There is one way President Donald Trump can prove beyond a doubt American exceptionalism in the land of the free. He can bring the U.S. economy back to the top of freedom rankings, akin to the nation’s performance in the 1980s and 1990s.
If that is his goal, there is a precise and rigorous yardstick available. Trump can and should pursue the number-one position, for the benefit of Americans and his own presidential legacy.
Dubbed the Economic Freedom of the World Report, the Fraser Institute of Canada releases the ranking annually in collaboration with academics and policy researchers from around the world. Although some nations lack trustworthy data—Cuba and North Korea, for example—the authors include 162 nations in the 2018 edition, published on September 25, in an extremely comprehensive and data-driven assessment.
The ranking mechanics have a gone through more than three decades of refinement, dating back to planning support from Nobel laureates Milton Friedman and Gary Becker and then the first full release in 1996. The ranking includes five equally weighted ingredients: (1) size of government, (2) legal certainty, (3) sound money, (4) international trade, and (5) regulation.
The insights and implications, however, are what compel our attention and action—particularly as they relate to the United States.
What’s So Great about Freedom?
Beyond intrinsic satisfaction and moral claims, the empirical evidence is in. As noted by the Fraser Institute scholars James Gwartney, Robert Lawson, Joshua Hall, and Ryan Murphy, “virtually without exception … countries with institutions and policies more consistent with economic freedom have higher investment rates, more rapid economic growth, higher income levels, and a more rapid reduction in poverty rates.”
If that were not enough, economic freedom is closely associated with longer life spans and empowered citizens more able to defend their civil liberties. Consider, for example, that the top quarter of nations in the ranking have an average life expectancy of 79.5 years, versus 64.4 years in the bottom quarter.
Beyond direct metrics of well-being, people demonstrate they prefer economic freedom by where they choose to migrate to and live. This is particularly apparent between U.S. states, where there is unrestrained freedom to move. People are leaving the likes of cumbersome California in favor of Arizona and Nevada.
Voting with one’s feet demonstrates revealed preferences, since they mean there is skin in the game. They carry more weight than stated preferences and can even contradict electoral outcomes.
Where America Stands
Although the United States is in a solid sixth position in the latest 242-page edition of the ranking (PDF), data for the 1980s and 1990s gives second and third positions, respectively. Still in the top 5 percent of the world, the home of the brave is not as free as she was. Further, the United States fell out of the top 10 from 2009 to this year.
The twist, as noted by James Pethokoukis of the American Enterprise Institute, is that the latest improvement comes from 2016 data, when Barack Obama was still in office. If Trump wants to show he is a proud capitalist and the champion of making America great again, he can do better.
The question then is, who ranks ahead of the United States, and on what grounds?
The top five nations give an indication of size that is not favorable to the United States: smaller countries perform better, perhaps because their representatives are closer to the people and more accountable. City-states Hong Kong and Singapore come in first and second, followed by New Zealand, Switzerland, and Ireland, all of which have populations below 10 million.
The United States is a notable and successful outlier. The only other relatively large nation in the top 10 is the United Kingdom, with fewer than 70 million inhabitants. Compare Brazil at 144th, China at 108th, India at 96th, and Indonesia at 65th, for example.
Success need not be limited to city-states and small nations. However, the results tilt in favor of federalism and localism, crucial ingredients in U.S. constitutionalism and which Switzerland practices heavily even in a small nation of 8 million.
Drain the Swamp
The natural response to the Fraser Institute assessment is to look at where a nation performs poorly, and then address those shortcomings. Another response is to look at what elements are most politically feasible and then enact available reforms. Ideally, policy changes will both address shortcomings and be within the Overton window.
Of the five ingredients or components (scored out of 10), there is no doubt where the problems are: size of government (6.43), legal certainty (7.40), and international trade (7.65). By comparison, the United States scores 9.85 for sound money and 8.83 for regulation, so there is still some room for improvement in the latter.
Unfortunately, the size of government is the most in need of reform and the most politically difficult to address, not in terms of voters but in terms of cronies and their well-paid lobbyists. This is where Trump will have to put his entrepreneurial experience to work, show mettle, and aggressively confront the swamp: downsize, streamline, privatize, and cap salaries and contracts. For all his good work thus far, federal deficits have grown. Burgeoning unfunded liabilities will make these worse with time, and this automated and growing portion of spending is in desperate need of a heroic overhaul.
One element of the government-size metric is taxes, particularly the top marginal rates, where the United States scores exactly in the middle of the pack. Although progressives scream at any cut for top earners, the fact is that any cut will “mainly benefit those who,” gasp, “pay the most taxes,” in the words of Brian Riedl of the Manhattan Institute. The wealthy are the ones who invest and build employment opportunities, as Steve Bannon pointed out to Bill Maher on his Real Time show.
Your income is the fruits of your labor and rightfully yours. Trump must continue to push for more tax cuts, matched by spending cuts, and one way to do that is to simplify the system and remove exceptions, which distort resource allocation and reward political meddling. Widen the base, lower the rates, and put more resources back into the productive, dynamic segment of the economy.
The legal system, which ought to protect property rights, does not necessarily cost to fix, but it does require power devolution and protections against the states. Low hanging fruit includes an end to eminent domain that is not explicitly for public use, as stipulated by the Fifth Amendment to the U.S. Constitution. Ditto for unconstitutional asset forfeiture, which the Internal Revenue Service and police departments have abused to no end.
Perhaps newly appointed Judge Brett Kavanaugh can aid a reorientation of the Supreme Court towards originalism, alongside more likely appointments to come. There are many other policies that violate citizens’ rights to property and which merit legal redress. That includes many occupational licensing and certificate-of-need laws, which keep new entries from medical markets.
Freedom to trade internationally is in flux, as Trump renegotiates deals with many nations. He is right to take a firm stance with signatories, but amid the noise the focus must remain on lower tariffs, fewer regulatory barriers, and openness to foreign ownership and investment—as he has advocated for with Canada.
If the United States could simply get into the top 20 nations for the three areas of identified weaknesses, she would easily knock Hong Kong out of the overall top spot. Not without some irony, as Trump addresses spreading and nefarious tactics from China, Hong Kong may deteriorate from mainland interference, particularly with regards to rule of law.
As consumer confidence surges to new heights, Trump should emphasize the supply side and boost economic growth, both now and into the future. Making history and proving the merits of Trumponomics means measures to attract investment and keep jobs in the United States, to keep winning. There is no a more proven strategy to achieve these outcomes than economic freedom.
Fergus Hodgson is the founder and executive editor of Latin American intelligence publication Antigua Report.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.