America's Declining Economic Freedom
The Economic Freedom of the World, "copublished by the Cato Institute, the Fraser Institute in Canada and more than 70 think tanks around the world," just released the 2012 annual report. Here's the briefest introduction from the 2012 report's executive summary:
"The index published in Economic Freedom of the World 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 compete, and security of privately owned property. Forty-two variables are used to construct a summary index and to measure the degree of economic freedom in five broad areas:
- Size of Government;
- Legal System and Property Rights;
- Sound Money;
- Freedom to Trade Internationally;
And here's how the report summarizes the economic freedom of the United States:
"The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade. From 1980 to 2000, the United States was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. After increasing steadily during the period from 1980 to 2000, the chain-linked EFW rating of the United States fell from 8.65 in 2000 to 8.21 in 2005 and 7.70 in 2010. The chain-linked ranking of the United States has fallen precipitously from second in 2000 to eighth in 2005 and 19th in 2010 (unadjusted ranking of 18th)."
"A few facts will help illustrate why economic freedom is so important. The freest quartile of countries had an average per capita income of $37,691, while the least free quartile had a per capita income of just $5,188 in 2010. The freest quartile grew at an average annual rate of 3.6 percent 1990-2010, while the quartile that was least free only grew at an average rate of 1.6 percent over the same period. Life expectancy in the freest quartile was 79.5 years in 2010, as contrasted with 61.6 years in the least free quartile. Those people who are more concerned about the poor than economic growth should take note that the poorest 10 percent in the least-free quartile only had a per capita income of $1,209 in 2010, as contrasted with a per capita income of $11,382 for the poorest 10 percent in the freest quartile. Greater economic freedom is also associated with more political and civil liberties. In sum, by almost any measure of human well-being, a person is far better off being in a country with a high degree of economic freedom than in one with restricted economic freedoms."
Here's the lede from an editorial in today's Investor's Business Daily (IBD):
"The U.S. economy has been the world's biggest for decades. It's also been among the freest. But that long run is over. And our position at the top will soon be history, too, if liberty isn't restored.
"From 1980 to 2000, the U.S. was ranked one of the world's three freest economies in the Cato Institute's Economic Freedom of the World Report.
"In the latest rankings, it has fallen to 18th, behind such bulwarks of freedom as Qatar, Estonia, the United Arab Emirates and Mauritius."
The average score increased from 6.69 in 2009 to 6.83 in 2010, the latest year for which data is available. The IBD editorial includes the following chart of the top 20 countries rated by economic freedom:
The IBD editorial concludes by saying:
"As our own John Merline reports, "The National Federation of Independent Business calculates there are more than 4,000 federal rules in the pipeline, and that just the 13 biggest ones would, if imposed in an Obama second term, cost businesses a total of more than $515 billion over four years."
"It's no coincidence that America has had both a high degree of economic freedom and the greatest economic prosperity in history.
"You can't have the latter without the former. It's particularly galling that Obama probably knows this, yet keeps moving the country in the wrong direction."
In his blog post yesterday at the American Enterprise Institute's blog, AEIdeas, James Pethokoukis asks, and then answers his own question: "What’s gone wrong with the U.S. economy? Maybe it’s nothing more complicated than a sharp decline in economic freedom."
Mr. Pethokoukis also includes a summary table showing how the scores for the five areas identified above have changed from 1980 to 2010. Note that until 2000, the United States never ranked second, and never ranked lower than #4. However, it dropped to #8 in 2005, to #15 in 2009, and to #19 in 2010. Gee, could there really be a connection between economic freedom and all the $515 billion in regulations identified by the NFIB? And will the United States' ranking drop even lower as those regulations now in the pipeline are implemented? (emphasis added)
Additional reading material about "economic freedom" include: Op-ed by Terry Miller in the Washington Times today. In Forbes magazine, Chris Conover comments that "(e)conomic freedom is not only about all the benefits that come from greater efficiency." Three of the report's authors have an op-ed in Tuesday's Philadelphia Inquirer. At Hot Air's "green room," Matt Vespa comments on the report. From the Sacramento Bee, there is this article. The Daily Caller begins this way:
"As Ronald Reagan so eloquently put it, “Freedom is never more than one generation away from extinction.” And while the latest edition of the Fraser Institute’s annual “Economic Freedom of the World Report” does not predict the end of the American economy, it does paint an alarming picture of the loss of our economic freedom during the last decade."
In addition, the Competitive Enterprise Institute's blog, OpenMarkets.org, National Review Online, and the Himalayan Times comment on the report on the 2012 Economic Freedom of the World report. And Power Line points out "(t)here are real consequences to the decline," citing this comment from the report:
"Our empirical work indicates that a one-point change in a country’s EFW rating is associated with a 1.0 to 1.5 percentage point change in the long-term annual growth rate, all else equal. It is worth noting that U.S. growth averaged 2.3 percent in the 1980s and 2.2 percent during the 1990s, but it fell to an annual rate of only 0.7 percent during 2000-2010. Without a reversal of undermining economic freedom, the future economic growth of the United States will be weak for many years to come."