StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Has America Really Become Economically Unfree?

10 Apr 2010
Posted by Bruce Bartlett

In my Forbes column this week I look at the question of freedom and whether the United States has now become an economically unfree nation, as the Heritage Foundation says. In the process, I try to look a little more deeply at what freedom means because for many conservatives today it seems to consist of little more than low taxes and the right to carry as many guns as they would like. I didn't get into problems I have with Heritage's methodology, but after my column appeared I found this discussion by political scientist Dave Armstrong to be useful. BB

This week the conservative Heritage Foundation announced that the U.S. is no longer an economically free nation. Our score on the Index of Economic Freedom has fallen from 80.7 in 2009 to 78 in 2010, with a score of 80 being the cutoff between free and "mostly free."

It's not hard to get depressed about the prospects for economic freedom these days, given all of the government interventions of the past 18 months in response to the Great Recession. However, I think it's important to remember that freedom encompasses much more than escaping government's oppression and intrusion, and growth in government spending and taxation don't automatically lead to totalitarianism.
I think many conservatives and libertarians look at government's share of the gross domestic product as the central measure of freedom. Implicitly, they assume that if there were no government we would be 100% free. If government taxing and spending consume one-third of GDP, then we are only two-thirds free and so on.
Obviously, there is something to this. But because it's so easy to measure government's share of the economy, I think there is too much attention paid to it to the exclusion of other important factors. On the one hand, we underestimate the importance of government regulations because they are hard to quantify yet may affect our lives more significantly than taxation or other governmental actions. On the other, I think we tend to underappreciate the ways in which technology frees us. The blessings of things like cellphones, PDAs and the Internet compensate for an enormous amount of waste and inefficiency elsewhere in society and the economy. To the extent that technology boosts productivity, it makes the burden of government more bearable.
Another thing we tend to forget is the great benefit of the wealth that almost all Americans have today. Not that many years ago, people had to spend an enormous percentage of their waking hours simply acquiring and preparing food. Now, even among poor households, obtaining adequate food is a minor concern. Indeed, obesity is a far bigger problem among the poor than malnutrition. The freedom to do things other than grow crops, raise livestock and cook on a wood stove is not one to be underestimated.
Because of the declining cost of things essential to life, burdens that might have been unbearable in the past can be borne with relative ease today. Consider taxation. If much of society is barely able to produce enough to live on then even the smallest tax can be extremely burdensome. That's the main reason why tax burdens before the 20th century were minuscule by today's standards: There was simply nothing to tax. Wealth, incomes, output and productivity were too low for there to be much for government to take.
Now that the cost (both absolutely and relative to income) of basics--food, water, clothing--have fallen dramatically from just a few generations ago, people can afford to pay more taxes without suffering the deprivation that similar burdens would have imposed in the past. And we get more back for our tax dollars. In the past most government spending went for wars. Today, at the federal level, the vast majority of people will get back every dollar they pay in Social Security taxes plus a lot more, and Medicare provides a valuable service that will eventually benefit almost everyone. At the state and local level, spending mostly goes for things that people want, like police and fire protection, schools, parks and roads.
This brings me to an unappreciated point about how Social Security and Medicare add to freedom. Conservatives and libertarians tend to look at these programs solely in terms of the way they diminish it. But before these programs came along, care for the aged imposed an enormous burden on families that decreased their freedom.
Children were expected to take in their aged parents, care for them and provide them with food and medicine out of their own pockets. (That's a key reason why people had more children in the past.) It's a tremendous blessing for children to not have to worry so much about their parents--this has increased their freedom in ways that can only be appreciated by those who still have to care for a frail, ailing parent in old age.
At the same time, advanced health care and nutrition, not to mention Social Security and Medicare, have vastly increased freedom in old age. Not only do people live much longer today, but they are in far better physical condition and better able to enjoy life well past age 65. Those who would otherwise be crippled now have mobility, the formerly deaf can now hear and drugs now cure diseases that killed millions in the prime of life in the past. All of this adds immeasurably to freedom and tends to be overlooked by those who dwell exclusively on the relationship between people and government as its sole determinant.
