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The Globe and Mail

Obama's interventionism eroding U.S. prosperity

When President Barack Obama delivers his State of the Union address tonight, he should - but won't - report the significant U.S. decline in economic freedom during his first year in the Oval Office.

Jointly published last week by the conservative Washington-based Heritage Foundation and The Wall Street Journal, the 2010 Index of Economic Freedom (a 480-page work) strips the United States of its traditional designation as a "free economy," listing it instead - and ranking it as No. 8 in the world - as "partially free." More embarrassing for Mr. Obama, it elevates Canada to the No. 7 spot that the United States surrendered, making Prime Minister Stephen Harper the leader of the economically freest country in the Western Hemisphere.

Though classically liberal in economic philosophy, the Heritage Foundation produces its annual global analysis on the basis of empirical observation and objective research. Participating economists grade on 10 qualities - among them, open borders, competitiveness, regulatory efficiency, debt and adherence to the rule of law. They score each attribute on a scale of 1 to 100 and then divide the accumulated score by 10, thus maintaining a score card with a scale of 1 to 100.

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This year, 183 countries were evaluated, 179 of them with an "economic freedom" score. Hong Kong takes top spot, scoring 89.7, making it the economically freest of jurisdictions. (With eight 0.0 ratings, North Korea managed to score only 1.0, making it the economically most repressive.)

A score of 80 designates a "free economy." Canada scored 80.4 - replacing the U.S. (78.0), which fell by 2.7 points in a single year. The other five countries designated "free" are: Singapore (86.1), Australia (82.6), New Zealand (82.1), Ireland (81.3) and Switzerland (81.1). The two other countries in the Top 10 are Denmark (77.9) and Chile (77.2). For the first time in two decades, Britain (76.5) fell out of the Top 10.

One arresting observation from this exercise is the recognition that, as columnist Charles Krauthammer put it in an article last October, "Decline is a choice." The recession didn't cause a significant decline in global economic freedom, because many countries chose not to participate in the great Keynesian spending spree that left other countries much deeper in debt. Thrifty countries exited the recession freer than the big spenders, which must now deal with debt crises of their own making.

Four of the Top 10 are Asia-Pacific countries (Hong Kong, Australia, New Zealand and Singapore). Adding Canada, Ireland and the U.S., seven are former British colonies. Mauritius, the island nation off the east coast of Africa, now ranks as the 12th-freest economy in the world, and the fastest-ascending economy of them all. Though francophone, Mauritius, too, is a former British colony. Thus, of the Top 12 countries, nine have strong British historical connections, which must mean something.

Canada scored its best grades for business freedom (96.5), property rights (90.0), trade freedom (88.1) and freedom from corruption (87.0). Its lowest grade was for government spending (54.1), meaning that it spends too much - though Canada kept its stimulus spending under relatively prudent control. Were Canada able to restrain public spending as diligently as Chile, though, it would advance to No. 4 in the Top 10. The 2010 Index of Economic Freedom asserts that the U.S., as only a "partially free" economy, will have greater difficulty coming out of its recession-driven excesses than more disciplined countries. In his analysis of the U.S. predicament, Paul Gigot, editorial page editor of the Journal, anticipates serious consequences from Mr. Obama's excesses. He notes that no country has ever devalued its way to prosperity. (If it were possible, he says, "Argentina would be a paradise.") The essential problem is that the soaring U.S. debt means slow economic growth ahead, only more so as the country takes on more debt.

By Mr. Gigot's analysis, Mr. Obama's grandiose legislative ambition has become the country's biggest debt problem - "a de facto government takeover of health care, a gigantic new tax on carbon energy, the political allocation of capital in energy and autos ... nationalization of the mortgage market, a hostility to freer trade and much higher taxes needed to pay for it all." These things, Mr. Gigot says, will combine to reduce U.S. prosperity, which is perhaps why Mr. Obama's imitation of Franklin Delano Roosevelt looks progressively more embarrassing.

"The world's investors can move at the flip of an electronic switch," Mr. Gigot writes in the foreword to the 2010 index. "The reality of global competition and instant capital flows means that wise policy decisions will be rewarded faster than ever before." It is the freer of the world's economies that will attract the bulk of these rewards - countries such as Canada, now closing fast on Switzerland as one of the few economically free nations on Earth.

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