Wednesday, February 03, 2010

Hide the chaos 

Scott Beaulier reports on a presentation at his school by Joshua Hall, in which Hall discusses a loss of data for measures of economic freedom. (Hall blogs at Division of Labor.)
When discussing the Economic Freedom Index, Josh talked about some of the challenges they may soon be facing. According to Josh, organizations like the ILO might be making it more difficult for them to gather labor data for the index.

The World Bank and other organizations are being pushed to stop asking questions about paid leave, the costs of hiring workers, and hiring/firing regulations. Critics argue these "costs" are actually "benefits." Rather than allow organizations to recode these data as benefits, pro-labor organizations are putting strong pressure on them to stop asking questions about labor market policies altogether.

If successful, this would have a big effect on one of the core components to the EFI.
As Bryan Roberts and I wrote in our book, The Design and Use of Political Economy Indicators, governments in developing countries respond to these rankings by seeking to enact policies that increase economic freedom. That is, the measures are educational to policymakers in the developing world. Critics of growth-generating policies would rather not have this response, so they attempt to suppress the data.

I argue in that book that labor policies are largely a subset of property rights. If you have properly measured the presence or absence of laws that support private property -- including the right of contract between worker and entrepreneur -- you may not really need all of the elements in that index. Strict labor laws, expropriation of private property, and even central banking that credibly commits to price stability are simply facets of one of two logically consistent economic systems. (See Mises, Planned Chaos.)

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