June 03, 2004
Debunking The 'Economic Freedom Index'
Advance Warning Of Forthcoming Report
At some point, the report we're about to mention will probably show up in conversations about Oregon's "friendliness" to business. There have only been passing references to it so far, but since the full report itself isn't due until August or September, we expect a fuller round later in the year.
Early in May, a group called the Pacific Research Institute pre-announced the forthcoming release of "The U.S. Economic Freedom Index: 2004 Report." According to their press release:
The Index ranks America's 50 states according to how friendly - or unfriendly - their governments are toward free enterprise. The report factors more than 140 variables - from taxes to environmental regulations to tort laws to property rights.
...
This Index provides a much-needed metric to compare states on how they encourage or discourage free enterprise. It also suggests where future growth will occur - and where it won't.
As that release indicates, this forthcoming report got some play in Forbes, in the form of a short item by the PRI's Director of Business and Economic Studies:
In coming up with our ratings we evaluated 143 variables for each state, using the most recent data. This snapshot includes tax rates, state spending, occupational licensing, environmental regulations, income redistribution, right-to-work and prevailing-wage laws, tort laws and the number of government agencies. These we grouped into five sectors--fiscal, regulatory, judicial, size of government and social welfare.
Upon issuance of that initial pre-report press release, there appeared a short Statesman Journal item on it, which leads off with what we expect to be the spin come the Fall when the full report is available:
Oregon ranks 29th of the 50 states in its friendliness to businesses, according to a new study.
This was followed three weeks later by a short Business Journal of Portland item which picked up where the Statesman Journal left off:
An index measuring how friendly -- or unfriendly -- state governments are toward free enterprise found that Oregon ranks 31st among the 50 states.
For what it's worth, the Statesman Journal item was headlined, "Oregon ranks low on list." Over at the Business Journal their item was headlined, "Study: Oregon low on economic freedom."
So we're not merely engaging in idle speculation when we suggest that this Index is going to be used to hammer Oregon when it's released in full come the Fall. While it's only gotten very brief play so far (to be expected, since the report isn't out yet), the precedent for coverage has been set.
As to Oregon specifics, there are of course few at this point. Pacific Research itself has at this point only release the state rankings (pdf) sans supporting data, while Forbes offers a map with limited data which in fact is echoed in the Business Journal item.
But we seem to have said something about "debunking" this Index. Apparently we will have to wait until the Fall to do this in any serious fashion, but for now let's take another look at what little we currently know about the factors and criteria used by PRI to create their Index.
According to PRI's press release, these factors -- and there are reportedly over 140 of them in all -- include taxes, environmental regulations, tort laws, and property rights. To this list, the Forbes item adds state spending, occupational licensing, income redistribution, right-to-work laws, prevailing-wage laws, and the number of government agencies.
This might be a good time to bring in some background on PRI. According, again, to their press release about the Index, the Institute "[champions] individual liberty through free markets" and is "dedicated to promoting the principles of limited government, individual freedom, and personal responsibility."
In other words, they are something of a libertarian-slanted thinktank. Which means we need to bring into this conversation our own biases against libertarians, which are nicely summed up by the following quote from the defunct In Formation magazine: "There is nothing particularly innovative about short-sightedness and lack of compassion. Nevertheless, the way libertarians combine these elements is innovative."
Looking at the few criteria for the Index which we currently have available to us, it's fairly clear that PRI's "analysis" of economic freedom is based pretty much on the sensibility that whatever permits business to do anything they want is good for such freedom, while anything that restricts them from doing anything they want is bad for such freedom.
In other words, larger social concerns and values are irrelevant to PRI's conception of economic freedom.
It's tough to draw specific conclusions without the full report, but it's reasonable to assume that when they factor in environmental regulations, they don't rank a state higher in economic freedom if it chooses to protect the environment. It's reasonable to assume that when they factor in income redistribution, they don't rank a state higher in economic freedom if it chooses to provide a safety net of social services. It's reasonable to assume that when they factor in prevailing-wage laws, they don't rank a state higher in economic freedom if it chooses to try to guarantee that workers are paid enough to support themselves and their families.
We won't belabor the above point. You get the idea.
In the bubble of PRI's conceptualization (or, really, deification) of "economic freedom," nothing exists except that which is "good for business" -- and even then it's an overly-narrow and stunted idea of what is good for business.
But anyway, we go to such lengths here because we're dead certain that when the "U.S. Economic Freedom Index: 2004 Report" is released in August or September, it will be used to feed the drumbeats against Oregon's friendliness to business. While we won't argue that Oregon has no work at all to do on that front (something that no doubt can be said of any number of states), we thought it important to give something of a "heads up" as to the likely true nature and intent of Pacific Research Institute's agenda here.
This report is going to be picked up, it's going to reported upon, and it's going to be used by those who don't expect anyone to pay attention to the details or point out the questions about its underlying assumptions. So be ready come the Fall.
