- - Wednesday, January 22, 2014

ANALYSIS/OPINION:

America’s famed free market economy is under siege. For the seventh year in a row, the economic freedom score of the United States dropped on the Index of Economic Freedom, compiled by the Heritage Foundation and The Wall Street Journal. The U.S. is now the 12th freest economy in the world, down from 10th last year, and ranks as a second-tier “mostly free” economy.

America is losing ground for obvious reasons. Runaway government spending, high taxes and onerous regulations are shackling the economy. The U.S., for example, ranks 137th out of 178 in government spending. By world standards, it is near the bottom in that category. General government expenditures are slightly over 40 percent of gross domestic product, and total public debt equals the size of the entire economy.


SEE ALSO: HOLMES: Why government is so hard to reform


Even though other countries have higher rates, U.S. taxes are still high by world standards. It ranks worse in the category of fiscal freedom than in government spending — 154th out of 178 — mainly because of high corporate and capital gains taxes.

Why does it matter that America is falling behind in economic freedom?

It was the free market that made America a prosperous nation. It is the proverbial goose that lays the golden eggs of wealth and prosperity. Even advocates of the welfare state should realize (as they are doing in places like Sweden) that the economy must be kept healthy and strong in order to produce the income they so desperately want to redistribute.


SEE ALSO: HOLMES: Why the fear of American exceptionalism?


The authors of the index explain why economic freedom produces prosperity: “The 20 years of Index data attest unequivocally that economies achieving or sustaining higher levels of economic freedom measurably outperform others in achieving dynamic economic growth, long-term prosperity and greater progress in many dimensions of social and human development.”

Put simply, a free economy ensures that, over time, Americans of all income levels can hope for better lives and higher standards of living.

The declining U.S. score matters for another reason. A slide here and there in a score may not mean much. But a score that falls seven years in a row is not a one-time statistical blip; it is a trend. It shows that changes made to the economy are becoming deep-seated and embedded into our policies, institutions and way of thinking. That’s a recipe for economic decline, as countless other nations in thrall to economic populism have had to learn the hard way.

It is particularly painful that we are declining while the world on the whole is getting better. The global average score in 2014 is the highest in the 20-year history of the index. We are now behind Canada, Australia, Chile and Mauritius, to name just a few, on economic freedom.

Even the Europeans are getting with the trend. Economic freedom advanced in 18 countries in Europe. Leading the way were Germany, Sweden, Lithuania and many countries from the old communist bloc. The Europeans are not out of the woods, but at least they are resisting the advice of the Obama administration to double down on the failed policy of more stimulus spending.

The United States used to be a model for the rest of the world. Countries looking to liberalize their economies would look to America for guidance and inspiration. There was a time when an agenda of economic liberalization was called the “Washington consensus.” No more. Today you might as well call it the Australian or Chilean consensus, because they are the ones leading the way.

When we’ve reached the point where Europeans are lecturing Americans about the virtues of less spending and debt, you know the world has been turned upside down. The only way to get it upright again is to restore economic freedom as the central principle of economic policy.

Kim R. Holmes is a distinguished fellow at the Heritage Foundation, co-editor of “The Index of Economic Freedom” and author of “Rebound: Getting America Back to Great.”