James Gwartney

Florida State University | FSU · Department of Economics

The Economic Freedom of the World Annual Report measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property. Forty-two data points...

Failure to integrate demographic changes into monetary analysis has caused policy-makers and economists to overstate the contribution of monetary policy to both the inflation of the 1970s and the low interest rates of recent years. A lending/borrowing index designed to reflect the impact of demographic changes on the loanable funds market was const...

The development process and the demographic changes that are a central element of it explain both the nearly two centuries of increasing income inequality prior to 2000 and the reversal of this trend that followed. There are at least four phases of the development process: (1) Malthusian pre‐development, (2) initial growth, (3) improved productivit...

The development process and the demographic changes that are a central element of it, explain both the nearly two centuries of increasing income inequality prior to 2000 and the reversal of this trend that followed. There are at least four phases of the development process: (1) Malthusian pre-development, (2) initial growth, (3) improved productivi...

The Industrial Revolution resulted in a remarkable transformation from subsistence to opulence, but this was true for only about 15 percent of the world’s population. The change was minimal in the rest of the world. By 1950, the mean per capita GDP in the developing world was still less than $4 per day. However, the situation has changed dramatical...

Development is a process and there are at least four phases of the process: (1) pre-development, (2) initial growth, (3) improved productivity, and (4) receding growth. Other things constant, the growth of per capita GDP will be higher in phases 2 and 3 than phases 1 and 4. The development process and accompanying demographic changes explain both t...

En Econintech nos vestimos de gala y orgullo el poder realizar nuestra primera edición de un libro precisamente en homenaje a uno de los más grandes luchadores por la libertad económica de Venezuela. Hugo, nuestro Senior Researcher & Policies Consultant, además de profesor y amigo es un guía en el arduo camino de la lucha intelectual por la liberta...

This issue of The Visio Journal offers a number of papers analyzing the degree to which the public policies and political institutions of former socialist economies have been supportive of economic freedom following the collapse of communism, as well as what changes in economic performance of these countries occurred during the same period. In do...

A close look at the topic of foreign trade—its pros and cons—can give students a deeper understanding of why economists and politicians often disagree on the matter.

The institutional changes and performance of 25 former centrally planned (FCP) economies are examined. The FCP countries with higher levels of economic freedom in 2015 as measured by the Economic Freedom of the World summary ratings tended to grow more rapidly, achieve larger increases in international trade, and attract more foreign direct investm...

Existing literature suggests that either colonial settlement conditions or the identity of colonizer were influential in shaping the post-colonial institutional environment, which in turn has impacted long-run economic development. These two potential identification strategies have been treated as substitutes. We argue that the two factors should i...

Public choice uses the tools of economics to analyze how the political process allocates resources and impacts economic activity. In this study, the authors examine twenty-three principles texts regarding coverage of public choice, market failure, and government failure. Approximately half the texts provide coverage of public choice and recognize t...

This chapter discusses government spending and taxation. The role of government in the economy is not limited to its tax and spending activities. Public policy also defines property rights, enforces contracts, regulates business activities, and often imposes price floors (or ceilings) for various products. In recent years, government regulatory act...

This chapter discusses inflation, instability, and the challenge of the monetarists. Money is involved in almost every exchange. Usually, the purchaser receives goods, and the seller receives money. For classical economists, the link between prices and the money supply was straightforward and quite mechanical. An increase in the money stock meant a...

This chapter focuses on utilization the components to develop a simple Keynesian model of income determination. When an economy is in equilibrium, there is a balance of forces such that the existing level of output will be maintained into the future. There is no tendency for output to either expand or decline. Economists refer to the total expendit...

This chapter discusses stability of real output, employment, and prices. The government's spending and monetary policies exert an important impact upon the stability of an economy. In the United States, the Employment Act of 1946 pledges that the federal government will pursue policies designed to “promote maximum employment, production, and purcha...

This chapter discusses new directions in macroeconomic policy. It also provides a summary on the major problems that plague the U.C. economy and consider policy alternatives to deal with these problems. As the 1970s began, economists were optimistic about our ability to follow policies that would generate rapid growth, high employment, and economic...

This chapter discusses the components of aggregate demand. Macroeconomics should enhance our understanding of the factors that determine output, employment, and the level of prices. Prior to the Great Depression of the 1930s, most economists felt that a market economy would automatically provide for the full employment of resources. Of course, ther...

James Buchanan advocated the market mechanism for allocating resources because it is based on voluntary exchange. People engage in market transactions only when they believe they benefit from doing so. Buchanan depicted the political process the same way. People engage in collective activities to accomplish together ends that they would be unable t...

Economic theory and a growing body of empirical literature suggest that private property rights are an important determinant of economic development. In this paper, four commonly used measures of institutional protection of private property rights are assessed, including their relative ability to predict the level of GDP per capita. The risk of exp...

Following the publication of The Calculus of Consentin 1962, a new school of thought began to exert an impact on the economics profession. These changing winds are sometimes referred to as the “public choice revolution.” They eventually led to the awarding of the 1986 Nobel Prize to James Buchanan for his pathbreaking work in this area. Both Buchan...

Previous empirical studies have already found democracies to produce higher levels of economic freedom, when compared with more authoritarian forms of government. Employing a new and comprehensive dataset by Cheibub et al. (2010), we now put our focus on the effect of democratizations, since they can be unambiguously identified and classified with...

Advanced Placement economics leaves thousands of high school students with a misleading impression of modern economics. The courses fail to cover key sources of growth and prosperity, including private ownership, dynamic competition, and entrepreneurship. The tools of public choice economics are totally ignored. Government is modeled as a correctiv...

Pushed along by the failures of socialism, the idea that a market economy provides the foundation for prosperity has gained widespread acceptance in recent years. Many countries have moved toward an environment more consistent with economic freedom and the smooth operation of a market economy. Trade barriers have been reduced, monetary systems have...

For two decades following the end of World War II, rapid growth, rising incomes, and declining poverty rates characterized the American economy. Real per capita disposable income increased by 32.6 percent between 1950 and 1965, Mean family income adjusted for

In 2010 the College Board and Educational Testing Service (ETS®) administered 134,747 Advanced Placement (AP®) microeconomics and macroeconomics exams to high school students. The exams are designed to represent the introductory-level micro and macro courses taught in college, and students can earn college credit if they “pass” the exams. The prese...

The freedom to enter into contracts and to direct the use of economic resources one owns are essential to the operation of a market economy. Allowing employees to form unions to bargain collectively over wages and employment conditions is consistent with economic freedom, and any government intervention preventing unionization would be a violation...

Over the period 1980–2005 many developing countries achieved remarkable increases in economic growth. Real per capita income increased substantially in countries that had experienced only modest increases in living standards for a century or more prior to 1980. Recent scholarship has pointed to the adoption of institutional and policy changes more...

This address describes the history of the Economic Freedom of the World (EFW) project and the development of the EFW index. This index is a measure of the extent to which the institutions and policies of various countries are coordinated by personal choice, voluntary exchange, open markets, and clearly defined and enforced property rights. The inde...

the two anonymous referees for their comments and suggestions. Any errors that remain are ours alone.

Using a sample of seventy-seven countries, this paper focuses on marginal tax rates and the income thresholds at which they apply to examine how the tax changes of the 1980s and 1990s have influenced economic growth, the distribution of income, and the share of taxes paid by various income groups. Many countries substantially reduced their hig...

The variety of constitutional designs found in democratic governments has important effects on policy choices and outcomes. That is the conclusion reached in Democratic Constitutional Design and Public Policy, in which the constitutional procedures and constraints through which laws and public policies are adopted—election laws, the general archite...

The literature on institutions and economic growth shows a close relationship between the quality of institutions and prosperity. This paper examines the impact of institutions on investment, and the resulting impact of investment on growth. The private investment rate of countries with better institutional quality is higher, and the productivity o...

For several years, the Economic Freedom of the World (EFW) annual reports large set of nations around the world. 1 This index is designed to measure the degree to which a nation's policies and institutions protect its citizens' economic freedom. In this article, we explain the basic methodology employed in constructing the index and summarize the s...

