The Government Spending Threat to Economic Freedom; USA Now “Mostly Free”

2011 Index of Economic Freedom as calculated by the Heritage Foundation
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2011 Index of Economic Freedom as calculated by the Heritage Foundation

This morning, The Heritage Foundation and The Wall Street Journal released the 2011 Index of Economic Freedom, and while the news is good for many countries, it is depressing for the United States. All told, 117 countries, mainly developing and emerging market economies, improved their Economic Freedom Index score. Meanwhile the U.S. dropped to 9th place, remaining “mostly free,” weighed down by the burden of President Obama’s spending spree.

Of course, we should all celebrate the improving lot of many impoverished people across the globe. The data in this year’s Index again confirm the strong correlation not just between economic freedom and higher per capita incomes but between higher economic freedom and overall well-being (which takes into account such factors as health, education, security, and personal freedom) as well. The Index shows that freer societies reduce poverty at nearly twice the rate as less free societies do.

The United State, however, is no longer “the Land of the Free” economically. Our Economic Freedom Index score fell to 77.8, moving us down to 9th internationally behind such countries as Denmark, Canada, and first-place Hong Kong. What drove America’s decline? Huge increases in government spending. Despite obvious past failures of Keynesian spending policies in countries like Japan, the U.S. government undertook a massive government spending spree designed to combat unemployment and slow economic growth. This Keynesian stimulus has proved to be an abject failure: Unemployment is still above 9 percent for a post–World War II record 20th month in a row, and economic growth has not returned as strong as the Obama Administration predicted.

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This spending, more than any market factor, poses the greatest risk to American economic dynamism. Relying on government spending to create growth not only has failed to reduce unemployment but has also prolonged the crisis by hampering private sector investment. Bloated government debt has turned the economic slowdown into a fiscal crisis, with economic stagnation fueling a long-term employment crisis. And the Index shows that this truth applies to many other countries as well: Index data show that countries with the highest levels of government spending had growth rates 4.5 points lower, on average, than countries where government spending was under control.

But there is still hope. Across the world voters are beginning to reject big government spending ways and embrace economic freedom. In the United Kingdom, which has dropped all the way down to 16th place from the top 10 in only two years, voters tossed out the profligate Labour Party in favor of Prime Minister David Cameron’s austerity-promising government. And here at home, the Tea Party movement has said “enough,” electing a Republican House of Representatives that has promised to rein in the Obama Administration’s reckless spending.

Over the past 30 years, freer economies have fueled unprecedented economic growth around the world. From 1980 to 2008, the world economy achieved real GDP expansion of around 145 percent, lifting hundreds of millions of people out of poverty. Globally, poverty has fallen by 40 percent since 1990. The United States can continue to be a leader of this prosperous free world, but first we have to get our own bad spending habits under control.

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