Free Markets

U.S. Slightly Improves Economic Freedom Ranking—as Most of the World Slides

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JMR_Photography / Foter / CC BY

Last year, the Economic Freedom of the World Report ranked the United States in 17th place; this year the U.S. has risen to number 12.

Woo-hoo!

That's good news. But…Ian Vasquez of the Cato Institute, which is a partner in producing the report, notes, "For decades, the United States ranked in second or third place on the index. In 2000 it was #2, yet by 2005 it ranked 8 and it continued its precipitous fall until recently."

The press release announcing the latest report's release points out that "Globally, the average economic freedom score dropped slightly to 6.84 out of 10 from 6.87 last year."

By contrast, the U.S. improved its score a tick from 7.73 to 7.81. It may not be a return to a high-ranked position, but it's a welcome slow swim against a tide moving in the wrong direction.

The biggest hit to America's score—the reason the country is no longer in second or third place—has been in the area of Legal System and Protection of Property Rights. The report attributes the "huge" decline in this area to increased use of eminent domain to swipe property from legitimate owners and award it to the politically connected, holes blown in traditional legal protections by the wars on terror and drugs, and the legally dubious auto bailout. Add in the proliferation of intrusive regulation, and the report points out, "to a large degree, the United States has experienced a significant move away from rule of law and toward a highly regulated, politicized, and heavily policed state."

Ouch.

The economic freedom ranking isn't an abstract question of ideology, or speculation that it might make it more difficult to do business or create jobs. No, there are real consequences here for standards of living for ourselves and our kids in the years to come.

scholarly work on this topic indicates that a one-point decline in the EFW rating is associated with a reduction in the long-term growth of GDP of between 1.0 and 1.5 percentage points annually… This implies that, unless policies undermining economic freedom are reversed, the future annual growth of the US economy will be only about half its historic average of 3%.

So even a small improvement in the rating matters in real terms—even if it's not nearly enough. And a global slip in economic freedom is bad news for the prosperity of much of the world's population.