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Since 1996, the Economic Freedom of the World (EFW) reports have presented an index that measures the consistency of a nation's policies and institutions with economic freedom. The key ingredients of economic freedom are personal choice, voluntary exchange, freedom to compete, and protection of person and property. Earlier versions of the EFW index...

Modern growth theory, built on the foundation of Solow [1956], emphasizes growth in inputs and technological advances as the underlying causes of economic growth. More recent work has emphasized the importance of market institutions and economic freedom as prerequisites for growth. This paper empirically examines the importance of economic freedom...

Twenty-one, one-semester introductory economics texts are reviewed in terms of goals and objectives, organization, mathematical and graphical analysis, readability, historical development, bias, topics linking theory to reality, and other special features. An extensive table lists 240 concepts and topic areas in macroeconomics, microeconomics, publ...

The debate about the merits of the redistributive state generally focuses on the proper trade-offbetween more income equality and more total income. The questions are familiar. What is the optimal distribution of income? How much inequality should a just society accept? How much economic growth should we sacrificein order to promote the welfare oft...

This chapter provides an overview of the market structures of pure competition and monopoly. It discusses the different structures that affect the revenues and output decisions of the firms operating within them. The market structures of pure competition and monopoly is explained as a means of comparing the two ends of the market spectrum. The comp...

According to the basic postulate of economics, an increase in the cost of an alternative will reduce the likelihood that it will be chosen. This basic postulate implies that higher prices will discourage consumption. Lower prices will reduce the cost of choosing goods, stimulating their consumption. This inverse relationship between the price of go...

This chapter reviews the nation's economic pulse. It describes microeconomics and macroeconomics. Analysis that focuses on a single commodity, or at that most a single industry, is referred to as microeconomics. The unit of analysis in microeconomics is one single producing or consuming unit. Macroeconomics, like microeconomics, is concerned with m...

Most real-world firms operate in markets that fall between the extremes of pure competition and pure monopoly. These firms neither confront numerous competitors all producing a homogeneous product sold at a single price nor do most firms produce a good or service that is unavailable from other sellers. Instead, most firms face varying degrees of co...

This chapter focuses on how expectations affect the operation of an increasingly complex macroeconomic model. It presents an assumption that people adjust their current choices in response to changes in their expectations about the future. It also presents an investigation of why expansionary policies might reduces the unemployment rate, at least t...

This chapter provides an overview of demand and consumer choice. Consumer choices, like other decisions, are influenced by changes in benefits and costs. Given a fixed income and specified prices for the commodities to be purchased, consumers will maximize their satisfaction or total utility by ensuring that the last dollar spent on each commodity...

This chapter describes the link between costs and market supply. The nature and function of costs are central to economic analysis. The economist's measurement of costs sometimes differs from that of business decision makers and accountants. If the cost of producing a good exceeds its price, producers will not continue to supply it. Most persons re...

This chapter describes the various factors that determine the earning power of an individual. Earnings of paired individuals in the same occupation or with the same amount of education very often differ substantially. The earnings of persons with the same family background also vary widely. All workers are not the same. They differ in several impor...

This chapter provides an overview of fiscal policy and demand management. According to Keynesian theory, economic instability is caused by erratic fluctuations in aggregate demand. When aggregate demand is deficient, unnecessary high unemployment result occurs. On the other hand, when an economy is already operating at capacity, excess aggregate de...

This chapter provides an overview of business structure, regulation, and deregulation. Most contemporary economists believe that competition and rivalry among business firms provide benefits to both consumers and workers. Competition forces producers operate efficiently and supply consumers with the goods that they desire most intensely. Similarly,...

This chapter reviews the impact of foreign trade on the price, consumption, and domestic production of goods. The chapter also discusses the effects of trade restrictions such as tariffs and quotas. The application of a tariff, quota, or other import restriction to a product reduces the amount of the product that foreigners supply to the domestic m...

This chapter reviews the impact of money on the level of output, prices, and employment. It presents the Keynesian view of how monetary policy works. While there is broad agreement among modern economists that money matters, the consensus view is an outgrowth of professional debate. During the 1960s, the monetarists, a group of economists who belie...

