Freedom in the 50 States Teaser #3: Weighting the Variables

The new, book-length edition of Freedom in the 50 States: Index of Personal and Economic Freedom will be released on March 28 by the Mercatus Center at George Mason University. In the days leading up to release, I will be “teasing” a few of the novel findings and methods from the study. Here at Pileus, I’ve already posted a couple of teasers over the past few months, linked here:

• “A Thought Experiment on Freedom“
• “The ‘New Hampshire Advantage’: Nearly Killed Off in 2009-10“

This post will explain the logic and method behind the weighting scheme in the new edition. Every index of freedom has to use some way of weighting its variables to come up with an aggregate measure of freedom. The Heritage Foundation’s “Index of Economic Freedom” and Fraser Institute’s “Economic Freedom of the World” and “Economic Freedom of North America” essentially weight each variable equally, either within categories that are themselves weighted equally in the overall index (Fraser) or across the index as a whole (Heritage). The most commonly used international indices of democracy, Polity IV and Freedom House, and the first two editions of Freedom in the 50 States use “arbitrary” weights, that is, the researchers weight the categories according to their own judgment using general criteria.

We were unsatisfied with all of these approaches, as well as with inductive statistical alternatives known as “principal component analysis” and “factor analysis.” Here is how we put the case in the book:

Because we want to score states on composite indices of freedom, we need some way of “weighting” and aggregating individual policies. One popular method for aggregating policies is “factor” or “principal component” analysis, which weights variables according to how much they contribute to the common variance—that is, how well they correlate with other variables.

Factor analysis is equivalent to letting politicians weight the variables, because correlations among variables across states will reflect the ways that lawmakers systematically prioritize certain policies. Of course, partisan politics is not always consistent with freedom (e.g., states strong on gun rights tend to be weak on gay rights). The index resulting from factor analysis would be an index of “policy ideology,” not freedom.

Another approach, employed in the Fraser Institute’s “Economic Freedom of North America,” is to weight each category equally, and then to weight variables within each category equally. Of course, this approach assumes that the variance observed within each category and each variable is equally important. In the large dataset used for the freedom index, such an assumption would be wildly implausible. We feel confident that, for instance, tax burden should be weighted more heavily than court decisions mandating that private malls or universities allow political speech.

Previous versions of this index used a subjective weighting system, based on a rough assessment of the importance of each policy in terms of the number of people affected and the value they were likely to place on their infringed freedom. We were dissatisfied with the imprecise and subjective manner in which we constructed those weights, and for this edition we have tried to use a much more objective and independent measure of the “value” of each freedom.

The new, “objective” method of weighting variables is what we call the “freedom value” approach. Here is how we describe it:

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*Towards a Worldwide Index of Human Freedom* (Fred McMahon, ed.)

That’s the title of a new book from America’s Cato Institute, Canada’s Fraser Institute, and Germany’s Liberales Institut, which aims to create an index of personal freedom around the world. This is a welcome addition to the Fraser Institute’s Index of Economic Freedom, and I dare suspect that William Ruger’s and my personal and economic freedom index of the American states, published by the Mercatus Center at George Mason University, might have something to do with inspiring it. I haven’t read the new study yet but look forward to doing so.

HT: Pete Jaworski

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Can New Hampshire Be the Hong Kong of America?

Pileus‘s own Jason Sorens is, among many other things, the founder of the Free State Project. The FSP is an initiative that aims to put the convictions of people who talk about individual liberty to the test. Its proposal is based on the straightforward premise that a relatively small number of committed and organized activists can effect disproportionately large political change in their communities. More specifically, the FSP suggests that if 20,000 “liberty-loving people” were all to move to a state of relatively small population, their concentrated efforts could enlarge the scope of liberty in that state, perhaps even making it a genuine home of liberty.

