The Problem With Measuring Economic Freedom Without Measuring Who Is Free
Economic freedom indexes usually start with a tidy premise: lower taxes, lighter regulation, stable money, open trade—freer economy. Rank the countries, wave the scorecard, and suddenly policy analysts have a cudgel for whatever reform they already favored. But the premise skips a question that regulatory forensics keeps tripping over: free for whom? A rule that removes a licensing requirement may open the door for new entrants while quietly stripping incumbent firms of their ability to manage a market. A tax cut may widen choices for some households while shrinking the fiscal capacity that funds choices for others. The main entity here is not “economic freedom” as a floating score. It is the distribution of decision rights: who may enter, who must comply, who bears the cost, and who gets to write the next rule. For policy analysts, small business owners, and public policy graduate students, the useful object of study is not the headline ranking. It is the underlying ledger of permissions and burdens that a federal regulatory action creates.
This article examines why measuring economic freedom without measuring who is free produces misleading conclusions. It looks at how standard indexes treat regulation as a uniform subtraction from liberty, how federal rulemaking distributes freedom unevenly, and how a document-driven approach can reveal the winners and losers that an aggregate score hides. The focus is on U.S. federal regulatory actions, where the paper trail is unusually detailed: proposed rules, public comments, regulatory impact analyses, and final rules all record who asked for what and who got what.
What Economic Freedom Indexes Actually Count
The most cited measures come from the Fraser Institute’s Economic Freedom of the World report and the Heritage Foundation’s Index of Economic Freedom. Both rely on composite scores built from dozens of variables. The Fraser index, for example, includes components for government size, legal system and property rights, sound money, freedom to trade internationally, and regulation. The Heritage index uses similar categories, including business freedom, labor freedom, and fiscal health. A country that reduces its regulatory burden tends to rise in the rankings. A country that adds a labor rule or a licensing requirement tends to fall.
What these indexes do not do is identify the specific persons or firms whose options changed. A deregulatory action that removes a price control may raise a country’s score. But if the price control was protecting a group of small buyers from a concentrated seller, the score rises while the buyers’ practical freedom narrows. The index treats the rule as a cost to the seller and a gain to no one in particular. That is not a measurement error in the statistical sense. It is a modeling choice: freedom is defined as the absence of government-imposed constraints on private action, not as the presence of options for any named actor.
For a regulatory analyst, this is the first problem. The index measures the volume of rules, not the assignment of rights. A rule that says “no one may dump waste into the river” reduces a factory’s freedom to dispose of byproducts cheaply. It also increases the freedom of downstream water users to irrigate, fish, or swim without absorbing the factory’s costs. The net effect on “economic freedom” depends on whose baseline you use. The index does not ask.
The Federal Register as a Ledger of Who Is Free
U.S. federal rulemaking is a useful place to test the distributional question because the process forces agencies to name the parties affected. Under the Administrative Procedure Act, an agency must publish a notice of proposed rulemaking, accept public comments, and respond to significant issues in the final rule. Under Executive Order 12866 and its successors, economically significant rules require a regulatory impact analysis that estimates costs and benefits, often by industry, firm size, or demographic group. The Small Business Regulatory Enforcement Fairness Act adds another layer: agencies must consider the impact on small entities and convene advocacy review panels for rules that may affect a substantial number of small businesses.
These documents are not neutral. They are written by the agency, and they often reflect the agency’s preferred framing. But they are still a ledger. A proposed rule will typically say which entities must comply, which entities are exempt, which compliance costs are expected, and which benefits are claimed. Public comments then record who objected, who asked for an exemption, and who argued that the rule did not go far enough. The final rule shows which requests were granted and which were denied.
That is a much richer picture than a one-point change in a freedom index. It allows an analyst to ask: did the rule shift decision rights from one group to another? Did it create a new permission that some firms can afford and others cannot? Did it grandfather existing players while imposing new burdens on entrants? Those are the questions that determine who is free in practice.
Three Ways a Rule Can Redistribute Freedom
Regulatory actions rarely increase or decrease freedom uniformly. More often, they reallocate it. Three patterns appear repeatedly in federal rulemaking.
1. Licensing and Entry Barriers
Occupational licensing is the clearest example. A state or federal licensing requirement restricts the freedom of unlicensed practitioners to sell their services. It also increases the freedom of licensed practitioners to operate without competition from lower-priced entrants. The economic freedom index will generally count the licensing requirement as a negative because it restricts market entry. But it will not record the gain to incumbents, because that gain is not a government-created freedom; it is a private benefit created by a government restriction. The index’s lens cannot see it.
