Question

Between 2008 and 2013 the United States fell from 5th to 10th place in the Heritage Foundation’s World Ranking of Countries with the Most Economic Freedom. In 2017, Hong Kong, Singapore and New Zealand respectively hold the top 3 spots for being economically free and the U.S. ranks 17th. Briefly explain why the U.S. has continued to decline in its respective world ranking.

Answer 1

The US has continued to decline in terms of economic freedom because the government and the Federal Reserve have taken many initiatives and regulations that bring intervention into the economic activities performed by the firms. Such initiatives became very important and necessary because, after the financial crisis of 2008, the market started crumbling, GDP growth became negative and the unemployment rate reached over 9% in the USA in 2009.  In that scenario, economic freedom given to the firms was not able to resurrect the economy and bigger firms, MNCs and too big to fail companies started pleading the government to support and recover the economy. At that time, the government in collaboration with the Fed started intervening and brought much structural reform to prevent such kind of crisis in the future. This type of intervention is still continued and while the economy is doing well, now these initiatives are treated as obstacles to economic freedom and ranking is going down. The intervention is not stopped, because the Fed and government still believe that the economy needs their support and it is shown by the FFR rate cuts planned by the Fed in the near future. So, ranking is coming down.