After a somewhat contentious vote several years ago, the FSP decided that New Hampshire—of “Live Free or Die” fame—would be their liberty mecca. (Wyoming came in second.) If you sign on to the FSP’s initiative, here is what you agree to: If and when the total signatories on the FSP’s pledge reaches 20,000,

I hereby state my solemn intent to move to the state of New Hampshire. Once there, I will exert the fullest practical effort toward the creation of a society in which the maximum role of civil government is the protection of life, liberty, and property.

Some people are excited enough about the prospects—and, no doubt, depressed and frustrated enough about the decline of liberty elsewhere—that they are not waiting for the full 20,000 signatories: As of today, 1,117 FSP pledges have already moved to New Hampshire.

Why New Hampshire? Lots of reasons. The FSP actually gives you a list of “101 Reasons You Should Move to New Hampshire (If You Love Liberty).” Here is another reason: In the most recent edition of the “Freedom in the 50 States” report, co-authored by Sorens himself along with William Ruger, and published in 2011, New Hampshire comes out on top: The Granite State ranks #2 in “economic freedom,” #11 in “personal freedom,” and yet #1 in the combined “overall” ranking.

I find the prospects of making New Hampshire the Hong Kong of America intriguing, even inspiring. When the United States is spending itself into debt oblivion—something like the Nicolas Cage character in Leaving Las Vegas, we seem to be thinking that it’s all over anyway so we might as well drink ourselves all the way to death—and when government regulation is pouring out of Washington like the Mississippi over the levees in New Orleans after Katrina, the idea of an island of freedom amid a sea of bleak oppression has its attractions.

Even supposing 20,000 liberty-loving people would move to New Hampshire, however, I have reasons to worry about the likelihood of success of the FSP. Let me list a few here. I preface them by saying that I hope I am wrong about how worrisome they are. I too want a world for my children and grandchildren in which they are not slaves to government debt and regulation.

1. I have heard whispers that in the next edition of Sorens’s and Ruger’s “Freedom in the 50 States,” which I understand is due out in the Spring of 2013, New Hampshire no longer retains its #1 overall ranking—and that it might indeed slip several spots. (Perhaps neither Sorens nor Ruger cares to confirm or disconfirm this now, but I would be happy to have them do so if they wish.)

2. In the recently released Economic Freedom of North America 2012, which includes most of the provinces of Canada along with the States of America, New Hampshire lands in a disappointing sixteenth place, behind Alaska and above North Carolina. The EFNA report scores New Hampshire particularly low (a) on Social Security payments as a percentage of GDP (NH gets a 5.1 out of a possible 10 on this, 10 being highest), (b) on total tax revenue as a percentage of GDP (5.6 out of 10), and (c) on indirect tax revenue as a percentage of GDP (a dismal 3.0 out of 10).

3. CNBC recently published its list of “America’s Top States for Business 2012,” and New Hampshire’s spot is again disappointing: nineteenth—embarrassingly, behind Oregon and ahead of Arkansas.

4. Only today I saw this report from Wired that public buses in many metropolitan systems in America are starting to install listening devices with their surveillance systems, so that they can secretly record private conversations. Which metropolitan systems? You will not be surprised that it includes San Francisco and Baltimore; more surprising, perhaps, are smaller cities like Traverse City, Michigan and Athens, Georgia; but this I found both shocking and disappointing: “Concord, New Hampshire also used part of a $1.2 million economic stimulus grant to install its new video/audio surveillance system on buses.” That is wrong for so many reasons.

I also have more general reasons to doubt the possibility of the FSP’s success that are less directly dependent on having chosen New Hampshire as opposed to any state. Perhaps I will outline them in the future.

In addition to my caution that I hope I am wrong about the chances of FSP’s success in New Hampshire, I would also hasten to add that none of these worries entails that one should not still make the attempt. Even if one is certain of failure, some causes are worth fighting for regardless. If one is not willing to fight for liberty and prosperity, even against depressingly long odds, then what on earth would one fight for? One does what one can. One fights for liberty and against oppression, whatever the odds, leaving the rest in God’s hands.

