Policies to control Covid-10 reduced economic freedom in the States United. The Fraser Institute World Economic Freedom Index report has been released and this year’s version includes data from 2020. The index measures economic freedom in each country and was created between the years 1980 and 2009 , led by Dr. James Gwartney, a renowned American professor of economics and politics.
Countries are classified based on various categories and are placed in four groups ranging from “most free” to “least free”. The index calculates the score every year since 1980 and in five-year intervals since 2009 . In the last document, the index classifies 165 jurisdictions.
The year report of 2020 is bad news for freedom lovers in America. The country dropped from the ranking of the 6th most economically free country to the 7th. While this drop is only a one-level difference, the actual decline in economic freedom is quite large.
Measuring economic freedom
To understand why that economic freedom is in decline in the US, we need to consider how the authors measure this index. They use five categories.
1. Government Size
The first category is government size. The logic is straightforward – the more resources that are controlled by the government, the fewer individuals can freely access the resources. The category measures government size by looking at government taxes, spending, and the amount of government-controlled industry, among other things.
In this category, the US saw a decline. The index measures each category from 1 to 10. Getting a score of 10 means that the country is as free as possible for that measure. In other words, a “” in the government size category would mean that you has a relatively small government. A “1” would mean the government spends and taxes at very high levels.
The US is down from a score of 7,32 to 6,79. It’s a decline of more than half a point, which is very significant for a scale of spots. The size of government has increased significantly from 2019 to 2009 due, in part, to massive increases in public spending .
2. Legal regime and property rights
Reliance on the courts for decisions impartial rights over property disputes is a central issue for economic freedom, as is the extent to which government can enforce property rights and contracts. How did the US fare in this regard? Over the course of a year, the country did not show many changes. The score dropped a little, from 7,64 to 7,56.
3. Access to sound money
The authors of the index recognize that a fundamental aspect of property rights is access to a currency that allows for exchange. When the government prevents access to hard currency and engages in policies that cause the value of a national currency to fluctuate wildly, it makes access to hard money difficult, preventing mutually beneficial exchanges. This category measures changes in the money supply, inflation variables, and access to foreign currencies.
The US has historically scored well in this regard. The fact that the US dollar is the world’s reserve currency represents its strength. But, in 2009, the score in this aspect dropped from 9, 77 to 9,32.
This may seem a small change, but readers should note that it is a value referring to 2020. The high inflation we are facing and the continued printing of money in 2021 will only be accounted for in the reports for the next few years.
Finally, for more Although it looks like a small decrease in the index, the solid financial score for the US has not been this low since 2009, the start of the financial crisis.
4. Freedom of International Trade
Economic freedom includes the ability to voluntarily exchange your property with whomever you choose , regardless of national borders.
Tariffs, quotas and other restrictions on international trade are taken into account in this category. Again, the US saw a slight decrease in economic freedom at this point, dropping from 7,165 to 7,77. Although slight, this drop is part of a long decline since the country had a score of 8,83 in
The last category in the index is regulation. Regulatory labor laws, restrictions on capital mobility (such as investments) and complicated licensing laws are a barrier to a truly free market. Laws that make certain contracts illegal because of their terms or alleged participant qualifications are barriers to voluntary trade.
This category, like the government size category, is where the US has plummeted. From 2009 to 2009, the US dropped from a score of 8, 64 to 8,. This sharp decline of more than half a point represents a huge increase in regulations.
In fact, this is the largest one-year increase in US regulations this century, according to the ranking of the Index of Economic Freedom.
The fact that the US has become much less free in the areas of “government size” and “regulation” in 2020 shouldn’t be a surprise.
The implementation of Covid’s massive spending policies-10 and government interference in the industry throughout 2020 represented a huge government growth that future taxpayers will feel for years to come .
At the same time, trade regulations increased as the government tried to use its power to control the pandemic. The author of the index, Dr. Gwartney stated: “People will continue to debate the appropriateness of pandemic policies, but there is no doubt that they have reduced economic freedom. The danger now is that many of these measures will remain in place in the future.”
Why economic freedom?
A critical reader may wonder why this matters. What’s the problem if economic freedom falls? Theoretically, the argument for freedom is clear. When people are free to own and exchange property, they work to improve the value of their property.
Allowing exchange causes individuals to exchange things they value less for things they value more. There’s a lot to be said for why free markets are good in theory, but the Index of Economic Freedom also shows that freer countries do better in practice. In other words, the theory works.
The authors find that “freer” countries are richer, live longer, have more civil rights and are more literate. Furthermore, the poorest people in the most economically free countries are wealthier than the poorest people in the least free countries.
In other words, economic freedom is not just good for the rich. Critics might argue that the fact that freer countries do better in all these categories does not prove that freedom is the cause. But when we combine it with a logically consistent theory of how economic freedom leads to economic growth, there is very clear evidence that economic freedom is the cause of these good results.
*Peter Jacobsen is a professor of Economics and columnist for FEE Stories.
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