Economic Freedom Ratings - U.S. Out of the Medals

The 2008 report on Economic Freedom of the World, 2006 by James Gwartney, Robert Lawson, and Joshua Hall, with contributions by Seth Norton is periodically published by the Fraser Institute and provides an evaluation of the economic freedom of 141 countries around the world in the latest report. In this latest report, the United States of America has continued to lose ground relative to the top performing nations of the world, though it is tied for 8th place with Australia. The U.S. summary score is 8.04 out of 10, while Canada edged it out for 7th place with a score of 8.05. Chile beat Canada with a score of 8.06, but was in turn beaten by the United Kingdom with a score of 8.07. It can be argued that these scores are all essentially equal, but the scores of Hong Kong at 8.94, Singapore at 8.57, New Zealand at 8.28, and Switzerland at 8.20 are significantly better than that of the United States. Ireland finished in 10th place.

Since we Americans think of ourselves as the Land of the Free, as self-sufficient, and independent, this is a very deplorable state we have sunk into. Being surpassed by Hong Kong, Singapore, New Zealand, and Switzerland should shame us mightily. Being essentially tied by the United Kingdom, against whom we rebelled with the claim that we were throwing off the chains of oppression, is ignoble. Being in a near dead heat with Canada and Australia, other longer term colonies of the United Kingdom is rubbing our noses in it. Finally, being edged out by Chile, is near unspeakable. For the Coup de Grace, number 1 Hong Kong is part of China, though administered by very different rules than the rest of China. Why is the United States not number 1?

We certainly have the opportunity to exert a much greater political freedom than that in Hong Kong, Singapore, or Chile to choose to beat those countries out to claim the most economic freedom in the world. Unfortunately, our simple-minded mob-ruled people have chosen to put shackles on their economic freedoms by ignoring the rights of the individual guaranteed by our Constitution. Obama has correctly noted that our Constitution does not allow the redistribution of income and wealth, though he intends to follow such a course with a vengeance.

What does this study of economic freedom in the world measure? First, it believes economic freedom consists of:

• Personal choice
• Voluntary exchange coordinated by markets
• Freedom to enter and compete in markets
• Protection of persons and their property from aggression by others

In light of this, a country receives a high rating if it

• Protects privately owned property
• Even-handedly enforces contracts
• Provides stable money
• Has low taxes
• Does not use barriers to restrain domestic and international trade
• Relies on markets rather than the political process to allocate goods and services
• Allows individuals the right to decide how they will use their time and talents, with the necessary recognition that this means that they do not have the right to the time, talent, and resources of others

The Economic Freedom Index measures economic freedom in five major areas:

1. Size of Government: Expenditures, Taxes, and Enterprises
2. Legal Structure and Security of Property Rights
3. Access to Sound Money
4. Freedom to Trade Internationally
5. Regulation of Credit, Labor, and Business

The first ranking was for the year 1980, when the U.S. was ranked 4th. In 1985, we were 5th, in 1990, we were 3rd, and in 1995 we were 4th. Our highwater year was 2000, when we were 2nd with a score of 8.55. By 2004, we were 6th with a score of 8.07. Our score of 8.04 in 2006 leaves us in a tie with Australia in 8th position.

In 1980, the average score was 5.46 and that has risen to 6.65 in 2006. 89 of the 102 nations with scores back to 1980 have improved their scores. Ghana, Uganda, Israel, Peru, Jamaica, Iran, Hungary, El Salvador, Nicaragua, and Turkey have the most improved scores. Zimbabwe, Venezuela, and Myanmar have the most reduced scores. Nine of the bottom eleven nations are African, with Venezuela and Myanmar being the other two.

Nations in the top quartile in economic freedom have an average per capita GDP of $31,480 in 2006 compared to an average of $3,882 in the bottom quartile. The top quartile nations average per capita economic growth rates of 2.31%, compared to 0.50% for the bottom quartile nations. The average income of the poorest 10% of the population in the highest quartile is $8,730, compared to $961 for the lowest quartile, averaging over the time from 1990 to 2006.

