[This was recorded as my regular commentary on KVMR FM 85.9 for broadcast on 30 April 2010.]
How economically free is America? Not as free as it used to be, and that fact ties in to almost everything else that has been happening in our land as our government continues to grow, consume wealth, and inhibit wealth creation. The Heritage Foundation publishes the noted Economic Freedom Index compiled for all the countries in the world. I just got my copy of the 2010 edition the other day, and was surprised by some of the new information it contained.
From the Economic Freedom Index we learn “Economic freedom refers to the ability of individuals to control their own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state.”
Hi, I’m George Rebane, looking a little askance at the numbers. The Economic Freedom Index or EFI is compiled for 179 countries. The index itself is made up of ten components covering such factors as Business Freedom, Government Spending, Investment Freedom, Property Rights, and Labor Freedom. The EFI ranges from 100 down to zero. The top spot still belongs to Hong Kong with an EFI of 89.7 which is solidly in the ‘Free’ group of countries with scores 80 and above.
For the first time, the United States, with an EFI of 78, has dropped from ‘Free’ into the ‘Mostly Free’ grouping. And given what’s ahead for us from Washington, our road is headed ever downward. However, we do have company in this decline as stated in the book’s foreword –
The year 2009 will go down as the worst for global economic freedom since the inflation and wage and price controls of the 1970s, and maybe since the industrial policy and monetary chaos of the 1930s. Many governments and their political agents have used the financial panic and recession as an opportunity to reassert control across the private economy. … The most striking fact of this year is how many governments are repeating policy mistakes from previous eras.
The expansion of governments across the world correlates negatively with GDP growth, the more governments have spent to intervene, the greater has been the negative impact on the countries’ economies. This has been primarily due to increased political allocation of capital and labor, meaning that the politicians instead of the markets decide where money should flow and how people should work.
America has fallen from 6th to 8th place, but only because other countries have also seen their EFI scores go down. We are currently being propped up by “the residual strength of US law and institutions” and wonder how much added strain these can stand as they are being weakened by more and more government meddling. The broad conclusion from the report is that “government intervention hurts”.
Because politicians have always needed money to get re-elected, they have favored special interest groups and legislated so as to tilt the playing field accordingly. This centralizes more power in an institution that has no clue about the workings of markets and the economy – both very complex systems. Nature maintains thriving complex systems through distributed knowledge and distributed control – exactly the opposite of trying to call all the shots from a central point. Long ago Ludwig von Mises, considered the founder of the Austrian school of economics, advised governments of stressed economies to “Do nothing. Sooner.” We should consider that advice before we launch the next economic-freedom-killing stimulus program from Washington.
I am George Rebane, and I expand these and other themes in my Union column, and on georgerebane.com. The opinions here are mine and not necessarily shared by KVMR.