America's Declining Economic Freedom
Brian Brenberg is Assistant Professor of Business and Economics at The King's College in New York City.
What do Estonia, Bahrain, Finland and the United Arab Emirates have in common? According to the Fraser Institute's 2012 "Economic Freedom of the World Report," they are among the latest countries to surpass the United States in economic freedom. Since 2000, the U.S. has fallen from the second most free economy in the world to 18th, joining Venezuela, Greece and Italy among countries showing the biggest declines over the past decade. This may not be the kind of company Americans want to keep, but without major changes in fiscal and regulatory policy, it's the kind of company we'll have to get used to.
Economic freedom is the ability of private individuals and businesses to make decisions about how to use their resources. Each year, the Fraser Institute ranks 144 countries around the world according to five measures of economic freedom: size of government, legal system and property rights, soundness of money, freedom to trade internationally and regulation. For most of the 1980s and 1990s, the United States ranked among the top three freest economies in the world. But a steady slide beginning in 2000 has picked up speed in recent years, with the U.S. dropping eight places from last year's report.
Among the biggest drivers of the United States' decline are the growing size of government and increased regulation. The U.S. debt recently topped $16 trillion, a troubling milestone that translates into roughly $50,000 of government debt for every man, woman and child in America. And we have both Republicans and Democrats to thank for it. During the eight years of the Bush presidency, the U.S. debt rose by nearly $5 trillion. It took President Obama just three years to match that amount. When President Clinton left office, federal government spending was 18% of GDP. Today it's over 24% and heading north. Simply put, the government is spending money it doesn't have, and at a faster rate than the private sector is growing.
Paying down the debt will require a combination of spending restraint and economic growth to boost tax revenue. But a return to historical growth rates will be difficult in an environment of increased regulation. The Dodd-Frank and Affordable Care Acts, both of which have yet to take full effect, only add to a regulatory regime that already costs the economy $1.7 trillion every year, according to the Small Business Administration. At the median wage, that's enough money to hire three times the number of unemployed workers. And the growth in regulation shows no signs of slowing. According to economist Morris Kleiner at The University of Minnesota, the share of U.S. workers who require a license to do their job rose from 5% in 1950 to 23% in 2008. Over 1,100 jobs—ranging from shampoo specialists and manicurists to athletic trainers and massage therapists—are licensed in at least one state. Mr. Kleiner estimates that these license requirements add roughly $116 billion annually to the cost of services, or about $400 for every American.
But the case for economic freedom isn't just about red ink and red tape. By almost any measure, freer economies afford a higher standard of living than less free economies. According to the Fraser Institute, a person living in the world's freest economies will earn, on average, seven times more than someone living in the least free economies. And that's true not only for the average person, but for those at the bottom as well. The poorest 10% in the world's freest economies earn, on average, nearly 10 times more than the poorest 10% in the least free economies. Not only do people in the freest economies earn more, but they have more time to enjoy their wealth, living on average 20 years longer than those in the least free economies. Fewer children have to go to work in the world's freest economies, and more survive childbirth. And when these children grow up, they will enjoy more political and civil liberties and inherit a cleaner environment than their counterparts in the least free economies.
Higher incomes and better health are the outcomes of human ingenuity and creativity. But the process of innovation is uncertain and requires space for experimentation. None of us is born with a tag on our ear that tells us who we will become or what we will do. Through trial and error, success and failure, we discover better ways to serve one another.
As Proverbs 25:2 reads, "It is the glory of God to conceal things, but the glory of kings is to search things out." In an economy straining under the weight of millions of discouraged and underemployed workers, we need to do everything we can to enable the searchers and the discoverers. If the Fraser Institute's economic freedom research is any guide, that means putting resources and decisions back into their hands.
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