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Economic Freedom Report – America is Declining

(Punditcy.com) – Canada’s Fraser Institute recently released its Economic Freedom Annual Report and the results are not favorable to the U.S.  First, let us look at the definition use as the basis of the report:

The cornerstones of economic freedom are (1) personal choice, (2) voluntary exchange coordinated by markets, (3) freedom to enter and compete in markets, and (4) protection of persons and their property from aggression by others. Economic freedom is present when individuals are permitted to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others. While individuals have a right to their own time, talents, and resources, they do not have a right to those of others. Thus, individuals do not have a right to take things from others or demand that others provide things for them. The use of violence, theft, fraud, and physical invasions are not permissible in an economically free society, but otherwise, individuals are free to choose, trade, and cooperate with others, and compete as they see fit.

It was not long ago that the United States lead the world in economic freedom.  From about 1980 to 2000, the United States ranked third in freest economies, behind Hong Kong and Singapore.  By 2005 the US rating had fallen to 8th.  The slid has continued and in 2011 the U.S. was ranked 19th.

So, why had American economic freedom continued to fall?   The US had declined in all areas measured by the index, but the most significant decreases were in the  Legal Systems, Property Rights, Freedom to Trade Internationally, and Regulation.  The reduction in Property Rights tied with Venezuela for the largest reduction.  Of all the reductions, I believe this reduction is the most disheartening because, as our Founders Understood, the Right to Property was viewed as essential for a free society.  This fundamental right to acquire, possess, and sell property is the cornerstone of opportunity and is the most practical means by which a free people can pursue human happiness.  Arthur Lee put it this way,


“The Right of property is the guardian of every other Right, and to deprive the people of this, is in fact to deprive them of their Liberty.”

The report did not point to a direct cause for the decline in Property Rights, but did indicate that “…the increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs, and the violation of the property rights of bondholders in the auto-bailout case have all weakened the tradition of strong adherence to the rule of law in the United States and we believe have contributed to the sharp decline in the rating for [Property Rights].”

The expanded use of regulation was also identified as a major contributor to the US continued decline.

So, why is economic freedom important.  The chart below show that the more free an economy, the higher the per capita income (Source Fraser Institute Economic Freedom of the World 2013 Report).

Economic Freedom and Income per Capita, 2011

A healthy, strong and free economy provides benefit to all citizens of a nation.  There is often a misconception that a strong economy and economic growth only benefits the wealthiest in society.  This is a fallacy that has been dispelled throughout history, so, one more time… here is another chart from the report depicting how a free economy improves the economic status of the poorest 10%.  As one can clearly see, the more Economic Freedom an nation has, the better off the poorest will be.


Economic Freedom and Income Earned by Poorest 10%

This is another example of how the policies and regulation employed by the United States are continuing to move us in the wrong direction and is hampering our economic growth.  Hong Kong, on the other hand, has been at the top of the list for many years.  The ability of Hong Kong to maintain its free-market system and its number one ranking is testimony to its people’s desire to expand their opportunities by adhering to an open trading system, low taxes, sound money, minimal government regulation, and the rule of law.

If changes are not made to increase our Economic Freedom and we continue to hamper the individual and  industry with over-taxation, excessive regulation, continue to infringe on property rights, and limit trade we will continue our decline.  Economic Freedom breeds prosperity… the data is clear.  Prosperity for all.


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