Banking & Finance, Economic Development, and Government

America's 18th-place rank for 'economic freedom' stifles prosperity

October 23, 2012
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Since its founding, the United States has been considered the world’s premier nation for economic freedom. This is no longer the case. The Fraser Institute’s latest ranking shows the U.S. recently dropped to 18th in terms of economic freedom. The U.S. was among the top four countries experiencing the greatest declines since 2000. We now trail three Middle Eastern nations -- Bahrain, United Arab Emirates and Qatar -- and have fallen to the mid range of countries considered “mostly free.”

In calculating its rankings, the Institute measures the size of the government sector, the legal system and the security of property rights, sound money, the freedom to trade internationally and regulation. Each country has a score ranging from 0 to 10, with 10 representing maximum economic freedom.

The state with the highest rank in terms of economic freedom was Hong Kong with a score of 8.9 for 2010. The second freest is Singapore at 8.69. The U.S., at 18th, has a score of 7.69.

The top 25 percent of the countries in the world are termed “mostly free.” The next quartile is less free. The third quartile is not so free and the fourth is “least free.” There is a strong relationship between economic freedom and political freedom as well as between economic freedom and prosperity.

Countries that are “mostly free” have per capita income of more than twice the second quartile in 2010. Incomes in the second quartile are more than twice the third. There is a clear, direct and powerful relationship between economic freedom and economic performance. The same relationship exists for the poor (those with the lowest 10 percent of income) in each group.

Factors contributing to the lower U.S. ranking in 2010 include the growth in government, regulations, debt, increasing use of eminent domain for special interests, ramifications of the war on terror and drugs and the violation of bondholder property rights in the auto bailout.

Although the Institute’s scoring does not account for developments since 2010, it’s clear the U.S. has experienced a further significant decline in economic freedom. In fact, it’s conceivable the U.S. no longer qualifies as a “mostly free” nation.

Since 2010, U.S. trends in government spending, regulation and debt have all become more troubling. In addition, government has extended its control over both health care and the financial industry. There have also been waivers granted to special interests exempting them from provisions of various laws. Edicts have been used to change immigration and welfare laws instead of following the normal legislative process. And the Department of Justice has refused to enforce race neutral voting laws.

While there is widespread recognition the U.S. is performing poorly, there is not widespread recognition of the loss in economic freedom. Few have connected the dots between the erosion of freedom and poor economic performance.

The key to U.S. prosperity has always been economic freedom. No economy prospers without it. Restoring economic freedom is the key to restoring the prosperity that was so often the hallmark of the greatest country on earth.

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