U.S. Slightly Improves Economic Freedom Ranking—as Most of the World Slides

Last year, the Economic Freedom of the
World Report ranked the United States in 17th
place; this year the U.S. has risen to number
12.

Woo-hoo!

That’s good news. But…Ian Vasquez of the Cato Institute, which
is a partner in producing the report, notes,
“For decades, the United States ranked in second or third place on
the index. In 2000 it was #2, yet by 2005 it ranked 8 and it
continued its precipitous fall until recently.”

The press
release announcing the latest report’s release points out that
“Globally, the average economic freedom score dropped slightly to
6.84 out of 10 from 6.87 last year.”

By contrast, the U.S. improved its score a tick from 7.73 to
7.81. It may not be a return to a high-ranked position, but it’s a
welcome slow swim against a tide moving in the wrong direction.

The biggest hit to America’s score—the reason the country is no
longer in second or third place—has been in the area of Legal
System and Protection of Property Rights. The report attributes the
“huge” decline in this area to increased use of eminent domain to
swipe property from legitimate owners and award it to the
politically connected, holes blown in traditional legal protections
by the wars on terror and drugs, and the legally dubious the auto
bailout. Add in the proliferation of intrusive regulation, and the
report points out, “to a large degree, the United States has
experienced a significant move away from rule of law and toward a
highly regulated, politicized, and heavily policed state.”

Ouch.

The economic freedom ranking isn’t an abstract question of
ideology, or speculation that it might make it more
difficult to do business or create jobs. No, there are real
consequences here for standards of living for ourselves and our
kids in the years to come.

scholarly work on this topic indicates that a one-point decline
in the EFW rating is associated with a reduction in the long-term
growth of GDP of between 1.0 and 1.5 percentage points annually…
This implies that, unless policies undermining economic freedom are
reversed, the future annual growth of the US economy will be only
about half its historic average of 3%.

So even a small improvement in the rating matters in real
terms—even if it’s not nearly enough. And a global slip in economic
freedom is bad news for the prosperity of much of the world’s
population.