Government Spending Levels & Economic Freedom

Every year various bodies around the world compile various freedom indexes, combining a number of statistics and their own special formulae to come up with a final definitive ranking.

One that is referenced by Wikipedia’s comparison of worldwide economic stats is the Heritage Foundation index of economic freedom. Hong Kong is on top at #1, an assertion which matches up with my (albeit somewhat limited) experience.  Just too bad Hong Kong is so muggy, not to mention the fact that it has almost no flat land. Perhaps we can surmise that the juxtaposition is no accident.

As to the countries following Hong Kong on the list, however, all I can say is that if they are the best of the lot, we have a sorry state of affairs indeed. Just to cite one example, the United States, a country with a list of regulations that if stacked up would surely reach the moon, comes in today at #8.

What brought me to this topic was the recent 7 July 2010 interview with Doug Casey published by Casey Research. It quotes Doug Casey saying:

“Looked at over the long term, there’s cause for optimism, I suppose. Mankind has risen from the primeval ooze, and a world of 100% theft, to a reasonable level of technology and perhaps just 50% theft – if you look at the government’s percentage of the GDP as a proxy for theft.”

Mmm. An intriguing proposition. However, what exactly is the “government’s percentage of the GDP”? It’s definitely not the total amount of taxation, since much taxation is hidden – delayed by means of borrowing from abroad or statistically concealed inflation. Upon reflection, I decided that a relatively meaningful statistic to use here would be the total amount of government expenditures. While it is true that governments occasionally invest in public infrastructure thus generating long-terms returns, the “effectiveness issue” is unrelated to the question of sourcing. Either the funds are stolen or not. Of course it is not PC to call taxation and the like “theft”, since we are told that certain types of “appropriations” of resources by government are not to be called by the more generally applicable terms. Be that as it may, names aside, results are the same.

One could argue that at least SOME government expenditures are paid for with the fruits of government property / investments. I suspect this may be true, but at least for the purposes of today’s argument, let’s assume that this amount is negligible. What’s left, then, is – to use Doug Casey’s words – theft.

It turns out that hunting down comparative statistics on total government spending is not easy. Wikipedia lists taxation rates, and even has a few spotty references here and there to spending. The only comprehensive source I was able to find was from the Heritage Foundation. While I was not able to find raw data, Heritage does allow downloading data for the ratio of government expenditures to GDP. Maybe not as good as raw data, but in my opinion worth pondering nonetheless. On that list out of 178 in total Hong Kong is #8, China #30, Russia #99…. and the United States #122. If we use per capita FDI figures to pare away countries with other problems, say countries with direct foreign investment totaling less than US$80/inhabitant/year (104 countries in total), then the ranking places Hong Kong at #4, China at #14, Russia at #47…. and the United States at #64.

While other factors besides government spending no doubt play a role, at least at first glance this particular indicator for the level of economic freedom sounds more realistic to me.

This entry was posted in Economics, Reflections and tagged . Bookmark the permalink.

2 Responses to Government Spending Levels & Economic Freedom

  1. Pingback: Government Spending & Cultures of Dependence | Aha moments

  2. Pingback: Government Spending & Cultures of Dependence | Aha moments

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