The Fraser Institute recently released the 2022 Economic Freedom of the World (EFW) Report, reflecting data and rankings for 2020. The findings show that economic freedom in the U.S. fell to its lowest level since 1975, from 6th place to 7th. Although all countries in the report were negatively affected in terms of economic freedom by the COVID-19 pandemic and subsequent shutdowns. The U.S. decline is considerable and indicative of pressing problems that will continue to erode our liberty and prosperity if left unresolved.
Thankfully, the problems that put us here also point to the solutions that can propel us forward into prosperity.
During the peak of the pandemic-related shutdowns, the EFW rating fell to its lowest level since 2009, from the depths of the Great Recession.
Entrepreneurs were sidelined, small businesses deemed “non-essential,” and many Americans sent home from work, reducing economic freedom and opportunities to quickly overcome the government-imposed dire situation.
I recently interviewed Dr. Robert Lawson, founding co-author of the EFW report and Clinical Professor at Southern Methodist University’s Bridwell Institute, about these findings.
“The income per capita in the top countries [in the report] is about eight to nine times higher than the lowest-ranking nations,” he explained.
Economic freedom does not significantly affect equality, a common concern among critics, but it does have empirically positive outcomes for prosperity. As Thomas Sowell famously said, “There are no solutions. There are only trade-offs.”
In this case, the temporary health concerns of the public were placed on a pedestal that did not consider long-term prosperity. While vaccines and reopenings may have provided some relief from the pandemic, the massive economic consequences are proving to be much longer and steeper than it seems many policymakers were willing to concede.
Out-of-Control Government Spending
In just five months, we’ll be three years out from shutdowns and stay-at-home mandates that continue to negatively affect our economy today. The national deficit of 2020 was more than three times what it was in 2019, which was already bloated at $1 trillion due to excessive government spending.
At the time, many were convinced this was necessary for getting us through a public health crisis, and they were discouraged from considering the financial consequences these measures could impose. Couple that with the Federal Reserve’s more than doubling its balance sheet to $9 trillion, simply printing money at this point, and the U.S. is enduring its highest inflation rate since 1982.
And now, the Biden Administration discounts the wisdom history can teach us about inflation and instead opts to endorse new, unproven economic schemes like Modern Monetary Theory, which asserts that the Fed should create more money to fund Congress’ deficit spending, regardless of how it alters inflation.
It’s no wonder, then, that inflation continues to climb, robbing people of their purchasing power. This is theft through inflation.
Change is critical not just for economic output but because “more economic freedom improves indicators of social wellbeing,” as Lawson says. With more purchasing power and fewer impeding regulations, Americans can overcome challenging circumstances through work and long-term self-sufficiency, instead of being dependent on government programs that provide short-term payments. But cultivating this change requires creating trust as a culture in communities.
“In rule-based, highly regulated countries, building up trust is much harder,” says Lawson, who ventured to Venezuela, Cuba, Russia among other countries, speaking with citizens about how the lack of economic freedom affects their lives as research for his book Socialism Sucks. Without social trust, people don’t want to trade. Each new regulation and trade restriction the government passes weakens an individual’s ability to bring about change at ground level.
In addition to improving economic freedom, we need more hope in our public discourse. For nearly three years now, Americans have woken up daily to harrowing messages about how they’re vulnerable and incapable due to a widespread virus, inflation, supply-chain problems, and more. The common gloom-and-doom narrative has become the norm, leaving the nation yearning for optimism. Optimism sets democracy apart from totalitarianism and is desperately needed today.
The truth of the matter, and the hope it provides, is that there is a solution to this crisis: economic freedom. While the next annual EFW report hits in 2021 will likely reveal an even worse situation for economic freedom, a trend will likely continue given how the Biden administration is pursuing big-government policies that are destroying not only economic and individual liberty, but the American Dream itself.
We need a return to the classical liberalism that has advanced people’s livelihoods through capitalism and limited government. Those principles helped set the stage for billions of people to be brought out of extreme poverty, so let’s get back to them.