Economy, Regs, & Taxes

U.S. Economic Freedom Ain't What It Used to Be

The latest Heritage Index shows improvement, but not enough.

James Shott · May 3, 2016

The 2016 Index of Economic Freedom shows that the United States has climbed one notch from 12th place to 11th among the 186 nations of the world that were surveyed and rated. Time for celebration? Hardly.

The Index is an annual guide published by The Wall Street Journal and The Heritage Foundation, and it rates nations for labor freedom, business freedom and fiscal freedom. There are 10 different measures inside those three major groupings. Data used is from 2014.

The nations with more economic freedom than the U.S. are, starting with first place: Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Chile, Ireland, Estonia and the United Kingdom.

Ranking 11th over all and second among the three North American nations, the U.S. “remains mired in the ranks of the ‘mostly free,’ the second-tier economic freedom status into which it dropped in 2010,” the introduction to the report states. In seven of the past eight years Americans have seen their economic freedoms decline, and this year’s score equals their country’s worst score ever in the Index. At 75.4 out of 100 points, the U.S. has seen its score drop 0.9 since 2012, and from 80.7 since 2009.

In case you’re wondering, Barack Obama took office in 2009.

“America’s historically vibrant entrepreneurial growth is significantly hampered by intrusive, expensive, and often ineffective government policies in areas ranging from health care to energy to education,” the report states. “Government favoritism toward entrenched interests has hurt innovation and contributed to a lackluster recovery and stagnant income growth,” even though a private sector energy boom has put the U.S. at the top of the world’s producers of oil and gas.

While America’s 6.2% headline unemployment rate in 2014 has improved, GDP growth was an unimpressive 2.2% over five years from 2009 to 2014. Our public debt then was nearly 105% of national GDP, which means that if every dollar of production — the value of all final goods and services produced in a year — went to pay down the debt, we still would have debt.

One small piece of good news is that in the Rule of Law category the “Freedom From Corruption” rating rose from 72 to 74 from the prior year, but the “Property Rights” rating dropped 10 points from 90 to 80, and this year produced the lowest ranking of the American people’s trust in government in the last 10 years, based on polls taken in 2015, where 75% of respondents said they believe corruption is widespread in the government and in government regulation of business.

Taxation continues to bedevil America’s freedom standing, with more than one of every four dollars of domestic income being taken by taxes, the U.S. having one of the highest corporate tax rates on the planet at a punishing 35%, and the top individual income tax rate of 39.6%. Government spending runs just short of 40% of GDP, and the size and scope of the government remains too big and too intrusive. The “Government Spending” and “Fiscal Freedom” ratings each fell, 59.6 to 54.7 and 67.5 to 65.6 respectively.

The nation saw substantial declines in the Regulatory Efficiency category, where each sub-category saw declines: Business Freedom — 91.9 to 84.7; Labor Freedom — 95.1 to 91.4; Monetary Freedom — 84 to 77. The report notes that “180 new major federal regulations have been imposed on business operations since early 2009 with estimated costs of nearly $80 billion,” explaining that the regulations themselves are not rigid, but that policies, such as excessive occupational licensing, restrict employment opportunities, and “damaging monetary policies, tangled webs of corporate welfare, and various subsidies” have affected the economy negatively.

The U.S. was heavily affected in two of the three sub-categories of Open Markets, where “Trade Freedom” remained essentially flat at 87 points, but “Investment Freedom” and “Financial Freedom” each took a 10-point hit, falling from 80 points to 70. The report notes that while “domestic regulations have been emerging only gradually, the financial reforms adopted in 2010 have increased both costs and uncertainty.”

Even though the U.S. moved up one position among the 186 nations, being 11th instead of 12th doesn’t provide much room for Obama-style boasting, especially in view of the fact that the overall score fell nearly one point and that the U.S. lost ground in 8 of the 10 sub-categories contained in the Index. And its position in the second tier may prompt a drive to change our “land of the free” motto to “land of the mostly free.”

The importance of this report is not so much the U.S. ranking, but the continued commitment of the Obama administration to policies contrary to the values that made America exceptional and free. This perspective is not merely the view of conservatives and libertarians, but also of someone who has seen this same scenario up close and personal.

Filmmaker and American citizen Agustin Blazquez saw this same theme play out in his native Cuba, and he warns, “Wake up, America!” Blazquez sees the same radical shift happening in America that turned Cuba into a communist country.

This ought to be a call to action, but thus far all of those have failed.

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