Can New Hampshire be the place?

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The “New Hampshire Advantage”: Nearly Killed Off in 2009-10

Here is what my coauthor William Ruger and I wrote about New Hampshire in the 2011 edition of Freedom in the 50 States: Index of Personal and Economic Freedom:

New Hampshire is by our count the freest state in the country. Depending on weights, however, it really shares the slot with South Dakota. New Hampshire does much better on economic than personal freedom and on fiscal than regulatory policy. Under unified Democratic control in 2007-8, the state saw a respectable increase in freedom. A smoking ban was enacted, but so were same-sex civil unions. Taxes, spending, and fiscal decentralization remain over a standard deviation better than average, and government debt actually went down slightly.

We are going to write something very different in the 2013 edition, coming out early next year. The 2009-10 legislature, also under unified Democratic control, went on a spending and tax-hiking binge. They did this even as states like North and South Dakota were already strengthening market-friendly policies in many areas. As a result, New Hampshire will no longer be the freest state in the country — not by a long shot.

In fiscal year (FY) 2000, New Hampshire’s state and local tax burden (excluding motor fuel, severance, alcohol, and tobacco taxes) stood at 7.5% of personal income, not only the best in the country but only seriously approached by Tennessee. Government consumption and subsidies made up only 7.3% of personal income. By the end of FY 2006, with Republicans having controlled the legislature in the interim, those figures had edged up, to 7.9% and 8.1%, respectively. But by the end of FY 2010, government consumption and subsidies made up 9.1% of income, a nearly two-percentage-point increase over a decade, while the tax burden stood at 8.0% of income. State and local debt was at 18.8% of income, compared to 16.7% a decade earlier.

In the mean time, Alabama, Montana, North Dakota, Oklahoma, South Dakota, and Tennessee have all passed New Hampshire for lower taxes. We don’t yet have the local data to measure whether FY 2012 saw a return to public thrift under the new Republican legislature elected in November 2010, but when New Hampshire voters go to the polls Tuesday, they should remember where their state was two years ago.

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From the Comments (Thought Experiment on Freedom)

From “A Thought Experiment on Freedom,” I thought these comments were worth highlighting.

FreeDem:

Freedom is more than marginal tax rates and the monetary value of different policies. Is there a way to calculate it though? I don’t know. I think of something like Maslow’s hierarchy of needs, we need a hierarchy of liberty/freedom that focuses on the fundamentals. I’ve never read an argument suggesting this, but why not prioritize in the order of life, liberty, and then property. So it’s not just a list, it’s a list of goals in order of importance.

Penelope:

Would you feel differently if the country with the lower tax rate destroyed not human beings, but something truly commodifiable? Say, $70 million a year in randomly selected houses or automobiles. Otherwise your reluctance to embrace the “greater freedom” in the lower-tax country is nothing more than your recognition that a human life is not truly commodifiable, regardless of how it is statistically valued.

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A Thought Experiment on Freedom

Imagine two countries, each the size of the U.S. In one of them, the average tax rate is 1% (of income) lower than the other, but unlike the other it randomly selects ten innocent individuals for execution each year (perhaps ritual human sacrifice!). Assuming personal income of $12 trillion like the United States, the lower tax rate in this country allows for more freedom worth $120 billion a year, by our method. If the statistical value of a life is $7 million, however, the execution policy only costs $70 million a year in freedom. Thus, not only is the human-sacrifice state with a slightly lower tax rate “freer” by this crude metric, but it is not even close.

Which is truly the freer country, assuming they are exactly alike in all other respects? And by how much?

The first paragraph above comes from the forthcoming third edition of Freedom in the 50 States: Index of Personal and Economic Freedom.

