The latest Index of Economic Freedom has just come out, and the news for the United States isn’t good. The study, a joint effort of The Heritage Foundation and The Wall Street Journal, concludes that economic freedom in the United States has declined again. This is the seventh year in a row this has happened.
For more than 200 years, the United States led the world in economic freedom. For many of those years, we were also the most prosperous Nation in the world, as we demonstrated that economic abundance was one of the happy consequences of economic freedom. Now, many other nations are confirming the same thing.
But we aren’t. Now, we’re not even in the top 10 of the 178 countries the study measured. Thanks a lot, Barack Obama! And Congress. And, yes, even the U.S. Supreme Court. All have been complicit in the unrelenting assaults on free enterprise in this country.
In an opinion piece in The Journal, Terry Miller, one of the study’s directors, had this to say: “It’s not hard to see why the U.S. is losing ground. Even marginal tax rates exceeding 43% cannot finance runaway government spending, which has caused the national debt to skyrocket.”
But out-of-control government spending is just one of the areas where the United States is in decline. As Miller wrote: “The Obama administration continues to shackle entire sectors of the economy with regulation, including health care, finance and energy. The intervention impedes both personal freedom and national prosperity.”
So if the U.S. is losing economic freedom, how is the rest of the world doing? Believe it or not, economic freedom is actually improving in most of the world. According to the study, 114 countries of the 178 in the study enjoyed an increase in economic freedom in the past year. And some 43 countries scored their highest ranking ever in the index’s 20-year history.
Leading the list once again is Hong Kong, which scored 90.1 on the 100-point scale. Following it in the “free” category are Singapore, Australia, Switzerland, New Zealand and our northern neighbor, Canada.
Rounding out the top 10 in the “mostly free” category are Chile, Mauritius, Ireland and Denmark. Then comes Estonia. The United States finally shows up next, at 12th on the list. Yes, it’s hard to believe, but even Estonia did better than the U.S. this time.
Maybe that shouldn’t be a surprise. It turns out that several countries in Eastern Europe that used to be dominated by the Soviet Union are thriving now that they have embraced free-market economies. According to the study, Estonia, Lithuania and the Czech Republic are the European countries that gained the most economic freedom in the past 20 years.
Congress, are you listening?
According to the study, 18 countries in Europe have reached new highs in economic freedom. They include Germany, Sweden, Poland and Georgia. On the other hand, five countries — Greece, Italy, France, the United Kingdom and Cyprus — scored lower than they did when the first index appeared 20 years ago.
No surprise on which countries are on the bottom of the list. In descending order, they are Iran, Eritrea, Venezuela, Zimbabwe, Cuba and North Korea. All are known for despotic governments, government-run economies and few, if any, property rights — oh, and one other thing: the abject poverty endured by most of their citizens.
The study measures economic freedom in 10 different categories under four broad areas, which it calls the pillars of economic freedom. They are,
- The Rule of Law, which includes property rights and lack of corruption;
- Limited Government, measured by fiscal freedom and controls on government spending;
- Regulatory Efficiency, such as business freedom, labor freedom and monetary freedom; and finally,
- Open Markets, as measured by freedom to trade, investment freedom and financial freedom.
Does it really matter how a country scores on economic freedom? Absolutely!
“Countries achieving higher levels of economic freedom consistently and measurably outperform others in economic growth, long-term prosperity and social progress,” Miller wrote.
It is an outrage that this country, whose freedom and prosperity made us an inspiration for the world, is now measurably on the decline. The report says that the U.S. has suffered “particularly large losses in… control of government spending.” But we already knew that, didn’t we?
The latest jobs report from the U.S. Bureau of Labor Statistics confirms just how shaky things have become in the U.S. economy. While forecasters expected new jobs in December to exceed 200,000, the BLS number came in at a lowly 74,000.
Yet even with that disappointing number, the unemployment rate in this country somehow dropped 3/10 of a point, from 7 percent to 6.7 percent. How is that possible?
It turns out that nearly five times more people stopped looking for work in December than found new jobs. An estimated 347,000 Americans left the labor force and are no longer counted among the unemployed.
Clearly, there’s the solution to make the unemployment numbers look good. If enough people who don’t have jobs simply give up looking for them, unemployment in this country would drop to zero. Wouldn’t that give the Obamaites something to crow about?
“[T]his year’s index demonstrates that the U.S. needs a drastic change in direction,” Miller wrote.
Indeed it does. But as long as Harry Reid holds the reins as Senate Majority Leader, we’re not going to get it. Happily, that could change in a big way this November, when he could receive a well-deserved demotion to Minority Leader.
I’ll have a lot more to say in coming days on the key elections that could make that happen. In the meantime, keep reminding your friends that Ronald Reagan got it right when he said: “Government is not the solution to our problem; government is the problem.”
The latest Index of Economic Freedom confirms the wisdom of the former President’s remark. The more government gets out of the way, the more a country will prosper. The results of five years of Obama prove that the opposite is true, too.
Until next time, keep some powder dry.
It’s all a matter of perspective.
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The sly trick of discounting Alternative
There’s no place like home
China encroaching on U.S. military dominance in Pacific, says top admiral – Washington Times | 1913 Intel
‘“Our historic dominance that most of us in this room have enjoyed is diminishing, no question,” Adm. Locklear, chief of U.S. Pacific Command’
Dean Cheng, an analyst at the Heritage Foundation, suggests that the Admiral implies we can mold China into a version of ourselves. As the role of the US diminishes then China can take over that same role of providing security for everyone. Dean then sets us straight:
‘China is not interested in providing security for everyone and, frankly, not even for anyone other than itself. This is the kind of bizarre lens that led one of Adm. Locklear’s predecessors to offer to help China with its carrier development.”’
The views of Adm. Locklear are bizarre but reflect modern liberal thinking. But, that means he does not understand the nature of the Chinese leaders putting US security in pretty serious danger. Dean’s crack about one of Adm. Locklear’s predecessors is stunning.
“Our historic dominance that most of us in this room have enjoyed is diminishing, no question,” Adm. Locklear, chief of U.S. Pacific Command, said Wednesday at a naval conference in Virginia.
“The problem with this formulation is, for whom does Adm. Locklear think China will be providing security?” said Dean Cheng, an analyst at the Heritage Foundation. “The implicit answer is ‘to everyone,’ because the assumption is that we can somehow mold China into being ourselves — that China will see its interests as somehow congruent and coincident with those of the United States, and therefore China will assume the mantle of regional provider of public goods.
“But this is a remarkable assumption, especially in light of recent Chinese behavior. China is not interested in providing security for everyone and, frankly, not even for anyone other than itself. This is the kind of bizarre lens that led one of Adm. Locklear’s predecessors to offer to help China with its carrier development.”
While everyone obsesses over the monthly payrolls report, which on a trailing 12 month basis is once indicating the creation of roughly 2 million jobs each year, or roughly where it was before the crisis (red line chart below), one aspect that is largely ignored is the amount of hiring.
Why is hiring important?
Because that is the actual process by which those without a job end up with a job. And as we just learned today after the latest JOLTS release, which showed that there were over 4 million job openings (4,001 to be precisely) for the first time since 2008, a far more important number is the update on Hires which at 4.5 million barely changed from last month, but more importantly, is barely a fraction of where it should be based on the number of job gains reported by the BLS monthly. The chart below confirms this stunning discrepancy: a surge in jobs with barely half the pre-recession hiring?
How does one explain this discrepancy in which the US economy supposedly is growing at its historic peak pace while hiring is at half the peak pace? Simple: the gains in nonfarm payrolls are due a decline in layoffs and other separations, not an increase in hirings: i.e., normal labor demand driven growth.
Which means that anyone hoping for a brisk increase in wages, i.e. worker leverage, is in for a prolonged shock.
The chart above simply shows that the leverage is and continues to be with the employers – instead of letting people go (or workers quitting at their volition) at anything close to a traditional pace, employers have a huge bargaining chip – a job. Because if a worker does not want to perform a job, tough: there are about 3 people willing to fight for every job opening. It also means that those who lose their job will find it doubly more difficult time to reenter the workforce as there simply is not enough hiring.
