U.S. Economic Freedom Index Collapses to Carter Administration Levels

By Phillip W. Magness and James R. Harrigan

The Fraser Institute’s Economic Freedom of the World 2022 report was released this morning. This report covers 2020, which while most of our recent history is a bit of a blur, was the year when COVID-19 and COVID lockdowns defined our shared experience. The first of those lockdowns began in mid-March, and we spent most of the rest of 2020 figuring out how to negotiate a newly defined world. So whatever we end up seeing in the report, we’ll have to remember that we spent about 80 percent of 2020, for lack of a better word, grounded.

When additional years of data from the COVID era are added, we fully expect that economic freedom around the world will continue to falter. But let’s not get ahead of ourselves. The 2020 data is bad enough. The global average economic freedom rating fell .14 points in 2020, erasing a decade’s worth of improvements.

But first, some notes on what the Fraser Institute measures.

The Economic Freedom of the World report comprises measurements across five categories and 165 jurisdictions: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation. Perhaps the most important facet of the report is that we can look at the data in absolute terms, asking, for example, how well the United States has been doing over time. We can also look at the data in relative terms, asking how well the United States has been doing compared to the other nations of the world.

We have become accustomed to seeing a steady climb to better lives. Indeed, many of us could not comprehend living as our grandparents did. But thanks to the Fraser Institute, we now have detailed data from 1980-2020, detailing two generations. How do we stack up?

Many will be surprised that the United States is not at the top of the list of most-free countries. In 2020 the US was seventh, behind Hong Kong, Singapore, Switzerland, New Zealand, Denmark, and Australia. And while seventh in the world is nothing to sneeze at, the US trajectory has been downward for quite some time, if only moderately so. In 1980 and 1990, the US was the second economically freest nation in the world. In 2000, it was third. In 2010 and 2015 it was fifth and sixth, respectively. And by 2020, it was seventh.

But that only tells part of the story. It’s when we look at ratings rather than rankings that things get interesting. While the United States has been kicking around in the top ten, even if falling, for decades, it is not doing all that well when compared to itself over time. Indeed, the US’s cumulative rating of 7.97 is considerably lower than its 1980 rating of 8.34. Digging into the recent data, the United States dropped in rank across all five indexed categories from 2019 to 2020. The most significant changes have been in the size of government and regulation categories, where the United States fell 7.32 to 6.79, and 8.68 to 8.11, respectively. Both measures directly reflect the COVID era’s unprecedented expansions of government, as federal spending was unleashed from any semblance of fiscal constraint and draconian regulatory intrusions on daily economic life reached every single American.

In short, the United States finished 2020 less economically free than we were at the tail end of the Carter years.

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In the time since COVID, these problems have only continued to compound. The United States appears to be entering the same economic malaise of bloated bureaucracy, excessive taxation, and spiraling inflation that typified the Carter years. Back then we had to wait in line, sometimes for hours, just to buy gas. Now we have rolling blackouts and energy crises in some states, impending electric vehicle mandates, perpetual budget-busting deficits that were unheard of even two decades ago, and – yes – a return of inflation that tops 8 percent for the year. Perhaps the most telling fact of all is that our elected officials and policymakers haven’t a clue how to reverse these trends. Indeed, they are still feeding them.

So where is all this going? Well, 2021 is a full year of COVID lockdowns, so you can bet that data will be worse. We will know then, though, if 2022 shows a reversal of the decline – assuming that the present trends do not continue to compound the problems that COVID lockdowns started.

The real question now is whether we have learned any lessons about economic freedom and lockdowns. These new data provide us an unwelcome warning of what happens when the power of government becomes unmoored from any restraint, but the trend may yet be reversible.

Phillip W. Magness is Senior Research Faculty and Research and Education Director at the American Institute for Economic Research. He is also a Research Fellow at the Independent Institute. He holds a PhD and MPP from George Mason University’s School of Public Policy, and a BA from the University of St. Thomas (Houston). Prior to joining AIER, Dr. Magness spent over a decade teaching public policy, economics, and international trade at institutions including American University, George Mason University, and Berry College. Magness’s work encompasses the economic history of the United States and Atlantic world, with specializations in the economic dimensions of slavery and racial discrimination, the history of taxation, and measurements of economic inequality over time. He also maintains an active research interest in higher education policy and the history of economic thought. In addition to his scholarship, Magness’s popular writings have appeared in numerous venues including the Wall Street Journal, the New York Times, Newsweek, Politico, Reason, National Review, and the Chronicle of Higher Education.

Selected Publications

“How pronounced is the U-curve? Revisiting income inequality in the United States, 1917-1960” Co-authored with Vincent Geloso, Philip Schlosser, and John Moore. The Economic Journal (March 2022) “The Great Overestimation: Tax Data and Inequality Measurements in the United States, 1913-1943.” Co-authored with Vincent Geloso. Economic Inquiry (April 2020). “The anti-discriminatory tradition in Virginia school public choice theory.” Public Choice. James M. Buchanan Centennial Issue. (March 2020). “John Maynard Keynes, H.G. Wells, and a Problematic Utopia.” Co-authored with James Harrigan. History of Political Economy (Spring 2020) “Detecting Historical Inequality Patterns: A Replication of Thomas Piketty’s Wealth Concentration Estimates for the United Kingdom.” Social Science Quarterly (Summer 2019) “James M. Buchanan and the Political Economy of Desegregation,” Co-authored with Art Carden and Vincent Geloso. Southern Economic Journal (January 2019) “Lincoln’s Swing State Strategy: Tariff Surrogates and the Pennsylvania Election of 1860” Pennsylvania Magazine of History and Biography, (January 2019) “Are Adjuncts Exploited?: Some Grounds for Skepticism.” Co-authored with Jason Brennan. Journal of Business Ethics. (Spring 2017). “Estimating the Cost of Adjunct Justice: A Case Study in University Business Ethics.” Co-authored with Jason Brennan. Journal of Business Ethics. (January, 2016) “The American System and the Political Economy of Black Colonization.” Journal of the History of Economic Thought, (June 2015). “The British Honduras Colony: Black Emigrationist Support for Colonization in the Lincoln Presidency.” Slavery & Abolition, 34-1 (March 2013) “Morrill and the Missing Industries: Strategic Lobbying Behavior and the Tariff of 1861.” Journal of the Early Republic, 29 (Summer 2009).