I would just add that freedom is defined not only by the relationship between citizens and the state but also in private and business relationships as well. For example, not long ago it was extremely difficult to get a divorce; now it's very easy. In the past many women were trapped in loveless marriages simply because they had no other option in a world in which job opportunities for them were extremely limited. There were also deep societal stigmas attached to things like having a child out of wedlock. Today, of course, women are thoroughly integrated in the labor force, and options for single women, whether divorced or never married, are as broad as they are for men, including those who choose to have children without the benefit of marriage.
Other groups in society have also seen a vast increase in their freedom over the past couple of generations. Blacks and other racial and ethnic minorities have improved their position in society astonishingly, just compared to that when I was a child. For the most part, homosexuals, atheists, Jews and other groups historically discriminated against are now free to live their lives without having to hide their nature or beliefs to avoid persecution. Of course, more needs to be done. But we shouldn't dismiss the fact that enormous progress has been made to increase freedom for millions who had very little within recent memory.
My purpose is not to defend government or say that taxes and government spending don't matter for freedom. My point simply is to suggest that there tends to be a myopia among conservatives and libertarians that is very quick to condemn governmental curtailments of individual liberty, while failing to appreciate or even acknowledge expansions of personal freedom that have enormously improved our lives over those of our parents and grandparents, not to mention those in the distant past.
There is also a tendency to exaggerate the importance of recent curtailments of freedom while failing to put them into proper historical context. Thus the small rise in the top income tax rate that Barack Obama supports is viewed as economically devastating by all conservatives, many of whom predicted a recession, which never happened, from the rise in the top rate in 1993. Yet the top rate he has proposed would still be well below what it was from 1936 until 1986.
According to Heritage, even with the huge expansion of government over the last two years we are still more free than we were in every year of the Clinton administration. It says that economic freedom during those years peaked at an index score of 76.7 in 1996, falling to a low of 75.4 in 1998. (In fact, the Clinton years were a lot better, economically, than today or any year of the George W. Bush administration, which suggests that economic freedom and economic prosperity don't necessarily correlate.)
In an important essay for Reason magazine this week, David Boaz of the Cato Institute points out that libertarians and conservatives have an unfortunate affinity for idealizing 19th-century America as some sort of libertarian paradise, which tends to airbrush slavery out of the picture. Even among whites there was a lot of oppression from the nature of small-town life in those days, where everyone felt free to stick their noses into everyone else's business and opportunities for travel, education and earning a living outside of farming (and other freedoms we take for granted today) were severely constrained.
Perhaps we are moving toward European levels of taxation and spending. While I would prefer not to live that way, I certainly don't view those in Scandinavia, where the level of government is twice what it is here, as twice as close to slavery as we are. In other words, it's not the end of the world even if the most pessimistic projections about rising taxation and spending are true. We can still live in a society that is only a little less free than the one we have today, even if freedom isn't expanded in other ways, such as through technology.
According to Heritage, the people of Denmark, where government spends more than 50% of GDP, are only a tenth of a point less free than we are (at 77.9), and those in Canada, which has long had a government-controlled health system, are 2.4% more free (at 80.4). While Hong Kong ranks as the place with the most economic freedom (at 89.7), its people have very little political freedom, according to the latest report from Freedom House.
Finally, it's important to remember that Americans do not live in isolation. Our freedom depends to some extent on freedom elsewhere. In the last 20 years there has been an enormous expansion of liberty because of the collapse of communism and increased freedom and prosperity in places like India, Iraq and Afghanistan.
It's too easy to be pessimistic about the future of freedom by focusing only on the economic. Looking at freedom more broadly shows enormous and underappreciated progress that is likely to continue even if the tax/GDP ratio rises in the future.
Stephen Bainbridge offers what I view as a not very serious counter argument here. James Joyner has a more balanced comment here. Matt Yglesias comments here. Charles Rowley comments here.

it's even worse than that

This is a fine article, a well-argued bit of perspective.

I think this Heritage announcement is worse than you suggest, though. Singapore is the second-freest nation on earth, according to that same Heritage publication. Singapore!

