Posted on behalf of Garth Zietsman
By definition libertarians favor liberty in all areas of life. Usually they expand by saying they are fiscal conservatives and social liberals. So why is it that actual libertarians associate and cooperate with conservatives/Republicans and not with liberals/Democrats? Clearly they put more weight on economic liberty than social liberty but there is no obvious reason why they should. Is economic liberty more important than say civil liberty? Not only do they put greater weight on economic than social liberty but within the realm of economic liberty they obsess about government size and tax rates and make comparatively less noise about other economic liberties like free trade.
To be fair there have been recent attempts by US libertarians to find common ground with US liberals. In one meeting between the groups the liberals argued that the liberty of business to operate has been unhindered by increases in the size of the state. A similar point was made on this forum about the economic freedom of Sweden. I decided to take a look at the Economic Freedom of the World data over the last 30 years to explore this idea.
Every individual EFW variable was selected for inclusion in the index because in the opinion of a group of elite libertarian economists each was to some degree a valid indicator of economic freedom. The overall index therefore should cancel out all the variance not due to economic freedom and leave a relatively pure measure of economic freedom. This is true only to the extent that each individual variable DOES measure economic freedom. We can check this by using factor analysis. If the individual variables have been well chosen then there ought to be a general factor i.e. something every individual variable shares with the others, and every variable should correlate positively with it. This general factor should also be the purest economic freedom measure one could extract from the variables.
I ran a factor analysis on the 2002 EFW measures (73 countries had enough info) and a very robust general factor did in fact emerge and it accounted for 39% of the variance in the variables. That’s quite high in case you were wondering and over 94% of the variance in a proper sum of the measures would be accounted for by a single factor. Presumably this factor is economic freedom. However the big eye opener is that big government, large transfers and high top marginal tax rates all correlate the wrong way with this factor. In other words, in contradiction to the libertarian economists it seems big government, high (or very progressive) taxes and redistribution contribute toward economic freedom rather than detract from it. On this measure the top 4 most economically free countries in the world are Finland, Denmark, Sweden and Netherlands, and Germany, Belgium, Norway, Canada and France are all very close to the USA.
I’m hoping this result will stimulate some thinking among libertarians.