Posts Tagged ‘Index of Economic Freedom’

Economic freedom on the wane in the United States

January 16, 2013

Land of the Free

It is right up there in the national anthem. And it is surely treasured by many Americans. But economic freedom is just as surely on the wane during the early years of the 21st century. The Index of Economic Freedom – published annually by the Heritage Foundation and The Wall Street Journal, chronicles this sad story.

As recently as 2008, the United States was ranked 7th worldwide (out of 177 nations) by this Index. It attained an average score of 81 on a scale of 0-100, with 100 reflecting the freest ranking. Last year, the 2012 Index ranked the United States only 10th in the world. In 2013, the Index held the United States in 10th place, with a score of only 76 out of 100, only because of a significant decline in the ranking of Ireland. Save for this, the United States would no longer rank within the top 10 in terms of economic freedom. And that would be a shameful result for this supposedly ‘exceptional nation’.

Economic freedom is measured by the Index in terms of four broad areas, namely (1) rule of law, (2) limited government, (3) regulatory efficiency, and (4) open markets. For the most part, the United States performs moderately well on these measures. Yet, with a score of 76 out of 100, it ranks only under the category of ‘relatively free’. So what specifically drags it down?

Regulatory inefficiency is a major source of US decline in economic freedom. More than 100 new federal regulations have been imposed since President Obama came to office in January 2009. at an annual cost to gross domestic product in excess of $46 billion. Yet, this is not the nation’s weakest spot.The United States remains above the global average for this category.

The Achilles heel, for the United States is category 2. Limited government is subject to severe erosion, with the United States ranking below the global average in this category. The United States has the highest effective corporate tax rate in the developed world. The top-rate for income tax is now 39.6 percent (compared with 13 per cent in Russia for example). The overall tax burden is 24.8 per cent of gross domestic product. Total government spending (at all levels) is 42 per cent of gross domestic product. The debt burden is a consequence of the gap between spending and revenues, and is growing unsustainably.

The drift is clear and the nature of the problem is well-identified. The prognosis is for a continuing decline in the world rankings unless U.S. politicians wake up and initiate significant reforms: income tax reform, major spending cuts, and a significant trimming of regulations are all on the menu. But President Obama has no taste for such an economic diet. And, seemingly, a slim majority of Americans share his prodigality, at least when paid for by rooting through the pockets of others.

Hat Tip: Ed. Feulner, ‘Economic freedom on the wane: limited government isn’t so limited anymore’, The Washington Times, January 15, 2013

The United States no longer the land of the free

October 1, 2012

The 2012 Annual Report of Economic Freedom in the World provides a disturbing insight into declining economic freedoms in the United States. According to this report, 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, namely (1) size of government, (2) legal system and property rights, (3) sound money, (4) freedom to trade internationally and (5) regulation.

World-wide, economic freedom so measured pursued an upward trend between 1980 and 2007, with the average rising from 5.30 (out of  ten) to 6.88.  It then fell for two years, reaching 6.79 in 2009, before recovering slightly to 6.83 in 2010, the most recent year available. Evidently, the economic crisis took its toll on a worldwide scale.

In 2010, the world’s top-ranked nations on this index are (1) Hong Kong, (2) Singapore, (3) New Zealand,  (4) Switzerland, (5) Australia, (6) Canada, (7) Bahrain, (8) Mauritius, (9) Finland and (10) Chile

Readers will note that the United States does not feature in this top ten list. Throughout the period 1980 to 1994, the United States ranked third on the chain-linked index. In 1995, it slipped a notch to fourth place.  Under the influence of President Clinton and a Republican Congress, the United States recovered to second place in 2000.  Then the real slide began.  By 2005, the United States had dropped to eighth place in the rankings. By 2009, it had collapsed to 15th and by 2010 to 19th place. Between 2000 and 2010, its summary rating fell from 8.65 to 7.70.

The key categories driving the recent decline are its increasing size of government (rating falling from 7.03 in 2000 to 6.43 in 2010), legal system and property rights (rating falling from 9.23 in 2000 to 7.14 in 2010,  international trade (rating falling from 8.78 in 2000 to 7.46 in 2010), and regulation (rating falling from 8.43 in 2000 to 7.76 in 2010). Only in the area of sound money did the United States hold up its 2000 rating (with a small drop recorded from 9.78 in 2000 to 9.68 in 2010. And that is recorded before the S & P downgrade on 2011.

Unless major economic reforms are implemented following the 2012 elections, the United States will continue to plummet in the world rankings for economic freedom. Yet no one is confronting this issue in the current election campaigns.

United States Ranks ‘Mostly Free’ in 2010 Index of Economic Freedom

January 24, 2010

Each year, the Heritage Foundation and the Wall Street Journal jointly publish a carefully researched Index of Economic Freedom that ranks 179 nations in terms of ten components of economic freedom: business, freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom. Each of these components is measured on a scale from 0 to 100, where 100 represents the maximum freedom. The ten component scores are then averaged to provide an overall economic freedom score for each country.

Countries that score between 100 and 80 are characterized as Free, those that score between 79.9 and 70 are characterized as Mostly Free, those between 69.9 and 60 as Moderately Free, those between 59.9 and 50 as Mostly Unfree, and those between 49.9 and 0 as Repressed.

The 2010 Index of Economic Freedom was published on January 20, 2010.  The United States economic score was 78.0, with its economy ranked Number 8 in the total Index (falling from Number 6 in 2009), and characterized now as only Mostly Free. Its score was 2.7 points lower than in 2009, reflecting the most precipitous drop in economic freedom among the world’s top 20 countries (measured in terms of gross domestic product).  Canada, with an overall score of 80.4, is the only country in North America now ranked as Free.

For reference, the top ten ranked nations are: 1. Hong Kong (89.7), 2. Singapore (86.1), 3. Australia (82.6), 4. New Zealand (82.1), 5. Ireland (81.3), 6. Switzerland (81.1), 7. Canada (80.4), 8. United States (78.0), 9. Denmark (77.9) and 10. Chile (77.2).  The United States is now bracketed with such nations as the United Kingdom, Germany, Japan, Sweden, Georgia, Botswana and South Korea, nations that are not usually highly regarded as bastions of economic freedom. Well, at least there is still some distance from North Korea (1.0)!

So what went wrong?  The answer is unequivocal: the interventionist 2009 responses by the Obama administration,  the US Congress, and the Federal Reserve to the financial crisis and economic contraction.  Economic freedom declined in 7 of the 10 categories measured in the Index.  The score, category by category, is as follows, in a descending order of economic freedom:

Labor Freedom (94.8) Free; Business Freedom (91.3) Free; Trade Freedom (86.9) Free; Property Rights (85.0) Free; Monetary Freedom (78.1) Mostly Free; Investment Freedom (75.0) Mostly Free; Freedom From Corruption (73.0) Mostly Free; Financial Freedom (70.0) Mostly Free; Fiscal Freedom (67.5) Moderately Free, Government Spending (58.0) Mostly Unfree.

For a nation that once proudly claimed to be The Land of the Free, this is a wretched Report Card, not one that any child would be proud to show to his parents. Worse still, there are no signs as yet that the child has learned its lesson. The Report Card in 2011 shows every sign of yet further deterioration. “Please don’t show it to Dad, Mom. He might take off his belt.”


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