The Land of the Mostly Free

by Austin Raynor

Each year, the Heritage Foundation, in conjunction with the Wall Street Journal, releases a study tracking and assessing the economic freedom of countries around the world. Countries are graded, given scores ranging from one to one hundred, on ten categories of economic freedom, including such areas as government spending, freedom from corruption, and trade freedom.

This year’s study accounts for data from the second half of 2008 and the first half of 2009. The United States dropped 2.7 points, to an overall score of 78, in this year’s study, lowering it to the tier of “mostly free” (tiers include, “free,” “mostly free,” “moderately free,” “mostly unfree,” “repressed,” and “not ranked”). The U.S. is now ranked below Canada in terms of economic freedom.

Since last year, economic freedom in the United States has declined in seven of the ten categories measured in the study. In prefacing the United States’ new ranking, Heritage notes, “Uncertainties caused by ongoing regulatory changes and politically influenced stimulus spending have discouraged entrepreneurship and job creation, slowing recovery.

“Leadership in free trade has been undercut 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 property rights.”

The report underscores a number of important concerns -- although not all of them -- that have arisen since the government’s interventionist response to the economic crisis in late 2008. Large swaths of American industry have been effectively nationalized, including major portions of the financial and auto sectors. And what has not been totally subsumed by government has been seriously threatened by the growth of the leviathan.

Heritage correctly notes that entrepreneurship and organic business growth have been negatively impacted by the recently politicized economic atmosphere. Prices, conveyors of information, have been skewed by stimulus spending and firms’ fates have been determined, not based on market viability, but rather on government favoritism. These changes make it extremely difficult to accurately invest; by injecting its arbitrary influence, the government has perpetuated the markets’ instability.

Property rights have also suffered. In intervening and reorganizing major corporations, the government repeatedly breached contracts, whether by assigning disproportionate amounts of stock to Obama’s allies (e.g., labor unions), or by outright confiscation and redistribution of entire businesses (as happened in the Chrysler bailout).

The rule of law has been another casualty in this orgy of government spending. Law is just when it is based upon a set of general principles that apply to everyone. But in the wake of the financial collapse there has been a proliferation of administrative edicts issued by unelected “czars” that carry the weight of law and treat people differently based on their political connections.

Transparency, despite Obama’s promises to the contrary, has actually decreased under the present administration. The Troubled Asset Relief Program is notoriously opaque and the Fed’s distribution of trillions of dollars of liquidity has been subject neither to Congressional oversight nor information requests.

On the fiscal side, the deficit has exploded: our national deficit is now larger than India’s entire economy. However, it is overall government spending, not merely the deficit, with which we should be concerned. Government spending now accounts for 37 percent of American gross domestic product (GDP). Government spending rose by $1 trillion in 2009, a 20 percent increase over 2008.

That spending is financed by borrowing and taxation. Obama’s 2011 fiscal budget includes a massive $1.9 trillion tax increase. The federal marginal tax rate on high-income individuals will revert to 39.6 percent; taxes on capital gains and dividends will rise from 15 to 20 percent on high-income taxpayers. The only winners under conditions like these are tax-exempt government bonds.

In the wake of the financial meltdown, White House Chief of Staff Rahm Emanuel said, “[n]ever let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.” The Democrats took his advice, and restructured the American economy.

What has emerged from the catastrophe is a bloated bureaucracy, staggering unemployment, and a limping GDP. In order to maintain a free and prosperous society, the current trend of government growth must be reversed.