U.S. Economic Freedom Keeps Slip-Sliding Away
Last year, the Heritage Foundation's Index of Economic Freedom ranked the United States as the tenth freest economy in the world; in this year's just-released Index, it comes in at number 12. This sort of slide actually isn't a new phenomenon; Jesse Walker noted when the Index first dropped the U.S. out of the top ten, which was "partly a matter of other countries getting better, as opposed to the United States getting worse." Since then, though, the land of the brave and home of the free-ish has been sliding on its own merits, "with particularly large losses in property rights, freedom from corruption, and control of government spending." Even non-fans of the Heritage Foundation's number-crunching style should note that an even more dramatic decline in America's economic freedom is reported by Canada's Fraser Institute.
According to the 2014 entry for the United States at the Index of Economic Freedom:
The U.S. is the only country to have recorded a loss of economic freedom each of the past seven years. The overall U.S. score decline from 1995 to 2014 is 1.2 points, the fourth worst drop among advanced economies.
Substantial expansion in the size and scope of government, including through new and costly regulations in areas like finance and health care, has contributed significantly to the erosion of U.S. economic freedom. The growth of government has been accompanied by increasing cronyism that has undermined the rule of law and perceptions of fairness.
This is after a gradual rise in the country's economic freedom ranking relative to other countries during the first ten years of the index. While sniffer-outers of partisanship may wonder why government spending received a better (though sliding) score during George W. Bush's not-so-frugal years than during Barack Obama's continuation of those policies, Bill Clinton's tenure looks like one of moderate improvement.
It's probably not a shocker that property rights have suffered a steady decline through the years—not just in the U.S. but around the world.
The Index of Economic Freedom doesn't stand alone in its assessment.
The Fraser Institute's Economic Freedom of the World: 2013 Annual Report (PDF) agrees that the country is slip-sliding in the rankings.
Throughout most of period from 1980 to 2000, the United States ranked as the world's third-freest economy, behind Hong Kong and Singapore. As Exhibit 1.5 indicates, the chain-linked summary rating of the United States in 2000 was 8.65, second only to Hong Kong. By 2005, the US rating had slipped to 8.21 and its ranking fallen to 8th. The slide has continued. The United States placed 16th in 2010 and 19th in 2011. The 7.74 chain-linked rating of the United States in 2011 was nearly a full point less than the 2000 rating.
What accounts for the decline of economic freedom in the United States? While the US ratings and rankings have fallen in all five areas of the EFW index, the reductions have been largest in Legal System and Property Rights (Area 2), Freedom to Trade Internationally (Area 4), and Regulation (Area 5). The plunge in Area 2 has been huge. In 2000, the 9.23 rating of the United States was the ninth highest in the world. But by 2011, the area rating had slid to 6.93, placing the United States 38th worldwide. The 2.30-point reduction in the Area 2 rating of the United States was tied with Venezuela as the largest reduction among the countries rated.
That's an even more dramatic fall from grace than the Index indicates.
The U.S. now ranks behind Canada economic-freedom-wise in both the Fraser and Heritage assessments. In fact, U.S. federal policies now threaten the competitiveness, Fraser reports, of U.S. states that seek to make it easier to earn and keep money and property.
Reason TV covered the good news with the 2012 Index of Economic Freedom: