The Pursuit of More Economic Freedom ~ What It Has Cost Us

Most Americans would agree that economic freedom is a good thing.  But, I wonder, can too much of a good thing be a bad thing?

Before speculating on why our economy is in the pits lately, I feel a need to respond to an accusation made in a recent comment to my Birdfeeder post, i.e., that The World According to Opa is itself a source of viral disinformation.

I have been assured by more empathetic readers that my blog is not a source of viral disinformation. They say, and I choose to believe, that it is just the opposite; it is an open blog inviting input and dialogue from all quarters.  It is dedicated to those of us who enjoy safe opportunities to express ourselves on controversial issues of the day.  While I would hope to one day win over the minds of those who disagree with me (that is after all the purpose of debate), this is not the essential reason for the blog’s existence.  Furthermore, I leave open the possibility of being won over to others’ interpretation of the facts from time to time.  I encourage all my readers to comment publically and I respond to all comments, even the hateful ones (although these I choose to answer offline).  The blog might be considered to be “infotainment” by some, but only if they choose to receive (or ignore) the ideas presented unidirectionally.  It’s their choice.

To prove my point, in response to a recent comment to the Birdfeeder post, I concede… sort-of.  There are other countries that are rated as having more economic freedom than the United States.  According to assessments made by “conservative” think tanks like the Cato Institute and the Heritage Foundation, there are a few nations that rank higher on the Economic Freedom of the World (EFW) index than the United States does, but only a few, not “a number,” implying several as one of my readers has claimed.  Hong Kong has consistently ranked most economically free over the years.  But (and I guess it matters what parameters are measured and how), the United States isn’t far behind.  The more “liberal” camp of think tanks, like the Pew Charitable Trusts, concern themselves with issues like social justice, collective welfare, human rights, and the environment — more so than “individual” rights and “economic” freedom, but I respect what the conservative think camp does too.  Most Americans would agree that economic freedom is a good thing.  But, I wonder, can too much of a good thing be a bad thing?

According to a Cato Institute report that’s four years old now, at the end of the Clinton administration, the United States was tied for third place with New Zealand, Switzerland, and Great Britain for having economic freedom. The factors considered in Cato’s EFW are:  the degree to which property rights are safe guarded (I can’t imagine that Hong Kong, being a province of China, gets a high score on this, but perhaps); the level of contract enforcement; whether or not and to what degree free trade is allowed; the maintenance of low marginal tax rates, and; the degree to which the nation’s money holds its value against foreign currencies. Hong Kong, according to this report, had a score of 8.7 on a scale of 10, whereas Singapore had an 8.6. The third place countries all had an 8.2.  Today, however, the United States is ranked fifth according to a recent Heritage Foundation report, even with more free trade and lower marginal tax rates.  We may have slipped owing to less government oversight of business transactions, especially in the financial sector, to enforce contract agreements and because we’ve allowed the dollar to loose much of it’s value… just a guess.  So, if anything, the point my reader raised only serves to illustrate how we’ve lost ground economically under the two Bush/Cheney administrations and a Congress that was dominated most of this time by Republicans.

Wait a minute!  Wait a minute!  According to the CIA Factbook, Hong Kong is a Special Administrative District of China, not a country (a soverign nation-state).  And when you look at Singapore on a map, it becomes obvious that it is city-state not a nation-state.  These two economically bustling, populated places in Asia should not be directly compared with nation-states, which have more complicated and dynamic political landscapes. Take away these two, the U.S. then was really tied for first place with two other “real” countries four years ago, and now still ranks third despite the devaluation of the dollar to pay for our military adventurism of recent years.  So I take my concession back.

This teacher of economics suspects, based on various studies done as far back as 2001 that I have read (and Alan Greenspan’s book since) on the likely (now historical) long-term effects of Bush’s tax cuts, even with the lower marginal tax rates involved, that output (GDP) would be (and now obviously has been) constrained because of them.  Expansion has slowed and we are now actually experiencing a recession because spending was not reduced by the Government commensurate with reduced revenues after the tax cuts were enacted.  Also, government spending in the public sector, as a percentage of total spending, has declined with billions leaking from our economy into the hands of Afghan and Pakistani warlords and to reconstruction efforts in Iraq.  Leakage from our economy has also resulted from our growing trade deficit thanks to more free trade.  We have expanded the money supply to fund the wars in Afghanistan and Iraq with the sale of government securities primarily to China and Japan, which is largely the reason for the declining value of the dollar; world demand for the dollar is down because we have flooded the market.

