American Economic Freedom - Slowly Ebbing Away

Every year, the Heritage Foundation, in conjunction with the Wall Street Journal, conducts a very, very extensive analysis of economic freedom around the world along ten different factors of measurement. The analysis is country specific and factor specific within each country. All of their analyses result in a rank ordering of many countries via what they call the Index Of Economic Freedom. The higher the index, the more economic freedom exists within that nation, as measured by the ten factors.

The ten factors include the following measurements and results:

• Under Rule of Law, there are the two factors, Property Rights and Freedom From Corruption.
• Under Regulatory Efficiency, there are three factors, Business Freedom, Labor Freedom, and Monetary Freedom.
• Under Limited Government, there are two factors, Government Spending and Fiscal Freedom.
• Under Open Markets, there are three factors, Trade Freedom, Investment Freedom, and Financial Freedom.

The detailed findings for their 2012 report can be accessed and the the data reviewed at http://www.heritage.org/index/. You will see that they are comprehensive, thorough, and quantitatively impressive in their detailed work and analyses.

Their final output for each country consists of index calculations for each of the ten factors along with an overall index that statistically and soundly combines the nation's ten individual indices into one total national index measure. They also determine where each measure falls along a separate measure of freedom that contains five levels, ranging from Free to Moderately Free down to Repressive.

Why is this study important? The analysts who put this annual study together have found that if you graph a nation's per capita wealth on the vertical axis of a graph vs. a nation's Index of Economic Freedom on the horizontal axis, you find that there is an almost 70% positive correlation between citizens' wealth and economic freedom within the country, i.e. richer countries with richer citizens tend to also have higher Indices Economic Freedom.

Obviously, correlation does not necessarily mean causation. However, there probably is a strong causation link between free people operating in free markets, an environment that tends to optimize economic behavior and activity vs. unfree citizens living under repressive regimes where much economic decisions and activity are tightly controlled by either incompetent tyrants or bureaucrats. If you look at their findings year in and year out, you will probably not find a highly efficient, free, and productive economy that is also run by a repressive government.

In the 2012 report, there is bad news for the United States in several areas. First, why we may think of ourselves living in the freest country in the world, according to this analysis approach, that is a false assumption. Our Index of Economic Freedom has never been ranked number one and unfortunately, it has been slipping on a year over year basis for several years now. The following graph lays out what our total Index Of Economic Freedom has been over time (in this graph, the smaller the number the higher/better the ranking of the U.S. relative to other countries):

You can double click on the graph to get a better, larger view. The vertical line between 2006 and 2007 represents the 2006 midterm elections where the Democrats took over control of both parts of Congress.

What conclusions can we draw from these historical results:

1. Our economic freedom generally improved during the Bush administration, getting down to being fifth ranked for a couple of years vs. being generally in the seventh to eighth position during the Clinton years.
2. Our ranking has mostly gotten worse since the Democrats took over Congress in late 2006.
3. The last three years illustrate a disturbing trend with our Index Of Economic Freedom overall index steadily trending negatively since 2008's report.
4. In fact, our Index of Economic Freedom has never been worse, as measured by our ninth place rating in the 2011 report and our tenth place rating in the 2012 report.
5. Furthermore, for the first time ever, an African country actually has a higher Index of Economic Freedom ranking higher than ours.

Not a good overall trend. Again, correlation does not necessarily mean causation. But given that the past three years have shown a deteriorating Index of Economic Freedom ranking performance at the same time that U.S. unemployment remains stubbornly high, household average incomes have fallen steadily over the past few years, and economic growth is weak vs. historical performance, it does appear there is some substantial causation at work.

Thus, not only is our overall economic freedom definitely getting worse, and possibly impacting the negative economic world we live in today in this country, some of the ten underlying economic freedom factors are not that great either and are also trending negatively. For the U.S., our ten underlying factors look like the following in the 2012 report:

• Business Freedom - Steady results, above the world average, and in the "Free" category. (Note- the "Free" category is the best category you can fall into)
• Trade Freedom - Steady results, above the world average, and in the "Free" category.
• Labor Freedom - Steady results, above the world average, and in the "Free" category.

