How Capitalistic are We?

Sometimes it is difficult to tell how capitalistic a country's economy is. No economy is either completely socialistic or capitalistic. Most will have some departures from a market system, not all of which can be described as socialistic. Nevertheless, it is far easier to determine how closely the economy is following free market economic policies than to determine to what extent it follows those that are suggested as the alternative suggested by the left. The only thing I have seen them point to as support for their economic policies was non-defense spending as a proportion of GDP. Often they only assert that this does the economy no harm.

I don't think this is a good approach. It doesn't take into account other differences that the policies of different countries have. Even if government spending were the sole determinant of economic growth, it could be the case that government spending on defense would cause a country to spend less on other things. Thus the negative effect of higher public spending on things other than defense would be offset by lower spending on defense. In any case, I few believe that government spending is the sole determinant of economic growth.

There was actually another index of indicators I came into contact with, but it had many components that measured how well the economy was doing and how successful the country was at bringing about political stability. Measuring how well a country is doing is not a good approach if we want evidence that will help us determine what policies a country should implement. Our measurement would tell us only that successful countries are more successful than unsuccessful ones. That sounds too tautological to be helpful.

In contrast the supporters of capitalism have provided indexes that tell how capitalistic a country is. They measure things other than economic prosperity, so they tell something far more informative than saying that rich countries are rich.

Sometimes what they tell can be quite surprising. For instance, despite the fact that Republicans have been in charge of the presidency and congress in recent years, according to the Economic Freedom of the World report our country has actually become less capitalistic in recent years.

I doubt that things are likely to improve under the Democrats. I could be surprised, but I doubt it. They will publish ratings on economic freedom for 2008 in time for the mid-term elections in 2010. Figures for 2010 will be available for the general election in 2012. What this means is that we will have some information to go on for the next presidential election, but the results that we will have available in 2010 will be those that cover the performance of divided government, with the Republican George Bush in the White House and the house and senate with Democratic majorities.

Since much of the decrease was due to a lower score on the rule of law, divided government seems to have produced a slightly higher score for 2007 than for 2006. The massive bailout plan in 2008 and 2009 is sure to reduce our scores for those years, however.