David R. Henderson  

We're Number 16! We're Number 16!

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Four years ago, when the then latest issue of Economic Freedom of the World was published, I wrote a post titled "We're Number 10! We're Number 10!" The reason: according to the study, the United States had fallen to 10th in the world in economic freedom.

By the time of the 2014 report, the United States had fallen to 12th, tied with the United Kingdom.

Last week, the latest issue of Economic Freedom of the World was released and it shows that the United States has fallen further: to number 16. The authors are James Gwartney, Robert Lawson, and Joshua Hall.

It comes out two months after I wrote a forthcoming article for The Independent Review in which I make predictions about world economies in the year 2065. I'm always skeptical of such exercises, but I did it anyway. I mention that article because here's part of what I wrote that relates to the Economic Freedom measure:

9. Economic freedom in the United States, as measured by the Economic Freedom Index, currently showing that the United States is number 12 out of 152 countries ranked, will show (if the index is still computed in 2065) that the United States is at, or slightly below, twentieth place.

Later in the piece, I wrote:
Likely factors in the decline are increasing regulation of land use and housing supply so that more of the United States has the same extreme regulations that coastal California, Oregon, and Washington have, as well as more extreme regulation of the workplace, making it harder for employers and employees to agree on flexible work arrangements. Also, some other countries' economic freedom is likely to increase. The U.S. economy will likely be at or slightly below twentieth place in 2065. Even if the U.S. level of economic freedom were to stay relatively constant, several economies in the top twenty will likely displace many established countries. And that would be alright.

Usually, when I make big-picture economic predictions, what I predict will happen does happen, but much more slowly than I expected. But a drop from number 12 to number 16 is halfway toward the drop I expected--by 2065!


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COMMENTS (8 to date)
Colombo writes:

I tend to cautionary disbelieve most economic indexes. For me, any kind of human production is a piece of literature, composed of fantasies, exaggerations and lies, and perhaps a little dab of reality.

These concoctions known as "Gini Coefficient" or the "Index of Economic Freedom" seem to be tailored for political discussion (not the good kind).

It could be worse than 16. And it surely is possible to design a methodology for an index where the US is always number one.

But it seems that people do not care about economic freedom or personal freedom. They want goodies, like the people of the Roman empire.

Joe writes:

I agree with Colombo most people don't care about freedom did the people of Rome know that the end was coming? Michael Grant author of The Fall of the Rome Empire put it in 13 reason. It was brought down by two kinds of destruction: invasions from the outside, and the weaknesses that arose within.

maynardGkeynes writes:

If we fall to 50th by the inane criteria of this list, which measures "freedom" largely by the ability of corporations and individuals to impose the costs/externalitie of their private activities on everyone else, I, personally, will be ecstatic.

Eric Hanneken writes:

maynardGkeynes:

I presume that as the United States has fallen from near the top of the rankings in 1995 to 16th place today, it has become more difficult for corporations and individuals to impose costs on everyone else.

For reference, three countries are tied for 49th place in the latest report: Honduras, Panama, and Spain.

Colombo writes:

@Eric Hanneken
Nobody worries about Spain, because Germany will come to the rescue... right?

But Honduras and Panama have a much better deal, because US overlords are much more benevolent than German overlords.

ThomasH writes:

Five thoughts


1. Many of the indicators seem very tenuously related to economic freedom. Is a country with a lower inflation rate more "free" than with a higher one? Higher government consumption (funding of NAOA IRS? enforcement of tax laws)? Many of them seem like a random collection of "things Conservatives don't like."

2. The absence (or are they just hidden?) of the creation of monopoly rents through patents and copyright, zoning, parking, restrictions on urban development.

3. The different treatment of explicit subsidies and tax preferences.

4. Supposedly "Protection of persons and their rightfully acquired property is a central element
of economic freedom and a civil society," but I do not see where allowing some people to impose costs on others through economic externalities shows up as a diminution of economic freedom (and Pigou taxes/subsidies to remedy these wrongs would count as a diminution of freedom).

5. The disconnect between the topics the Report seems to indicate as big problems (capital controls [3.58/10?] and freedom of foreigners to visit [.42/10?]) and small problems (minimum wages [10/10]) and the amount of discussion these topics get in this blog.

[A technical point: the methodology seems to count only 1/2 of the US wage tax.]

I think an index made up by a group of liberals would have a very different set of indicators although not necessarily a higher score.

David R. Henderson writes:

@ThomasH,
Answering all of these would take one or more posts. But I will answer the easy one: this part of (1).
You wrote:
Is a country with a lower inflation rate more "free" than with a higher one?
Typically, yes. Inflation is a tax on money. A higher inflation rate implies a higher tax.

E. Harding writes:

On those indices: call me when Georgia surpasses Belarus or Russia in per capita income. :-)

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