Indexing Economic Freedom

I'm not a big fan of these surveys, but this still seems notable:

For the first time in the 11 years that the Heritage Foundation and The Wall Street Journal have been publishing the Index of Economic Freedom, the U.S. has dropped out of the top 10 freest economies in the world.

The slide is partly a matter of other countries getting better, as opposed to the United States getting worse. But "Sarbanes-Oxley in the category of regulation and aggressive use of antidumping law in trade policy have kept [America] from keeping pace with the best performers in economic freedom. Most alarming is the U.S.'s fiscal burden, which imposes high marginal tax rates for individuals and very high marginal corporate tax rates."

Comments

[Gary Gunnels]

Here's the actual index itself:

http://www.heritage.org/research/features/index/

[Akira MacKenzie]

And to think, all this happened under the Presidental watch of pro-business "plutocrat" who was going to "sell America out to Big Business."

Then again, we've all know that Big Business can and usually be among economic freedom's worst enemies.

[Jesse Walker]

Thanks, Gary; I've now added that link to the post.

[Stevo Darkly]

Re: Big Business

I'm afraid there are as few committed free-market capitalists in boardrooms as there are saints in pulpits.

[thoreau]

The page that Gary pointed to only provides info on buying the report, so I don't have the precise scores in front of me, but the article does indicate that the US's score has dropped slightly in the past few years. And this happened during a period where the GOP controlled the White House, House of Representatives, and (for most of the time) the Senate.

So, GOP control of the gov't caused the score to drop relative to what it was in the 1990's, when we had divided gov't for most of the time.

Sure, it's a small drop, but I think the point is that electing a bunch of Republicans and giving them complete control does not translate to economic freedom.

[Gary Gunnels]

thoreau,

Fish around in the countries section; use your browser skills Luke.

http://www.heritage.org/research/features/index/country.cfm?id=Unitedstates

You can compare countries that way.

http://www.heritage.org/research/features/index/country.cfm?id=HongKong

http://www.heritage.org/research/features/index/country.cfm?id=Romania

http://www.heritage.org/research/features/index/country.cfm?id=France

http://www.heritage.org/research/features/index/country.cfm?id=KoreaNorth

[Gary Gunnels]

thoreau,

And each country page gives you their scores over time.

[NoStar]

Since Chile faced and fixed the problem of a Ponzi schemed based Social Security system, while much of the U.S. doesn't recognize a problem exists, I am not surprized that Chile has surpassed the US in economic freedom.

I'll have to consider the pros and cons of moving there versus staying in the U.S. in order to find a job soon. Either way, learning Spanish appears to be an advantage.

"Albedrio trabajo para comida."

[NoStar]

To hell with New Hampshire, Libertarians should move to Chile!

[thoreau]

Gary-

Thanks for the data. It looks like the US score has actually increased relative to the end of the Clinton years.

I withdraw my previous comment.

[Todd Fletcher]

Are the girls hot in Chile? Is it "Albedrio trabajo para muchacha."?

[Douglas Fletcher]

para cula

[Eric II]

"Then again, we've all know that Big Business can and usually be among economic freedom's worst enemies."

Well, I don't think too many businesses are happy with Sarbanes-Oxley. That was clearly the work of populist hysteria, and Republicans and Democrats alike should hang their heads in shame over it. The backdoor protectionism by means of "anti-dumping" tariffs is a different story, of course.

It's been argued elsewhere that the ratings for Hong Kong and Singapore can be a little misleading. While the locales have fairly low tax rates and are unparalleled as free ports and financial hubs, their internal economies can be subject to a decent amount of cronyism and favoritism.

[Ken Shultz]

"For the first time in the 11 years that the Heritage Foundation and The Wall Street Journal have been publishing the Index of Economic Freedom, the U.S. has dropped out of the top 10 freest economies in the world."

If Kerry had been elected it would be much worse.

[Rex Little]

Um, if Kerry had been elected he wouldn't have even taken office yet. So how would anything be worse?

[Ken Shultz]

Rex Little,

...That's what makes it funny.

[madpad]

Most alarming is the U.S.'s fiscal burden, which imposes high marginal tax rates for individuals and very high marginal corporate tax rates."

At the risk of getting screamed at by anti-taxers, I noticed that no one has pointed out that many of the countries above us (Ireland & UK for example) had much higher fiscal burdens. (42% & 40% respectively). Some (like Chile as some have mentioned) were lower. But on the whole, the U.S. was pretty smack dab in the middle.