Life expectancy is 79 years in the top quartile, but only 58 years in the bottom quartile. Nations in the top quartile have an average score of 1.68 for political rights on a scale from 1 to 7 with 1 the best. The bottom quartile have a political rights index of 4.39. On a 1 to 7 civil liberties scale, the nations of the top quartile average 1.68, while the bottom quartile averages 4.06. Nations in the top quartile average 84.7 out of 100 for environmental performance, where 100 is perfect. The lowest quartile nations average 63.8 on the environment.

So, what is happening to the U.S. since its highwater rating of 2 in 2000?

• Size of government, degraded from 7.53 to 7.13 in 2006.
• Legal structure and security of property rights, degraded greatly from 9.23 to 7.58!
• Access to sound money, 9.78, which degraded in 2006 to 9.66.
• Freedom to trade internationally, degraded from 8.01 to 7.53.
• Regulation of credit, labor, and business, improved from 8.19 to 8.31.

The U.S. improved only on regulation of credit, labor, and business. Our worst losses were with respect to our legal structure and security of property rights. Loss of freedom to trade internationally and an increase in the size of government also hurt substantially. The recent bailouts will only diminish our economic freedom further. Under the rule of Obama, Polosi, and Reid, we can expect our economic freedoms to continue to degrade.

Richard Rahn: Manslaughter by Politicians

Richard Rahn published an article called "Manslaughter by Politicians" in the Washington Times on 4 June 2008 which is a good read. Commonly, politicians find reasons to pass many thousands of pages of new legislation every year that affect our ability to perform work and to produce goods and services. The greater part of this legislation imposes great costs, which few people stop to consider. They simply accept whatever intended purpose for the legislation the politician offers up as being the only important result of the legislation. If it seems it might be nice to reduce the amount of CO2 emitted into the atmosphere by the human use of energy, then why bother to calculate the cost of using less energy, of developing and using new forms of energy which emit less CO2, or figuring out what human activities will have to be given up to pursue the goal of reducing CO2 emissions. The same is true with respect to many other things that seem good to people, such as OSHA requirements for workplace safety. When do we ever calculate the actual cost of nice sounding legislation against the expected benefit of that legislation? Almost never, and when we do, the calculation is simple-minded and biased toward proving that the legislation was necessary, since it is usually the government that is funding the research study.

Economics is the study of the use of limited resources and all resources are limited and finite, especially perhaps that of human life hours. We are all constantly faced with the decision to do this or to do that. Often, we cannot do both and if we can, we still often have to decide which action we will take first. So, if we are spending more of our money to buy gasoline because the government will not allow oil and gas companies to drill for oil in the United States, then we will have less money to spend on our medical needs. If we must pay more for food because the government is requiring the use of a large fraction of all US corn to make ethanol for gasoline fuel mixtures and driving up the costs of food production with crop subsidies, then again we will be able to spend less on medical care. Since worldwide food prices have doubled in the last year, many poor people around the world are suffering increased malnutrition, which leads to shortened lifespans. There are reasons why the average life expectancy is highly correlated with the per capita income of a society and why income growth is correlated with economic freedom.

Rahn cites a study by Frank Lichtenberg of the National Bureau for Economic Research that found that the medical expenditure needed to gain one life year in the US is about $11,000 and the pharmaceutical R&D expenditure needed to gain one life year is $1354. Consequently, when the politicians proposed allowing Americans to buy their prescription drugs in Canada, where a national health system puts pressure on pharmaceutical companies to sell their drugs at prices below those sufficient to fund the development of new drugs, the necessary expenditure to buy one year of life through pharmaceutical developments becomes impossible. So, does it make sense to save some money now on drug purchases at the expense of not further extending American lives in the future? Few people ask and think about this question, yet it is a central question.

When politicians fail to ask such questions and to weigh them rationally, they are committing manslaughter. When dealing with manslaughter, we have a serious responsibility to name the crime, even if it does not seem to be the nice thing to do in a non-confrontational society. But, it is better to force a confrontation and examine the consequences of the actions we force upon others carefully, then to unthinkingly bury the bodies as they pile up.