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The Social Insurance State is the Administrative State

At Bleeding Heart Libertarians, Jason Brennan takes up the question of which country is most libertarian and lodges a complaint against global “economic freedom” indices:

This index may understate how anti-libertarian the United States is. After all, the index penalizes countries if their governments spend large amounts on social insurance. Yet classical liberals and neoclassical liberals are not in principle opposed to government social insurance. [That is, they will accept it under certain conditions.]

Thus, suppose we separate the idea of the administrative state—which tries to control, regulate, manipulate, and manage the economy—from the social insurance state—which provides tax-financed education, healthcare, or unemployment insurance. On the Index of Economic Freedom, many countries that rank lower than the US have far less extensive administrative states than the US. For instance, Denmark ranks much higher than the United States on property rights, freedom from corruption, business freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Luxembourg, the Netherlands, the United Kingdom, and many other countries beat the US on these measures as well. Thus, many other European countries might reasonably be considered more economically libertarian than the US.

Jason makes a legitimate point here: a dollar transferred to a social security recipient is less violative of freedom than a dollar spent hiring a drug enforcement agent or antitrust litigator. This is so even for those declassé Rothbardian absolutists, for whom the immorality of taxation is compounded when it is used to fund further violations of people’s rights.

However, even a bleeding-heart libertarian should see really existing welfare states as problematic for two basic reasons. First,

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CEOs vs. Small Business Owners on Which Policies Make for a Business-Friendly Climate

Which public policies make an economy better for business? One way to answer this question is to ask businesspeople. Two recent surveys ask businesspeople to rank the American states on their friendliness toward business.

Now, libertarians often remind us that friendliness toward business is not the same as friendliness toward markets. Indeed, libertarians believe that many of their favored policies, such as abolishing trade protection, corporate welfare, and regulations that privilege big business, will redound to the benefit of workers and small business owners. What’s so interesting about these two surveys is that they are of different types of business owners: CEOs of large companies and small businesspeople. The first survey was conducted by Chief Executive magazine and the second by thumbtack.com in partnership with the Kauffman Foundation. By relating respondents’ views about the friendliness of their states to those states’ actual policies, we can see where big and small businesses agree and disagree about which policies are most important for their success.

My first step was to draw out of these survey data those numbers that relate specifically to different states’ policy environments, as opposed to other aspects of the economic climate. From the CEO survey, therefore, I took the taxation/regulation score given for each state (higher is better). From the small business survey, I took the “Regulations” component grades. Unfortunately, the small business survey does not include raw scores for each state, so I simply quantified the grades as follows: A+ = 0, A = 1, A- = 2, and so on, up to F = 11. The small business survey only covers 45 states, but for these states, the correlation between CEO and small business scores was -0.76. Since higher is better in the CEO survey and lower is better in the small business survey, that high correlation indicates a surprising degree of agreement between large and small businesses about states’ friendliness toward their businesses.

Nevertheless, there may remain some important differences in which policies large and small businesses prioritize. To get a handle on this question,

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Identify the Speaker

The press is quite pleased with President Obama’s proclamations on gay marriage. The evolutionary process appears to have finally come to a conclusion. Yet, it might be useful to place the President’s epiphany in historical context. To assist in the process, I have placed several quotes from past and present elected officials on the issue of gay rights, civil unions and marriage. Lets see how many readers can correctly identify the speaker (answers below…no cheating)

Quote Number 1

The big thing is to make this country, along with every other country in the world with a few exceptions, quit discriminating against people just because they’re gay. You don’t have to agree with it, but they have a constitutional right to be gay. And that’s what brings me into it.

Quote Number 2

Well, I think that freedom means freedom for everyone. … I think people ought to be free to enter into any kind of union they wish. Any kind of arrangement they wish. The question of whether or not there ought to be a federal statute that governs this, I don’t support. I do believe that historically the way marriage has been regulated is at the state level. It has always been a state issue, and I think that’s the way it ought to be handled today, that is on a state-by-state basis. Different states will make different decisions. But I don’t have any problem with that. I think people ought to get a shot at that.

