The 2012 Index of Economic Freedom has just been released. This is my favorite publication from the Heritage Foundation, and second only to the Economic Freedom of the World Index as a measure of global public policy.
The news scores for 2012 are not pretty. We have bad news, we have worse news, and we have worst news.
The bad news is that the score for the United States dropped from 77.8 to 76.3, which caused America to drop from 9th place to 10th place in the global rankings.
The worse news is that the U.S. dropped only one spot because other nations also adopted more statist policies. America would be in 12th place if Denmark and Bahrain simply maintained their positions from last year.
The worst news is that America’s decline is not just a one-year phenomenon. The chart shows how the U.S. has dropped from being a “free” nation to being a “mostly free” nation over a four-year period.
But it’s not just the past couple of years. The second chart, using data from the Economic Freedom of the World Index, shows that the United States has declined over the past 11 years thanks to Bush-Obama statism.
In other words, America is paying a real prices for bad government policy. As jurisdictions such as Hong Kong and Singapore continue to liberalize their economies and maintain high levels of economic freedom, jobs and investment will leave the United States in search of friendlier policy.
The only silver lining to this dark cloud is that other major economies – especially in Europe – are deteriorating at a faster rate. So America will benefit from flight capital in the short run even though our long-run prospects are equally dismal.
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The US is now entering the same irreversible central theme that has been playing in Europe for the past decade or two.
The decline can be captured in the changing mentality of the western world voter: Three billion people in the emerging world finally awaken from their mandatory collectivist stupor, and start applying competitive pressure to the western world. Western world middle class voters, accustomed to a prosperity level 3x-6x the world average see their 3x-6x multiple slipping away against the backdrop of an average world prosperity rising 4-5% per year. Rather than steepening the incentive effort/reward curve, to regain competitiveness, western voters suicide by embarking on a delusional attempt to maintain their prosperity multiples, not by productivity gains, but through redistribution and central planning. Yes, the very same redistribution and central planning that once kept in stupor their now formidable competition.
How can this possibly end in anything but decline.
So Western World voters self-destruct. The more their competitive advantage declines, the more they desperately try to hang on to their advantage, not by increasing competition incentives, but by voting for politicians who offer them the very temporary relief of redistribution, and the innovation stifling homogenization of central planning.
When looked from a historical perspective, the decline of the west in the early 21st century is precipitous – this is because in the modern world, everything moves faster so declines are also swift. “Never before had such a major global rearrangement of prosperity occurred in such a short period of time…” historians will write in 2050. This is not some distant decline to be experienced by our children. Unless your life expectancy is less than five years, brace to experience the decline yourself. It is already happening. The western world’s recessions and recoveries are already happening against the backdrop of a 1-2% average annual growth trendline – an arithmetically certain path to swift prosperity convergence to the world average.
I see no national exit from this spiral. Only individual exits – if you keep a flexible approach to where in the world you and your children will live in the upcoming decades.