We are all suspects now.

After so much economic turmoil, the traditional wish for a prosperous new year can be given with considerable vigour.

The 2010 Legatum Prosperity Index (PDF) – “the world’s only global assessment of wealth and wellbeing” – showed that entrepreneurship and opportunity are the primary keys to prosperity, that they correlate more closely to a nation’s overall prosperity than any other factor.

In particular, Legatum found that:

• Prosperity is found in entrepreneurial democracies that have strong social fabrics.
• Prosperity is a blend of wealth and happiness, but not as one might think.
• Global prosperity is changing in unexpected ways.

In 2010, the UK was 13th overall, behind Norway, Denmark, Finland, Australia, New Zealand, Sweden, Canada, Switzerland, Netherlands, the United States, Ireland and Iceland.

In 2011, we find ourselves again in 13th place behind the same countries but still ahead of, perhaps surprisingly, France, Germany and Austria. Taking the economy in isolation, we are well ahead of Ireland and Iceland at 21st, compared to 35th and 71st respectively. It looks like our overall rating is brought down by safety & security (23rd), the economy (21st) education (19th) and health (17th).

On entrepreneurship & opportunity, we are 4th in the world, according to Legatum, just above the USA.

It is true we face huge problems, not least of which are our financial institutions and Labour’s legacy of overspending, but we remain prosperous by international standards and, by the ranking which correlates most closely to overall prosperity, we are very well positioned.

For all our difficulties, there are reasons to be optimistic about prosperity in the UK in 2012 and beyond.

You can find and download the 2011 Legatum Prosperity Index rankings here.

Via LearnLiberty.org, a great project from the Institute for Humane Studies, Dr Nigel Ashford explains classical liberalism, the doctrine of freedom:

The ten principles from the video are:

1. Liberty as the primary political value
2. Individualism
3. Skepticism about power
4. Rule of Law
5. Civil Society
6. Spontaneous Order
7. Free Markets
8. Toleration
9. Peace
10. Limited Government

Dr Ashford’s short book Principles for a Free Society is highly recommended too.

Via Is A Gold Standard Deflationary? Forbes.com:

What causes contraction and decline is not using a gold standard system. In the forty years since floating currencies began in 1971, the average American family has made no progress at all–even with two incomes, instead of one. If you measure income in terms of ounces of gold, we are back to early-1950s levels. Although there were many ups and downs over the last two centuries, including a Civil War and a Great Depression, this is perhaps the first time in U.S. history where the average family is worse off than it was forty years earlier.

I begin to feel mainstream.

It’s my 40th birthday. I found myself reflecting on life and what it means to promote prosperity, in the broadest sense. That led me to the Legatum Institute‘s Prosperity Index.

The Prosperity Index provides a global assessment of wealth and wellbeing. The key findings are fascinating.  In particular, “Entrepreneurship and opportunity correlate more closely to a nation’s overall prosperity than any other factor.”  While other factors are still critical, it turns out entrepreneurship and opportunity is the best proxy for overall prosperity.

Here’s the relevant chart:

The 2010 Legatum Prosperity Index - Key Finding 1

Whatever difficulties we may face, it is still true that entrepreneurship – the creative search to help other people – is still the best way for people to lift one another into wealth and well being.

Over on ConservativeHome, I introduce an interesting piece of work by Anthony J Evans and Terence Tse of ESCP Europe:

Many will argue that Eurozone financial stability is in Britain’s interests and they are right. That’s why the Government should look carefully at a new report by two Associate Professors at ESCP Europe Business School: Anthony J. Evans (Economics) and Terence Tse (Finance).

On their website, The great EU debt write off, Anthony and Terence explain a simulation conducted by their masters students:

The aim was to uncover the amount of interlinked debt between Portugal, Ireland, Italy, Greece, Spain, Britain, France, and Germany; and then see what would happen if they attempted to cross cancel obligations.

The results were astounding:

• The countries can reduce their total debt by 64% through cross cancellation of interlinked debt, taking total debt from 40.47% of GDP to 14.58%
• Six countries – Ireland, Italy, Spain, Britain, France and Germany – can write off more than 50% of their outstanding debt
• Three countries – Ireland, Italy, and Germany – can reduce their obligations such that they owe more than €1bn to only 2 other countries
• Ireland can reduce its debt from almost 130% of GDP to under 20% of GDP
• France can virtually eliminate its debt – reducing it to just 0.06% of GDP

The idea is simple: nations which are both creditors and debtors can enter into bilateral agreements to cancel debt. Naturally, the reality is complex and the authors explain how so in their paper, which can be downloaded here.

Here’s Europe’s web of debt before and after their simulation:

Before

After

You can read the rest of the article and comment on ConservativeHome.