Divided government is good for America’s economy.
Or, to be more specific, divided government is a net plus if the alternative is to have statists fully in charge of economic policy.
I made this point back in 2012 when I pointed out that the unemployment rate started falling after Republicans captured the House of Representatives, and we got further good results when gridlock led to an end to extended unemployment benefits, first in North Carolina and then the entire country.
We also see positive evidence in the new rankings from the Fraser Institute’s Economic Freedom of the World, which was published this week.
As you can see from this chart, the United States fell in 2010 to #18 in this global ranking of economic liberty, but now America has improved to #12.
That’s still far below our #3 ranking when Bill Clinton left office, so we’re still paying a high price for the statist policies of both Bush and Obama, but at least we’re finally moving back in the right direction.
If you look at the underlying data, you can see why America’s score has increased since 2010.
There was a slight improvement in the scores for trade and regulation, but that was offset by declines in the scores for monetary policy and property rights.
Fiscal policy is the area where there was a significant improvement for the United States, which matches with my data showing that sequestration and the Tea Party made a big difference by significantly slowing the growth of government spending.
But the improvement over the past two years, as noted above, is small compared to the decline in the previous 10 years.
Here’s how Economic Freedom of the World describes America’s fall.
The 7.81 chain-linked rating of the United States in 2012 is more than 8/10 of a point lower than the 2000 rating. What accounts for the US decline? While US ratings and rankings have fallen in all five areas of the EFW index, the reductions have been largest in the Legal System and Protection of Property Rights (Area 2)… The plunge in Area 2 has been huge. In 2000, the 9.23 rating of the United States was the 9th highest in the world. But by 2012, the area rating had plummeted to 6.99, placing it 36th worldwide. …the increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs, and the violation of the property rights of bondholders in the auto-bailout case have weakened the tradition of strong adherence to the rule of law in United States. …To a large degree, the United States has experienced a significant move away from rule of law and toward a highly regulated, politicized, and heavily policed state.
Geesh, we’re becoming another Argentina.
Looking at the big picture, a falling score is not a trivial issue.
The decline in the summary rating between 2000 and 2012 on the 10-point scale of the index may not sound like much, but scholarly work on this topic indicates that a one-point decline in the EFW rating is associated with a reduction in the long-term growth of GDP of between 1.0 and 1.5 percentage points annually (Gwartney, Holcombe, and Lawson, 2006). This implies that, unless policies undermining economic freedom are reversed, the future annual growth of the US economy will be only about half its historic average of 3%.
Amen. This is why I worry so much about the corrosive impact of big government.
Now let’s look at the overall ratings for all nations. The chart is too large to show all nations, so here are the nations with the most economic freedom.
You shouldn’t be surprised to see that Hong Kong and Singapore own the top two spots.
Other nations with very high scores include New Zealand, Switzerland, Mauritius, UAE, Canada, Australia, Jordon and Chile.
Getting a good score today, however, is no guarantee of getting a good score in the future.
I’ve already expressed concern about Australia moving in the wrong direction, but I’m even more worried about Chile. That nation’s socialist President is making very bad moves on fiscal policy, and also is trying to undermine her country’s very successful system of school choice.
But it would take a lot of bad policy for Chile to drop down to the level of Venezuela, which has the dubious honor of being in last place.
