Economic Freedom Index

 The Fraser Institute Human Freedom Index was created to showcase the ranks of countries on freedom from a scale of 0-10. The ranking indicates zero as not being free at all and 10 representing the most freedom. The top 5 free countries include New Zealand, Switzerland, Hong Kong, Canada, and Australia. Are you surprised the United States is not in the top five?  

However, North America does have the highest women specific freedoms and the highest level of freedom overall. Countries with more freedom have higher overall incomes. The correlation between democracy and freedom was very high in the Fraser Institutes studies, but Hong Kong was the outlier in this information. America landed in the fifteenth spot on the HFI. Democracy and freedom are correlated, but The U.S. has a large and modern government. Is the government intervening too much? 

The economist Diedre McCloskey does believe that some intervention by the government is obviously necessary. Governments that reach a certain size and stature eventually end up becoming reliant on coercion. As McCloskey puts it, “Taxing its citizens, bombing foreigners, jailing pot smokers...”. The American people will have civil unrest if the government does not limit its intervention, high levels of police order, the military industrial complex, and deficit spending. The U.S is classified as a wealthy country, but if it does not act like it the freedom and liberty of the American people can be at jeopardy.  

https://www.fraserinstitute.org/studies/economic-freedom

McCloskey, Deirdre Nansen. “Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All.” Amazon, Yale University Press, 2019, www.amazon.com/Why-Liberalism-Works-Liberal-Prosperous/dp/0300235089.

A simple mathematical approach to living vs making a living wage

 

What is the price of your labor and do you believe you are being properly compensated? Today, the federal minimum wage as listed in the U.S Department of Labor website is $7.25 per hour. A full-time minimum wage employee working 40 hours a week makes a gross weekly income of $290. Let us assume this person works all 52 weeks of the year and without taking any days off or adding overtime for holidays, assuming this individual works the holidays, he or she would make a gross yearly income of $15,080.00. Only 29 states and the District of Columbia have minimum wages higher than the Federal minimum wage. The website www.livingwage.mit.edu run by the Massachusetts Institute of Technology (MIT) reports “families and individuals working low-wage jobs make insufficient income to meet minimum standards given the local cost of living”. MIT reports that in my hometown of Falls Church, VA the living wage is S16.84 for 1 adult with no children. How is this even possible? How do people manage to have a roof over their heads and food on the table when a large percentage of the population makes less than the living wage? We can talk about additional factors that attempt to compensate for the minimum wage vs. living wage dilemma such as food stamps, but the reality of the matter is that we live in an economy that is not designed to support the needs of every individual.

 

Let us utilize the example of my hometown of Falls Church, VA to calculate the amount needed for those making minimum wage to have a livable income. There is a $9.59 difference in the hourly rate and a $1,534.40 difference to reach a monthly living income. How does an individual manage to make up the difference? Even if a person were to work an additional 40 hours minimum wage job that would add $1,160.00 to his gross monthly income, he or she is still $374.40 short from having a living wage. Of course, this is not the case for everyone as an individual who has achieved higher education tends to earn more than the living wage and therefore has no need to work an additional job to live comfortably.

 

Friedrich A. Hayek wrote in 1976 a book titled “The denationalization of money”. He put forward a novel proposal to privatize money. In theory, anyone can create their own currency just as the government can print as many dollar notes as they considered to be needed. These private currencies would compete in the market with the government issues notes. Bitcoin is clear example of how this theory is possible. This form of electronic currency is deregulated and currently, as I am writing this blog, the value of bitcoin is listed at an exchange rate of $10,712.40 per 1 Bitcoin. Unfortunately, government issued currency continues to be the norm and in order to survive you need to live by the dollar.

 

Let us consider for a moment the idea of a Universal Basic Income (UBI). In simple terms, it is a policy proposal of monthly cash grants given to all members of a community. Most politicians and opponents of this policy argue it to be socialist by nature as it seeks to give to everyone regardless of economic status. Well, Socialism as described by Karl Marx is a “society which serves the need of man”. The market in our capitalist economy is said to be designed to serve the needs of the man as large corporations seek to provide what the people “need”. Karl Marx's idea of socialism focuses on the true needs of the man rather than the wants made to be perceived as needs seen in today's U.S. economy. UBI is by no means a Capitalist policy but its neither Socialist if we pay for it as we do for all services provided by the government. Should we not be free to decide how our tax money is utilized? Public schools, public transportation, unemployment benefits, food stamps, and the salaries for government officials are all paid by our taxes. Then again, without restrictions and regulations, UBI will provide monthly grants to everyone, including the wealthy. Let us say we increase the minimum wage, assuming there is no ceiling establish for rent, goods, and services, prices would adjust accordingly and we would be back to square one. In summary, UBI is just a policy set forward to form an economy that does not start from zero and where the grant money gets cycled back into the market. It would allow for everyone to be able to reach a decent standard of living regardless of the minimum wage.

Economic Freedom and increased Happiness

More important than money, more important than accumulating wealth, is happiness. In my eyes an individual is not successful if they are not happy. While this is not the area of discussion for this post, it is a good intro into the effect Economic Freedom has on happiness. It is not until recently that the two subject areas have been studied together relatively closely.

First, some important things to note are the basics of happiness. Happiness is subjective. While people may feel the same when they are happy, what makes them happy is up to their own choice. In this way, Economic Freedom is important to happiness as it allows for people to choose a path that would make them happy. This is shown through the work of Economists Bruno Frey and Alois Stutzer people are happier in more democratic nations (Frey and Stutzer). This is because democracy attempts to put in policies that are closely related to its people and without the ability to choose your economic path freely, one will not be as happy as they would be if they could choose freely. 

A very controversial topic within this area of Economics and happiness is the study of the "Eastern Paradox". It has been researched that a rise in GDP means a rise in happiness, but the "Eastern Paradox" attempts to disprove the theory by showing that people are happier in Eastern countries who do not have a large GDP. I believe this controversy is very small as it is true that a rise in GDP results in a rise of happiness. This is true because happiness can be related to an access of food, water and shelter and in lower GDP countries there is limited access to these so increasing the wealth of a nation to buy these commodities will be likely to increase the happiness. I believe though, the controversy will become greater as nations in the world have more access to basic needs that will make them happy. The worry in this controversy can be related to the United States as we have one of the highest GDPs but not the highest level of happiness. 

Frey, Bruno S., and Alois Stutzer. “Happiness, Economy and Institutions.” The Economic Journal, vol. 110, no. 466, 2000, pp. 918–938. JSTOR, www.jstor.org/stable/2667858. Accessed 25 Sept. 2020.

Jackson, Jeremy. “Is Economic Freedom the Secret to Happiness?” North Dakota State University, 21 Sept. 2017, www.ndsu.edu/centers/pcpe/news/detail/30586/.