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Is America Still the Land of the Free?

For the first time in the history of the Index of Economic Freedom, the United States is no longer in the top category of economically free countries, and even places second in the North American region (behind Canada). This years score of 78, though high by global standards, is 2.7 points lower than last year, and bumps it to a second tier country of freedom.

What is Economic Freedom?

Economic freedom refers to the ability of individuals 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. Studies in the Index of Economic Freedom demonstrate important relationships between economic freedom and job creation, per capita income, economic growth rates, human development, democracy, the elimination of poverty, and environmental protection.

What Changed?

The U.S. governments interventionist responses to the economic and financial crisis that began in 2008 have significantly undermined economic freedom and long term prospects for economic growth. There are multiple factors which affect a countrys economic freedom government size and regulation, trade restrictions, inflation and price controls, and labor policies, among the few. Economic freedom has declined in 7 of the 10 categories measured.

Uncertainties caused by ongoing regulatory changes and politically influenced stimulus spending have discouraged entrepreneurship and job creation, thereby slowing recovery. Leadership in free trade has been undercut by Buy American provisions in stimulus legislation and failure to pursue previously agreed trade agreements with Panama, Columbia, 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.

Why is Economic Freedom Important?

Economic freedom is crucial to increasing prosperity and creating jobs. Overregulation, taxes, and uncertainty in the market discourage investment the key factor in creating jobs. The solution to creating more jobs and delivering economic growth sits with entrepreneurs and businesses, not with government decision-makers. Put simply, the public sector can’t match the vitality of the private sector in promoting growth. Governments, even those that promise change, are primarily agents of the status quo. Real change happens when those outside the mainstream have the freedom to try new things: new production processes, new technologies, and new methods of organizing workers and capital.

Furthermore, greater economic freedom has a positive correlation to higher standards of living and GDP growth, less poverty, and good governance. Citizens in economically free nations enjoy greater access to ideas and resources, forces that let all of us exchange, interact and participate in an increasingly interconnected world. The best way to help those in poverty is to give them access to the pursuit of their own dreams and goals, and a stake in their own success.

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