Which means that wage deflation, at least among prevailing jobs, will continue leading to declining real disposable income, a declining in personal savings and the continued use of “student loans” (since credit card deleveraging continues) to fund everyday lifestyles, at least until such time as the hiring trend has normalized.
The really bad news: while such a normalization will eventually happen, according to our back of the envelope calculations, it will take place some time in… 2020.
Beijing Citizens, Shrouded In Pollution, Flock To Giant Screens To View Artificial Sunrise | Zero Hedge
You know it’s bad when…The smog has become so thick in Beijing that the city’s natural light-starved masses have begun flocking to huge digital commercial television screens across the city to observe virtual sunrises. Following this week’s practical shutdown of the city of “beyond index” levels of pollution, as The Mail Online reports, residents donned air masks and left their homes to watch the only place where the sun would hail over the horizon that morning…
The futuristic screens installed in the Chinese capital usually advertize tourist destinations, but as the season’s first wave of extremely dangerous smog hit, ths happened…
Via The Mail Online,
The air took on an acrid odor, and many of the city’s commuters wore industrial strength face masks as they hurried to work.
‘I couldn’t see the tall buildings across the street this morning,’ said a traffic coordinator at a busy Beijing intersection who gave only his surname, Zhang. ‘The smog has gotten worse in the last two to three years. I often cough, and my nose is always irritated. But what can you do? I drink more water to help my body discharge the toxins.’
The density of PM2.5 was about 350 to 500 micrograms Thursday midmorning, though the air started to clear in the afternoon. It had reached as high as 671 at 4 a.m. at a monitoring post at the U.S. Embassy in Beijing.
That is about 26 times as high as the 25 micrograms considered safe by the World Health Organization, and was the highest reading since January 2013.
In the far northeastern city of Harbin, some monitoring sites reported PM 2.5 rates of up to 1,000 micrograms in October, when the winter heating season kicked off.
Beijing reported 58 days of serious pollution last year, or one every six to seven days on average, Xinhua quoted Zhang Dawei, director of the Beijing Municipal Environmental Monitoring Center, as saying.
China has drawn up dozens of laws and guidelines to improve the environment but has struggled to enforce them in the face of powerful enterprises.
On Wednesday, China’s commercial capital, Shanghai, introduced emergency measures, allowing it to shut schools and order cars off the road in case of severe smog.
Europe is recovering, right? Wrong. As Nigel Farage raged last night, things are not what they seem and even the IMF is now beginning to get concerned again (especially after Lagarde’s call yesterday for moar from Draghi and every other central banker). As Bloomberg’s Niraj Shah notes, it’s not just the PIIGS we have to worry about (or not), Denmark, Finland, Norway and Poland have been added to the IMF’s list of countries with the potential to destabilize the global economy.
Via Bloomberg’s Niraj Shah ( @economistniraj ),
The IMF’s decision means the four nations will be subject to mandatory financial sector assessments. The total number of countries on the list has risen to 29 from 25. The IMF’s decision may further undermine the safe-haven status of the Nordic nations, where rising household debt imposes a financial risk.
Ballooning Household Debt
Household debt and government-imposed austerity measures are deterring consumers from spending in the Nordic region. Denmark’s financial regulator is considering curbing banks’ lending policies to address the record household debt load. Danish households owe creditors 321 percent of disposable income, the OECD says. Norway’s household debt reached a record 200 percent of disposable income in 2011.
Austerity Triggered by Rising Government Debt
Finland’s debt-to-GDP ratio will almost double to 60.5 percent by 2015 from 33.9 percent in 2008, the IMF forecasts. The fund estimates the Finnish economy shrank 0.65 percent last year. Polish government debt reached 57.6 percent of GDP last year. A clause in the country’s constitution states that breaching a 55 percent ceiling triggers mandatory austerity measures.
Competitiveness at Risk
Denmark has dropped to 15th place in the World Economic Forum’s global competitiveness report from third in 2008. Labor costs rose 9.1 percent between 2008 and 2012, compared with an EU average increase of 8.6 percent in the period. Norway has the highest labor costs in Europe at 48.3 euros per hour in 2012, compared with 30.4 euros in Germany. That may undermine competitiveness and the growth outlook.
