What’s Wrong With The President’s SOTU Economic Optimism?

REUTERS/Evan Vucci/Pool

Derek K. Yonai Director, Center for Free Enterprise
Font Size:

During the State of the Union address earlier this week, President Obama painted a final and seemingly pristine picture of what he heralded as significant economic improvements made under his leadership since taking the Oath of Office.

While in some ways the nation has clawed its way back from the depths of a financial crisis to a semblance of mediocrity, that accomplishment alone is hardly a cause for celebration.

In fact, the challenges that lie ahead are even bigger than the ones the president claimed we have long left behind.

In order to truly return to an opportunity-filled and prosperous society, we must allow innovation and entrepreneurship to flourish and, ultimately, ensure that citizens are given the chance to pursue the opportunities they deem best for their own lives.

To put the recovery statistics into perspective, opportunity and economic growth have steadily declined for more than a decade. In 2000, the U.S. was ranked as the second freest country in the world; by 2010, its overall ranking had declined to 12th place.

Last year, the U.S. dropped to 16th place — behind our more statist neighbor Canada and only one small step ahead of Romania.

Additionally, since 2008, the average economic freedom score of the 50 states has fallen consistently.

While the president may assume that those of us who question such economic decline are “peddling fiction,” the data show overwhelming truth.

At the international level, countries that enjoy greater economic freedom tend to experience less poverty, higher incomes, and more economic growth. Within the U.S., the data suggest that citizens in states with more economic freedom also experience higher incomes and utilize more opportunities for entrepreneurship.

The economic destruction we have become immune to has made it nearly impossible to re-create a vibrant economy in a poisonous economic bubble that kills more businesses than it creates.

A year ago, Gallup CEO Jim Clifton accurately described the barriers facing business start-up activity in developed nations. Because of these barriers, business deaths have outnumbered business births by 70,000.

In fact, the U.S. has seen more business deaths than business births each year since 2008— a trend that, if not reversed, will surely lead to economic extinction.

For example, at the end of 2012, California had lost an estimated 73,000 businesses from the year before, while Florida’s business growth increased at the seventh-fastest rate in the nation that same year. Both states enjoy high levels of tourism and warmer weather, and both states were hit hard by the housing bubble of 2008.

Why the difference? The answer lies in each state’s economic blueprint.

In 2013, California was ranked as the 49th least-free state in the nation, while Florida was ranked the third-most free state, due in large part to the absence of a personal income tax and one of the lowest corporate tax rates in the nation.

When we create a society that allows people to pursue their interests freely and we don’t punish small business owners through burdensome regulations, we find that people live simultaneously meaningful and productive lives.

While the president claims that Americans enjoy “the strongest, most durable economy in the world,” continuing down a clear path of economic destruction will hinder the ability of Americans — including the most disadvantaged members of society — to advance their lives.

If we can push back against the current trends, we can again enjoy a society in which a greater number of entrepreneurs advance and improve societal well-being, creating a more promising and optimistic future for ourselves and our children.

Derek K. Yonai is the director of the Center for Free Enterprise and associate professor of economics at Florida Southern College.