America’s Economic Freedom Tumbles in Decadelong Decline

Last year, America was ranked 20th in The Heritage Foundation’s Index of Economic Freedom. This year, America’s rating in the index fell five places and now stands at No. 25, behind nations such as Ireland, Canada, and Chile.

“We’ve been on about a decadelong decline in our economic freedom,” Terry Miller, a visiting fellow for economic freedom at The Heritage Foundation, says. (The Daily Signal is Heritage’s multimedia news organization.)

Miller joins “The Daily Signal Podcast” to discuss the recently released 2022 Index of Economic Freedom, and why America is falling further behind. 

We also cover these stories:

• Congress releases a $1.5 trillion omnibus spending bill to fund the government.   
• The Kremlin accuses the United States of declaring economic war on Russia. 
• The federal government gets involved in cryptocurrency.

Listen to the podcast below or read the lightly edited transcript:

Virginia Allen: America is not as economically free as it was just one year ago, and here with us to explain why is Heritage Foundation visiting fellow for economic freedom Ambassador Terry Miller. Ambassador Miller, thank you for being here.

Terry Miller: It’s my pleasure.

Allen: In 2006, Terry Miller was appointed as an ambassador to the United Nations and U.S. representative on the U.N.’s Economic and Social Council. He currently serves as a visiting fellow, as I said, here at The Heritage Foundation and he plays a large role in writing Heritage’s annual Index of Economic Freedom.

The Index of Economic Freedom is one of Heritage’s most well known annual publications and the 2022 index has just been released. It ranks over 170 nations across the world according to their level of economic freedom.

Ambassador Miller, … when we say “economic freedom,” what exactly are we talking about? What does it mean for a nation to be economically free? And what does it mean that a country like Switzerland has more economic freedom than a country like Chile?

Miller: Well, when we talk about economic freedom, we’re really talking about the relationship between individuals and their government and the extent to which their government imposes regulations or other restrictions on their economic activity, while countries that do a lot of that provide less economic freedom for their citizens.

And that means that it’s harder for their citizens to work, it’s harder for them to find jobs, it’s harder for them to take care of their families and plan for the future and how they’re going to build their economic family prosperous, more generous benefits for themselves and others that they provide for themselves.

This is what economic freedom is all about. In many parts of the world and increasingly here in the United States, the government is taking a bigger role in economic activity and that reduces the playing field, really, on which individuals can act.

Allen: As you’re going through and you’re ranking all of these countries, you’re looking at things like the power of the government versus the power that individual citizens have and how many jobs are available for people in that country. A lot of factors like that, correct?

Miller: Oh, that’s exactly right. We’re looking at the extent to which governments are corrupt, which is a big constraint on economic activity in many places. We’re looking at the tax structure, how much government spends in terms of taking money out of the system and controlling its use. We look at business regulations, we look at regulations on the labor force, on workers. And finally, we look at the trading environment. Is the country open to trade? Is it open to investment? How easy is it for firms and individuals to obtain credit? And is the banking system honest? It’s those kinds of factors.

Allen: The big question is, where does America fall on this ranking?

Miller: It’s sad to say, America is only 25th in the world in terms of providing economic freedom. We’ve been on about a decadelong decline in our economic freedom. We used to be in the top 10, now we’re 25th. We dropped five places in this year’s index. What’s going on here in the United States right now is not very good.

Allen: What’s changed that we’ve fallen that much over the past decade?

Miller: There are two factors that are really driving this decline. One is the increasing regulatory burden on individuals and on workers as well. And the other is the excessive government spending in the United States that has caused our fiscal health, in this year’s index, to drop to zero in our rankings. That’s as low as you can get.

We have a massive government deficit running around $3 trillion a year and we have massive government debt of about $30 trillion. And this is all mortgaging our future. It’s money that’ll have to be paid back by our children, our grandchildren. It’s reducing their freedom to operate in the future.

Allen: Who are the countries that are in those top slots that right now America should probably be taking some notes on?

Miller: The countries that are ranked free in the economic index are Singapore, Switzerland, Ireland, New Zealand, Luxembourg, Taiwan, and Estonia.

Just below them, I want to single out, really, all the Nordic countries. They all rank very highly in the index and they rank ahead of the United States in the index.

People talk about the Nordic countries being socialist but they really have a tremendous commitment to capitalism and they’re providing high degrees of economic freedom to their citizens at this point.

Allen: That’s really wonderful to hear. Well, I was fascinated to see this is the second year in a row that Singapore has taken that No. 1 position.

Miller: Yes. For many, many years in our index, Hong Kong was No. 1. But given the developments there over the past five years and the control that’s been exerted on them by the communist regime in Beijing, we didn’t really feel like we could get a good grip on what the current situation is in Hong Kong. It certainly has deteriorated and so we no longer rate them in our index.

That means Singapore has moved up to the top spot. And this year we had a couple of newcomers to the top spot that I mentioned before, Taiwan and Estonia broke into the top rank. So, there are countries doing well.

Allen: Yeah. For countries like Singapore and Taiwan that are in that Asian continent, what are they doing? How are they able to achieve such economic freedom?

Miller: They have very high rankings in what we call openness or open markets. They have virtually no restrictions on international trade. They’re completely open to foreign investment in their economies. They have minimal amounts of corruption in their society. They have a very social sort of strictness that keeps people honest and above board.

