Commentary

How Economic Freedom Declined under Bush

There is no doubt that US president George W. Bush’s “war on terror” will dominate any assessment of his legacy. However, the marked decline in economic freedom during this time, despite Mr Bush’s repeated acknowledgement of its importance, should not be overlooked.

The importance of economic freedom, domestically and abroad, was a consistent theme for Mr Bush, going back to his first presidential campaign. In 2002, the Bush administration unveiled a new approach to foreign aid, the Millennium Challenge Account, with the goal of a US$5 billion annual budget by 2006.

Mr Bush stated that aid would be given to countries that “govern justly, invest in their people and encourage economic freedom”, and the US would no longer dole out funds to corrupt, autocratic governments.

Unfortunately, while he was actively trying to promote economic freedom abroad, his domestic policies were eroding that freedom for Americans. In a recent study - the Economic Freedom of the World: 2008 Annual Report - released by a consortium of thinktanks, America was tied for eighth place, with a score of 7.86 on a scale of 0-10, with 10 being an extremely high level of economic freedom.

The results are based on 42 different factors taken from a variety of international data sources. Hong Kong came top and the US also ranked below Switzerland, Chile, and Canada, among others. That is troubling enough. Yet, this one-year snapshot misses the significant decline in economic freedom since 2000 and how that decline reversed a long-term trend of increasing economic freedom in the US.

In 1970, the US also ranked eighth, with a score of 7.61. That rose steadily over the next three decades, to 8.55 in 2000, second only to Hong Kong. Starting in 2000, economic freedom began to decline sharply, losing nearly two-thirds of a point. Only eight countries had a decrease of half a point or more during this period. And only Niger, Venezuela, Argentina and Zimbabwe fared worse than the US.

America’s decline came from three areas: government spending, legal and property rights, and regulation. First, Washington was spending and regulating more at the end of Mr Bush’s presidency than at the beginning. The ranking associated with government spending fell to 39th from 18th, and the regulation ranking fell to 14th from 2nd. Second, and most disturbing, is Mr Bush’s legacy in the legal and property rights arena, where the ranking fell to 28th from 9th highest in the world.

Mr Bush’s attempts to highlight the importance of economic freedom around the world with the Millennium Challenge Account were laudable. Emphasising economic freedom abroad is surely the best way to promote growth and poverty alleviation. Unfortunately, Mr Bush’s presidency left his own citizens less free economically.

Auburn University professor Robert Lawson is a co-author of the annual Economic Freedom of the World report, published by the Fraser and Cato institutes. Joshua Hall is an assistant professor of economics at Beloit College.