Not bad. However, things do not look as rosy for the U.S. in the remaining seven categories:

• Fiscal Freedom - Steady results, below the world average, and in the "Mostly Free" category. (Note - the "Mostly Free" category is a step down in freedom from the "Free" category)
• Monetary Freedom - Worsening results, about at the world average, and in the "Mostly Free" category.
• Investment Freedom - Worsening results, above the world average, and in the "Mostly Free" category.
• Financial Freedom - Worsening results, above the world average, and in the "Mostly Free" category.
• Property Rights - Worsening results, above the world average, and in the "Moderately Free" category. (Note - the "Moderately Free is a negative step down from "Mostly Free")

Not good. We are either below or only at the world average, results are trending negatively, or we have dropped out of the top freedom category already in these important category/factors of freedom.

But we are in very horrible shape in the remaining two categories:

• Freedom From Corruption - Worsening quickly, above the world average, and only "Moderately Free."
• Government Spending - Worsening quickly, below the world average, and already in the Repressive category (Note - the "Repressive" category is the worst freedom category a nation can fall into relative to economic freedom)

Really, really not good. Our performances in these two categories are almost in free fall and who would have ever thought that someone could analytically and accurately describe any facet of the United States government and democracy being in the "Repressive" state?

In the Freedom From Corruption factor, in only ten years our nation's situation has dropped over 13%, taking us from the Free to the Mostly Free category. If you look at the detailed national ratings, there are twenty one nations that outperform us from a Freedom From Corruption perspective. The going forward concern is that the trend is not good, in a few years we could easily fall further down the freedom scale and trail more countries who have less government corruption than us.

Here is what the report says about U.S. corruption: "Corruption is a growing concern as the cronyism and economic rent-seeking associated with the growth of government have undermined institutional integrity." Given the high level of annual wasteful Federal government earmarks and the growing government cronyism under the Obama administration (e.g. Solyndra, Beacon, Fisker, Tesla, General Electric, etc.), it is not surprising that we should now be embarrassed by our Federal political class. Now the whole world knows how bad we are.

Where we are really bad is in the area of Government Spending. We are officially in the "Repressive" area of the freedom scale, a very dangerous area. We are so bad as a nation that there are many more countries in the study who are in better shape than us.

At least six Third World countries (Turkmenistan, Uganda, Madagascar, Guatemala, Burma, and Bangladesh) are not only in better shape than the U.S. but their index scores are DOUBLE what our score is. The top two overall countries in the study, Hong Kong and Singapore, have overall index scores that are also double our nation's score in this area. Pathetic performance no matter how you look at it.

Remember what we have stressed many times in this blog: you cannot have political freedom and freedom of choice without economic freedom. If your economic freedom gets worse, than you have less freedom of choice to send your kids to the best schools, less freedom of choice to live in the type of house and neighborhood you would prefer to live in, less freedom of choice to contribute to the charities of your choice, etc. This is why economic freedom is so important.

This study should be viewed as a leading indicator of where we are going from both a democracy and an economic perspective. Our political class through the decades, both Republicans and Democrats, have allowed both to deteriorate to such an extent that we now have a substantial and growing government corruption problem and our government spending situation is so bad that it is orders of magnitude worse than such economic powerhouses as Burma and Bangladesh. 

Now is it any surprise that our economic growth is horrible, our unemployment and underemployment rates are stubbornly high, we are susceptible to economic problems elsewhere in he world, consumer confidence in our nation's future and our leaders are at all time lows, and our political class have no intention, will, or ability to resolve our nation's issues?

That is why two steps from "Love My Country, Loathe My Government" are critical to fix what ails our country, if the results from this study are to be believed:

- Step 1 - this step would reduce Federal government spending by 10% a year for five years if we are to have any chance of getting our Federal government spending under control and start to reduce our onerous national debt. Many times we have shown how to reduce government spending by TRILLIONS of dollars, based on the work of many fine American organizations, including Obama's own deficit reduction commission. To say Step 1 cannot be done is a reflection on the incompetence of our politicians, not the reality that we have described for finding the solution.

- Step 39 - this step would impose firm term limits on all current and future Federal politicians. It is obvious from this study that we can no longer afford to allow the current set of politicians to continue in power. Their results are putrid and corrupt, the direction they have set the country on is disastrous.

Prior to implementing Step 39, we can begin the purging process by voting out all incumbents in the November elections. This includes President Obama and every single member of Congress and the House of Representatives who are up for reelection. Not a single one of them have come up with a plan, particularly President Obama, to address our rotting Index Of Economic Freedom. They do not deserve the privilege of serving the nation.


We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/.

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.


Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/