This chapter presents an analysis of resource markets, or factor markets, as they are sometimes called. In a market economy, both the income of resource owners and the value of resources are determined in factor markets. The income available to household units is dependent on the prices of resources and the quantity of resources supplied to factor...

This chapter focuses on market failure, economic activity that results in allocative inefficiency relative to the hypothetical ideal of economists. The sources of market failure are grouped into four general classes: (1) externalities; (2) public goods; (3) conflicts between buyers and sellers after an exchange, stemming from poor information and m...

For years, microeconomists have recognized that both demand and supply are important, and that it is a mistake to focus on one to the near-exclusion of the other. Heavily influenced by the Great Depression, macroeconomists, on the other hand, have focused on aggregate demand. However, balance is rapidly being restored. Like demand, supply is an imp...

This chapter focuses on the shortcomings of the market, and the potential of government policy as an alternate means for resolving economic problems. It also discusses issues involving market and public sector organization. It provides an overview of political economy and describes the role of public sector in comparison with the market, which is a...

Traditionally, economists have focused on how the market works and what ideal public policy can do to improve economic efficiency. However, this traditional neglect has become less and less satisfactory in dealing with economics today. Each day, millions of economic decisions are made in the public sector. The legal framework establishes the rules...

This chapter presents the concept of planned aggregate demand, which is a key element of Keynesian economic theory. Keynes explained that producers would supply only the quantity of goods sufficient to meet the planned demand of consumers, investors, government, and foreigners. Therefore, subject to the constraint imposed by the scarcity of resourc...

This chapter discusses tools that help to develop the economic way of thinking. It illustrates the link between capital formation and the future production possibilities of an economy. As more of today's resources are used to produce tools that will make more productive tomorrow, fewer will be available for producing current consumer goods. More in...

Economics is not an answer but, rather, a way of thinking. Economic thinking is believed to be a powerful tool capable of illuminating a broad range of real-world events. This chapter provides an overview of the basics of economics and illustrates their power. Economics is about people and the choices they make. The unit of analysis in economics is...

To what extent will decision makers in the economy use their time, energy, and imagination to cooperate in production and productive exchange? To what extent will they instead devote their efforts toward simply redividing the economic pie to arrange bigger slices for themselves at the expense of others, and ultimately at the expense of the size of...

This chapter presents a case study of moonshiners in the context of the Wall Street Journal in July, 1975. The price squeeze on moonshine forced new occupations on a lot of people who were engaged, one way or another, in what may have been, even as late as the1950s, the largest industry in such counties as Habersham, Dawson, and Gilmer. However, no...

This chapter discusses three sources of wage differentials among individuals: (1) differences in workers, (2) differences in jobs, and (3) lack of labor mobility. Individuals differ with respect to productivity, specialized skills, employment preferences, race, and sex. All these factors influence either the demand for or the supply of labor. In ad...

This chapter discusses the impact that changes in investment, government spending, and saving have on income According to the multiplier principle, independent changes in planned investment, government expenditures, and consumption have a magnified impact on income. Income increases by some multiple of the initial change in spending. The multiplier...

This chapter focuses on unemployment, inflation, and business cycles. Much has been written about the economic and social distress that can occur during a deep recession in business activity. However, very little has been said about an economic experience that may at present be a more appropriate matter of concern—the distress that can occur in a t...

This chapter describes international finance and balance of payments. The oil cartel is one government-sponsored price-setting group, which has some financially strong members, faces no immediate alternative sources of supply and, as is typical of extractive industry cartels, has few inventory problems. History shows clearly that cartels do not do...

This chapter discusses business structure, competition, and public policy. Few economists are satisfied with all aspects of antitrust policy, but most observers believe that it has exerted a positive influence on competitive markets. A modern industrial economy, such as that of the United States, is composed of two major sectors: (1) the market sys...

This chapter describes the oligopolistic market structure, which is characterized by a small number of firms that produce the entire output of an industry, interdependence among firms, and high barriers to entry. There is no general theory of price, output, and equilibrium for oligopolistic markets. If rival oligopolists acted with full independenc...

