There is a strong correlation between economic freedom and prosperity. Countries with the highest level of economic freedom have the highest level of per capita income. And vice versa. Nations with severe restrictions on investors, businesses and consumers struggle financially. Note that the more economic freedom a nation enjoys, the higher average per capita income goes up.What comprises economic freedom and how do you measure it? Heritage Foundation measures it by quantifying four major categories (and ten subcategories) as follows:
- Rule of Law: Freedom from corruption, property rights
- Limited Government: Tax rates on individuals and businesses, government spending as a proportion of GDP,
- Regulatory Efficiency: Labor freedom, monetary freedom, business freedom
- Open Markets: Trade freedom (absence of tariffs or other barriers), investment freedom (ease of capital movements), Financial freedom (financial sector's independence from government control or influence)
Economic Freedom is Highly Correlated to Economic and Income Growth
From an article in National Center for Policy Analysis, they summarize the benefits of high levels of economic freedom. Here's the advantages of freer economy:
- Freer economies grow faster
- In freer economies, people have higher incomes
- Freer economies attract more investment
- Helps reduce poverty (proving that a rising tide lifts all boats)
- Income distribution is better in freer economies
- People live longer
- Freer countries are more democratic
- Higher well-being of it's citizens
How is the USA Doing?
The USA has had declining economic freedom since year 2000. From Zero Hedge,
The ranking of the US has fallen precipitously; from second in 2000 to eighth in 2005 and 19th in 2010. By 2009, the United States had fallen behind Switzerland, Canada, Australia, Chile, and Mauritius, countries that chose not to follow the path of massive growth in government financed by borrowing that is now the most prominent characteristic of US fiscal policy. By 2010, the United States had also fallen behind Finland and Denmark, two European welfare states. Moreover, it now trails Bahrain, the United Arab Emirates, Estonia, Taiwan, and Qatar.The US economic freedom index keeps dropping after year 2000. The graph below shows 7.70 for 2010 but it has continued it's decline. On another economic freedom index, the US has gone from 2nd in the world in 2000 to 18th in 2013. Notice that decline has occurred during both the Bush and Obama years. As economic freedom fell, economic and personal income growth has stagnated, and in the case of real personal income, has declined. It's no coincidence. We know Bush was a big spender and there was a curtailment of freedoms after the 9/11 attack.
Here's a graph of US performance in economic freedom rankings:
Do you think Obama really wants more economic freedom? Not a chance. He's all about Stat-ism and big government. He has only tired old ideas that have been trounced by the lessons of history and the ideas presented in this blog. His formative years were spent in Indonesia and Kenya, who rank 76th and 78th, respectively, in the freedom index. So, he never learned the lessons that Eastern European countries learned under communist systems and are now enjoying strong economies after the end of the cold war. Obama consistently proves resistant to learn anything that conflicts with his world view.
Much of Europe is seeing improving economic freedom, especially in the Baltic states, Eastern Europe and new members of the EU. They have improved levels of economic freedom and a corresponding increase in growth rates and income growth. They have thrown out the tired old central planning model that Obama is trying to adopt!
From The Center For Individual Freedom reports in their release of 2013 economic freedom rankings that:
A majority of European nations, chastened by big-government experience, actually improved to their highest economic freedom scores ever in this year’s Index. Under President Obama, however, we continue down a path that Europe is gradually abandoning. Alongside Ireland, the U.S. is the only industrialized nation to have regressed for five years in a row.
Economic Freedom Map and Rankings of Countries
(Click to enlarge)