The Trend of Economic Freedom in the United States

Yesterday the Heritage Foundation released the 2016 Index of Economic Freedom. This annual publication is produced by the Heritage Foundation in conjunction with the Wall Street Journal. In addition to the 2016 Index the foundation also published Economic Freedom in Americaa supplement outlining trends in economic freedom in the United States.

Figure 1 illustrates the overall composite freedom score of the United States from the inception date of the index in 1995 to the latest figures which cover through the midpoint of 2015.

Source: The Heritage Foundation and Dow Jones & Company, Inc.
Source: The Heritage Foundation and Dow Jones & Company, Inc.

As you can see, the 1995 and the 2016 indices for the United States are almost the same. However, there is a disturbing trend in the data. For approximately 10 years prior to the Great Recession and Barack Obama’s administration, the United States was becoming more economically free. As illustrated in Figure 2, over the last eight years economic freedom as measured by the index has been in a virtual free fall falling by nearly 7%.

Source: The Heritage Foundation and Dow Jones & Company, Inc.
Source: The Heritage Foundation and Dow Jones & Company, Inc.

While the 7% decline in economic freedom as measured by the index might not seem extraordinarily large, there is no other nation that has experienced change this rapid over this time period.

Why is economic freedom important? While there are several reasons, the correlation of wealth creation to economic freedom should be important to Christians. Greater economic freedom is correlated with better economic performance. A strong and vibrant US economy is very important for the development of the overall global economy and the continuation of the diminution of absolute poverty in developing nations.

What can be done? With the completion of the Iowa caucuses last night, we are full bore into this election season. The reason the US has regressed with respect to economic freedom is:

  1. The expansion in the size and scope of our federal government.
  2. Our tax code is burdensome particularly at the corporate level when compared with other more developed nations.
  3. “Since early 2009, more than 180 new major  federal regulations have been imposed on business operations…” (Economic Freedom in America).
  4. The measure of property rights included in the index has declined by more than 10% over the span of the Obama presidency.
  5. The larger the government the larger the possibility for corruption and cronyism.

What can be done? During this election cycle Christians should include the economic policy prescriptions of the candidates when choosing a candidate.

9 thoughts on “The Trend of Economic Freedom in the United States”

  1. Your post should be more properly entitled “The Trend of Economic Freedom in the United States AS DEFINED BY THE HERITAGE FOUNDATION”

    The Heritage Foundation’s own presuppositions and values help craft a particular definition of economic freedom. One might not consider the Heritage Foundation’s definition of economic freedom as freedom.

    Does the report consider upward mobility in its rankings? I did not see it.

    1. “Does the report consider upward mobility in its rankings? I did not see it.
      Are you suggesting that the drop would not have been as much if it had? Rather than just criticize, suggest a better alternative. None of us would suggest Heritage has it perfect, but I agree with Bert–its the best overall measure we have. Your response would lead us to believe it has no value.

      To other readers–feel free to look through Heritage’s report and methodology for yourself. You’ll find it quite reasonable contra Mr. Adams.
      http://www.heritage.org/index/download

  2. I am no expert on economic freedom, so I am curious as to what factors The Heritage Foundation and others use to calculate it. What data differentiates it from the rest, if at all. While we all generally like freedom and economic prosperity, wouldn’t there be a limit to economic freedom that we would prefer? Government does play a role in ensuring economic prosperity. One would argue that there is way too much government involvement and in the wrong ways today. Would not absolute freedom lead to the threat of anarchy where no man is responsible to another? If so, what would be the ideal balance of economic freedom and government influence to ensure a prosperous economy?

    1. Hi Joseph,

      Good question. I may try to put together another post to answer some of your concerns. I thought about doing so in this post but decided to keep it short. The government plays an incredibly important role in defining economic freedom (which is generally not thought of as anarchy at all – except perhaps as a straw man). To answer what this index utilizes to define freedom I’m going to paste a short quote from page 22 of this year’s Index.

      “The 10 aspects of economic freedom measured in the Index may be grouped into four broad categories:
      •Rule of law (property rights, freedom from corruption);
      •Government size (fiscal freedom, government spending);
      •Regulatory efficiency (business freedom, labor freedom, monetary freedom); and
      •Market openness (trade freedom, investment freedom, financial freedom).”

      As you can see, there is not an element of this Index for which the government does not play a very important role in the definition and maintenance of economic freedom.

  3. So my question is, which current candidate do think has the best economic policy including ways to increase economic freedom?
    Do they suggest limiting or “shrinking” government? and if so, do they give a reasonable and obtainable plan to do this?

    I agree that the increasing size in government, regulations, and the tax code all have contributed to this decrease in economic freedom.
    I also agree that the reduction is property rights is something that is very negative for this nation, considering that one of government’s main objectives should be to uphold the property rights of it’s people. However, how does this contribute to a decrease in economic freedom?

    1. Hi Kevin,

      Yes, everything you mentioned does affect economic freedom – perhaps in a small way, but when taken cumulatively, are very harmful.

      Being able to use your property in the manner in which you believe is best is foundational to economic freedom. When the gov’t takes this right away (even in a small way) economic choices are hindered. The incentive structure changes which leads to a misallocation of resources which hurts wealth creation. In extreme cases (think of nations with the breakdown of gov’t – perhaps civil war) economic activity can virtually cease. No one will invest when the chance of the investment being stolen are high.

      I recommend Hernando de Soto’s The Mystery of Capital.

  4. With Bernie Sanders’ win today in the NH Primary, the possibility of him being the Democratic nominee becomes even more of a possibility. Just one step further and he could be the President of our nation.

    How much farther could he bring our Freedom Index if he was able to implement many of the ideas that he is leading his campaign with?

    1. That would be an interesting analysis. I imagine you could use the metrics the Heritage/WSJ index utilizes to predict how much economic freedom might decline and then compare to global trends and what is happened in western Europe.

      Good thought. If Sander’s were president he would certainly attempt :o) to keep the Obamaian trend in economic freedom in the US on track.

  5. Why is it the the government is allowed to make these charts that are misleading? They should own up to what is really going on. Encroaching on our rights to do with our property as we please or even the gun laws are getting out of hand.

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