24 February 2015

President Obama’s war on economic freedom undermines American leadership


In this year’s State of the Union address, two words were notably absent from President Obama’s speech to the nation: economic freedom. The address was littered with calls for more government spending, and the need for the wealthy to pay their “fair share,” but it was notably lacking in the language of free enterprise, entrepreneurship, and free markets. It could not have been further from the limited government vision of Ronald Reagan, and was a message of defiance to the new Republican led Senate in the wake of the November 2014 midterm elections. The president delivered a tired and failed economic agenda that had been overwhelmingly rejected by US voters just weeks before, divorced from reality and devoid of ideas.

This was an address by an American president that could easily have been delivered by French President Francois Hollande, or by the president of the European Commission. There is a reason why the Obama administration so wholeheartedly admires the European Project, or the drive to create a European superstate. In terms of economic policy, Barack Obama is a quintessentially European Union-style bureaucrat who worships at the altar of big government. It should come as no surprise that his vice president, Joe Biden, once referred to Brussels as “the capital of the free world,” because his presidency has mimicked the approach of the European Union elites, with their belief in the power of government intervention over free markets.

The recently released 2015 Heritage Foundation/Wall Street Journal Index of Economic Freedom is an eye-opener, and should be a wake-up call to the Obama White House. In its latest rankings, which grade countries on ten economic freedoms, ranging from property rights to fiscal freedom, the United States ranks an astonishing 12th place in the world, just behind Mauritius and Denmark, and is classified as “mostly free.” The United Kingdom fares even worse, at 13th.  The two freest economies in the world are in Asia: Hong Kong and Singapore, with their low tax regimes, open markets and competitive regulatory frameworks. Significantly, six of the top 10 are English speaking, including the Anglosphere countries of Australia, New Zealand and Canada.

Since President Obama came to office in 2009, the United States has fallen six places in the rankings, the biggest fall of any nation in that year’s top 10. The sharp drop was driven by a dramatic increase in government spending, a significantly increased tax and regulatory burden stifling business and individual freedom, and the introduction of the hugely controversial Affordable Care Act, commonly known as “Obamacare.” The relentless downward spiral in economic freedom has only been checked by a Republican-led House of Representatives, that has acted as a limited brake on the Obama presidency since 2011.

The Index of Economic Freedom should be read in conjunction with the Heritage Foundation’s 2014 report on government spending, which reveals the sheer scale of the economic challenge facing the world’s superpower over the course of the next decade.

According to the special report, authored by Romina Boccia, entitlements (including social security and the major health care programs of Medicare and Medicaid) and interest on the national debt, will account for 85 percent of spending growth through 2024. Total annual spending is expected to increase (in nominal terms) by $2.3 trillion over the next decade, from $3.5 trillion to $5.8 trillion. The cost of Obamacare alone will be more than $1.8 trillion between now and 2024, with annual spending exceeding $200 billion a year by 2021.

The level of government spending is simply unsustainable. As the Heritage report notes: “In 2014, the federal government spent more than $28,800 per household and still racked up a $4,000 deficit per household. In 2024, spending per household will be $47,300.” Adding in the myriad costly domestic programs which are outside the purview of the federal government, including farm subsidies and loan guarantees that also distort the markets, the long-term economic outlook is bleak.

America’s national debt now stands at a staggering $18 trillion, exceeding $145,000 per household, with publicly held debt reaching 74.4 percent of GDP in 2014 – dwarfing the 38 percent historical average since 2014. In addition to growth in entitlements spending, welfare spending has been a massive drain on the public purse. Public expenditure on welfare in America has increased 16-fold since the 1960s. The United States now spends nearly $1 trillion a year on around 80 federal welfare programs, with over 45 million Americans receiving food stamps.

The decline of economic freedom in America, coupled with the rise of welfare dependency and an explosion in entitlement costs, should be of great concern to anyone who cares about America’s role as the leader of the free world, and the globe’s only superpower. A United States that is saddled with mountains of debt, crippled by heavy taxation, and increasingly dominated by politically driven class warfare can only become more and more introverted and isolationist in outlook.

A world without American leadership would be a truly frightening place, allowing for the rise of Islamist terrorist groups, failed states, rogue regimes, and authoritarian powers that seek to challenge the West. We are already seeing the beginnings of this under the Obama presidency: the ascendance of ISIS in Iraq, Syria and Libya, the resurgence of an aggressive and imperialist Russia in Eastern Europe, the increasing dominance of Chinese military power in Asia, and the determination of Tehran to press ahead with its nuclear program while threatening to wipe Israel off the map. At the same time, investment in America’s defences and armed forces has been eroded, with the projection of US military power reduced from Europe to the Middle East.

Economic strength is vital to maintaining America’s place in the world, and securing the defence of the West. And economic power can only be maintained through policies that advance economic freedom and prosperity, while freeing entrepreneurs from the heavy hand of big government. The United States must return to being the land of the free with a truly dynamic economy, through cutting taxes, eliminating red tape on businesses, encouraging foreign direct investment, advancing free trade, cutting government spending, and rolling back the frontiers of welfare dependency. This would be a powerful and forward looking agenda for saving a superpower and guaranteeing strong American leadership on the world stage.

Nile Gardiner is Director at the Margaret Thatcher Center for Freedom