I just ran across an interesting piece of information released by Itar-Tass, the Russian news agency. I didn't quite believe it and set on a journey to find out exactly how distorted the story was. According to Tass, the United States has dropped out of the world's 10 freest economies list. Yeah, you shaking your head, too? And all this time we thought that President Putin was becoming more westernized.
Actually, and rather unbelievably, the statement is true. I spent some time in Moscow during the Communist reign and statements like this were taken at face value. No questions asked, at least at that time. But back here, I turned to my own sources and sure enough, there it was: for the first time since the U.S.-based conservative Heritage Foundation and The World Street Journal began compiling the Index of Economic Freedom, the U.S. has been dropped from the list of the world's top ten economies with the biggest degree of economic freedom. Incredible, but true.
Okay, what's going on? The idea of producing a user friendly "index of economic freedom" as a tool for policymakers and investors was first discussed at the Heritage Foundation in the late 1980s. Their goal was to develop a systematic, empirical measurement of economic freedom in countries throughout the world. A decision was made to establish a set of objective economic criteria to study and grade various countries.
The Index, however, is more than just a batch of data based on empirical study; it is a careful theoretical analysis of the factors most influencing the institutional setting of economic growth. Moreover, although there are many theories about the origins and causes of economic development, the findings of this study are straightforward: The countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than those with less economic freedom.
The 2005 Index of Economic Freedom measures 161 countries against a list of 50 independent variables divided into 10 factors of economic freedom. Low scores are deemed more desirable and the higher the score on a factor, the greater the level of government interference in the economy and therefore, the less economic freedom a country enjoys.
These 50 variables are grouped into the following categories:
* Trade policy
* Fiscal burden of government
* Government intervention in the economy
* Monetary policy
* Capital flows and foreign investment
* Banking and finance
* Wages and prices
* Property rights
* Informal market activity
On a global basis, the scores of 86 countries improved, 57 declined, and 12 were unchanged from last year's Index. The U.S. recorded an overall score of 1.85 for the second consecutive year, making it one of 17 countries rated as having "free" economies. Another 56 countries were considered "mostly free," 70 received a "mostly unfree" rating, and 12 were tabbed as "repressed."
The U.S. had top scores in property rights, banking/finance, and monetary policy, but a 4.0 rating in fiscal burden of government, ranks worse than all but 30 countries in the survey. This reflects poor scores in the area of taxation. No kidding!
Actually, the U.S. corporate tax rate ranks 112th out of the 155 countries scored, and its top individual tax rate ranks 82nd.
"The United States is resting on its laurels while innovative countries around the world are changing their approaches and reducing their roadblocks," says Marc Miles, a co-editor of the book, along with Ed Feulner and Mary Anastasia O'Grady. "The U.S. is eating the dust of countries that have thrown off the 20th-century shackles of big government spending and massive federal programs."
By the way, the group of ten countries at the bottom of economic freedom parameters includes Venezuela, Uzbekistan, Iran, Cuba, Laos, Turkmenistan, Zimbabwe, Libya, Myanmar, and North Korea.
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