It's nice of Heritage and AEI to all but issue press releases saying, "we view ourselves as talking point-factories for the RNC." Alas, their PR armies will still show up on CNN and in the Post and Times and everywhere else, treated as if they might have something useful to say, described mildly as representatives of think tanks. Welcome to our public discourse, where lying is no bar to full participation.



"Singapore is the

"Singapore is the second-freest nation on earth, according to that same Heritage publication. Singapore!"

This is incorrect. They only say that Singapore is the 2nd most economically free nation.

The argument is that there's a high correlation between economic fredoms and political, religious, etc ones; not that economically free nations are the freest period. Singapore is more of an outlier, and even then its not Cuba. Economic freedom tends to influence other ones, is the theory.

The emergence of authoritarian capitalist nations like Singapore certainly problematics the classic liberal paradigm of "freedom is indivisible" but it still doesn't erase the correlation. After all, as china moves toward economic freedom its also become more free in other areas, though granted since they're emerging from a left-wing Orwellian nightmare, the bar is rather low.

libertarians are of course hoping that the newly economic free individuals will inevitably demand other rights, especially political ones, to go along with economic liberties; presumably once their foundation of wealth is built. On top of that, free markets generally demand freedom of information, so that problematizes the state's impulse toward censorship. A step up from the days of Mao has certainly occurred, but whether or not they go all the way toward substatiating fukiyama's thesis, only time will tell.

I don't have that much of a

I don't have that much of a quibble with what Heritage is trying to figure. It's that figure of 80 (why not 75? why not 90?) plucked from the air, which allows Heritage to assert that there's a qualitative, categorical difference between a nation with a regulated health care market, and one that merely has Social Security, an EPA, a military deployed on 5 continents, and a minimum wage. But there is no categorical difference, just the 3 percentage points.

Somewhat related: in free and rich" Dubai, a couple just accepted a sentence of a month in jail for kissing in public.

Economic Freedom

It measures economic freedom not all forms of freedom there are countries that are very restrictive in non-economic actions but free in economic ones.

Lower taxes = Economically freer

That seems to be your equation. Facile, simplistic, is what I say.

And about Singapore - with its Central Provident Fund, its massive Tamasek Sovereign Wealth Fund which invests your pension funds for you, its HDB and quota based housing - calling it "economically free" is a travesty of the word "free".

But it has lower taxes and fulfills your simplistic criteria, I guess.

You = Who?

How does one go about commenting on an article one has clearly not read?

Soon you'll be admitting that government can _add_ to freedom

Soon you may be making the argument that government - even, Yahweh forbid - government-run health care can add to freedom, to the extent it frees us from the potential for unforeseen, catastrophic risks, including medical. That paying a bit more to government in taxes (or being required to buy into a government-regulated plan) can mean that society - the members of society - is getting a net benefit, and hence a net improvement in freedom by almost any reasonable measure.

And then you will clearly have become a socialist.

And, of course, your counter

And, of course, your counter to that is to state that the epitome of freedom is the freedom to die penniless due to a severe illness, or to lose every possession due to a flood, hurricane, or earthquake.

And then you will clearly have become an ignorant fool.

What you fail to understand is that insurance against these types of things actually *does* increase freedom. Catastrophic insurance is the grease for capitalism's wheels, allowing us to take risks with our money that we normally would/could not take, including starting businesses that we normally would not start. Universal health insurance is simply the last leg on that stool, and the one that will allow more Americans to participate as entrepreneurs instead of being tied down to their existing job, or purposefully not contributing as much as they could so as to avoid losing every penny they've ever earned.

This is the one thing that certain people cannot comprehend about Social Security - it's an insurance program, not a retirement/savings program.

Oh dear, I really am going to have to flag points <irony>..

I really will have to start using the ... flag....

Thank you; I do, in fact, agree with you. Government _can_ contribute to increased freedom, and often even does.

Mr. Bartlett honorably points out that this measure of 'freedom' is absurd. I'd like to see him come out and admit that there are many areas where higher government taxes can lead to higher freedom in a meaningful sense, and make a more explicit argument than his main line here - to wit, a bit more government is acceptable because we're much richer than we were in the 14th century (or the 19th). Is it even possible that the causal relationship runs the other way, i.e., it's not because we're richer that we have more government, but in some cases, we could even be richer because we have more government?