Another reason we are in recession today, I firmly believe, is because more and more middle class American jobs have been lost through off-shoring, another consequence of free trade.  More and more Americans are earning less and less and, therefore, have less to spend.  Finally, we are in recession today because the ultra wealthy, for whom Bush’s tax cuts overwhelmingly favored, have saved much of their increased disposable income.  Rather than plowing it back into the economy through consumption or investment to stimulate the economy, they have bought treasury bonds with their savings or stashed it away in off-shore accounts and other such tax havens.  The rich know best how to do this.

Yes, I must conclude that it is possible to have too much of a good thing.

On yet another of my readers points in his most recent comment, no, I do not agree that we are “all” free thinkers.  I know many who won’t even consider much less listen to others’ opinions and some, fundamental Christians among them, who reject scientific theory (facts) because they cling to already-held dogma.  These people cannot be considered free thinkers.

President Bush, in my humble opinion, is a good example of someone who is not a free thinker.  He once said, as reported in Susan Jacoby’s book, The Age of American Unreason, that he never reads newspapers as that would expose him to public opinion.  This revalation, according to Jacoby’s account, was reported to a Fox news correspondent during an interview with the President back in 2003.  Now I admit that this is secondary information, but it rings true with my opinion of the man.

Please feel free to post a comment, pro or con.  Everyone’s opinion matters.

Published in: on April 8, 2008 at 9:18 pm  Comments (7)  

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7 CommentsLeave a comment

  1. GREAT BANTER BUB.Give-em Hell. Love you…ED..

  2. Yet, another interesting post by Opa. Why so defensive, Opa? Perhaps we should consider the facts of what was actually written; you said, in the original Birdfeeder post: “Hmmmm… I wonder if I am not playing into viral disinformation myself by writing and posting this article to The World According to Opa.”

    Then I later responded by saying: [Interesting as] “He rightly recognized, or at least posed the question to himself, that he may be playing into the on-going spread of [viral dis] information by writing, posting, and soliciting response.”

    And now you feel you must defend yourself as the accused? Um, okay, but tisk, tisk. Other readers can think for themselves and I’m sure they will conclude, I never said that this blog was a source of viral disinformation. At most, I would say this blog is full of bias. Much like I am, myself, as demonstrated in my various responses.. keep reading if you wanna hear more, but lighten up, first, eh?

    Heck, who cares if it’s all biased?! It’s your blog!

    So anyway, albeit very expensive (primarily due to supply and demand), the protection of individual property rights, is no more or less in Hong Kong than in the U.S. There is no PRC government involvement in the purchase or sale of property in Hong Kong. This is part of the one country, two systems rule, still governing Hong Kong after re-unification. The only difference, perhaps, would be that property tax (except cars) is much lower than it is in the U.S.

    Heck, in the mainland of China even, individuals can now “own” property. So for Hong Kong at least, I believe the government plays less a role in the individual’s pursuit of personal (home) property; eg, less tax. Which most would, I think, say is a good thing. And while I admit there are crazy examples of imminent domain debates and rights stepped on, on both sides, I’ve yet to see the same types of abuses in Hong Kong that I have in the U.S. certainly not with personal property. Anyway, don’t confuse “being a province of China” to mean anything wrt Hong Kong’s economic freedoms.

    And speaking of.. the original debate was “economic freedoms,” wasn’t it? Good one.. now you’re mixing the debate to suit your argument.. “[liberal think tanks] concern themselves with issues like social justice, collective welfare, human rights, and the environment.” What do these have to do with the economic freedom debate? Your bias, again, it seems to me, showing through 😉

    My bias tells me that to blame the U.S.’s economic woes on whatever past or current administration and congress is or was, is as naive as to think that a future administration or congress will or could do anything much to make it better. By the way, what “more economic freedom” did the current administration or former Republican congress provide you vs the last, even? I don’t really know of or count any, myself. And I doubt that even the ‘ultra’ rich, as you term them, would say that there’s been much difference.. less tax on capital gains? Even that’s nominal to them.

    Do homeowners in the U.S. simply refuse to admit their own blame, that many of them borrowed too much? (There are on average 5 credit cards per person in the U.S., btw) Banks have already admitted their own blame.. look at all the write downs. Do middle and upper middle-class Americans still not admit that they save way too little for their future? Do most really think the government should bail them out? And do they actually think that Social Security and Medicare will pay? (or let’s just leave other generations to cover that silly windfall)

    Do most Americans not admit that there are plenty of outside globalization factors at play, having nothing to do with war in Iraq, or political instabilities elsewhere, or even U.S. related free trade for that matter, that put their jobs at risk? Do they not recognize that various manufacturing and services industry economies and populations are growing on the outside, that these economies trade with themselves, that most any brand name company Americans would recognize actually operate outside America’s borders? That not all of the global economy comes in and out of the U.S.?

    That the actual value of oil, globally, is pegged and traded on the value of the U.S. $? That future speculators mostly set that price, regardless of actual or real, current, supply and demand?

    That the EU has a unified economy themselves and its own currency, with fewer cross border taxes on imports and exports of goods and services intra and inter EU, that now compete nearly on par with the U.S. on productivity? That huge, non-U.S. global companies have less tax in their local economies and with other economies vs trade with the U.S.? That the U.S. tax code makes it prohibit for outside foreign investment into the U.S. (thus new jobs in the U.S.)?

    That Japan is coming out of a recession and still the second largest economy in world, behind only the U.S.? That India is actually the largest democracy in the world and continues to deregulate its own economy? That with modest estimates of growth in China it will mean that its economy will be bigger than the U.S., no matter what you do about or who you vote for, in perhaps 20-30 years?

    That maybe all the above are also factors of U.S. dollar and job ‘devaluation’?

    It seems to me that these factors have little or nothing do with U.S. political party ideology or the marginal difference from Bush tax cuts (on mostly capital gains).

    Rich people and companies save and spend their money at the same rates as others. But you are correct, they do save and spend their money in other ways and primarily elsewhere, where the poor and the middle class cannot, do not know how to, or chose not to.

    The rich and global companies do so, because they can.. and a lot has to do with the incredibly over complicated U.S. tax code with too many loopholes – favoring career minded politicians and their pork barrel projects.. and that taxes wages which is constitutionally debatable at best.

    I believe that one of the biggest reasons why the rich (running companies off shore) have incentive to do so, is because U.S. taxes are so high, comparatively (mostly to pay for ‘big’ government projects and in a feeble attempt to make up for lost revenues in the Swiss cheese U.S. tax code) and of course that the tax code is progressive (eg; not fair to them).

    To switch gears again and attempt to summarize my thoughts wrt the question of whether too much of a good thing can be a bad thing.. Yes, too much government is a bad thing!

    Finally, regarding the more exact cause of the U.S.’s recent economic downturn, and the government’s role in, I paraphrase from a recent Economist article in the Leaders section:

    The history of financial markets has never been a stable one. They implode every decade or so. And it’s fine that regulators should learn and adjust, but before governments intervene, we all need to be clear about the actual causes of the crisis and to admit just how little regulators can achieve. True that if taxpayers are required to bail out investments banks, then governments need to impose tighter limits on the risks those banks can take.

    But the notion that the current or future administration or congress can just regulate its way of this crisis is an illusion. Crisis are the price of innovation. You can either embrace new financial ideas by keeping markets open (there will be natural ups and downs and prevention is as important as the cure), or you can opt for dumbed-down financial systems that will further hobble the U.S. economy and deprive its people of the benefits of faster growth.. but even then, given the obvious factors that we both state, a crisis can occur.

  3. Somewhere near the middle of Tom’s above, most generous comment he said, “My bias tells me that to blame the U.S.’s economic woes on whatever past or current administration and congress is or was, is as naive as to think that a future administration or congress will or could do anything much to make it better.”

    Golly, in my humble opinion, that’s just downright defeatist, “oh-well-what-the-hell,” Libertarian thinking. Government’s fiscal and monetary policies can and do affect the economy. All my economics text books say so. Accordingly, let’s all hope that something will soon be done to slow this recession and turn the economy around, although I too doubt that the “economic stimulus” checks the IRS will soon begin mailing out will do much to help in this regard. My bias tells me that to expect the likes of Wal-Mart, Exxon-Mobil, General Electric, General Motors, or even Verizon Communications to do anything to help the “general welfare” of our nation, or even their own employees below the executive ranks, is what is truly naive.