Comments (11)
Noah Brimhall on 03 Jun 2004
Thanks for a good preliminary post about this report. I can't wait to see their "lies, damn lies and statistics."
Tim on 03 Jun 2004
>it will be used to feed the drumbeats against Oregon's friendliness to business.
After looking at the preliminary map you linked to, I am not sure how one could use the report to hammer Oregon's unfriendliness to business.
One may note that Oregon ranks higher than Washington and California, the two other pacific states. Other nearby states that beat Oregon in this index are Idaho and Nevada, who are totally different in population, geography, natural resources, etc. Ironically who ranks #50 in this ranking? The very symbol of American capitalism to much of the country and the world, New York.
Even ignoring the obvious bias of a libertarian leaning group creating such an index, 29th is hardly a damning indictment of Oregon’s business friendliness.
The One True b!X on 03 Jun 2004
Even ignoring the obvious bias of a libertarian leaning group creating such an index, 29th is hardly a damning indictment of Oregon’s business friendliness.
True or not, it obviously already is being used as such an indictment. And it will be even moreso come the Fall.
The One True b!X on 03 Jun 2004
For what it's worth, readers might also notice that in one of these citations, supporters of this index mention Colorado as a good example of economic freedom by at least one criteria, "thanks to its constitutional tax limitation" -- a method that's actually been receiving an increasing amount of criticism.
Mark on 03 Jun 2004
It is interesting that you point out the bias because it is a libertarian leaning group. I assume you will point out the bias in every socialist leaning survey you report on too.
I'll take my tongue out of my cheek now.
Tim on 04 Jun 2004
>True or not, it obviously already is being used as such an indictment.
So are the journalists who are spinning this index incompetent, or do they have an agenda? My suspicion is that they have an agenda.
The One True b!X on 04 Jun 2004
So are the journalists who are spinning this index incompetent, or do they have an agenda?
Well, I tend to suspect lazy before anything else. The Statesman Journal and the Business Journal both pretty clearly took the press release out of PRI, doctorered it a little, and pubished it as a news item.
brett on 04 Jun 2004
"I don't know anything about this study, but since I hate libertarians, and it was done by libertarians who don't share my socialist viewpoint, it must be wrong."
Nice. You assume that libertarians are against protecting the environment, providing social services, and minimum wages. What is that based on, exactly? No one is realistically such a hard-core libertarian as to favor a total lack of regulation. Rather, libertarians try to affect the mechanisms by which these goals are reached. For instance, allowing companies to trade emissions credits results in lower overall emissions, as companies who can cut pollution more than a blanket regulation would require do so. Libertarians believe that markets are the most efficient way to reach any goal, whether that goal is corporate profits or clean air.
And who, exactly, is going to "hammer" Oregon for being business-unfriendly, besides Oregonians themselves?
The One True b!X on 04 Jun 2004
"I don't know anything about this study, but since I hate libertarians, and it was done by libertarians who don't share my socialist viewpoint, it must be wrong."
(1) Actually, the proper reductionism would be: "We have very few details about this report, but we can make reasonable guesses about what it will say and what it's biases are based upon what we do know."
(2) Would you rather I had kept my bias against the extremism of libertarian groups such as PRI a secret?
(3) I'm not a socialist. I like how people who expose extreme libertarianism for what it is always seem to get called socialists.
brett on 04 Jun 2004
(2) No, but I sometimes wonder what this site is supposed to be. Is it journalism or a personal site? It seems to straddle the line, which is certainly OK. Part of the point of blogs is to blur old boundaries.
(3) There's nothing wrong with being a socialist - it doesn't lump you in with Stalin. A socialist simply prioritizes the "larger social concerns and values" that you reference over individual liberty. Libertarians, as you point out, prioritize individual liberty. For example, a libertarian would believe that a state has no business doing this:
> guarantee that workers are paid enough to support themselves and their families
A libertarian would say that an employer should be free to pay what it chooses, and workers should be free to accept or reject jobs with those wages. A socialist would agree with you - and require employers to pay a "living wage".
But as I mentioned earlier, no one serious is an absolute libertarian. All of our freedoms are constrained in certain ways, out of necessity. Civilization requires that I not be free to pick up a gun and shoot someone. It's just a question of where the lines are drawn.
Tim on 04 Jun 2004
>And who, exactly, is going to "hammer" Oregon for being business-unfriendly, besides Oregonians themselves?
The right wing anti-regulation crowd who wants Oregon to let corporations do whatever they want, regardless of the long-term consequences to society. You see it's good for the economy.
>But as I mentioned earlier, no one serious is an absolute libertarian.
Read what comes out of the Oregon Libertarian Party. Also one of my coworkers is a self described absolute Libertarian, and advocates total free markets without any regulation. Maybe you meant no one who should be taken seriously is an absolute Libertarian?
And calling someone a socialist carries a lot of baggage with it. You are right on an intellectual level however in politics in America there are few more negative terms with which to characterize someone.