United States Embarrassingly Ranks 17th in 2017 Economic Freedom
The internationally-renowned “Index of Economic Freedom” released its’ 2017 updated country rankings on February 15th and included in its’ press release were the following unflattering headlines for Americans:
“U.S. score declines further, slides to a global ranking of 17th”
“The United States saw its Index score decline yet again… to its’ lowest score in Index history.”
That is not exactly the positive news you would hope to hear, especially when compared to the relative score improvement experienced across the globe. Among the 180 total countries measured, over 100 recorded higher scores year-over-year and 49 countries tallied their highest Index score ever. To those countries, that is exciting news indeed! Compared to the relative economic struggles of our beloved United States of America, it is comforting to hear of forward progress being made abroad.
Yet the decline of the American economy, according to these measures, is certifiably a major issue and one which is not trending in the desired direction. Refer below for the US’ Index scores from 2008–2017:
That is not the directional trend you are looking for. Just for comparisons’ sake, I present a comparison to our friendly Northern neighbors:
To put these two figures into perspective, note that Canada ranks 7th globally in economic freedom and increased its’ score from 2016. Meanwhile, the United States ranks 17th globally and fell to its’ lowest mark since the rankings began.
In more subtle terms…
General Info on the United States’ 2017 Findings
According to the 2017 Index, the United States’ world-leading economy still suffers from stunted growth in job creation and labor market participation. The growth rate is both low and slow-moving. The election of Donald Trump does appear to be a direct attack at this sloth-like job market, as voters chose to put in charge someone they trusted to reverse this trend and spur a job creation revival. In his campaign speeches, Trump did promise to break away from the regulatory and industry trading policies installed during the Obama era.
Hindering the economy’s ability to grow at a faster rate are the trillions of dollars in public debt and enormous budget deficits burdening the country. These are central to the country’s low ranking compared to other countries not facing such enormous debt covenants. Investment levels have reduced to alarming lows, due to lack of investor confidence, and the previous administration’s extraordinary government expansion have damaged the US’ global competiveness in the market.
On a good note, however, it should be stated that America’s 75.1 score is still very good compared to most of the world. Recent strengths of the economy have been positive surges in manufacturing output and productivity. Also, services continue to account for a large majority of the country’s GDP.
With all of this in mind, let us dive deeper into the specifics behind the USA’s world ranking..
Key Drivers in the U.S.’ Lowest-Ever Score
The Index ranks measures countries and gathers data into four key policy areas to determine their all-around scores:
- Rule of Law
- Government Size
- Regulatory Efficiency
- Open Markets
I will summarize the 2017 findings below, while also providing a brief description of each key policy area.
Rule of Law
Broken down into two broad categories, “Rule of Law” is an assessment of a nation’s 1) property rights, and 2) freedom from corruption. Regarding property rights in America, they are trending positively due to their being guaranteed and protected by the Supreme Court. However, protection of these property rights has been a recent issue. Refer below for a detailed excerpt of this from the US’ Index page:
For example, rising civil asset forfeitures by law enforcement agencies and a vast expansion of occupational licensing have directly encroached on U.S. citizens’ property rights.
Key categories rolling up into this area are 1) government spending, 2) tax burden, and 3) fiscal health. Government spending continues to rise and makes up over 38 percent of the country’s total GDP. As for perhaps the most alarming piece of data, see below for America’s “Fiscal Health” measurement:
The leading causation of this downward trend is public debt, which is currently equivalent to 105.8% of the country’s GDP. Folks, that is not ideal.
If you have read the news any time recently, you will have undoubtedly heard about President Trump’s significant budgetary proposals and how they stand in direct contrast to those of former President Barack Obama. Regardless of your political leanings, it is a fact that the number of previously-raising federal regulations raised annual compliance costs to $100+ billion over the past 7 years.
This is one of the factors in this policy area’s calculation. The broad categories are 1) business freedom, 2) labor freedom, and 3) monetary freedom. All three score in the 80–90 range, which is a good sign. However, the steady growth in federal welfare programs and subsidies for agriculture, health care and corporate welfare contributed to growing government deficits that negatively impacted these rankings.
Lastly, this area measures 1) trade freedom, 2) investment freedom, and 3) financial freedom. Trade freedom is a combined measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services. In an economically free country, investment freedom is defined by the idea that there would be no constraints on the flow of investment capital. Individuals and firms would be allowed to move their resources into and out of specific activities, both internally and across the country’s borders, without restriction. As for financial freedom, it measures the difficult-to-calculate banking efficiency of a country in concurrence with a government’s interference, or “hands-on policy,” with its’ nation’s financial sector.
Most noteworthy regarding trade is its’ relation to the country’s GDP, as its’ combined value of exports and imports only equals 28%. This indicates a moderate level of important of trade to the US economy. Also note that America ranks near the Top 20 in each open market indicator above.
Reviewing the above information is important for gaining insights into the positive and negative trends of the US economy in relation to the world. It will be interesting to see whether or not drastic changes or seen in the coming years as President Trump’s policy changes take info effect. In the meantime, I highly suggest that you take a glance at the Heritage Foundation’s excellent website that stores all of this amazing public data!
In addition, please tell me what your biggest concerns are from this Index world ranking. Feel free to comment or reach me via Twitter @CuriousMeasures.
Thank you for reading!