Scott Brown’s shocking victory in Massachusetts on Tuesday was a shot across the bow of the liberal ruling class in Washington and declared one clear message: Americans do not like the direction the country is heading, and they’re not going to stand for it, even in the solidly-blue Bay State.
The United States’ direction today is a dangerous one, even when compared to the country’s state of affairs just one year ago, as revealed in the 2010 Index of Economic Freedom, which we are releasing this morning in a joint project with The Heritage Foundation and The Wall Street Journal. The Index analyzes just how economically “free” a country is, and this year America saw a steep and significant decline, enough to make it drop altogether from the “free” category, the first time this has happened in the 16 years we’ve been publishing these indexes. The United States dropped to “mostly free.”
The drop in rankings is notable as it comes in the same week that marks the one-year anniversary of President Barack Obama’s inauguration. By any standard, over the last year Americans’ overall wealth and prosperity has continued to decline. Americans, in fact, are more likely than ever to believe that their children and grandchildren will be worse off than the current generation. They believe future generations will live in a less prosperous and less economically mobile America. The traditional American faith in upward economic mobility – widely understood to be the American Dream – seems more elusive now than ever.
One recent poll by the Pew Research Center found that 55% of Americans believe their children will be worse off when they grow up, while only 36% see a better future for them. Similarly, a December 2009 Gallup study found that Americans are more pessimistic about our future now than at any time since the late 1970s.
Sadly, this bleak view of the future is understandable – after all, unemployment has skyrocketed and shows no signs of abating, government spending and debt are at unprecedented levels during peacetime, and our elected officials seem determined not only to ignore these alarm bells but to pursue policies – expensive new entitlement programs; debilitating new taxes on wealth creation, savings, and investments; and new government regulations that have created a climate of such uncertainty – that will cause entrepreneurs to stay on the sidelines rather than take the risks that have led the United States out of previous recessions. Studies indicate that this is indeed the case. “The largest force driving unemployment [in the U.S.],” Heritage’s James Sherk argues, “is the sharp drop in private-sector job creation” rather than job losses incurred through lay-offs.
In a nutshell, there is a growing sense that, in economic terms, America is less free and is destined to remain that way.
As the Index of Economic Freedom reveals (and as each and every American can feel in their daily lives), the United States is now the home of the mostly free. This development is huge – akin to learning that the premier rating agencies have been forced to downgrade U.S. Treasury debt to second tier status.
What exactly is the Index? It’s a comprehensive review of 179 countries around the world that considers economic freedom in ten separate areas. Five of these measurements — freedom in business, trade, investment, finance, and labor—measure the regulatory burdens government places on businesses and entrepreneurs. Three — fiscal freedom, government spending, and monetary freedom—examine the overall size and level of intrusiveness of government and its effectiveness in maintaining a stable economic environment. The remaining two—property rights and freedom from corruption—look at fundamental societal characteristics that underpin all modern prosperous economies.
Detailed analyses have found that citizens in countries with the highest scores on the Index enjoy much higher standards of living than their neighbors in countries that are less free. Freer countries, for example, have levels of per capita GDP that are more than 10 times higher than in countries that are mostly unfree or repressed. Higher levels of economic freedom also go hand-in-hand with broader indications of both economic and social well-being.
While some of the decline is attributable to policies enacted under the previous Administration, this year’s findings nevertheless should be especially relevant to the policy agendas now dominating Capitol Hill. Specifically, the Index records a wide disparity among the 20 largest economies in the world over the past year, with half continuing to increase economic freedom while the other half, including the United States and the United Kingdom, embraced policies that substantially diminished it.
In particular, countries that undertook large stimulus measures or other government-directed attempts to spur growth failed to realize economic growth. Not only have growth rates not increased, but the long term impact of these measures, which includes increased deficits, inflation, higher taxes, and protectionist measures against foreign trade, actually diminish economic activity. In the case of a country like the United States, which has such a large impact on the world economy, slower growth harms not only Americans, but citizens of almost every other country in the world, as well.
Alarmed by the findings in this year’s Index, The Heritage Foundation has embarked on a comprehensive project to identify those policy changes that, if enacted, would return the United States once again to the ranks of the freest countries on Earth. We will identify the policies in each of the ten areas of economic freedom that are most highly associated with true economic freedom, compare those “best practices” to the policies currently in place here, and recommend an economic freedom agenda worthy of America.