I doubt many conservatives would quibble with the idea that this is the case for a well-managed military, judiciary, constabulary, or fire service.

To make my point explicit: reasonable people might disagree about aspects of health care management and insurance, and how well managed it may be, and whether it will contribute to increased riches (and hence freedom). But reasonable people do not simply fling calumny, nor resort to calling everyone who disagrees with them socialists.

It is time for Mr. Bartlett to formalize his break with the party that does this, and join the party of (relatively more) reasonable people.


I thought it went without saying that anyone who is not a 100% anarchist concedes that government adds to freedom up to a point. But perhaps it is a point worth repeating more often.

Sorry, I suspected that your

Sorry, I suspected that your post might be a tad facetious, but went with my head instead of my gut.

Oh, and Agreed

"Is it even possible that the causal relationship runs the other way, i.e., it's not because we're richer that we have more government, but in some cases, we could even be richer because we have more government?"

Forgot actually address your post: yes, I agree 100%. There's a reason that the US and other advanced nations have strong, centralized governments.

The basic rule is that some group is going to rule the roost, so you better make sure that that group is a) democratically elected, b) has the best interests of the country at heart (think consumer protections, civil rights), c) can maintain the rule of law, and d) represents a democratic continuum and not something like the Third Reich. I personally think that Republicans have gotten themselves in trouble with b) because of their ideology about letting the free market sort everything out.


A bit more on Denmark.

Forbes itself ranks it as "The Best Country For Business"

and a recent poll for the OECD nations found that Denmark, Finland, and the Netherlands are the happiest places to live (in that order).

Doesn't Forbes know that Denmark is a socialist hell hole, and don't the people of Denmark know that they are slaves?

Poor, huddled masses, yearning to be (economically) free

Many good points in this post.

It would be nice to think that the presence of Hong Kong and Singapore as the top two countries among the "economically free" would alert commentators to the absurdity of bemoaning the loss of American freedom. Even nicer would be the Heritage Foundation reconsidering whether their scores have anything meaningful to say about the kind of society people wish to be a part of.

Check Rajiv Sethi's comments on Albert Hirschman

Another outstanding work of plainly spoken common sense by Mr. Bartlett. Cheers!

This post by Rajiv Sethi is very relevant to themes discussed here recently.

"[Those] customers who care most about the quality of the product and who, therefore, are those who would be the most active, reliable, and creative agents of voice are for that very reason also those who are apparently likely to exit first in case of deterioration." - Albert Hirschman in Exit, Voice and Loyalty (1970)

Fascinating Read

Wow, thanks for that link - I knew nothing of Hirschman or his work until reading that post. Talk about reading something that just slaps one upside the head ! As a business owner myself, there are some real pearls of wisdom in Hirschman's book and Rajiv distills it all down very nicely for folks like me. Time to head to the library...

Um, the characteriziation of

Um, the characteriziation of Hong Kong as lacking in political freedom is a bit of a misreading of the map.

Hong Kong is an island that's about 386 square miles big, on any world map, the line indicating the presence of Hong Kong is larger than Hong Kong's presence on a map, because of this it's difficult to tell what color Hong Kong is (green = free, blue = not so free) but I can assure you it's a radioactive green, its proximity to China is no indication of the degree of political freedom of its citizens, its independent corruption agency, the constant protests against all types of issues and the high degree of participation and civic duty in this humble little island. Anyone who's lived in Hong Kong would find this characterization as insulting. Hong Kong has its own constitution and governance, making it quite the opposite of China's regime.

So double whammy, Hong Kong is super economically free and politically free.


Sure Hong Kong is politically

Sure Hong Kong is politically free; that is why half of its legislature gets directly appointed from Beijing. Oh wait no, they come from "special business" constituencies. But heck, I guess thats better than the wholly appointed chief executive.

But yes, other than the inability to elect freely their legislative and executive branch Hong Kong is relatively free.

More Economic Freedom = Less Economic Growth

Bruce wrote:
"It says that economic freedom during those years peaked at an index score of 76.7 in 1996, falling to a low of 75.4 in 1998. (In fact, the Clinton years were a lot better, economically, than today or any year of the George W. Bush administration, which suggests that economic freedom and economic prosperity don't necessarily correlate.)"

