Economic Freedom: The U.S. Is Slipping

There are several indices of economic freedom published but the two best are from Cato and Heritage Foundation. I think that Cato has the better analysis. The attempt is to measure the amount of economic freedom a country has in comparison to other countries. Both measure Hong Kong as No. 1. Cato has the U.S. at 18 and Heritage at 10. Cato’s methodology is as follows:

The index measures the degree of economic freedom present in five major areas: [1] Size of Government; [2] Legal System and Security of property Rights; [3] Sound Money; [4] Freedom to Trade Internationally; [5] Regulation.

There are 24 subsets of measurement. See the list below.

In an accompanying article by Professor Richard Rahn, he notes:

The United States was known as the bastion of economic freedom for more than two centuries, and it was because of its economic freedom that the nation became the pre-eminent economic power. However, in just a few short years, the U.S. has fallen from No. 3 in 2000 (behind the city-states of Hong Kong and Singapore) to No. 8 in 2005 and to No. 18 in 2010, the last year for which complete statistics are available. Worse yet, the U.S. decline continues, and in next year’s ranking, it is almost certain to be lower.

Rahn tells us why economic freedom is so important:

A few facts will help illustrate why economic freedom is so important. The freest quartile of countries had an average per capita income of $37,691, while the least free quartile had a per capita income of just $5,188 in 2010. The freest quartile grew at an average annual rate of 3.6 percent 1990-2010, while the quartile that was least free only grew at an average rate of 1.6 percent over the same period. Life expectancy in the freest quartile was 79.5 years in 2010, as contrasted with 61.6 years in the least free quartile. Those people who are more concerned about the poor than economic growth should take note that the poorest 10 percent in the least-free quartile only had a per capita income of $1,209 in 2010, as contrasted with a per capita income of $11,382 for the poorest 10 percent in the freest quartile. Greater economic freedom is also associated with more political and civil liberties. In sum, by almost any measure of human well-being, a person is far better off being in a country with a high degree of economic freedom than in one with restricted economic freedoms.

Here are Cato’s top 22 (freest):

And here are the bottom 20:

Note that there are some countries who are not even counted on the Cato list because they have no freedom (e.g., North Korea). On the Heritage list North Korea is the baseline (least free state). 

For the entire Heritage list go here. For the entire Cato list go here

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