On top of that, what isn't mentioned is that most of these countries have:

a) Fairly high sales taxes by comparison to the U.S. - often double digit with some bumping the 17-20% range.

b) Fairly comprehensive welfare states with shorter work weeks, longer (some much longer) vacation periods, socialized or single-payer medicine, and more robust state funded retirement pension setups.

c) Indeed, some fairly high business regulation in some cases

d) Pretty socially unrestrictive cultures

All this begs some questions.

1. Is our fiscal responsibility (which has actually decreased over the past 4 years) actually THAT alarming?

2. Should we maybe rethink at least some of the hysteria surrounding the "welfare state is all bad" philosophy. Maybe it's just the American version of a welfare state that's screwed.

No matter how you answer these questions, the reality is - in true free market fashion - if these economies become a model of sorts, communication being what it is these days, eventually some Americans are undoubtedly going to be asking both liberals AND conservatives "HEY! Why aren't we doing what THEY'RE doing"

[Ruthless]

Es-ton-ia, here I come! Right back where I started from.
I'm going to be the ruthless Schwarzenegger over there.
Are my pectorals big enough?

Or I could just go back to Ireland, but that doesn't seem challenging enough.

Besides, in Estonia I'll be closer to Ireland, Iceland, and Riga, Latvia, home of my beloved smoked sprats.

[Jesse Walker]

Madpad raises some valuable points. Reducing economic freedom to one linear ranking is an exercise in arbitrariness and false precision.

Like I said, I'm not generally a fan of these surveys.

[Thomas Paine's Goiter]

To hell with New Hampshire, Libertarians should move to Chile!

I think you'd all be pleasantly surprised with Chile.

[James Leroy Wilson]

I doubt that "economic freedom" can be separated from any other kind of freedom. Freedom has more to do with how much victimless or otherwise innocent behavior can land you into trouble. It might be "cheating" in a complicated tax code, or preaching against homosexuality in the wrong pulpit in the wrong country. Tax laws, speech laws, it doesn't matter. Laws are laws, and they impose costs on freedom and culture that we can not see.

Also, in federated countries like the USA, Canada, and Switzerland, some areas may be far higher in the freedom rankings, and others far lower.

In any case, the high ranking of Hong Kong and Singapore, which are virtually defenseless,give the lie to the necessity of a strong military. Everyone prefers commerce to war. Think of how richer the USA and many other countries would be without their aggressive military arm?

[madpad]

J.L. Wilson,

You make a terrific point in your last graph that echos a similar sentiment I heard a couple of days ago by T. R. Reid being interviewed about his book "The United States Of Europe".

He also said that unlike here in the states, Europeans LOVE their welfare states. Of course the decline in Christianity and marriage has left them Godless heathens that will surely be smitten come Judgement Day...but they sure do like never worrying about medical care.

[Crash]

Hong Kong is defenseless - and now it has no choice but to surrender liberties to China. Oh yeah, a strong military has NOTHING to do with protecting liberty. LOL It will never cease to amaze me how the Lindberghite wing of the libertarian camp can believe these things and still take themselves seriously.
PS: And if you think that it would be pointless for Hong Kong to expect to be able to deter a Chinese invasion, one word: Taiwan.

[Gary Gunnels]

madpad,

Europeans also love their leisure time (though they get much less of it than the law technically allows).

One basic thing France could do - and I really do hope that Sarkozy can implement once he hopefully wins the Presidency - is to reform France's licensing system. For example, the fact that it takes seven years to become a licensed accountant there is obscene and hurts French businesses.

[Jack]

Obviously the Heritage Foundation and WSJ hate America...

[James Leroy Wilson]

A "strong military" relative to Hong Kong's or Singapore's budgets, are no match for their more populous neighbors. So they decide to become too valuable to touch based on their prosperous economies. Both city-states, if they decided to go militaristic to defend themselves, would be far cheaper by the very fact that they would consume far more in military resources and less on what people worldwide actually want.They would be far less valuable in the eyes of the world, and far easier to conquer, in this sense:

It would be more tempting to kill their unproductive people, and more temptint to destroy their less valuable property.

The solution? They don't squander money, people, and property values on insufficient arms.

