Commentary by James Shott

The 2016 Index of Economic Freedom shows that the United States has climbed one notch from 12^th place to 11^th among the 186 nations of the world that were surveyed and rated.

The Index is an annual guide published by The Wall Street Journal and The Heritage Foundation, and rates nations for labor freedom, business freedom, and fiscal freedom. There are 10 different measures inside those three major groupings. Data used is from 2014, and was compiled and analyzed last September.

The nations with more economic freedom than the U.S. are, starting with first place: Hong Kong; Singapore; New Zealand; Switzerland; Australia; Canada; Chile; Ireland; Estonia; and the United Kingdom.

Ranking 11^th over all and 2^nd among the three North American nations, the U.S. “remains mired in the ranks of the ‘mostly free,’ the second-tier economic freedom status into which it dropped in 2010,” the introduction to the report states. In seven of the past eight years Americans have seen their economic freedoms decline, and this year’s score equals their country’s worst score ever in the Index. At 75.4 out of 100 points, the U.S. has seen its score drop 0.9 since 2012, and from 80.7 since 2009.

“America’s historically vibrant entrepreneurial growth is significantly hampered by intrusive, expensive, and often ineffective government policies in areas ranging from health care to energy to education,” the report states. “Government favoritism toward entrenched interests has hurt innovation and contributed to a lackluster recovery and stagnant income growth,” even though a private sector energy boom has put the U.S. at the top of the world’s producers of oil and gas.

While America’s 6.2 percent unemployment rate in 2014 has improved, GDP growth was an unimpressive 2.2 percent over five years from 2009 to 2014. Our public debt then was nearly 105 percent of national GDP, which means that if every dollar of production – the value of all final goods and services produced in a year – went to pay down the debt, we still would have debt.

One small piece of good news is that in the Rule of Law category the “Freedom From Corruption” rating rose from 72 to 74 from the prior year, but the “Property Rights” rating dropped 10 points from 90 to 80, and this year produced the lowest ranking of the American people’s trust in government in the last 10 years, based on polls taken in 2015, where 75 percent of respondents said they believe corruption is widespread in the government and in government regulation of business.

Taxation continues to bedevil America’s freedom standing, with more than one of every four dollars of domestic income being taken by taxes, the U.S. having one of the highest corporate tax rates on the planet at a punishing 35 percent, and the top individual income tax rate of 39.6 percent. Government spending runs just short of 40 percent of GDP, and the size and scope of the government remains too big and too intrusive. The “Government Spending” and “Fiscal Freedom” ratings each fell, 59.6 to 54.7 and 67.5 to 65.6 respectively.

The nation saw substantial declines in the Regulatory Efficiency category, where each sub-category saw declines: Business Freedom - 91.9 to 84.7; Labor Freedom – 95.1 to 91.4; Monetary Freedom – 84 to 77. The report notes that “180 new major federal regulations have been imposed on business operations since early 2009 with estimated costs of nearly $80 billion,” explaining that the regulations themselves are not rigid, but that policies, such as excessive occupational licensing, restrict employment opportunities, and “damaging monetary policies, tangled webs of corporate welfare, and various subsidies” have affected the economy negatively.

The U.S. was heavily affected in two of the three sub-categories of Open Markets, where “Trade Freedom” remained essentially flat at 87 points, but “Investment Freedom” and “Financial Freedom” each took a 10-point hit, falling from 80 points to 70. The report notes that while “domestic regulations have been emerging only gradually, the financial reforms adopted in 2010 have increased both costs and uncertainty.”

Even though the U.S. moved up one position among the 186 nations, being 11^th instead of 12^th does not provide enough for even Donald Trump to brag about, especially in view of the fact that the overall score fell nearly one point and that the U.S. lost ground in 8 of the 10 sub-categories contained in the Index. And its position in the second tier may prompt a drive to change our “land of the free” motto to “land of the mostly free.”

The importance of this report is not so much the U.S. ranking, but the continued commitment of its government to policies contrary to the values that made America exceptional and free. This perspective is not merely the view of conservatives and libertarians, but also of someone who has seen this same scenario up close and personal.

Filmmaker and American citizen Agustin Blazquez saw this same theme play out in his native Cuba, and warns, “Wake up, America!” Blazquez sees the same radical shift happening in America that turned Cuba into a communist country.

