New Economic Freedom of the World Report, and Some Suggestive Connections

Lynne Kiesling

Last week the new Economic Freedom of the World report was released, and it’s pretty sobering. The Fraser Institute and a large international coalition of think tanks collaborate to publish this annual report, and the research papers written over the past 20 years using the EFW data indicate the positive role that economic freedom plays in enabling prosperity, rising living standards, and economic growth and well-being. As summarized in the Huffington Post by the study’s authors (Jim Gwartney, Bob Lawson, Josh Hall),

Nations that score higher on the index tend to be richer, grow faster, have less poverty, live longer, be more educated, and on and on. On virtually every measure of the good life, we find that more economic freedom yields better results. Other research finds economic freedom corresponds with less warfare, greater human rights, more gender equity, less unemployment, improved democracy, more trust, and less corruption. The results of the Economic Freedom of the World project and the scholarly analysis it has facilitated are simply overwhelming. Economic freedom works.

But the US results indicate reductions in the economic freedom that’s associated with growth and prosperity:

Economic freedom in the United States is on the wane. Historically a standard bearer for freer markets, the United States has seen its economic freedom rating fall in the last decade according to the latest Economic Freedom of the World index, published by a world-wide network of institutes. In 2000, the U.S. was ranked 3rd in the world behind only Hong Kong and Singapore, but in the most recent report, the U.S. is ranked 10th behind countries like Canada, Chile, Australia, and the United Kingdom.

The index measures the degree to which people in a nation are free to pursue their own economic objectives without government taxes and regulations, as well as the extent to which government protects property rights and provides a sound monetary environment. The decline of the U.S. is the result of massively higher government spending and borrowing, increased regulation, and especially less secure property rights. Ballooning budget deficits are crowding out private credit causing the rating in this component to fall to 0.0 from 9.3 (out of 10) since 2000. Asset forfeiture laws, eminent domain abuse, the wars on drugs and terrorism, TSA, and warrantless wiretaps have apparently taken their toll on the security of property rights. …

Over the past decade, the rating of the United States has fallen almost a full point on the economic freedom scale. Prior research indicates that a decline of this magnitude will reduce a country’s long-term growth rate by at least a full percentage point. In the case of the United States, this will mean future average annual growth of real GDP of 2 percent rather than our 3 percent historical average.

This is a disturbing, but not surprising, result of their data analysis. If you are not familiar with this report, I encourage you to read it.

I find some commonality in the loss of U.S. freedom they document and the results released today of a Gallup poll that finds 81% of Americans are dissatisfied with how the country is being governed, a historically high percentage. Here’s a finding to connect to the EFW report, encompassing economic, civil, and political liberty:

49% of Americans believe the federal government has become so large and powerful that it poses an immediate threat to the rights and freedoms of ordinary citizens. In 2003, less than a third (30%) believed this.

Furthermore, even the mainstream media is addressing our government’s dysfunctionality, with an opinion series this week entitled “Why is our government so broken?”. Their first commentary, from David Frum, focuses on the vanishing spirit of cooperation” among our federal elected representatives. Although that’s a missive from the Department of the Obvious, I look forward to reading the rest of the series.

In particular, some recommendations for change other than (1) be more civically engaged and (2) vote the bums out would be nice, since I think the incentives behind those and the probabilities of them happening in general are weak at best.