Index shows economic freedom in the U.S. is waning

Robert Lawson, an economics professor in SMU's Cox School of Business, co-wrote this essay about economic freedom in the U.S.

By Rosemarie Fike and Robert Lawson

Robert Lawson
Robert Lawson

The latest Economic Freedom of the World index, published by Canada's Fraser Institute, confirms what many Americans already know: We are less free today to buy, sell, trade, work, invest, hire and fire than we used to be.

In 2000, the U.S. scored 8.6 (out of 10), which was high enough to make us the fourth-freest economy in the world. The U.S. score in the most recent year of available data, 2015, was down to 7.9, for a ranking of just 11th.

The U.S. data shows clearly that taxes and government spending are higher, government favoritism toward privileged businesses is increasing, trade protectionism is on the rise, and regulations are becoming even more burdensome.

We should care about this because hundreds, literally hundreds, of published peer-reviewed academic studies have established that countries with more (or growing) economic freedom enjoy faster rates of economic growth and improving socio-economic conditions. People living in these countries are wealthier, healthier and happier. The relatively sluggish growth in the U.S. coming out of the so-called Great Recession is, in our opinion, a result of our increasingly taxed and government-controlled economy. At the political level, we wonder how much of the recent populist activism on both the left and the right in the U.S. is caused by this economic sclerosis?

That's the bad news for us. The good news is that the world as a whole is becoming much freer economically. While some high-income developed nations like the U.S. have seen decreases in economic freedom, most lower-income developing nations have experienced large and sustained increases.

The average rating of developing nations has increased to 6.6 from 4.8 over the last 35 years. This indicates that many hundreds of millions of people are living in freer economies today than in previous generations, and consequently economic growth and poverty rates have improved dramatically in these liberalizing nations. In the few minutes it takes to read this article, several hundred people will escape extreme poverty in the world.

In other news, the economic freedom index for the first time considers the unfortunate fact that women do not have access to the same economic rights as men in many nations. For example, women may not be allowed to buy or inherit real property in the same way as men. Also, there are often safety-related work rules that apply to women that do not apply to men. Some countries even restrict women's ability to register businesses, open bank accounts or even travel without the permission of their husbands or fathers.

Based on World Bank data for up to 41 such legal issues, the index now adjusts for differential treatment of women. In the majority of countries, men and women are treated unequally under the law. In several Middle Eastern and North African nations, for instance, women are treated unequally from men in more than half of the legal areas tracked. The United Arab Emirates has fallen from fifth place in last year's report to 37th in this year's. While this ranking is still fairly high in a worldwide context, it highlights the impact of the Emirates' unequal treatment of women. Another example is Saudi Arabia, which is much less free than the Emirates to start with, but with the most discriminatory treatment of women of the countries included in the index, it falls to 122nd from 85th.

The Fraser Institute's annual measurement of economic freedom teaches us many lessons. The declines in economic freedom in the U.S. that are tracked by the index should concern all Americans interested in securing a free and prosperous future. 

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