I ran the regression. The R squared value is 0.4974 which is statistically significant at the 95% given 15 observations (1995-2009) and only one independent variable. The t-statistic of the coefficient of economic freedom is
-3.587167 which has a P value of 0.0033.
The line of best fit is:


which means every point increase in the Heritage Foundation economic freedom score reduces real GDP growth by 0.6%.

So they do correlate, and quite significantly, just not in the way the Heritage Foundation would like.

reality check



In the Heritage Foundation calculation - freedom apparently means being free to do what the members of the Heritage foundation want to do.

I bought a beer in a glass bottle at a national park in Italy, and was allowed to walk around the hiking trails with it, because they expected I wouldn't throw it at a rock. In the United States they won't even give you a glass cup at a patio restaurant.

In Amsterdam both pot and prostitution are legal. The have much higher taxes, but much lower crime rates, teen pregnancy rates, and higher life expectancy. But low taxes are freedom, pot legalization is apparently not.

I have clients sending asking me about the logistics of living in Mexico or Costa Rica in retirement because of the low tax rates and cost of living. Of course you have to live in a gated community with armed guards - but apparently that's freedom. In the U.S. our stupid high taxes pay for that law and order, only the rich should be secure in their homes.

I'm from Massachusetts and we have all these "socialist" laws here like universal health care and gay marriage that inhibit our freedom. We also have one of the best economies in the country, the most educated work force, and score high on any living quality standard. But apparently being unemployed, uninsured and armed gives you more freedom that having a job, and education and access to medical care. Unless your sick, or want to buy something.

"In fact, the Clinton years

"In fact, the Clinton years were a lot better, economically, than today or any year of the George W. Bush administration, which suggests that economic freedom and economic prosperity don't necessarily correlate."

Arguably the most remarkable thing about Clinton years, fiscally speaking, is that they were the only period in modern times in which federal spending did not increase in real per-capita terms. Insofar as the Clinton years illustrate a flaw in the Heritage Foundation's methodology, that flaw would be underweighting the importance of low government spending (it currently accounts for only 10% of the score).

More generally, I'm not really sure what your argument is here. It seems to be that we shouldn't really worry all that much about the Obama administration's assaults on liberty because things have gotten better in other ways.

Yeah, all those other improvements are great, but they're largely a product of the prosperity we've enjoyed as a result of our economic freedom in the past, and continued progress on these fronts is likely to be contingent on continued economic growth, which in turn is likely to slow if we allow ourselves to be lead further down the road to eurosclerosis.

The bottom line is that the recent decline in our economic freedom is legitimately troubling. No, it doesn't mean that we're on a slippery slope leading inevitably to totalitarianism, but who said it was? It's still a negative trend, and one we should be fighting to reverse.


One problem I have with its index is the equal weighting given to each component. Yet it's obvious that some things are much more important economically than others. Another problem is creating a numerical index for things like property rights that can't be measured . Finally, some indicators are poor indicators of what they purport to measure. For example, Heritage says the top income tax rate is the main measure of the burden of taxation. I've did a study of this subject some years ago with Alvin Rabushka and we found that the top rate tells you almost nothing meaningful about a nation's economic policy or its tax system. The indicator that was important was the income threshold at which the top rate began. Lots of countries had high rates but one needed a lot of income before you paid any taxes at that rate. Other countries had much lower top rates but you hit the top rate at the equivalent of a US poverty-level income. I have also looked at changes in the thresholds for tax rates in the US over time and, again, they are much more powerful than changes in statutory rates.

Assaults on Liberty ?

"It seems to be that we shouldn't really worry all that much about the Obama administration's assaults on liberty because things have gotten better in other ways."

Please enlighten us all regarding these vicious assaults on economic liberty.

Personally speaking, my taxes went down this year, I'm finally starting to see business pick back up again with my software corporation, and I'm looking forward to buying cheaper high-deductible insurance on an exchange in the coming years.

The Truth is Really the Issue

"I've did a study of this subject some years ago with Alvin Rabushka and we found that the top rate tells you almost nothing meaningful about a nation's economic policy or its tax system. The indicator that was important was the income threshold at which the top rate began."