Most Financially Interconnected Countries
The inclusion of three Nordic nations for mandatory assessment is the result of a new methodology by the IMF that gives more weight to financial interconnectedness. The U.K. is the most financially linked nation in the world, followed by Germany. Seven of the top 10 most interconnected financial nations are in the euro-area.
So as the world congratulates itself (most notably Ben Bernanke today), the IMF seems concerned that this could all get worse again very quickly. Think they are all too small to worry about? Remember Lehman?
The Conference Board of Canada is calling the decline in the Canadian dollar the economic story of the year so far, predicting further declines as the Canadian economy underperforms.
The loonie began the day stronger on Thursday, rising to 91.48 US in early trading, up from its close of 91.37 US yesterday. It closed up 0.16 of a cent to 91.53 cents US.
The Canadian currency fell 6.6 per cent in 2013, after trading at par with the greenback in February, and is down more than three per cent since the beginning of the year.
‘Markets are betting that the Canadian economy will continue to underperform’– Glen Hodgson, Conference Board
The Conference Board, an economic and policy think tank, said the falling dollar is a sign of lack of confidence in Canadian growth prospects.
“Arguably more important than the value of the loonie is the signal it sends about the Canadian economy. Markets are betting that the Canadian economy will continue to underperform,” chief economist Glen Hodgson said in a report released today.
“This assessment is consistent with our own forecast, which calls for U.S. gross domestic product to grow by 3.1 per cent in 2014, much better than Canadian growth of 2.3 per cent,” he continued.
Hodgson is not the only economist predicting Canada’s GDP growth will underperform the U.S. Towers Watson’s annual survey of Canada’s top economists and analysts found most believe Canada will lag the U.S. in both economic activity and job creation over the next few years.
Too many plant closures
“With a lower Canadian dollar, there is hope that manufacturing businesses, and certainly the export sector of the economy, can contribute to reducing the unemployment rate in the next few years,” said Janet Rabovsky, Towers Watson director of investment consulting.
“That being said, recent announcements about industrial plant closures in Ontario would indicate that the cycle has not yet turned.”
Hodgson agreed that it is not clear if Canadian exporters will be able to fully capitalize on a weaker dollar because of the loss of capacity in the manufacturing sector since 2008.
There have been deep slashes in export-dependent industries — such as autos and parts — and a shift of much U.S. production to the southern states, so Canadian suppliers may not benefit as quickly as in the past from the U.S. recovery, he said.
He also points to the hit consumers may take from higher prices.
TD chief economist Craig Alexander said the U.S. Fed’s “decision to taper asset purchases has greased the skids under an already depreciating loonie.”
Traders rush back to U.S. dollar
The Fed decided in December to taper its U.S. bond-buying program to $75 billion US a month and as good economic news out of the U.S. continues to roll in, it is expected to continue tapering.
But that has encouraged traders to buy the U.S. dollar, leading to a rush away from the Canadian dollar.
“However, the fundamentals are not Canadian-dollar positive either, and the loonie likely has further to fall,” Alexander said in a research note.
BMO chief economist Doug Porter predicts a falling dollar will actually help boost Canadian GDP in the long-term – as much as 1.5 percentage points over the next two years if the loonie falls to 90 cents or lower.
“There are definitely losers, such as consumers, travellers, utilities, broadcasters, sports teams. But there are also lots of winners. The beleaguered manufacturing and domestic tourism sectors will find the biggest relief from the weaker currency. Even some retailers will be breathing a tad easier, as the loud siren call of cross-border shopping fades for consumers with each tick down in the currency,” he said.
People walk past homes for sale in Oakville, Ont., in this file photo. The IMF says CMHC mortgage insurance exposes the government to financial system risks and might distort the market as a whole in favour of mortgages over more productive uses of capital. (The Canadian Press/Nathan Denette)
Further measures should be considered to encourage appropriate risk retention by private sector and increase the market share of private mortgage insurers.
International Monetary Fund
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The International Monetary Fund says Ottawa should consider phasing out insuring home mortgages through Canada Mortgage and Housing Corp.