This ought to be a call to action, but thus far all of those have failed.

Cross-posted from Observations

Is there anything on Earth the government doesn’t want to control?

The EPA is determined to control everything that has anything to do with air, ground and water. The DOJ wants to put legal but “unpopular” types of businesses out of business. The feds tell schools what they can sell to the public at bake sales and at athletic events. And now the five unelected members of the Federal Communications Commission (FCC) have decided the government should control the greatest and most creative invention since the wheel: the Internet.

“President Obama has pushed for the reclassification, which he said is needed to ensure a fair and open Internet,” writes Susan Ferrechio in the Washington Examiner. “But critics say it will stifle innovation and increase fees and taxes by imposing on the industry a 1934 government regulation meant for managing large utilities, such as the old telephone companies.”

"The closer we get to the FCC rubber-stamping President Obama's Internet grab, the more disturbing it becomes,” said House Subcommittee on Communications and Technology Chairman Greg Walden, R-Ore., prior to the FCC’s decision. Consumers, innovators, and job creators all stand to lose from this misguided approach."

Some background, from Wikipedia: “The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite (TCP/IP) to link several billion devices worldwide. It is a network of networks that consists of millions of private, public, academic, business, and government networks of local to global scope, linked by a broad array of electronic, wireless, and optical networking technologies. The Internet carries an extensive range of information resources and services, such as the inter-linked hypertext documents and applications of the World Wide Web (WWW), the infrastructure to support email, and peer-to-peer networks for file sharing and telephony.”

The Internet began gaining wide usage in the mid-1990s, and since that time has provided users with resources and connections that only until recently was even imagined. It has survived very well without the control freaks at the federal leviathan sticking their noses in.

Even though the FCC did vote to take control of the Internet, the vote was not unanimous. With a Democrat in the White House, the FCC now consists of three Democrat members and two Republicans, and both Republicans voted against the takeover.

One of them, Ajit Pai, made three important points in his dissenting statement. “For twenty years, there’s been a bipartisan consensus in favor of a free and open Internet … [and] the results speak for themselves. Dating back to the Clinton Administration, every FCC Chairman — Republican and Democrat — has let the Internet grow free from utility-style regulation.

“But today, the FCC abandons those policies. It reclassifies broadband Internet access service as a Title II telecommunications service. It seizes unilateral authority to regulate Internet conduct, to direct where Internet service providers (ISPs) make their investments, and to determine what service plans will be available to the American public.

“This is … a radical departure from the bipartisan, market-oriented policies that have served us so well for the last two decades.” 

His second point centered on the idea that the disagreement between Verizon and Netflix exemplified problems that required government intervention to protect consumers. But a free Internet operating in the free market solved this problem without need of government action, and well before this foolish decision was made.

“So the FCC is abandoning a 20-year-old, bipartisan framework for keeping the Internet free and open in favor of Great Depression-era legislation designed to regulate Ma Bell,” Commissioner Pai said, referring to the Communications Act of 1934 that authorized the FCC. “But at least we’re getting something in return, right? Wrong. The Internet is not broken. There is no problem for the government to solve.”

“Literally nothing in this Order will promote competition among ISPs,” he continued, outlining the third point. “To the contrary, reclassifying broadband will drive competitors out of business. Monopoly rules designed for the monopoly era will inevitably move us in the direction of a monopoly. If you liked the Ma Bell monopoly in the 20^th century, you’ll love Pa Broadband in the 21^st.

“One avenue for higher bills is the new taxes and fees that will be applied to broadband. If you look at your phone bill, you’ll see a ‘Universal Service Fee,’ or something like it. These fees — what most Americans would call taxes — are paid by Americans on their telephone service.

“Consumers haven’t had to pay these taxes on their broadband bills because broadband has never before been a Title II service. But now it is. And so the Order explicitly opens the door to billions of dollars in new taxes. Indeed, it repeatedly states that it is only deferring a decision on new broadband taxes — not prohibiting them,” Mr. Pai concluded.

Will this lead to the FCC playing politics with the Internet like the IRS does with applicants for nonprofit status? Why wouldn’t it?

