[If this thesis is correct], then the economic crisis should be worse in countries that have looser regulations fueled by a "failed ideology."Obviously, the Fraser index is an imperfect proxy for financial oversight deregulation. But, in a world where all economies are suffering, could the free market have blunted the blow as much as possible?
The data show the exact opposite.
The vertical axis in the accompanying chart measures the change in stock performance among major industrialized countries during the past year. The horizontal axis is the Fraser Institute's Economic Freedom of the World index, which provides a measure of financial-market freedom. The index measures economic liberty by taking into account government size, property-rights protection, monetary policy, trade freedom and regulatory barriers across countries. Freedom increases from left to right.
source: Dec. 18th National Review at 10 (subscription only; image here)
The fitted line is a regression line that captures the basic tendency of the data. If [the theory] were correct, the line would slope downward, and countries that are economically free would have had bigger collapses in their stock markets. In fact, the line is upward-sloping, which implies that over the past year, countries that are economically free have suffered less than countries that are not. (For those keeping score: The line is statistically significant.)
Yes, there may be more out-right fraud than previously known. But I still believe there's no more fraud here than in other markets, including the developing world (see China).