While economic freedom has reached record levels throughout the world, it continues to decline in the United States. That is the result of the 2014 Index of Economic Freedom calculated by the “Wall Street Journal” and the Heritage Foundation.
The Index has the United States in twelfth position, the only nation to have recorded a loss of freedom for each of the past seven years. The key ingredients of economic freedom are personal choice, voluntary exchange, freedom to compete in markets, and protection of person and property.
This year marks the twentieth anniversary of the Index. As in the past, Hong Kong ranks first in economic freedom. Others in the top ten are Singapore, Australia, Switzerland, New Zealand, Canada, Chile, Mauritius, Ireland, and Denmark.
The Index comprises four major categories – rule of law, limited government, regulatory efficiency, and open markets – and 10 sub-categories. Let’s look at the United States.
In this country, rule of law guarantees property rights. And the judiciary functions independently and predictably. But expansive use of government regulations to manage sectors such as finance, healthcare, and energy reduces economic freedom.
Several factors negatively affect the limited government category. Total public debt is greater than GDP. Higher taxes – top rates of 39.6 percent and 35 percent for personal and corporate taxes, respectively – impair economic freedom.
Regulatory efficiency has deteriorated significantly. The overall cost of meeting regulatory requirements has increased by over $60 billion in the past five years. Price distortions caused by government intervention have increased substantially.
The open markets category has declined because of barriers to the free flow of goods and services. The full effects of the onerous Dodd-Frank bill have not been fully felt. And questions regarding rulemaking create business uncertainty.
Several European nations have reached new highs in economic freedom. Others, such as Estonia and the Czech Republic, are the most improved. At the same time, the United States and the United Kingdom, historic champions of economic freedom, have suffered the most pronounced declines.
Economic freedom is important because it affects every aspect of life. A high level of economic freedom leads to increased income, lower poverty, less unemployment, and longer life expectancy. In short, it improves well-being and leads to a higher quality of life.
Wayne Curtis, Ph.D., is a former superintendent of Alabama banks and Troy University business school dean. He is retired from the board of directors of First United Security Bank. Email him at wccurtis39@gmail.com.