The advice is contained in the IMF’s latest economic report card on Canada, which projects modest economic growth of 2.25 percent for the country next year.
Such a recommendation, surprising from an international financial organization, appears to side with Finance Minister Jim Flaherty, who has recently questioned whether the federal government should be in the business of insuring higher-risk mortgages at all.
Some analysts have credited the system for providing much-needed confidence in Canada’s housing sector during the 2008–09 crisis, which many believe was sparked by a crisis in the U.S. mortgage market.
The IMF concedes that the current system has its advantages for stability. But it says it also exposes the government, or taxpayers, to financial system risks and might distort the market as a whole in favour of mortgages over more productive uses of capital.
“We think banks lend too much to mortgages and too little to small and medium enterprises,” Roberto Cardarelli, the IMF mission chief for Canada, told reporters in a briefing in Toronto.
“We suspect the fact that banks may benefit from government-backed insurance on mortgages … it sort of makes it easier for banks to do mortgages than other kinds of lending which, presumably, we think, is going to be more useful for the real economy.”
CIBC deputy chief economist Benjamin Tal says he believes the advice may be appropriate for the U.S., particularly prior to the crisis, but not necessarily for Canada, where the mortgage securitization market is a relatively small slice of the financial pie. CMHC can carry a maximum of $600 billion mortgage loan insurance on its books.
“In this case size matters,” he said. “It is true when securitization dominates the market it is not a very healthy thing, but when it is part of a normally functioning market, it actually helps the economy” by contributing to low borrowing rates and liquidity.
The Washington-based financial institution said further measures should be considered to “encourage appropriate risk retention by private sector and increase the market share of private mortgage insurers.”
It cautioned, however, that if any structural changes are made, they should be gradual to avoid unintended consequences.
The IMF report, released Wednesday, forecasts that Canada’s economy as a whole will start benefiting next year from a pickup in the U.S. economy, leading to greater demand for Canadian exports and renewed business investment.
In essence, the scenario is identical to the one predicted by the Bank of Canada, which also sees growth rising from the current 1.6 percent level to 2.3 next year.
A slightly more positive estimate was issued Wednesday by the Ottawa-based Conference Board of Canada, which is projecting Canadian real GDP will grow 1.8 percent in 2013, 2.4 percent in 2014, and 2.6 percent in 2015—assuming strong growth in the United States.
The Bank of Canada forecast holds that the risks are balanced—meaning there is as much chance the projected growth rate will be higher as lower.
But the IMF warns, however, that the risks to its outlook are primarily on the downside. The main reason, it says, is that it might be wrong about the U.S. economy rebounding in 2014.
“Renewed political standoff (in the United States) over spending appropriations and the debt ceiling and a faster-than-expected increase in long-term rates in the context of exit from quantitative easing could negatively affect the U.S. recovery and hence demand for Canadian exports,” the IMF said.
“Protracted weakness in the euro area economic recovery and lower-than-anticipated growth in emerging markets would also hurt the prospects for Canada’s exports, including through lower commodity prices,” it added.
On the domestic front, the IMF said the long period of low productivity growth and strong Canadian dollar may have left a deeper dent in Canada’s export potential, especially in the traditional manufacturing base, limiting the economy’s ability to benefit from the projected strengthening in external demand.
Cardarelli stressed the importance of investing in the energy sector, an industry that he said would have a significant impact on the organization’s economic forecasts in the future.
“We really feel that the system is stressed in terms of the transportation capacity—the ability of moving these resources out of Alberta, British Columbia, and Saskatchewan,” he said at a news conference in Toronto.
Among other things, the IMF recommends that Canada’s central bank hold off raising interest rates until there are firmer signs of a sustained transition from household spending to exports and investment, something bank governor Stephen Poloz has signalled he intends to do.
And it warns the federal government that it need not be so fixated on balancing the federal budget in 2015 if there is no meaningful pickup in economic activity.
That is likely to fall on deaf ears, however. Finance Minister Jim Flaherty said this week he is confident he will eliminate the deficit in 2015 and bring in surpluses after that.
With files from The Canadian Press