Japan is secure because of the size of its economy,not because of the size of its military. So is Switzerland, small as it is. So are we - in our case, the size and aggressiveness of our military has done far more harm for our security and economy than the good it's done us. Not Mexico,not Spain, not Japan, not Germany, had designs of conquest of the mainland of the United States. If we had remained a free commercial republic, and not devolved into a militaristic empire, we'd be far freer and prosperous today.

[Rick Barton]

Damn it! We've got to do something. Let's each contact our congressperson and senators: http://www.visi.com/juan/congress/
and remind them that falling levels of economic freedom correlate with falling levels of prosperity. And, falling levels of prosperity can correlate with unhappy voters and mortality (of the electoral nature) among elected officials. Tell then that freedom matters to you and that you demand that they cut spending and regulation. Tell them that you'll be watching how they cast their votes.

[madpad]

Crash,

Don't get your panties in a twist.

It's not like Europe is completely defensless. Many of the countries have large enough standing armies to defend themselves to some extent. It's not like most of these countries are sitting around waiting to be attacked.

You're not going to make your point by focusing on 1 country out of 10 that's in an admittedly unique position compared to, say, all of the other 9.

And it's widely noted that China tolerates Hong Kong because they are it's model for success. I don't think their surrendering THAT much so far. And if China increases it's economic liberty because of it, isn't that a good thing?

Certainly a military is necessary. But isn't Bush himself asserting the case that the way to ensure peace and reduce aggression is to increase quality of life by increasing economic freedom?

Wouldn't that mean that eventually your threat level would be reduced thus reducing the need for a large army?

No one is deluded enough to think we need to dismantle our armies in the face of threats like international terrorism and Russia's new ICBM.

He was just making a good - if admittedly wishful - point.

[Crash]

Hey Leroy Wilson,

The people of Hong Kong can no longer elect their leaders and must submit to Beijing appointed administrators. That's what pacifism has wrought. It's great that they still have economic freedoms, but if that requires giving up political freedoms, then that's a deal that no one should have to accept.
Japan is free and prosperous not just because of its economy, but because America used its military to free it from the real "aggressive empires."

Madpad,
You say, "I don't think their surrendering THAT much so far." The operative words there are "so far."

[pragmatist]

Lots of people making lots of good points here.

It's foolish to not maintain a strong military.
OTOH, one big change in the 20th century was that military power became directly, intimately connected with economic power. It's not just how many grunts you've got in the field right now, but also how many grunts you can afford to train, arm, and field tommorrow.

Example: Ottomans in WWI made a good showing on the front end. But they couldn't match European industry output, and that was their undoing. Ditto for US against Japan in WWII, and there's other examples.

Overall economic power is, maybe, a real close second to a big army.

[R C Dean]

Japan and Singapore aren't defenseless (neither is Switzerland). They are all defended by the US.

If you think Chinese hegemony wouldn't have extended to cover Japan and Singapore by now, precisely because of their valuable economies, in the absence of the US military, you are truly engaged in wishful thinking. The Chinese are quite aggressive militarily where they can get away with it. Just ask the Tibetans.

Hong Kong was something of a unique case, having never been sovereign, but only a leased possession whose lease ran out.

[madpad]

R.C. Dean,

A case could be made that ALL of the countries ahead of us on the scale are in some way defended by the US.

[drf]

instead of "yes, but" arguing about why the us's position in this arbitrary (?) study, how about discussing, based on the study design, HOW this happened?

speculation of where these countries would be with out the good ol' us of a popping in and protecting them is pointless, reaks of dickwaving jingoism, and ignores the fact that this study shows that our economic freedom is shrinking.

[Rick Barton]

What drf said.

[Russ D]

I find it sort of ironic that the added costs of Sarbanes-Oxley forced a lot of companies to look at offshoring as a way to save money to cover those added costs.

[raymond]

Japan and Singapore aren't defenseless (neither is Switzerland). They are all defended by the US.

Switzerland is defended by the US? In which alternate universe are you living?

[raymond]

ps -

The past couple of decades have seen a huge increase in inequality in America. The Economic Policy Institute, a Washington think-tank, argues that between 1979 and 2000 the real income of households in the lowest fifth (the bottom 20% of earners) grew by 6.4%, while that of households in the top fifth grew by 70%. The family income of the top 1% grew by 184% - and that of the top 0.1% or 0.01% grew even faster. Back in 1979 the average income of the top 1% was 133 times that of the bottom 20%; by 2000 the income of the top 1% had risen to 189 times that of the bottom fifth.

