The Republic of T.

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Heritage Has Another "Economic Freedom" Index Out. Guess Where the U.S. Ranks. And Why.

It’s that time again. The folks at the Heritage Foundation (Jim DeMint’s new perch) have published another “Index of Economic Freedom.” I first encountered the index in April of 2010, when Heritage ranked Ireland in the top ten countries with the greatest degree of “economic freedom.” That was the year that Ireland began what Heritage euphemistically called “sharp economic adjustments,” and quickly became a “poster child for deficit hawks” and  an example of the high price of austerity.

This year, Ireland has slipped out of the top ten altogether, after slipping to no. 7 in 2011, and no. 9 in 2012. (A four point drop, in the midst Ireland’s austerity policies.) Heritage, however, is making a big deal out of the America’s position at the bottom of the top ten, after dropping from no. 8 in 2010, and no. 9 in 2011.

First, it’s necessary to establish some definitions, because we’re about to wade ankle deep into right-wing buzzwords cloak nasty realities with nice-sounding phrases with. (Orwell would be impressed.) Let’s start with “economic freedom” as defined by the Heritage index.

Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.

The “fundamental right of every human to control his or her own labor” in a society where “individuals are free to work” can mean many things, but it at least encompasses the “right to work for less.” And “individuals” who are “free to work” probably don’t need collective bargaining. So, throw out unions, regulations of just about any kind, add a huge doses of trade agreements and globalization, and you’ve pretty much got it.

There’s a lot that could probably be said about the Heritage Index. I may delve further into it later, to find out if any of Europe’ “austerity poster children” have fared as badly as Ireland. (What? Austerity doesn’t increase “economic freedom”?)

For the moment I’ll just focus on editor Terry Miller’s explanation for “America’s lack of freedom.

One reason for America’s lack of freedom is that its scores on regulatory efficiency—which include business freedom and labor freedom—have dropped. The editors point to the fact that “over 100 new major federal regulations have been imposed on business operations since early 2009 with annual costs of more than $46 billion.”Miller explains that what happens in Washington affects not only every corner of America, but of the world.

It is no exaggeration to blame the recent slowdown in economic liberalization around the world on the lack of U.S. leadership. Trade flows—the engine of world growth—have declined as the U.S. economy has stagnated. Protectionism threatens consumers and businesses with higher costs and restrictions in supply. Ill-conceived banking regulations such as the Dodd-Frank law generate uncertainty and anxiety. And investment freedom declines in the face of higher costs and new legal and tax liabilities such as those introduced by ObamaCare. These misguided U.S. policies hurt Americans first, but others feel the harm as well.

North America continues to be the world’s freest region, though Mexico was the only economy that improved its Index score over the last year. The region boasts two “mostly free” economies (Canada and the United States) and one “moderately free” economy (Mexico). It leads the world in terms of rule of law, regulatory efficiency, and open markets, but is getting worse where government spending is concerned.

This brought to mind Dave Johnson’s post about the November deficits.

Washington frets about the budget deficit, which is money we owe mostly to each other and have spent on things we do for each other to make our lives better. But the trade deficit is money that actually leaves our economy, making us poorer and less able to make our lives better.

The November trade deficit numbers are out:

  • The monthly U.S. international trade deficit in goods and services rose to $48.7 billion in November, up from $42.1 billion in October.
  • The monthly goods deficit with China was still huge at $29.0 billion in November. That is down a bit from the all-time record of $29.5 billion in October.
  • The 2012 U.S. goods trade deficit with China was $290 billion for those 11 months, and will probably top 2011′s record of $295 billion.

I haven’t had a chance to check the veracity of Heritage’s claim about regulation costing $46. billion since 199, but Dave post brings up an interesting point. If the trade deficit sucked $48.7 billion out of the economy, perhaps that’s a bigger problem than the “protectionism” Miller mentions.

Maybe reducing the trade deficit would boost “economic freedom?” Not by the Heritage definition, but I bet it would mean a lot more real economic freedom — good jobs, decent wages, good benefits, upward mobility, etc. — for a good many Americans.

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