At the federal level, similar dynamics appear in rules that require certifications, permits, or premarket approvals. A new safety standard for medical devices may raise the cost of bringing a product to market. Large manufacturers with regulatory affairs departments can absorb that cost. Small manufacturers may exit the market or never enter. The rule does not reduce “freedom” in the aggregate; it reduces the freedom of small entrants and increases the relative freedom of established firms that can comply. The Federal Register record will show this in the comments: small business associations will ask for a delayed compliance date or a simplified pathway, and large firms will often support the rule or remain silent.
2. Compliance Costs and Firm Size
Compliance costs are usually modeled as a fixed burden per firm. But a fixed burden is not fixed in its effect. A $50,000 annual reporting requirement is a rounding error for a firm with $500 million in revenue. For a firm with $500,000 in revenue, it is ten percent of the top line. The rule may be neutral on paper and sharply regressive in practice. The freedom to continue operating is not reduced for the large firm. It may be eliminated for the small one.
The Regulatory Flexibility Act requires agencies to consider this. The resulting analyses often show that small businesses bear a disproportionate share of compliance costs relative to revenue. But the economic freedom index does not incorporate that distribution. It counts the rule as a single regulatory burden, as if the burden fell equally on all firms. A country could improve its freedom score by eliminating a rule that protected small suppliers from predatory contracting practices, even if the result is that small suppliers lose the freedom to stay in business.
3. Grandfathering and Transition Rules
Grandfather clauses are a third mechanism. A new environmental standard may apply only to new facilities, while existing facilities continue operating under the old standard. The rule creates two classes of firms: incumbents who are free to continue as before, and entrants who must meet a higher bar. The freedom index sees the new standard as a restriction. It does not see the competitive advantage transferred to incumbents. In fact, the rule may reduce aggregate freedom while increasing the freedom of the most politically organized firms to avoid new competition.
Transition rules can work the other way. A rule that phases out a subsidy over ten years may give current recipients time to adjust while denying the subsidy to new applicants. The current recipients keep a freedom that new entrants never receive. The Federal Register will record the transition period, the eligibility cutoff, and the comments from groups that wanted a longer or shorter phase-out. That record is the raw material for measuring who is free.
Why the Aggregate Score Misses the Ledger
The economic freedom index is built for cross-country comparison. To compare 165 countries, it needs variables that are available for all of them, consistently defined, and reducible to a number. That requirement pushes the index toward broad proxies: the number of procedures to start a business, the share of GDP consumed by government, the top marginal tax rate. These proxies are useful for spotting large differences between countries. They are not useful for tracing a specific U.S. federal rule to its effects on specific parties.
The index also treats government as the only source of coercion. Private coercion—monopoly power, contract terms imposed by a dominant buyer, information asymmetries—does not reduce a country’s freedom score unless the government is seen as enabling it. That is a philosophical choice, not a neutral measurement. A rule that limits the power of a dominant platform to delist a small seller may reduce the platform’s freedom and increase the seller’s. The index will record the rule as a loss of economic freedom. The seller’s gain is invisible.
For a policy analyst, the practical consequence is that the index can be used to support either side of a regulatory debate without ever engaging the distributional question. A deregulatory advocate can point to a lower score and say freedom has increased. A regulatory advocate can point to the same rule and say freedom has been protected for vulnerable parties. Both are using the same word to mean different things. The only way to resolve the disagreement is to open the docket and trace the rule’s effects.
A Document-Driven Method for Measuring Who Is Free
The alternative to the aggregate score is a case-level ledger. For any given federal regulatory action, an analyst can reconstruct the distribution of freedom by asking four questions.
First, who must comply? The final rule will define the regulated entities. Are they large firms, small firms, state governments, individuals, or a mix? The definition itself is a distributional choice. An exemption for firms with fewer than 20 employees is a decision to leave small firms freer than large ones. A rule that applies only to new entrants is a decision to protect incumbents.
Second, who bears the cost? The regulatory impact analysis will estimate compliance costs, often by industry and firm size. The estimates are imperfect, but they are a starting point. The analyst can compare the cost per firm to the average revenue of firms in the affected industry. That comparison reveals whether the rule is likely to push small firms out or merely reduce margins for large ones.
