The Scatter Plot Against America

Julian Sanchez | March 29, 2005

Lefty economist Max Sawicky links to an interesting Left Business Observer article purporting to show that the Hertiage Foundation's annual Index of Economic Freedom, or at any rate, the claim that economic performance is tightly linked to economic freedom, is bogus. Here's a graph showing economic growth over a seven year period plotted against economic freedom, and the absence of a correlation:

It's actually the almost total absence of a correlation here that makes me suspicious. If they'd shown that the correlation wasn't as strong or tight as Heritage claimed, I'd be open to persuasion. But the idea that there's no link whatever? That there's no statistical link between heavy-handed economic regulation and stunted growth? That one doesn't pass the straight face test. My best guess for what's going on here is that the graph's baseline year is picking up a bunch of late-80s and early-90s liberalization that nevertheless left the liberalizing countries only somewhat more economically unfree. That is: If you're a basketcase economy to start wtih, you can get a pretty phenomenal growth rate (given the low starting point) just by removing some of the most onerous restrictions and unleashing latent entrepreneurial potential. But that's just a guess; I'm curious what the Heritage folks have to say.