U.S. Economy No Longer Free, Says 2010 Index Analysis

Jan 20, 2010, 10:00 ET from The Heritage Foundation

WASHINGTON, Jan. 20 /PRNewswire-USNewswire/ -- The U.S. economy is no longer "free" according to the "2010 Index of Economic Freedom," a 485-page analysis of the world's economies prepared by The Heritage Foundation and The Wall Street Journal.  

"Unprecedented government intervention in the financial and industrial sectors has crowded out private investment," said Dr. Kim R. Holmes, a Heritage vice president and co-editor of the Index. "In addition to distorting prices, these actions -- characterized by disregard for the contractual rights of shareholders and bondholders -- have eroded property rights."  

Combined with massive increases in government spending, these actions led to a 2.7 point drop in the Index's rating of the American economy.  That plunged the U.S. out of the ranks of the "free" and into the category of "mostly free" economies, Holmes noted.

The overall U.S. rating of 78.0 (on a 100 point scale) was good enough for eighth place, globally, but allowed Canada, with its 80.4 rating, to slip ahead.  For the first time in the 16-year history of the Index, Canadians now boast the freest economy in the Americas.

The 2.7 point decline in the U.S. ratings was the steepest among the world's 20 largest economies. The United Kingdom, which followed the U.S. example of massive government economic intervention and "stimulus" spending, experienced the second-largest drop in that group.  It dropped the U.K. from the ranks of the top 10 -- another first in Index history.

Published annually, the Index analyzes 179 economies around the world according to 10 basic categories of economic freedom, such as fiscal freedom, business freedom, government spending, property rights and corruption.  Category scores are then averaged to produce an overall score.

For the U.S., scores declined in seven of the 10 categories.  The Index summarizes the state of the U.S. economy as follows:

  • "Uncertainties caused by ongoing regulatory changes and politically influenced stimulus spending have discouraged entrepreneurship and job creation, slowing recovery."  
  • "Leadership in free trade is likely to be further undermined by 'Buy American' provisions in stimulus legislation and failure to pursue previously agreed free trade agreements with Panama, Colombia, and South Korea."  
  • "Tax rates are increasingly uncompetitive, and massive stimulus spending is creating unprecedented deficits."  
  • "Bailouts of financial and automotive firms have generated concerns about rights."

Economists and government officials around the world watch the Index ratings closely -- and not just for bragging rights in the competitive global marketplace. Economic freedom, as measured by the Index, correlates strongly with prosperity (as measured by per capita Gross Domestic Product) and other desirable outcomes ranging from environmental protection to overall well-being.  

SOURCE The Heritage Foundation