



Source: World Development Indicators

The relationship between economic freedom and income equality is interesting. We measure inequality based on the conventional Gini coefficient of inequality. The overall correlation is negative (-.33). That means freer countries, on average, are more equal. Many of the countries with the highest levels of economic freedom are also among those with the highest levels of economic equality -- Sweden, Denmark, Japan, and Finland. The most unequal countries -- Bolivia, Brazil, Ecuador, and Argentina -- on the other hand, have relatively low levels of economic freedom. The United States is one of several countries, along with the United Kingdom and Singapore, that have high levels of economic freedom alongside relatively high levels of inequality.

Economic freedom, according to our analysis, is not just a lofty goal or something that can be imposed on societies. Rather, as we've seen, economic freedom is tied to material economic and social conditions. Economic freedom, not surprisingly, reflects levels of affluence and economic development: richer countries are, on average, freer. But economic freedom is also tied to postindustrial economic structures. It is considerably higher and more widespread in nations with a larger creative class, a smaller working class, and more highly educated people. Freer countries are also more tolerant, with more open social attitudes toward minorities and gays. This is in line with Ronald Inglehart's decades-long observation of the shift from materialist to post-materialist values. And economic freedom goes hand in hand with higher levels of happiness and life satisfaction.

Perhaps the most interesting finding to emerge from our analysis concerns the relationship between economic freedom and inequality. The relationship is often seen in terms of a trade-off. The ability to pursue one's economic dreams unencumbered by social or institutional restraint is seen as conditioning higher levels of inequality. But that's not what we found. In fact, our analysis indicates that the relationship between economic freedom and income inequality is negative. That is, freer countries are on balance more equal. Many of the countries with the highest levels of economic freedom also have the highest levels of economic equality.

The United States is one of a relatively small number of nations, along with the United Kingdom and Singapore, that have relatively high levels of economic inequality alongside high levels of economic freedom. Americans frequently see this pattern as reflecting the country's individualistic ethos that spurs hard work, individual ambition, and unbridled entrepreneurship. Darwinian as it may be, inequality is seen as a necessary, if negative, byproduct of this ethos which is what in the end makes America richer, happier, and freer than other nations. That may have been true in the past. But today, the U.S. pattern is far from the dominant one: in fact, it's rather unique. Economic freedom in general is associated with relatively low levels of income inequality.

All of this points to the fact that it's not just greater affluence that leads to freedom and happiness, but the combination of greater wealth with relative economic equality. Freer, happier societies reflect the old adage of a rising tide that lifts all boats. That's something Americans should keep in mind as the nation grapples with how best to generate economic growth, create jobs, and deal with rising social and economic inequality in the ongoing era of the Great Reset.

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