The United States, Economic Freedom, and Life Control

The United States ranks 16th in the new Economic Freedom of the World index co-published in the United States by the Cato Institute and the Fraser Institute. The report has been tracking the decline of the country since 2000, when it still retained its decades-long place among the top three countries on the index. The U.S. decline in the five major areas the report measures—size of government; legal system and property rights; sound money; freedom of trade; and regulation—amounts to an overall decline that is greater than three times the average fall in economic freedom of the mostly rich OECD countries. Based on academic research, the authors once again warn that the large drop in economic freedom could cut U.S. long-term growth (3%) by half.

Other countries in the index rank as follows: Hong Kong (1); Singapore (2); New Zealand (4); Switzerland (4); Mauritius (6); Canada (9); United Kingdom (10) tied with Chile (10); Germany (29); South Korea (39); Spain (49); Greece (85); Russia (99); Vietnam (109); China (111); India (114); Egypt (118); Iran (147); Venezuela (157).

The report finds a strong relationship between economic freedom and a range of human development indicators. Economic freedom is unambiguously good for the poor, for example. According to the authors, “the average income of the poorest 10% in the most economically free nations [by quartile] is about 50% greater than the overall average income in the least free nations.”

This years’ report includes a chapter on the relationship between economic freedom and perceptions of life control and life satisfaction. The authors of that chapter (Hans Pitlik, Dulce Redin and Martin Rode) note that past research has found that the more people feel they are in control of their lives, the more satisfied they are with their lives. Furthermore, past research has found that more economic freedom improves life satisfaction over and above its impact on greater per capita income (increases in income improve life satisfaction). The authors now find that economic freedom plays an important role in giving people a feeling of control over their own lives and thus plays a significant role in determining peoples’ levels of happiness.

See those and other findings on the role of economic freedom in our lives here.