James R. Harrigan is a fellow of the Institute of Political Economy at Utah State University, and Antony Davies is associate professor of economics at Duquesne University in Pittsburgh and an affiliated senior scholar at the Mercatus Center.
The Fraser Institute’s latest Economic Freedom of the World Annual Report is out, and the news is not good for the United States. Ranked among the five freest countries in the world from 1975 through 2002, the United States has since dropped to 18th place. The Fraser Institute bases this ranking on more than 40 variables measuring the size of government, legal system, security of property rights, access to sound money, freedom of trade, and regulation of markets. The United States, long the model of economic freedom for the rest of the world, now ranks below Hong Kong, Singapore, Canada, Chile…and 13 other nations. When it comes to economic freedom, America is very clearly moving in the wrong direction.
Much of America’s decline is due to the growth of the government’s footprint in our lives since 2000. The assault on American property rights has not helped matters, either. The war on terror put American travelers under the thumb of the TSA—an entity that combines the charm of the DMV, the might of a paramilitary force, and the impropriety of a fraternity hazing. The Supreme Court’sKelo decision ushered in a rise in eminent domain abuses. And let’s not forget the bailouts of those corporations that were “too big to fail.”
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Taxpayers, on the other hand, were just the right size to fail, and that is what happened to them when the government took their money to pay off big, failing businesses.Why should you care? As it turns out, economic freedom benefits just about everyone in ways that most people would never realize. Countries with more economic freedom have more gender equality and less income inequality. And this isn’t because rich countries tend to be both more free and more equal. Even among the poorest countries, those with more economic freedom enjoy more equality.
Child labor rates in the 20 most economically free countries are half what they are in the 20 least economically free countries. And this isn’t because the rich-and-free countries import cheap goods from countries that exploit children. Among the most impoverished countries, those that are more free have significantly lower child labor rates than those that are less free.
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Even the environment does better with economic freedom. The 50 countries with the least economic freedom suffer significant deforestation. The 50 countries with the most economic freedom enjoy significant reforestation. The least free countries experience nearly three times the air pollution of the most free countries, and the least free countries experience five times the amount of CO2 emissions per GDP than the most free.
Almost every political hobby horse would be better achieved if governments would simply adopt economic freedom as their primary goal. And this isn’t just a cross-country phenomenon. A comparison of the 50 states yields eerily similar results.
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Using the Fraser Institute’s Economic Freedom of North America index, we divide the United States in half and compare the most free states to the least free states. From 1985 through 2009, unemployment in the 25 most economically free states averaged 5.2 percent, versus 5.8 percent in the 25 least free states. That 0.6 percent difference is equivalent to 460,000 additional jobs that might exist if the least free states were more free. Over the same period, median household income was 7.8 percent greater in the most free states. The rate of homeownership is higher in the most free states. The poverty rate in the most free states averaged 1.6 percentage points less than in the least free states. Income inequality was lower in the most free states than in the least free states. Interstate migration data shows that people voted with their feet, moving from the least free to the most free states. This made population growth in the most free states 60 percent greater. Economic growth is a full percentage point greater in the most free states, and state and local debt as a fraction of GDP is significantly lower in the most free states.
The conclusion is simple: Economic freedom yields beneficial results. If politicians really wanted the results they claim, they would fight for economic freedom. That they do not suggests that they have other goals. Meanwhile, the data bears out what Americans know intuitively: The United States is less free than it once was, and our lives are the worse for it. The way to improve our lives as citizens is to return to our birthright as citizens: liberty. As strange as it may seem, the government that has been “protecting” us has been the problem all along.