At its pinnacle in 2000, the United States ranked second in the world for economic freedom. In the latest report on world economic freedom from the Fraser Institute, the U.S. has now dropped all the way down to 18th, falling behind countries like Bahrain, the United Arab Emirates, Estonia, Taiwan and Qatar.
The decline did not happen overnight. “This entire decade we’ve been sliding towards this 18th ranking,” report author Joshua Hall explained to The Daily Caller News Foundation.
By 2005, the United States had already dropped to eighth in economic freedom. In 2009, the U.S. fell behind welfare state countries like Denmark, Finland and Canada.
“When people think of Canada, they think of socialized medicine, but in many facets of life, Canada is a lot more economically free than the United States,” said Hall.
The annual report uses 42 different variables that can be categorized into five distinct categories: size of government, legal system and property rights, sound money, freedom of trade internationally and regulation.
The growth of government and less secure property rights have the most to do with the United States’ drop.
“I think we think of the underlying causes of our decline in legal system and property rights, the Supreme Court’s Kelo decision [over eminent domain], the war on terror, and things related to the rule of law, things like TARP and the bail outs, have all contributed to the decline of scores in areas one and two,” Hall explained.
“In 2005, [transfers and subsidies were] 12.6 percent of GDP. Today it’s 16.3 percent … That’s the outcome of policy decisions.”
Over the past 12 years, not only has the United States fared worse in economic freedom, but other countries have made gains.
“If you go back to 2000, we were sliding early on in the decade,” Hall elaborated. “We were kind of bunched around a bunch of other countries and they increased a little bit. So countries like Canada, for example, have actually gotten a little better, and we’ve fallen behind … that was enough for a bunch of countries to jump past us.”
There is evidence that economic freedom improves quality of life.
“There’s a strong relationship that’s been borne up by dozens of academic studies showing a positive relationship between higher economic freedom and higher economic growth,” Hall explained. “And that’s true whether you are looking at the nation as a whole, only looking at the poorest members of society.”
“People care about economic freedom because it contributes to things that benefit us all, like higher living standards,” he added.
While countries like Qatar and Taiwan do not yet experience U.S. standards of living, the Fraser Institute’s report suggests they are on the right track to eventually meet or exceed our standards of living.
“They have higher economic freedom, but you need many many years of economic freedom,” Hall said. “Our research would suggest that they are going to grow faster and that’s going to be the route at which they catch up to our standard of living is through the higher growth that comes with higher economic freedom.”
At a time when the presidential candidates debate the future of entitlement programs and the federal government runs $1 trillion annual deficits, this new ranking may put things in a more global perspective.
“This not a part of the current political debate,” Hall said. “We need people to understand our long term living standards depend upon getting back to that economic freedom that we enjoyed just a decade ago.”
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