And herein lies the rub: Heritage knows darn well that this is the empirical truth, but they're really not in the business of truth-telling, are they ?


My guess is that no serious theoretical work went into creating the Heritage index in the first place. They just slapped together some international data that was easily obtainable from places like the IMF and World Bank and kept jiggering it around to where it showed the countries they wanted to be on top to be on top. I know that when I worked there Heritage got a lot of money from the Far East, so it wouldn't surprise me at all if the data were bent a little to ensure that places like Korea, Singapore and Taiwan got good ratings.

Thank God For SS and

Thank God For SS and California Teachers Retirement systems!!
They allowed my mom to live independently of me. I would have gone crazy otherwise. A nice women but...
Same goes for my autistic son. If I had to live with him I would go crazy and my wife would leave me. I like that freedom and gladly pay taxes to support those programs.

Defining Freedom


I want to let it pass, but I simply have to contradict this column of yours, even if I agree with it's sentiments.

You (and Boaz) are confusing language with content.

Slavery was not the reason for the civil war, the fact that the south paid for the government and could block the north's initiatives was the reason. Lincoln only changed to 'slavery' to get popular support. Slavery is a bad economic model and was in decline, and would continue to decline. Every economist in the world knows this. It's not about airbrushing slavery. It's about social status, political power, costs, and 'the long run'.

Denmark is a small homogenous society that has imported a labor class and has yet to experience the degree of friction that empires face when they merge cultures. Denmark literally pays a third of the poulation to stay home so that they wont disrupt the real people, and so that you can talk to an educated person in train station. They pay their poor and ignorant to go away. Homogenous societies are more generous and egalitarian. They can afford to be because political power is something that they have a grip over. The same is true for small societies. Comparing small communities of protestant nordics to the vast body of the world populace is either disengenuous or simply stuipidity. The italians in the south are a corrupt and lazy people. THe north know this. They hate doing it. American conservatives don't like it for the same reason. We aren't nordics. We're romans.

Freedom expands elsewhere? You mean capitalism spreads because it is a superior social technology. However, the vast body of the world is in the process both as an intellectual movement, an as a material political force, to totalitarian capitalism. We may live in the illusion that democracy is meaningful, but it's actually property rights and fiat money that make a nation. Our ability to expand has been under the force of arms. Not under our graces. Democracy if it persists another century, will be an oddity of northern european civilization. And there is no record in history of democracy enduring, and there is no rational reason that it should. It's a bad system of government for anything other than a city state.

Freedom is maintained by a freedom seeking minority of the population that is willing to use violence to perpetuate those freedoms. That is the source of freedom. It has been the source. It always will be the source. Most people want the fruits of freedom. But freedom has always been and always will be a desire of the creative minority.

You are confusing FREDOM FROM nature, and FREEDOM TO act. I've written a longer posting to you about this, because it warrants it. But freedom is a specific term that has to do with human political organization and the use of property (life and property).

The other 'freedoms' allude to are ***ANALOGIES*** to freedom. They are forms of security, safety, and reinsurance. They are not freedom. They are the RESULT OF THE PROSPERITY GENERATED BY FREEDOM.

In this comment, and in my posting, I have tried to correct each of your points as erroneous attributions of causality, in an attempt to provide a better understanding of conservative sentiments, and to express those sentiments as a rational economic philosophy.

"Conservatism is an economic strategy for group persistence on a longer time frame by a military class using sentiments that represent material economic costs."

This is a long article, but it is a topic that requires explaining a number of issues that are poorly understood for historical reasons.

Conservatives need a language to express their complexity. That language is in economics and sociology. The problem for any intellectual is to create a system of thought that can be expressed by people who can only understand those sentiments, people who are more critical of them, and those that an completely articulate them. Conservatives need to understand themselves in something other than metaphorical language in order to compete with short term thinking secular humanists.

And even with well meaning but erroneous conservatives who only serve to make the problem worse with their acquiescense and justification.

Four thousand words is the best I could do.

Slavery and the Civil War

Slavery was the cause of the Civil War. It is remarkable the lengths people go to ignore this fact.

This blog post is relevant:

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