Quote Number 3

 I believe that marriage is the union between a man and a woman. Now, for me as a Christian — for me — for me as a Christian, it is also a sacred union. God’s in the mix…. . I am not somebody who promotes same-sex marriage, but I do believe in civil unions. I do believe that we should not — that for gay partners to want to visit each other in the hospital for the state to say, you know what, that’s all right, I don’t think in any way inhibits my core beliefs about what marriage are. I think my faith is strong enough and my marriage is strong enough that I can afford those civil rights to others, even if I have a different perspective or different view.

Quote Number 4

I don’t think we should deny people rights to a civil union, a legal arrangement, if that’s when a state chooses to do so. … I view the definition of marriage different from legal arrangements that enable people to have rights. And I strongly believe that marriage ought to be defined as between, a union between a man and a woman.

Quote Number 5.

I’ve just concluded that– for me personally, it is important for me to go ahead and affirm that– I think same-sex couples should be able to get married. Now– I have to tell you that part of my hesitation on this has also been I didn’t want to nationalize the issue. … I continue to believe that this is an issue that is gonna be worked out at the local level, because historically, this has not been a federal issue, what’s recognized as a marriage.

Answers:

1. Barry Goldwater, July 1994 (source)

2. Dick Cheney, July 2009 (source)

3. Barack Obama, August 2008 (source)

4. George W. Bush, October 2004 (source)

5. Barack Obama, May 2012 (source)

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Moral Philosophy & Dogmatism

Political libertarians are a motley lot in terms of their moral philosophies. There are three dominant strands – utilitarians like Milton Friedman, deontologists like Robert Nozick, and teleologists like Ayn Rand – but I’ve also met egoists, postmodernists, and Rawls-style egalitarian consequentialists. In debates over moral foundations, Randians often ally themselves with the deontologists in support of “natural rights” (a bit of a misnomer, as deontologists prefer not to locate the source of rights in “nature” but in reason).

Critical Review editor Jeffrey Friedman, a utilitarian, used to say that rights libertarians are more dogmatic than utilitarians on questions of social science. He was extremely skeptical of the line of argument, commonly found in Rothbard, that libertarian policy X is justified on the grounds of both liberty and utility. What are the chances that the world just happens to line up in such a way that perfect justice and liberty also maximize social welfare in every instance? He calls himself a “post-libertarian” in part because he believes that the empirical evidence is unsettled as to the frontiers of the proper (i.e., utility-maximizing) roles of government. And he believes that it is a mark in favor of utilitarianism as a moral philosophy that rights libertarians are extremely reluctant to admit that any of their policy conclusions might not maximize social welfare.

Now, I would make several points in response. First,

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Liberty as Amenity: Freedom, Migration, and Growth

Is liberty an “amenity” that people find attractive? We know that people do not necessarily tend to vote for liberty, in part because they are politically ignorant or even irrational, but when it comes to where they choose to live, people can be expected to pay close attention to how the laws in different places affect their quality of life. Economists model migration rates across jurisdictions as a function of economic opportunities (real income differentials) and “amenities” (example). Thus, it is standard practice in the literature to use inter-state migration rates in the U.S. (adjusted for the component predicted by economic growth) as a proxy for the desirability of different states as places to live. The question I address here is whether liberty is an amenity; in other words, do states with more freedoms attract more people?*

My study with William Ruger, Freedom in the 50 States, addressed this issue briefly. We find that both economic and personal freedom are associated with net inter-state migration over the 2000-2009 period. In other words, freer states attract people from less free states. The relationship holds when we control for climate, measured as average January temperature in a state’s largest city. We also find that real personal income growth (total, not per capita) over 2000-2007 is positively associated with economic but not personal freedom. Thus, it remains an open question whether economic freedom attracts people because people find it desirable for its own sake, or whether it attracts people by promoting economic growth. However, it does appear that people are attracted to personal freedom for its own sake.