As happens quite frequently, rules with the force of law are being created not by the only branch of government authorized to create laws, but by the branch of government authorized only to enforce the laws properly created.

Once again under the Obama administration the Constitution is turned on its ear.

If we raise the minimum wage, we’ll get these fantastic results!!

The narrative of the left is that even people who have never had a job and/or don’t have any skills deserve and need a “living wage.” Merriam-Webster defines a living wage as “a wage sufficient to provide the necessities and comforts essential to an acceptable standard of living,” which varies widely depending upon where one lives.

The drive for a hike in the minimum wage to $10.10 an hour, or sometimes as much as $15 an hour, lives on as a cause du jour for some Americans, defying the laws of business economics. Workers, labor unions, and politicians, support the wage hike through lobbying efforts, civil demonstrations, and labor strikes often paid for by labor unions.

These folks reject out of hand the fact that every job has an actual calculable value in the business it is a part of that takes into account the benefit to the business’s entire operation, the qualifications of the worker, and other real factors, unlike what drives the minimum wage hike: it is a nice idea, makes people feel good, helps unions raise members’ wages, and garners support for politicians.

The National Center for Policy Analysis (NCPA) notes that minimum wage hike proponents support an increase because it would save the government money in social support services, since those whose wages rise will be less likely to seek and need welfare benefits.

Research by the Economic Policy Institute shows that increasing the minimum wage to $10.10 an hour would reduce welfare spending by $7.6 billion, but that is only 3.8 percent of the total of $200 billion in welfare spending that taxpayers fund. Not that saving seven or eight billion is a bad idea.

However, in its efforts to give to people things they should earn through personal effort, the left focuses on the benefits of their ideas, and ignores the negative consequences.

This erroneous reasoning is responsible for a long and growing list of government programs the negatives of which far outweigh their benefits. The Community Reinvestment Act combined with repealing Glass-Steagall, and Operation Fast and Furious spring quickly to mind.

Addressing the negative impact of a wage hike, NCPA cites research by Ben Gitis of the American Action Forum asserting that raising the minimum wage will result in lost jobs. His analysis shows that 2.2 million new jobs would not be created, totaling a stunning $19.8 billion in lost earnings, if the minimum wage is increased.

The truth is that the number of minimum wage earners who really need a living wage is tiny. Only about 3.6 million workers, or 2.5 percent of all workers, earn the minimum wage, according to Bureau of Labor Statistics, and teenagers living at home comprise 31 percent of that group. And 55 percent are 25 years old, or younger, mostly inexperienced and just learning skills. Therefore, of all workers over 25, only 1.1 percent would be affected by a wage hike that would cost 2.2 million future jobs.

Combine that small number with the fact that well over half of workers earning less than $9.50 an hour are the second or third earner in a family, two-thirds of whom earn more than $50,000 a year, and that critical number shrinks even more.

As a percentage of hourly workers those earning the minimum wage has shrunk dramatically since 1980, when they comprised 15 percent of that group. Today, that portion is just 4.7 percent. And more than half of them are part-timers working less than 30 hours a week.

If you earn the minimum wage it certainly is appealing to imagine getting an increase in your wage of about half. But a hike in the minimum wage has to have solid economics-based reasons behind it, or it shouldn’t happen. The economic reality is that the numbers just don’t add up to support a $10.10 an hour minimum wage.

This wildly popular idea evolves from not understanding business and basic economics. How, in a country with education spending on average of $11,000 per student per year, can there be so many who have no idea about things like supply and demand, and how high costs, high taxes, excessive regulations raise prices and decrease sales.

The United States has just lost the top spot in the world in productivity to China, the first time since Ulysses S. Grant was president that America has not led the world.

A friend who ran a company doing business in several foreign countries was talking about his company’s expansion into China a few years ago. At the time China had 1.35 billion people, he said: 100 million communists, and 1.25 billion capitalists.

While Communist China embraces capitalist principles and becomes the most productive nation, the United States, once the bastion of free enterprise, increasingly embraces socialistic mechanisms and lost the lead in productivity for the first time in more than 130 years.

Most likely few of the proponents have ever had to make a payroll or keep a business viable in the face challenges like competition, high taxes and onerous regulations.

Foolish ideas like raising the minimum wage without sound reason helps explain our loss to China and our overall anemic economy.