This chapter describes instability, stagflation, and the direction of macroeconomics. It presents a case study of employment–unemployment riddle, where in the past few years there has been considerable confusion and concern because of an apparent paradox revealed by official unemployment statistics. The rate of unemployment has recently reached the...

This chapter discusses taxes and government spending. It describes on how government make profits from inflation. The most important problem that the country is facing at present, according to the latest Gallup Poll, is inflation. In discussing a case study of policy review, the federal government has a large vested interest in inflation and that i...

This chapter presents the economics of government failure. Critics of the government agencies respond that many local governments are too small to achieve economies of scale, and others are so large that they operate with bloated, costly, multi-tiered bureaucracies. They also point out that the apparent savings of government agencies that do not pa...

This chapter reviews the multiplier, the accelerator, and a Keynesian view of the business cycle. The general theory of the Keynesian revolution caught most economists under the age of 35 with the unexpected virulence of a disease first attacking and decimating an isolated tribe of south sea islanders. Economists beyond fifty turned out to be quite...

This chapter discusses comparative economic systems and, in particular, Russia's economic planning shift. With the slowdown of investment volume and capital stock, the rate of increase of output in Russia had fallen down. The growth target in the new plan continues the previous downward trend. In terms of gross national product (GNP), the target wo...

This chapter discusses oligopoly and the world of big business. The theories of monopolistic and oligopolistic competition and their popular variants made to serve the view in two ways that capitalist reality is unfavorable to maximum performance in production. First, this involves the creation of an entirely imaginary golden age of perfect competi...

This chapter discusses the energy market. Prices influence the level of energy consumption. In the long run, the demand for energy is elastic than it is in the short run. Thus, the short-run relationship between price and energy consumption is likely to be a misleading indicator of how price influences the uses of energy over a longer period of tim...

This chapter discusses taxes and government spending. Federal income tax has a distinctive characteristic of its progressive structure. A progressive tax takes a larger percentage from high-income recipients. Payroll taxes comprise the second largest source of tax revenue. Economists believe that the burden of the payroll tax lies with the employee...

One of every four workers in the United States belongs to a union. Agreement on collective-bargaining contracts is reached without a work stoppage. The strike is a major source of union power. A work stoppage caused by a strike can cause the employer to lose sales while incurring continuing fixed cost. The threat of a strike, when inventories are l...

This chapter describes the public use of private interest and the gaining from government. In a society that relies on private enterprise and market incentives to carry out most productive activity, the problem of public intervention is a real one. There remains a critical choice to be made: should intervention be carried out by grafting a specific...

This chapter focuses on a bird's-eye view of the public sector. It presents a case study that is concerned with politicians' tax cuts in the perspectives of economics. The real point of representative government is to allow individual voters to pay little attention to their government. They elect representatives, who go off to the state or national...

This chapter explains the operation of the banking system and describes the determinants of money supply. Money is anything that is accepted as a medium of exchange. It acts as a unit of account and provides a means of storing current purchasing power into the future. Without money, exchange would be costly and tedious. There is some debate among e...

This chapter focuses on cases in which barriers to entry are high and existing firms have some protection from the competition of new firms. Business firms have an incentive to avoid the discipline of competition. In the presence of competitive pressures and low-entry barriers, competition would eliminate economic profit in the long run. Legal rest...

This chapter discusses international finance and the foreign exchange market. When international trade takes place, it is necessary for one country to convert its currency to the currency of its trading partner. Imports of goods, services, and assets generate a demand for foreign currency with which to pay for these items. Exports of goods, service...

This chapter discusses unemployment, inflation, and the limits of macro policy. The relative effectiveness of monetary and fiscal policies was a focal point of the monetarist–Keynesian debate. A consensus has emerged from the controversy. Most economists, monetarists, and Keynesians believe that the monetary policy and fiscal policy have an impact...

This chapter discusses the energy market across the world. Though energy may never again be cheap, and America may never produce enough of its own energy to be self-sufficient, a national energy policy can pave the way to a more secure and balanced energy future. The main goal is to reduce the United States' dependence on the imported oil, making t...