How Much Economic Freedom do You Have?

Cato Institute, along with the Fraser Institute, has published the latest report on the Economic Freedom of the World. Since peaking at 2nd place in 2000, the U.S. has seen its rank fall rapidly, hitting a low of 17th in 2011. In 2012 America rebounded to 12th place, only to lose most of that again, falling to 16th in 2013 (the most recent data available, compiled in the 2015 index). You can see on the chart below that as America’s economic freedom has fallen, so too has its real GDP growth. The economic freedom index isn’t a guide to future GDP growth, but is a measure of the steps a country has taken to provide the conditions which would seem optimal to free exchange and the protection of property rights. Cato Institute describes the index here:

The foundations of economic freedom are personal choice, voluntary exchange, and open markets. As Adam Smith, Milton Friedman, and Friedrich Hayek have stressed, freedom of exchange and market coordination provide the fuel for economic progress. Without exchange and entrepreneurial activity coordinated through markets, modern living standards would be impossible.

Potentially advantageous exchanges do not always occur. Their realization is dependent on the presence of sound money, rule of law, and security of property rights, among other factors. Economic Freedom of the World seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and the other dimensions of economic freedom. The report is copublished by the Cato Institute, the Fraser Institute in Canada and more than 70 think tanks around the world.