When it comes to what’s gone wrong with the American economy, Barack Obama has a theory of the case.
Rather than boost economic growth, Obama has theorized, three decades of pro-market policies such as tax cuts and deregulation have done nothing more than increase income inequality on Main Street and financial instability on Wall Street. In the 2000s, those chickens finally came home to roost, culminating in the Great Recession.
Mitt Romney’s theory? I’m really not sure. But some new data from the Fraser Institute suggests a decline in economic freedom during the Bush and Obama administrations could be the problem.
– From 1981through 2000, the U.S. economy grew at an average annual rate of 3.4%, creating some 42 million jobs in the process. During that period, according to a ranking of economic freedom from the Fraser Institute, the U.S. consistently had one of the freest economies in the world, ranking 2nd or 3rd during that entire period.
– But from 2001 through 2010, the U.S economy grew at an average annual pace of just 1.6%, creating a mere 819,000 jobs. During this most recent period, according to the Fraser Institute, the United States’ freedom ranking steadily declined to 8th in 2005, 15th in 2009 and 19th in 2010. The U.S. is now nestled between Qatar and Kuwait:
The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade. From 1980 to 2000, the United States was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. After increasing steadily during the period from 1980 to 2000, the … rating of the United States fell from 8.65 in 2000 to 8.21 in 2005 and 7.70 in 2010. …
While it is difficult to pinpoint the precise reason for this decline, the increased use of eminent domain to transfer property to powerful political interests … the violation of the property rights of bondholders in the bailout of automobile companies have all weakened the United States’ tradition of the rule of law. … Government consumption, transfers and subsidies, and government investment all rose during the decade, while their private-sector counterparts were lower.
The approximate one-point decline in the summary rating between 2000 and 2010 on the 10-point scale of the index may not sound like much, but scholarly work on this topic indicates that a one-point decline is associated with a reduction in the long-term growth of GDP of between 1.0 and 1.5 percentage points annually.This implies that, unless policies undermining economic freedom are reversed, the future annual growth of the US economy will be half its historic average of 3%.
Now, correlation does not prove causation. But the decline in economic freedom is a pretty good place to begin looking for a culprit for America’s recent woes.
There’s also this political point: The Obama campaign says a Romney presidency would mean a continuation of the Bush presidency.
But given this data on economic freedom, Romney could argue that the Obama presidency has been a continuation of the Bush economy — and Romneyomics would represent a reversion to the pro-market policies of the Reagan-Clinton era.