The Continuing U.S. Decline in Economic Freedom of the World Index

Economic freedom in the United States has continued to fall even as it has increased modestly at a global level. That’s according to the Economic Freedom of the World: 2013 Annual Report co-published today by the Fraser Institute.

The United States has seen more than a decade of decline, having been ranked 2nd on the index in 2000, 8th in 2005 and 17th in the current report. The average global economic freedom score rose slightly from 6.74 out of 10 in 2010 to 6.87 in 2011, the last year for which data is available. The authors of the report note that the United States has fallen in all areas that the report measures: size of government, the legal system and security of property rights, sound money, freedom to trade, and regulation. Increased spending, a weakening rule of law, worse monetary policy, greater trade barriers, and more regulation are to blame. As the graph below shows, economic freedom in the United States is lower than it was in 1980 and is below that of Canada, New Zealand and even Chile, a developing country on its way to first-world status.

The relationship between economic freedom and prosperity is strong as the graph below shows. Countries in the top quartile of the index are significantly richer than the rest. Economic freedom is also strongly associated with improvements in the whole range of indicators of human well-being including greater political and civil liberties, longer life spans, lower poverty, and so on (see pp. 21-23 of the report.). So it is especially troubling that the United States, the world’s most important economy long associated with market-liberalism, should be in decline. Authors James Gwartney, Robert Lawson and Josh Hall cite scholarly work to conclude that “unless policies undermining economic freedom are reversed, the future annual growth of the U.S. economy will be half its historic average of 3%.”