

    Some of things they ranked are areas like “trade policy, tax rates, regulation, inflation rates, and property rights.” Regulation, for example, is not something that really impacts the freedom of a consumer. It seems to me that most people are against certain forms of industrial regulation because they believe it hinders economic growth, not for any abstract principle. The point of his statistics are to show that may not be correct. The same goes for trade policy, for the most part. Property rights would seem to be the exception in the list.

    Your point about statistics is well taken, but this is fairly simple. I know exactly what he did and don’t see anything misleading. You could argue over exactly how meaningful his first chart is, but the second is solid. It’s always possible there’s some economic argument I’m missing, though.

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