This book is about how to reduce poverty and improve global living standards. Topics include economic growth, income inequality, corruption, sustainable development, the future of technology, and much more.
Below is a sample of questions answered th...
Countries that score well on the Market Freedom Index also score well on the Standard of Living Index.
Figure 11
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Sources: Market Freedom Index | Standard of Living Index
In figure 11 the horizontal axis (left to right) is countries' scores on the Market Freedom Index. The vertical axis (up and down) is their scores on the Standard of Living Index. The strength of the correlation is R^2=0.82. That means every 1% increase in the Market Freedom Index correlates with 0.82% improved quality of life. In other words, countries that are twice as capitalistic have 82% better living standards.
Market freedom also correlates with GDP per capita.
Figure 12
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Sources: Market Freedom Index | IMF
In figure 12 the horizontal axis is countries' scores on the Market Freedom Index. The vertical axis is their per capita GDPs. The strength of the correlation is R^2=0.51. That means every 1% increase in market freedom correlates with 0.51% higher GDP per capita. In other words, countries that are twice as capitalistic are 51% wealthier.
Notice the correlation between market freedom and standard of living is stronger than that between market freedom and GDP per capita. The reason is that market freedom is more than just a means of growing the economy. It's also an indicator of liberty and democracy. That's why the correlation between market freedom and standard of living is especially high.
The extent of market freedom explains 51% of a nation's GDP per capita. That means 49% is explained by other variables such as income inequality, corruption, etc. Of course, these variables are also correlated with market freedom to some extent. Think in terms of contributing factors rather than rigid cause and effect. These variables influence each other to various degrees.
Expectedly, GDP per capita is strongly correlated with national quality of life.
Figure 13
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Sources: Standard of Living Index | IMF
In figure 13 the horizontal axis is the GDP per capita of OECD countries. The vertical axis is their scores on the Standard of Living Index. The strength of the correlation is R^2=0.76. That means every 1% increase in per capita GDP correlates with a 0.76% higher score on the Standard of Living Index. In other words, a country with a GDP per capita that is two times higher than another nation will have a 76% better quality of life on average.
It's possible for a country to have a mediocre GDP but not a lower standard of living. Similarly, it's possible for a nation to have a high GDP but not necessarily a good quality of life. GDP is just one contributing factor to a country's standard of living. Income equality is another.
It's like smoking. Smoking is correlated with higher rates of lung cancer. But living an otherwise healthy lifestyle might offset the risk somewhat. However, an increased risk is still there that otherwise wouldn't be if a person didn't smoke.
The United States has one of the highest per capita GDPs, yet it scores 10th place on the Standard of Living Index. That's because it has wide income inequality.
But GDP is still contributing to the country's quality of life. If its GDP fell, its standard of living would fall too.
Again, it's like the correlation between smoking and cancer. Scientists know that smoking is correlated with higher cancer rates. One can see this on a scatter plot graph. Every so often there will be "exceptions"—people that smoked to the age of 100 that didn't get cancer. But these individuals shouldn't be thought of as exceptions. They still had a higher risk of getting cancer because they smoked. They were just lucky.
If you see an exception on a scatter plot, don't assume it isn't being affected by the variable in question. It almost certainly is, but some other variable is making it stand out. (This is only true for variables that are known to affect each other.)
A smoker that exercises and eats healthy will reduce his or her risk of getting cancer. But the risk from smoking is still there that otherwise wouldn't be if that person didn't smoke.
Similarly, an exceptionally wealthy nation like the United States should score at or near 1st place in quality of life. But high inequality and other variables are holding it back.
Nevertheless, the nation's vast wealth is keeping its standard of living at a higher level than it otherwise would be.
In summary, countries that are friendlier to capitalism and have a higher GDP per capita are healthier, wealthier, happier, more educated, more democratic, have less corrupt governments, lower crime rates, greater gender equality, cleaner environments, higher rates of scientific innovation, and more.
