Land of the "Mostly" Free

“Freedom is the right to tell people what they don’t want to hear.” – Eric Arthur Blair (a.k.a. George Orwell)

That the United States of America was this week demoted from its formerly “Free” categorization by The Heritage Foundation to that of “Mostly Free” should come as no surprise to any semiliterate, moderately contemplative individual. Americans living under the tyranny of a Big Brother-style government hardly needed a Washington-based think tank and a Wall Street Journal to tell them what they don’t want to hear. They can flick through a thousand channels of cable television and find plenty of that. Still, the report does raise some points worth discussing.

“The US government’s interventionist responses to the financial and economic crisis that began in 2008 have significantly undermined economic freedom and long-term prospects for economic growth,” the foundation wrote. “Economic freedom has declined in seven of the 10 categories measured in the Index.”

According to their website, the foundation’s Index of Economic Freedom “measures 183 countries across ten specific freedoms such as trade freedom, business freedom, investment freedom, and property rights.” This year’s publication was the first time in the index’s, albeit somewhat brief, 16-year history that the Land of the Free dropped out of the “Free” category. The US now ranks a still respectable 8th on the list, one spot behind Canada and at the head of a group that includes Bahrain, Georgia and Botswana. Perhaps more alarmingly, the nation experienced the steepest decline in score (since last year’s index) out of any of the world’s largest 20 economies. Poland, Mexico and Turkey enjoyed the biggest advances.

Perhaps the report means nothing…perhaps not. We have no doubt that many people will take issue with some of the findings therein, and probably justly so. All the same, few would insist that, as the world’s largest debtor and with one in ten workers “officially” out of a job, the state of the union has never been better. So how did the 20th century’s leading economy – one declared and established, in part, to emancipate itself from the burdensome oppression of British taxation – arrive at this juncture?

Under the leadership teams of Bush-Paulson and Obama-Geithner, the United States government has embarked on an unprecedented, bipartisan effort to destroy economic freedom in what was once considered the land of opportunity.

The US now taxes at an increasingly uncompetitive rate globally and state intervention into private enterprise has proved a disastrously ineffective substitute for the corrective forces of the free market. Where elected officials ought to concern themselves with protecting individuals’ property rights, they tread on them at every available opportunity. Where they ought to spend minimal funds defending their own borders, they spend too much attacking others’. And where they ought to show fiscal and monetary restraint, they debase the nation’s currency, pile up domestic obligations they can never hope to honor and incur deficits abroad that threaten to drag the entire economy asunder.

Add to this meddling the government’s conservatorship of Freddie and Fannie, bailouts to reckless banks and pinhead insurers, the de facto nationalization of the auto industry and a litany of other public make-work scams, all determined to borrow demand from the future to bolster opinion polls today. Trillion dollar deficits now hang like a noose around the neck of every United States citizen, rich and poor, old and young. Children not yet even born are already in hock to foreign nations and still their own government inflates away their future earnings at monthly Treasury auctions. Future generations are chained to debt before they have ever made or spent a dime.

Furthermore, through invasive wage manipulation at both ends of the pay scale – namely minimum wages and executive compensation caps – Washington has effectively waged war on the free market’s ability to determine its own prices for labor.

If a greedy CEO ruins his company with risky bets and/or enrages the public by dolling out lavish bonuses to foolhardy managers, the government must resist the temptation for a populist intervention and instead allow the free market to “clean house.” Sponsoring the shysters’ ineptitude with taxpayer dollars and then expecting them not to funnel the money into their own pockets is the epitome of poor fiscal stewardship. The government ought not to concern itself with private corporations, instead allowing them the freedom both to succeed and, just as importantly, to fail.

It will come as no surprise to free market enthusiasts that the foundation’s report also discovered/confirmed that higher levels of economic freedom are also positively correlated to an increase in per capita GDP and in “overall wellbeing,” resulting in “greater access to education, reduced illiteracy, increased access to higher-quality health care and food supplies, and longer life expectancy.”

Should this sound like we’re simply stating the obvious, ask yourself why, at every possible juncture, your elected officials are doing the exact opposite of freeing up the economy? If throwing big government to the wind and entrusting it all to the free market still inspires a little fear and trepidation, one might be interested in a quick look at the performance of the foundation’s “freest” economy…for the last 16 years running.

Bill Bonner and co-author, Lila Rajiva, described Hong Kong’s economic ascent in their book, Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics.

“Taxes were left at 15 percent and were levied only on salaries. The rich paid no higher rate than the middle classes. Regulations were few. If the middle class wanted housing, they could pay for it themselves, said the financial secretary. If businessmen thought a cross-harbor tunnel was such a good idea, he added, let them build it with their own money.

“As a result, Hong Kong boomed. Its annual growth rates during the entire period [second half of the 20th century] were typically two to three times those of Britain [Hong Kong’s ‘distant and almost uninterested’ ruler]. By 1992, Hong Kong’s output per person passed Britain’s – the old colony now was richer than the mother country. Undemocratically, dictatorially, Hong Kong had become one of the most peaceful and prosperous places on the entire planet. And one of the most free.”

All this is not to say that Hong Kong is without its own social, political, environmental and, indeed, economic difficulties [as of 1997 the island returned to within China’s official “sphere of influence”…for starters]; only to the extent that it has succeeded thus far despite these handicaps and because of market freedom.

Think tank indexes aside, it would be a great loss to all if The United States of America, a constitutional republic endowed with an abundance of natural resources, unparalleled entrepreneurship and a Declaration of Independence that positively enshrines each and every man’s unalienable rights to “life, liberty and the pursuit of happiness,” were to fail despite itself.

The Daily Reckoning