[…] without one (see Italy). It’s the overall burden of government that matters, which is why the rankingsfrom Economic Freedom of the World are the first place to look when determining if a […]
[…] without one (see Italy). It’s the overall burden of government that matters, which is why the rankingsfrom Economic Freedom of the World are the first place to look when determining if a […]
[…] a bible for policy wonks. So just like last year, and the year before, and the year before, and so on (you may sense a pattern), I want to share the […]
[…] a bible for policy wonks. So just like last year, and the year before, and the year before, and so on (you may sense a pattern), I want to share the […]
[…] a bible for policy wonks. So just like last year, and the year before, and the year before, and so on (you may sense a pattern), I want to share the […]
[…] eagerly peruse this annual survey every year (here’s what I wrote in 2015 and 2014 if you’re curious about a couple of recent examples). And this year is no […]
[…] eagerly peruse this annual survey every year (here’s what I wrote in 2015 and 2014 if you’re curious about a couple of recent examples). And this year is no […]
[…] passed and we see that Ireland has out-performed other nations, the lesson is that countries that get reasonably good scores in Economic Freedom of the World prosper more than nations that get lower scores. Yes, policy […]
[…] economy without one (see Italy). It’s the overall burden of government that matters, which is why the rankings from Economic Freedom of the World are the first place to look when determining if a nation is […]
[…] It’s the overall burden of government that matters, which is why the rankings from Economic Freedom of the World are the first place to look when determining if a nation is […]
[…] without one (see Italy). It’s the overall burden of government that matters, which is why the rankings from Economic Freedom of the World are the first place to look when determining if a nation is […]
[…] has the 4th-freest economy according to the most recent rankings from Economic Freedom of the World, eight spots above the […]
[…] before about the tremendous success of Hong Kong. The jurisdiction routinely is ranked as being the world’s freest economy, and its fiscal policy is a role model for spending […]
[…] de l’Indice de la Liberté Économique Mondiale (LEM) du Fraser Institute. J’en partage toujours les classements annuels quand ils sont publiés et je cite fréquemment les mesures de la LEM […]
[…] This century has not been good news for economic freedom in the United States. According to Economic Freedom of the World, America has dropped from being the 3rd-freest economy of the world in 2001 to the 12th-freest economy in the most recent rankings. […]
[…] According to Economic Freedom of the World, America has dropped from being the 3rd-freest economy of the world in 2001 to the 12th-freest economy in the most recent rankings. […]
[…] très friand de l’Indice de la Liberté Économique Mondiale (LEM) du Fraser Institute. J’en partage toujours les classements annuels quand ils sont publiés et je cite fréquemment les mesures de la LEM […]
[…] always share the annual rankings when they’re released and I routinely cite Economic Freedom of the […]
[…] a huge fan of the Fraser Institute’s Economic Freedom of the World. I always share the annual rankings when they’re released and I routinely cite EFW measures when writing about […]
[…] always share the annual rankings when they’re released and I routinely cite EFW measures when writing […]
[…] of government has increased in the United States in recent years. But we’re nonetheless the 12th-freest economy in the world. based on a comprehensive analysis of fiscal policy, regulatory policy, trade policy, monetary […]
[…] of government has increased in the United States in recent years. But we’re nonetheless the 12th-freest economy in the world. based on a comprehensive analysis of fiscal policy, regulatory policy, trade policy, monetary […]
[…] before about the tremendous success of Hong Kong. The jurisdiction routinely is ranked as being the world’s freest economy, and its fiscal policy is a role model for spending […]
[…] at broad measures of statism vs. markets, such as you get with the Economic Freedom of the World rankings, and then compare nations with better scores and those with worse […]
[…] is that we’re not there yet. Our overall burden of government has expanded, but we still have considerably more economic liberty than the average European nation. And that helps to explain why our recovery (even though anemic by American standards) is far more […]
[…] is that we’re not there yet. Our overall burden of government has expanded, but we still have considerably more economic liberty than the average European nation. And that helps to explain why our recovery (even though anemic by American standards) is far more […]
[…] the fact that policy stopped getting worse even boosted America’s relative competitiveness, so there’s a lot to be thankful for when politicians disagree with each other and […]
[…] another example of first-rate research from the Fraser Institute. They’re the publishers of Economic Freedom of the World, as well as some excellent research on the harmful impact of excessive government […]
[…] another example of first-rate research from the Fraser Institute. They’re the publishers of Economic Freedom of the World, as well as some excellent research on the harmful impact of excessive government […]
[…] Most recently, it was ranked (once again) as the world’s freest economy. […]
[…] Most recently, it was ranked (once again) as the world’s freest economy. […]
[…] Most recently, it was ranked (once again) as the world’s freest economy. […]
[…] Most recently, it was ranked (once again) as the world’s freest economy. […]
I don’t think it is america getting necessarily better, I think it’s just other countries ranked higher than us getting worse.
Dan greetings from Gevrey Chambartin in Burgundy wine country. What puts Mauritius up so high on the list? And wouldn’t you think the folk in Chile would have learned their lesson,especially watching what is going on in Venezuela. Warm Regards. Dick
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