Thirty years ago the average real annual compensation of the top 100 chief executives was $1.3m: 39 times the pay of the average worker. Today it is $37.5m: over 1,000 times the pay of the average worker. In 2001 the top 1% of households earned 20% of all income and held 33.4% of all net worth.

(The Economist, January 1st 2005)

So. There's economic freedom, and then there's economic freedom.

pps -

Those living below the poverty rate in the US (rank: 12): 13%.

Those living below the poverty rate in France (rank: 44): 6.5%.

Those living below the poverty rate in Switzerland (rank: 12): NA

ppps -

Americans are clearly mistaken if thy believe they live in the world's most mobile society.

(Ibid.)

There's economic freedom, and then there's... illusion.

[kevrob]

madpad commented that the UK and Ireland have higher fiscal burdens than the US. But both of those states have lower taxes than their European neighbors. Ireland's transformation into "The Celtic Tiger" was accompanied by such tax cuts that its EU partners have howled in complaint that, especially since it was emerging from years as a net recipient of Community transfer payments, it was engaging in unfair competition. Sounds a bit how our "blue states" carp about low-tax "red states", doesn't it?

Ireland, a neutral, doesn't spend that much on its military, while the UK is a NATO stalwart and certainly can't be criticized for not pulling its own weight. Seems you can follow different defense strategies and still achieve prosperity.

Kevin

[madpad]

Kevin,

No doubt. And while I'm sure you're correct about Ireland and UK's income relative to the rest of Europe, they still have sales taxes that are 2-3 times higher than most of the U.S. I don't think that's reflected in the index.

There's more ways of getting soaked than just plain old income tax

[Gary Gunnels]

R.C. Dean,

Switzerland isn't defended by the U.S. Its not part of NATO, etc. Switzerland is protected by its citizen-soldiery and mountain ranges; oh, and its neutrality helps too.

raymond,

In the alternate universe where Switzerland is part of the E.U. 🙂 Remember, R.C. Dean made that claim about Switzerland sometime ago.

[kevrob]

Switzerland does belong to EFTA, a much smaller trade bloc.

http://www.efta.int/

Kevin

[raymond]

In the alternate universe where Switzerland is part of the E.U.

OMG! Can I sue H&R for making me read that and want to puke?

[Gary Gunnels]

raymond,

I think I would be the tortfeasor in this instance; then again, Reason is the party who likely has the "deepest pockets" in this instance. At least I hope that's the fucking case. 🙂

[raymond]

Reason's pockets aren't that deep. Gillespie keeps asking me for money.

[Mark Bahner]

"I'm not a big fan of these surveys, but this still seems notable:"

I'm a huge fan of both the (Heritage et al.) "Index of Economic Freedom" and the Freedom House (www.freedomhouse.org) Political and Civil liberties freedom rankings.

It's extremely useful to have nonpartisan organizations look at the whole world, and do these observations every year.

Both the rankings and the trends are very useful.

P.S. Both economic and political/civil liberties freedom, as ranked by those two surveys, are on average increasing, worldwide.

[Ruthless]

"Besides, in Estonia I'll be closer to Ireland, Iceland, and Riga, Latvia, home of my beloved smoked sprats."

I was concerned because I had not able for a couple of months to locate the diminutive distinctive, round can of sprats.

Today I managed to nab some cans up by my barber.

I'm wondering if the factory shut down for a while while it converted to an easy-open can?

The top of the can is now in color.
I went wild and got three cans at 99 cents each.

Try 'em. You'll like 'em.

[raymond]

Today I managed to nab some cans up by my barber.

Are you in Wisconsin?

[kevrob]

Today I managed to nab some cans up by my barber. - Ruthless

Are you in Wisconsin? - raymond

I don't think he is. If he were, Ruthless would "go over by my barber's for a haircut", ayna, hey?

Kevin

[raymond]

But he didn't want a haircut, insaw? He wanted sprats.

[Mark Bahner]

"Those living below the poverty rate in the US (rank: 12): 13%.

Those living below the poverty rate in France (rank: 44): 6.5%.

Those living below the poverty rate in Switzerland (rank: 12): NA"

Let's see...the U.S. shares about a 1500 mile border with the very poor country of Mexico. What poor countries do France and Switzerland share boarders with?

[akbar]

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