US Slips Down League Table Of Economic Freedom

by Mike Godfrey, Tax-News.com, Washington

18 September 2008

Economic freedom around the world remains on the rise but there has been a notable decline in the US since the year 2000, according to a study released on Tuesday by the Cato Institute and Canada's Fraser Institute.

In 2000 the US was the second-freest economy listed in Economic Freedom of the World, an annual report written by James Gwartney from Florida State University and Robert Lawson from Auburn University.

However, in 2008, the US has fallen to 8th place, behind Hong Kong (ranked in first place), Singapore, New Zealand, Switzerland, the United Kingdom, Chile, and Canada.

More significant than the US's drop in the rankings is its fall in the freedom ratings: on a scale of 0-10, the US fell from 8.55 in 2000 to 8.04, according to the Economic Freedom of the World Report: 2008 Annual Report. Only five countries have experienced a greater decline over the same time period: Zimbabwe, Argentina, Niger, Venezuela, and Guyana.

"The rule of law, government spending, and regulation are the areas where the United States saw the most troubling declines in its ratings this decade," observes Ian Vasquez, director of Cato's Center for Global Liberty and Prosperity.

Economic Freedom of the World ranks 141 countries on a range of factors in five broad including size of government, legal structure and security of property rights, access to sound money, freedom to trade internationally, and regulation of credit, labor and business.

Fred McMahon, Fraser Institute director of trade and globalization studies, noted that issues affecting the US performance in the rule of law measure could relate to the Sarbanes-Oxley regulations - which have been described as overzealous and responsible for driving investment to other markets - and an increasing controversy over eminent domain (the government’s ability to expropriate private property).

“Canada’s higher score in rule of law gives us an edge in the rankings. Both Canada and the United States have suffered large declines in this area in recent years, but the US declines are greater. Since this measure is partially based on survey data, it will be important to see if this is an ongoing trend,” McMahon stated.

The research suggests that people living in countries with high levels of economic freedom enjoy higher levels of prosperity, greater individual freedoms, and longer life spans.

“Economic freedom is a key building block of prosperous nations. Countries with high levels of economic freedom are those in which people enjoy high standards of living and personal freedoms. Unfortunately, countries at the bottom of the index face the opposite situation; the people are often mired in poverty, governed by totalitarian regimes and have few, if any, individual rights or freedoms,” McMahon concluded.

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