Economic Freedom

GB 540 Economics for Global Decision Makers

Nhut (Andy) Diep

2010
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Introduction

The Index for Economic Freedom published by the Heritage Foundation and the

Wall Street Journal (http://www.heritage.org/Index/) shows a clear correlation between

economic freedom and country’s economic wealth. From a long list of countries around

the world, viewer should see an almost perfect correlation why countries like Cuba,

North Korea, Venezuela, or China is at the bottom of the list. Did the fall of the Soviet

Union teach anyone anything? Just imagine if China does not open to economic reform,

how it can survive with over 1.3 billion people. In fact, throughout our long history,

including the failure of the Soviet Union, there is no doubt the free economies will

outshine the less free ones. The Index shows the overwhelming evidence that countries

like the United States, Japan, Canada, or England that have the most economic

freedom have better standards of living, while socialist or communist countries have the

least economic freedom tend to have the lowest. In fact, country like the United States

generated unparalleled ability to produce wealth, raise the general standard of living,

and provide goods and services in a society. Careful study of the long list of countries,

and analyze each government system, viewer should see a trend that when too much

government intrusion hinders the economic progress that occur every day and will

ultimately lead to economic slowdown. “If a government limits its involvement in

economic activity, so as to maximize opportunities for individuals to reach their full

economic potential, then it will be on a path leading to the greatest levels of prosperity

and human well-being for society as a whole” (Miller, Holmes, Kim, 2009). With the

collapse of the Soviet Union, worldwide economic liberalization, and increasing

international trade, people see countries like India, and many others have increased in

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prosperity and provided millions of people with new hope. No system is perfect.

Therefore, an index that shows relationship between economic freedom and wealth may

be useful. The information would be helpful to anyone or government seeking to

establish the weakness or strength of many governmental policies. More importantly,

government of many poor countries should learn which factors have the greatest effect

on economic expansion, so they can make policies that can help to create wealth,

prosperity, and happiness for their people.

United States of America

From the Index for Economic Freedom (http://www.heritage.org/Index/), The

United States’ economic freedom score is 78.0, making its economy the eighth freest in

the 2010 Index. Consider all of the latest regulations from the government in the last few

years such as bailouts for banks and the auto industry, out of control spending, the

healthcare bill, and many existing network of bureaucracies, the United States is 8th on

the list, which speaks volume why the U.S. is the world largest economy. Although the

first seventh countries on the list scored higher, but they are pale in comparison to the

U.S. with respect to productivity mainly because of population: One cannot compare

Hong Kong (7 million people) with the U.S. (> 300 millions) people or Canada or

Australia because these countries have as many people as the State of Texas or

California. Since the financial and economic crisis, people have witnessed an explosion

of new laws and regulations. Although these policies are not like many communist

countries, they will have a significant long-term effect on the world largest economy.

Just like many socialist and communist countries, less economic freedom will not lead

to expansion or prosperity. Other measures have been adopted or been discussed

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which have the effect of reducing individual freedom even more. If these paths continue,

the U.S. will not have the prosperity and wealth as it enjoyed for the last century. With

more government intrusions, and by reaching into virtually every sector of economic life,

the government is injecting uncertainty into the marketplace and making it harder to

raise new capital or create new businesses. When there are so many uncertainties,

businesses will need to figure out what this means for their bottom line. Until there are

firm answers, they will freeze hiring. Instead of stimulating the economy, vast expansion

of the size and scope of government (socialist or communist), and the threat that they

may pass even more such legislation, business and people will stay put. In that last

year, unemployment is around 10%, consumers aren’t buying, businesses aren’t hiring,

and those fortunate enough to have some cash on hand don’t seem to be investing. The

lame duck Congress and the White House can say what they want, but the fact remains

that even enormous government spending cannot revive an economy when government

threatens to take away everything you earn. With less job creation, and lower

investment, the economy will stagnate and double-digit unemployment will continue.

More regulations will not help.

Understanding the American System

The United States was a nation of development: a nation of progress and of

modernization. From the beginning, to the end of WWII and even now, the U.S. is

always on top because of its innovation and freedom. The economic freedom allows

people to have a high standard of living that people from other countries can only dream

of having. No system of government is perfect, but the U.S. is the most influential and

powerful mainly because of the American Economic System. In addition to many

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advantages that people have in the U.S., the economic freedom is one of the reasons

why the U.S. is the richest country in the world, and the quality of life is higher than

those who reside in economies that are less free.

