The Case for Free Markets Has Never Been Stronger

T he past decade has not been kind to proponents of free markets. In France, Hungary, and Italy, a rising illiberal Right is promoting protectionism and greater state intervention in the economy. Simultaneously, most European countries have also seen the rise of an aggressively illiberal Left that promotes the same policies but with a different spin. In the United States, the presidential election is shaping up to be a contest between two candidates who have different versions of economic illiberalism.

Some could argue that this is proof that free-market policies do not work. And you could easily pick an economist here or there who argues for some version of greater state intervention — albeit in a targeted manner through industrial policy, trade policy, etc.

However, never has the case for liberalizing economies been so strong. Thanks to decades of research into measures of economic freedom — indices that capture the degree to which governments intervene in the economy — we have hundreds of articles laying out the data that tie economic development to pro-market policies.

Consider a recent literature review by Robert Lawson, who collected all the papers he could find that used economic-freedom measures to empirically study development. For the research that dealt with income levels, Lawson found that 72.5 percent of the published articles showed a positive association with economic freedom. The rest showed mixed, null, or uncertain results. None showed bad results. With respect to the speed of economic development, Lawson found that 66 percent of published articles unveiled a positive association with economic freedom — i.e., more economic freedom means faster growth.

And we now have evidence that his survey actually downplays the effects of economic freedom. In recently published work in the European Journal of Political Economy, we pointed out that dictators lie about their GDP numbers: They almost always inflate them, making their nations look richer than they truly are. However, since dictators also tend to dislike economic freedom, their lies downplay the measured strength of the association between economic freedom and economic development. Their lies cause us to undervalue the importance of economic freedom to development.

To correct these lies, we used data we know are not being fiddled with: nighttime light intensity provided by satellites. Dictators can’t mess with those datapoints. And because nighttime light is well connected to economic development, we can use it to purge GDP numbers of the lies that autocratic regimes have baked into them. From these corrected datapoints, we can properly estimate the importance of economic freedom.

Once we corrected the data for all countries, we found that economic freedom predicts 10 percent to 62 percent higher incomes compared with the uncorrected data. For economic growth, we found that it was 5 percent to 24 percent faster with the corrected figures.

In other words, using uncorrected data leads to downplaying the importance of economic freedom. In the face of the general popularity of illiberal economic policies on both the left and the right, such findings should renew fervor in promoting pro-market policies, to reap the fruits of economic freedom: collective enrichment.

Sean Alvarez is an assistant professor of economics at Jacksonville State University. Vincent Geloso is an assistant professor of economics at George Mason University. Macy Scheck is an assistant professor of finance at Lander University.