This blog post offers a first look at a much more sophisticated analysis of the issue, bringing in more control variables and more advanced, appropriate estimation methods.

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How Do Conservative Paternalists Define Freedom?

Having taken on left-liberals in my last post, it’s only fair to take a shot at the right too. Here‘s the Deseret News editorializing on why our recommendations for Utah are wrong:

The report’s authors are clear about their definition of freedom. “In our view, individuals should be allowed to dispose of their lives, liberties, and properties as they see fit, as long as they do not infringe on the rights of others,” they write. But few personal behaviors can intrude more on the rights of others than drinking alcohol and gambling… [T]he enormous alcohol industry, relentlessly pushing everything from glamorous images to new products such as sweet-flavored alco-pops, would, if left unfettered, eventually rob more people of freedoms.

The line taken here seems to be that if you make bad decisions that decrease your life satisfaction, you have lost freedom (to whom?). And if you encourage someone to make a decision that might be bad, you’ve violated his rights. For the benefit of the Deseret News, I’ve compiled a new list of policy recommendations for Utah based on this new definition of freedom:

1. The enormous credit card industry gets people hooked on cheap credit, and the debt they take on means less freedom. Enact a state monopoly of credit.

2. Television and books encourage people to sit at home rather than get up and exercise, resulting in an epidemic of obesity and, of course, violating their victims’ rights. Tightly regulate their use.

3. Many people get involved in mistaken relationships when they are young, sometimes resulting in children and often resulting in heartbreak. Clearly these young lovers have taken away each other’s freedoms. Ban fornication. Fund a virtue police to monitor young couples. Iran has a system that works, at least compared to decadent, unfree societies in the West.

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How Do Libgressives Define Freedom?

Matt Yglesias throws some scorn the way of Freedom in the 50 States 2011:

Reasonable people can disagree as to whether there’s more freedom in Los Angeles or Brooklyn, and there may be good reasons to move from either place to Sioux Falls, but obviously “for the freedom” is not one of those reasons. For the lower taxes? Sure. Because there’s less government regulation? Maybe so. But because there’s more freedom? Clearly not. They say that they “explicitly ground our conception of freedom on an individual rights framework” but all that goes to show is that their understanding of the individual rights framework offers an unsound conception of freedom. These answers are clearly and uncontroversially mistaken.

Because he doesn’t propose any alternative conception of freedom, it’s unclear precisely in what way he thinks that the libertarian conception of freedom is mistaken. But it’s even more perplexing how he comes to the conclusion that the ranking “refutes” the libertarian conception of freedom. California lost 4.4% of its 2000 population over the next 9 years to other states, on net. New York lost 8.9% of its 2000 population over the next 9 years to other states, on net. New Hampshire, by contrast, enjoyed a net gain of 2.8% of its 2000 population over the same period. South Dakota’s net in-migration was 0.8%. The study finds that freer states experience more net in-migration, controlling for climate.

So let’s get this straight: People are fleeing a state with gorgeous year-round climate, world-class universities, Silicon Valley, and Hollywood and flocking to a wintry, windswept state with… the Badlands. People are fleeing a state with Wall Street, the Met, the Yankees, and Broadway for a wintry, rural state with… the Old Man of the Mountain. Wait, he’s gone now too. The omitted variable? Libertarian freedom. And that makes all the difference.

So how do libgressives define freedom? They often seem to conflate freedom and utility. (See for instance the quotes at the end of this story.) But surely a man locked in a cell hooked to an experience machine isn’t really free, is he?

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Freedom in the 50 States

I’ve just gotten back from a Cato Institute event discussing the new study, Freedom in the 50 States, with my coauthor William Ruger, John Samples, and Michael Barone. I’ll post the video when it’s available. The Mercatus site for the study allows you to download the study and to use a calculator to see how states would change on the index if they made certain policy reforms. They’ve also put together this nice little video for the project:

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