And so, those are the areas where they really excel. They also do a great job in balancing their budgets. They don’t have the governments out borrowing money and creating large deficits or government debts.

Allen: Yeah. That’s something that the U.S. could take a couple notes from them on, certainly. And I want to discuss a little bit, what is it that America can be doing right now to actually begin to improve our own economic score and to move toward greater economic freedom?

Miller: I think the first thing we have to do is to get rid of the lockdown mentality that has so badly impacted our country over the last two years. We need to make it possible for all Americans to work and to travel, to engage in whatever kind of economic activity they want to.

Many parts of the country, certain types of economic activity—and I’m thinking about restaurants or tourism-related operations—were all but shut down during the COVID panic.

I think in retrospect, we’re going to find out that all or much of that was terribly excessive and it’s done tremendous harm to people in our country and particularly to the poor people and the middle classes who operate and have those kind of jobs.

And it hasn’t caused people to suffer particularly in the upper classes or people who can work remotely, but for people who are out there doing service jobs and others, it’s been a tremendous blow. So we need to get away from this COVID restriction mentality.

And then we need the government to stop mortgaging our future with these massive spending bills. We’re seeing the inflation that that’s causing right now. There’s nothing good that can come from that.

Most of those programs that they’re trying to increase spending for in Congress have been shown to be ineffective. They don’t do what they’re really claiming to do in terms of providing jobs or benefits for people. Most of that money is just wasted and yet, it still is going to have to be paid back by our children.

Allen: Yeah. I think that’s such an interesting point that you make because we can, and I think what we’ve seen somewhat in America is politicians pointing to COVID as an excuse for why the economy is maybe not doing as well as it was several years ago and why there is struggle. But yet we see from so many other countries in this index, they’ve done OK through the pandemic and some have even risen in levels of economic freedom.

Are there any countries that made a lot of significant progress over the past year in terms of economic freedom that you were surprised to see?

Miller: I wouldn’t say I was terribly surprised to see the increases in Taiwan and Estonia. Both of those countries have been working very hard to increase the market orientation, the free market orientation of their economies. And so, I was very pleased to see them move up in the index.

And I wasn’t surprised to see the Nordic countries move up because by and large, they took a very light approach to COVID restrictions. Sweden was famous … for the lightness of its COVID-related restrictions. And the other Nordic countries continued to allow children to go to school, they allowed businesses to stay open during the pandemic, so they avoided some of the big mistakes that other countries made.

Allen: Now, when we look at the very bottom of the list—like I said, there’s over 170 nations ranked in this index. When we look at the very bottom, what nations are at that end of the list for economic freedom?

Miller: Oh, well, it’s the countries that have made a big commitment to socialism or communism over the years. North Korea is at the very bottom. They have virtually no economic freedom at all.

But then just above them—ranking 175th and 176th—are two American countries, Cuba and Venezuela, both of which were originally more free market-oriented and capitalist. And half a century ago, Cuba moved away from that and has impoverished their people as a result. And more recently, Venezuela has moved away from that and they likewise have impoverished their people.

And you see what happens when countries adopt these government-centric economic policies and restrict the ability of their citizens, destroying their freedom. They fall to the bottom of our rankings, but more importantly, they ruin the lives of their people.

Allen: In addition to those rankings, in addition to the index providing so much information on which country lands where—and you-all have categories from free to somewhat free, less free, repressed—what other information does the 2022 Heritage Foundation Index of Economic Freedom provide?

Miller: We provide background information on every country. Each country has a separate page, two pages, actually, in the index that contain information specifically about that country, about their political system.

There’s often a little bit about their history in there or their geographic situation that sometimes can have an impact on economic activity. And then we provide a detailed look at each of the 12 categories of economic freedom and how they’re doing in those. That forms the basis for our index rankings.

And finally this year, we provide some information on the impact of the restrictions that governments put in place to try to deal with the COVID panic because that’s had such an important impact over the last couple of years.

Allen: And who is the index really meant for? Are policymakers and global leaders looking at this index and examining ways that they can improve?

Miller: Yes, I think that’s probably our most important audience … policymakers in countries around the world. They do pay a lot of attention to the index. They often contact us with information or to request information about how we arrived at the rankings. We have wide-ranging policy dialogues with economic and political leadership in countries around the world as a result of this index.

And I think that’s very positive, actually, because the vast majority of countries in the world are trying to improve the economic situation for their citizens and increasing economic freedom and committing to the free market and to, really, the capitalist system, the international trading system. This is the proven way to increase prosperity and leaders around the world understand that.

Allen: Such a helpful resource for so many people. And I’m so glad that it’s having that influence at the level of policymakers and world leaders, but it’s such a fun resource, really, for anyone to look at just to see, OK, what nations are embracing economic freedom?

For anyone listening who wants check it out, you can find all the information at heritage.org/index. Again, that’s heritage.org/index, or you can just search for the 2022 Heritage Index of Economic Freedom.

Ambassador Miller, thank you so much for all of your work on this product and for your time today to explain what exactly the index is and why it’s so important.

Miller: It’s been my pleasure. Thanks for the opportunity to talk to all the listeners out there.

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