If you think back to the last half century, the assumption has always been that the United States is much more of a free market economy than many other advanced industrialized countries. The Canadians? Well, they have that state-run health care system. And the Aussies? Well, they are just like the Europeans. And tiny New Zealand is often assumed to be a quasi-socialist country.
That might have been relatively true twenty years ago, but all three countries have made mighty strides toward the free market. And they now all surpass the United States when it comes to economic freedom. The Heritage Foundation and the Wall Street Journal, in their 2012 Index of Economic Freedom, now have the United States dropping to #10 on the list. Nipping at our heels? The Scandinavians, in the form of the Danes, which historically been far more statist that the U.S. They are now #11.
The new rankings are a reflection of how far many countries have come in moving toward freer markets. But it also shows slippage by the United States. Freedom has always been our economic comparative advantage. But if that slips away, where will our prosperity come from?
The measure of economic freedom is not simply an abstraction. I would argue that it is a critical measure of economic prosperity. There is too much of an emphasis on the Gross Domestic Product (GDP) to measure the success of an economy. Production by itself is just a small snapshot of what is going on in an economy. Are the goods being produced what consumers want? How efficient is the production? The Soviet Union during the Cold War often cited its production of steel and machinery as evidence of their economic success. It didn’t mean much, however, because people had to wait in line for bread.
A much better measure of success is economic freedom. If you create the climate for economic freedom, prosperity will follow.