According to many economists, economic freedom is an economic system that

provides individuals the opportunity to make their own economic decisions, free of

government constraints, and as private profit-potential businesses. They share a belief

that economic freedom and political freedom went hand in hand, and that such a unity

of liberty was the only means of achieving prosperity. "Freedom in economic

arrangements," Friedman wrote in 1962, "is itself a component of freedom broadly

understood, so economic freedom is an end in itself, but economic freedom is also an

indispensable means toward the achievement of political freedom." He believed that

“competitive capitalism—the organization of the bulk of economic activity through

private enterprise operating in a free market” is “a system of economic freedom and a

necessary condition for political freedom.” What make the United States great is that its

economic system allows for the privilege of individual ownership of property and the

means of production, unlike countries such as Cuba, North Korea, Venezuela, or many

Eastern European nations. Many see that the key component of the free market is the

right of individuals to make their own preferences in the purchase of goods, the selling

of their products and their labor, and their involvement in business structure.

Philosopher Ayn Rand, one of many great thinkers who advocated economic

freedom in the 20th century explained the crucial relationship between economic and

political freedom as being rooted in the requirement of human beings to have freedom

of thought and action. According to Rand, "Intellectual freedom cannot exist without

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political freedom," and “political freedom cannot exist without economic freedom; a free

mind and a free market are corollaries." She also argued that the key to human

prosperity was the protection of individual rights. People have that right in the U.S., and

with that mindset, people have the ability to produce material values. United States is

the world’s largest. With the unprecedented prosperity expansion of the 20 th century,

Rand and others argued that capitalism is the only system that enables people to

produce wealth and prosperity, and they believe the key to capitalism is individual

freedom. People noted that the economic freedom and happiness, prosperity and

growth are maximized under a free system, and that is capitalism: the economic system

of the United States, the world largest economy.

The American System in Decline?

Despite the high cumulative levels of economic freedom found in the United

States, especially as compared with other nations, there is, nevertheless, most

Americans note that the country is in decline. Since 2008, people have witnessed the

growth of the government, which have weakened the economic freedom and may be

damage the long-term prospects for economic growth. Vast expansion of the

government and stimulus spending has discouraged entrepreneurship and job creation.

In addition, expensive new government programs such as health care and climate bill

have increased visions for many economic disruptions, which is not good for the long

haul of the economy. People are concern when they see the growth of government,

which crowds the private sector out of the market and increase the tendency of inflation,

which will destroy the free enterprise. Inflation itself will works against the private sector

in that inflated income will push people or employers to a higher tax bracket, less money

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to take home, discourage private spending, so discourages the private sector from

expanding or hiring workers; a cruel cycle of economic stagnant that result from

government expansion and the decline of the free enterprise.

More restrictions and barriers on what would normally be mutually beneficial

transactions; the government suffocates the economic activity stimulated by freedoms.

Instead of transactions where parties receive the expected benefit, high taxes, fees, and

lack of option now mark the situation. This reduces the value of the products and

services among parties. According to Shaw, the public-choice theory really

characterizes this situation well because it gives validity to the idea that the public

sector has no incentive to provide superior goods and services to attract consumers.

The United States will decline if the government continues forward with more intrusion

and follow the fail model of many socialist and Eastern Europe countries. Model that

demonstrated throughout history that government interference beyond the minimal level

necessary will weaken the people’s ability to create economic prosperity.

The United States is the most influential and powerful mainly because of the

American Economic System. People believe the economic freedom as the right of

individuals to pursue their interests through voluntary exchange of private property

under rule of law. The example of American freedom is a powerful one. Freedom of

choice, private property rights, and owner control, nowhere else has the liberty of

average citizens been greater, more secure, and more protected. The current trends

need to be reversed to preserve a great system: a great country.

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Bibliography
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“Suffrage City”(2209). Retrieved from The Economist database: January 25, 2009
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Holmes, K., Kim, B., Miller, T. (2009). 2009 Index of Economic Freedom. Published by
The Wall Street Journal and The Heritage Foundation.

Kane, T. (2007) “American Competitiveness: Why Well-Intentioned Labor Regulations

Serwer, A. (2009). “Can Jordan Build on its Relative Success?”

Shaw, J.S. (2007) ”Public-Choice Theory”. Retrieved from Library of Economics

Milton Friedman, Capitalism and Freedom, 40th Anniversary Edition (Chicago:

Ayn Rand, For the New Intellectual (New York: Signet, 1961), 25.

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