New Data Shows Big Loss of Economic Freedom in the United States

Daniel J. Mitchell
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Posted: Jan 15, 2014 12:01 AM
New Data Shows Big Loss of Economic Freedom in the United States

My favorite Heritage Foundation publication (other than…ahem…my studies on government spending and the flat tax) is the annual Index of Economic Freedom.

Like the Fraser Institute’s Economic Freedom of the World and the World Economic Forum’s Global Competitiveness Report, the Index is a broad measure of liberty to engage in voluntary exchange in a system of secure property rights and honest government.

Unfortunately, the United States has been moving in the wrong direction in recent years. As you can see here, here, and here, America used to rank in the top 10. But this chart shows that the United States is now has fallen to number 12 and is considered to be only “Mostly Free.”

Index Ranking 2014

I’m not surprised to see Hong Kong and Singapore at the top of the list, but notice how large of a lead they have over the other four “Free” nations. Their big advantage, if you dig into the details, exists because of relatively lowburdens of government spending and comparatively modest tax rates.

Canada’s strong performance shows how a nation can improve with the right reforms.

In the “Mostly Free” section, it’s kind of embarrassing that America is behind Denmark. The United States actually has a slightly better (or, to be more accurate, slightly less worse) fiscal regime (with “Lazy Robert” being the poster child for the welfare state), but Denmark gets very good grades for being very laissez-faire in other regards.

I’m pleased to see, by the way, that Chile and Estonia score reasonably well. Estonia has been agood role model in recent years for fiscal restraint(even if Paul Krugman can’t understand the numbers). Chile, meanwhile, engaged in many pro-growth reforms over the past three decades (though I’m worried the new government may harm the nation’s leading position in Latin America).

You’ll notice that Slovakia isn’t on the list of “Free” or “Mostly Free” nations. That nation suffered a big drop, in part because a socialist government repealed the flat tax. Such a shame.

One of the good things about the Heritage Index is that you can play with the data to compare nations based on particular variable. Here’s a chart showing scores for “government spending” in Europe. Wow, talk about a “red” continent.

Index Europe Spending

Switzerland stands out for being the only advanced nation with a semi-decent score of “Moderately Free,” though that’s nothing to brag about. But when all your neighbors are “Unfree,” you look good by comparison. No wonderSwitzerland is in much better shape than France.

P.S. I prefer the Fraser Institute’s Economic Freedom of the World over the Heritage Index of Economic Freedom, not because I’m an expert on the methodology of the two publications, but for the simple reason that I assume Economic Freedom of the World must be slightly more accurate because, unlike the Heritage Index, it showed the U.S. score declining during the Bush years.

P.P.S. I wrote back in 2010 that we shouldn’t fear the supposed Chinese tiger and the new numbers in the Index corroborate what I wrote. China is mired way down in the “Mostly Unfree” category, with a score that puts them in 137th place.

P.P.P.S. If you like global rankings that make no sense, here are some quasi-amusing options.