Third, who receives the benefit? The agency will describe the benefits in the preamble. Sometimes the beneficiaries are named: patients, workers, consumers, downstream water users. Sometimes they are diffuse. The analyst should ask whether the benefit is concentrated enough to be meaningful to any specific group, or whether it is a statistical aggregate that no one experiences as increased freedom.
Fourth, who asked for what? The public comments are the most revealing part of the record. Trade associations will ask for exemptions, delays, or narrowed definitions. Public interest groups will ask for broader coverage or stricter standards. Small business advocates will ask for simplified compliance. The final rule’s response to comments shows which requests the agency accepted. That is the closest thing to a recorded vote on who gets to be free.
This method does not produce a single number. It produces a narrative with named parties, specific costs, and identifiable tradeoffs. That is less convenient than a ranking. But it is more honest about what a regulatory action does.
What This Means for Small Business Owners
Small business owners rarely have time to read a 200-page final rule. But they can use the same four questions in a lighter form. When a proposed rule affects their industry, the first question is whether they are in the regulated class or the exempt class. The second is whether the compliance cost is fixed or proportional to revenue. The third is whether the rule’s benefit flows to them or to someone else. The fourth is whether their trade association filed comments and what it asked for.
This is not an abstract exercise. A rule that requires all food manufacturers to implement a new traceability system may cost a large processor $200,000 and a small processor $200,000. The large processor absorbs it. The small processor may not. The freedom to continue operating is not equally distributed. The economic freedom index will not tell the small processor that. The Federal Register will.
What This Means for Policy Analysts and Graduate Students
For analysts and students, the lesson is to treat freedom as a relational concept, not a scalar one. A rule does not increase or decrease freedom in the abstract. It changes who may do what, under what conditions, at whose expense. The analytical task is to identify the parties, the permissions, the burdens, and the enforcement mechanism. The index can be a starting point for cross-country comparison, but it cannot answer the question that matters for a specific rule: who is free now who was not free before, and who lost what?
This approach also connects to a larger literature on regulatory design. The concept of “regulatory rent” describes the value that incumbents capture when rules raise entry costs. The concept of “regressive regulation” describes rules whose costs fall disproportionately on low-income households or small firms. The concept of “grandfathering” describes the transfer of competitive advantage to existing players. These are not exotic ideas. They are the ordinary vocabulary of regulatory forensics. The economic freedom index, by contrast, has no column for any of them.
Frequently Asked Questions
Why do economic freedom indexes treat all regulation as a loss of freedom?
Most indexes define economic freedom as the absence of government-imposed constraints on private action. Under that definition, any new regulation reduces freedom by construction, regardless of whom it protects or what private coercion it restrains. The index is not designed to measure the distribution of freedom among parties. It is designed to measure the volume of government intervention. That is a legitimate but limited lens.
Can a regulation increase economic freedom for some people while reducing it for others?
Yes. A rule that limits a factory’s right to discharge waste reduces the factory’s freedom to dispose of byproducts cheaply. It increases the freedom of downstream water users to use the water without absorbing the factory’s costs. A rule that requires occupational licensing reduces the freedom of unlicensed practitioners to enter the market. It increases the freedom of licensed practitioners to operate without competition from lower-priced entrants. The net effect depends on whose baseline you use.
How can I tell who actually benefits from a federal rule?
Read the final rule’s preamble and the regulatory impact analysis. The preamble will describe the problem the rule addresses and the parties the agency expects to benefit. The impact analysis will estimate costs and benefits, often by industry or firm size. Then read the public comments. Trade associations, small business advocates, and public interest groups will state in plain terms who they think wins and loses. The agency’s response to comments shows which requests were granted and which were denied.
Is the economic freedom index useless for U.S. regulatory analysis?
Not useless, but insufficient. The index is useful for broad cross-country comparisons and for tracking long-term trends in the overall regulatory burden. It is not useful for tracing a specific federal rule to its effects on specific parties. For that, the Federal Register record is the better tool. The two approaches answer different questions.
Next Step for This Site
This article is the first in a recurring column on reading the Federal Register as a ledger of who is free. The next piece will take a single recent final rule and apply the four-question method: who must comply, who bears the cost, who receives the benefit, and who asked for what. If there is a rule you would like to see traced, send it in. The docket is public. The distribution of freedom is not.