    While all our current economic woes are not the fault of the Bush/Cheney administration (e.g., the growing global demand for oil) and the Republican Congress that prevailed during the first three-fourths of the said administration, they are to blame for a lion’s share of it. Let’s begin with the government’s deficit spending, not all of which was war related, followed closely behind by the President’s “hands-off/do-nothing” approach to executive branch fiscal and regulatory responsibilities. Bush could have done more than just talk about predatory lending practices as he did almost two years ago now. The Treasury Department, along with the Fed, have always had the power to step-in and require banks to do more to guarantee the solvency of loans. Recent steps to empower the Fed even more in this regard are tantamount to building bigger barn doors after the horses have all run off. The farmer must be held responsible for having left the already-adequate doors open.

    Tom also asked in his comment, “By the way, what “more economic freedom” did the current administration or former Republican congress provide you vs. the last, even?” My answer: lower marginal tax rates and less business oversight, to name just two big examples. Belief in free markets is absolute in the Bush Administration, as it seems to be with Tom. Regulation of financial firms has been essentially “hands off” at a time when megamoney was sloshing around everywhere, like overleveraged hedge funds. Now Bush wants to expand free trade even more with an economic alliance deal with Colombia. This will help the economy of Colombia and the government there to combat the growing illegal cocaine business, but it will also drain more jobs and money from our own country.

  4. Ah Kent, your article was and is scary when we look at our economy and keep wondering where it will lead. I keep hearing that Free Trade is good for our economy but it seems that the U.S. will only have a service economy. Case in point, I went looking for bedroom furniture today and I wanted furniture made in the U. S. I was not aware that we no longer manufacture furniture in our country. Now pretty soon, I will be looking for a new computer and I fear that I will be told that we (the U.S.) do not manufacture computers in our country. Just what do we manufacture in the U.S.? I have always had pride in American Made products but the only thing I was able to buy recently were American Made socks. How can we, as american consumers, encourage manufacturers to produce goods in our country? It’s a nightmare out there! No, I do not think Free Trade is good for our country when all jobs are shipped offshore and we are importing everything from other countries. How are we suppose to pay for these (cheap) goods if we do not have decent jobs to earn a living and purchase them. This Free Trade idea has gotten out of hand. I gotta take a look at Germany and see how they do things.

    Please Kent, tell me that I am wrong or maybe becoming paranoid about the U.S. economy.

  5. Sorry, Nancy — I cannot honestly tell you that we should not be greatly concerned about our economy. Rather than the “mild” recession our leaders are predicting (because they don’t want us to loose all confidence and hope), I am quite convinced that this will be more than just another “business correction.” We should not expect a decade or more of bread lines and soup kitchens, ala The Great Depression, but neither should we expect things to turn around anytime soon — even with a new, more enlightened administration. We need to turn “Free Trade” into “Fair Trade” and put Americans back to work with new, full-time jobs, before things will get better. We need to correct the current solvency problem within the financial sector and fix the long-term national debt problem, now twice-as-big as it was before we declared war on international terrorism, before things will get better. We need to restore home values and market stability in the housing sector to rebuild consumer confidence before things will get better. Finally, we need to develop and embrace new energy technologies to free us from our near-total dependance on foreign sources of petroleum before things will get better. All these things are daunting tasks.

  6. Kent
    Since you indicate you are a teacher and one that has passed a few courses in higher education, I would expect you to present both sides when you pass your words of wisdom to my ears. This country boy believes the way to start on global warming is for the people you are carrying water for to get rid of their large estates, private planes, suvs, permit wind power in their front yards etc…………..
    ruaa semmler

  7. Amen, Semmler.

    It does need to be said, and heard clearly by all of us “country boys,” that the assault on global warming will not be won without personal sacrifice. But please don’t ask me to give up my airconditioning. I’ll just crank it up a few degrees. Okay?

    BTW… an excellent way to reduce our carbon footprints is to sign-up for Green Mountain Energy or other 100% renewable energy companies if available in your local area) and replace all gas appliances with energy-efficient, on-demand, electric appliances as original appliances give up the ghost. Another way is to cut back on miles driven in gas-guzzl’n “highway assault” vehicles by combining trips and/or carpooling until it becomes economically feasible to trade-in yea ole “tank” for a newer, more fuel efficient/alternative fuel model.

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