Bad news for the land of the free

Alexandre Padilla Associate Professor of Economics, Metropolitan State University of Denver
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The United States of America is no longer the land of the (economically) free. In fact, according to the newly released Economic Freedom of the World Report, we’re not even in the top ten.

This worrisome trend began a little over 10 years ago, when the United States was ranked the world’s second-most economically free country, behind Hong Kong. The U.S. had been enjoying a long reign atop the list; from the early 1980s until 2000, the U.S. was consistently ranked in the top three.

However, the U.S. is now ranked 18th in the world, down from 10th last year. We’re behind Canada, Finland, Denmark, Chile, Estonia — even Qatar. Hong Kong and Singapore have been ranked as the top two most economically free countries in the world almost every year for the past two decades.

The report ranks countries on five broad metrics: government size; the strength and soundness of the legal and property rights system; the soundness of the monetary system; the freedom to trade internationally; and regulation of credit, labor and business. As the United States has become more heavily regulated and indebted, its ranking has fallen precipitously. And because the 2012 report is based on 2010 data, and the federal and local governments have become bigger and more intrusive since 2010, we can expect the U.S.’s ranking to decline even further in future economic freedom reports.

We shouldn’t casually dismiss these findings. Studies have shown that people’s lives are vastly improved by economic freedom. In countries with greater economic freedom not only do we see higher levels of prosperity, entrepreneurship, innovation, business creation and investment, but we also see more political and civil liberties, less social and political instability, cleaner environments, higher levels of literacy, higher life expectancy and better health overall.

People living in countries such as South Korea and China have seen their lives progressively improved in recent decades as their economies have become freer. On the other hand, people living in the United States and some European countries have seen their lives worsen as their governments have grown increasingly meddlesome.

Moreover, as economist Nathan Ashby has shown, economic freedom attracts talent to our shores. Ashby’s work (along with Robert Lawson and J.R. Clark’s study on the Hayek-Friedman hypothesis) confirms that political freedom is only economically beneficial if it’s accompanied by economic freedom, as political freedom doesn’t provide any direct economic benefits. Over the long run, then, the U.S.’s declining economic freedom will make it harder for the U.S. to compete with more economically free countries, which will have an easier time attracting smart immigrants. We’re already seeing smart Americans like Facebook co-founder Eduardo Saverin denouncing their U.S. citizenship so that they can move to more economically free countries (Saverin moved to Singapore).

The proper response to recessions and debt crises is not more government regulation and government spending — it’s more economic freedom. The United States must reverse course and re-embrace one of the values that long made it so attractive to the rest of the world: economic freedom.

Alexandre Padilla is an associate professor of economics at Metropolitan State University of Denver.

Alexandre Padilla