As I pondered the direction our government had taken over the previous year, I looked at the definition of socialism by typing “define: socialism” into Google. The first definition presented was from Princeton’s wordnet and read as follows: “a political theory advocating state ownership of industry.” The definition feels woefully lacking.

Ownership denotes control, and the state is certainly getting into the business of controlling industry. Our government has exerted control over enterprise via legislative fiat more over the last year than at any other time since FDR’s power-grab during the Great Depression. From the thousands of pages of ObamaCare to the thousands of pages of the Dodd-Frank “financial reform” bill, government power is firmly entrenched in business, and it is expanding. The more regulations the state adds, the more control it exerts.

Can a business be considered a free enterprise when there are thousands of pages of rules that dictate its every move, from how much it can pay employees to how much profit it can make? Is a business free when the rule of law is not honored and the state can summarily declare that some contracts are valid and will be honored while others are and will not? Can stockholders or owners say that they run a company when the state makes such important decisions and keeps most of the profits?

Since the Gulf oil spill was voted the top story of 2010, let’s take a look at the petroleum industry. Several left-wing pundits opined that it was a lack of regulation that caused the disaster. That seems odd considering the amount of government red tape involved in the process of getting oil out of the ground and to market.

Big oil has long been the favorite whipping boy of grandstanding, self-righteous politicians. The petroleum industry can’t drill, refine, or sell without the government deeply involved in every aspect of the business. A petroleum company’s pain begins with the search and acquisition of raw crude oil. If a company wants to drill, it has to get permits from the government. This has become a painful process. After the recent Gulf oil spill, it has become longer and even more arduous. The Gulf of Mexico, one of the few places left to drill legally, has been essentially made off-limits via the permitting process. Where to drill isn’t dictated by science, economics, or even common sense. Drilling in the United States is dictated by the state.

If a company is lucky enough to get the oil out of the ground, it then runs into the next problem: refining. Thanks to lawsuits and over-regulation, the last new refinery built in the United States was built in Garyville, Louisiana, when Carter was president. At that time, the United States used 6,978,000 barrels of gasoline per day. By 2007 the U.S. was consuming 9,286,000 barrels per day. In that same period of time, gasoline has gone from a fairly standardized product used in all states to a very complex product that requires very precise reformulations to meet the ever-expanding set of government rules. This patchwork of state and federal regulation is so varied that some call the process of creating gasoline “creating boutique fuels.”

So while demand for refining capacity has continuously increased, our production capacity has barely been able to grow enough to meet demand. Most refineries are running at nearly 100 percent capacity around the clock. This is why small disruptions cause massive price swings.

Leftists continue to make spurious claims that neither regulation nor lawsuits have prevented the building of a single refinery. Such groups like to point to the Arizona Clean Fuels refinery that the EPA permitted in 2004 after years of work. Ironically, no shovel has moved a single piece of earth in the building of the refinery, which was supposed to be online in 2010. The legal and regulatory battle has brought us more than six years into the future without any danger of a new refinery being built.

Once a company has cleared all of the hurdles of getting the oil out of the ground and turning it into a product for market, the tax man comes. For every gallon of gasoline, the government collects between 30 to 50 cents in taxes (18 to the feds, on average 22 to the states, and, quite often, 2 to 5 cents to a local municipality). In 2007, Exxon made $40 billion in profit, but it paid $100 billion in taxes and royalties. In other words, government made 2.5 times more from Exxon’s oil production than Exxon and its shareholders did.

Who needs state ownership when the government can make 2.5 times more profit from an enterprise than the enterprise makes itself? Since the company is allowed to make a profit, it doesn’t fit the strict definition of socialism. Instead, we have a system of over-regulation that gives a large amount of control over and profit from a business to the state, while allowing the company to keep some share of profit for itself. I call this system regulationism. People who believe in over-regulation and state control of businesses are regulationists.

Regulationism often brings disastrous results. In some cases, monopolies are granted by the state; in others, competitors aren’t allowed to compete. The costs of air travel and phone service, for example, were once astronomical. Thankfully the Reagan revolution helped tear down the regulationism in place. If the regulations from the ’70s were still in place, we wouldn’t have cheap air travel, ubiquitous cell phones, or a host of other advances that a competitive marketplace offers.

The goals of regulationism and socialism are the same: control over a company or business. The end result of regulationism and socialism is also the same: a lifeless economy filled with uncompetitive businesses. November’s election wasn’t just a rejection of a political party or a fight over personal taxes; it was also the rejection of regulationism.

In the next election, President Obama should have two labels to avoid: socialist and regulationist. Being in either camp is equally poisonous in American politics.

HT: American Thinker

President Obama called the Democrats’ November 2 loss of sixty-one House seats a “shellacking.” Yet in a day-after press conference, Obama sported a self-absorbed manner, contrived reflection, and a basic misread of the American people. In a “60 Minutes” interview aired four days later, he denied that voters had repudiated his agenda. The president doesn’t understand why a center-right nation would reject a left-wing Obama. This man will not “move to the center.”

The best predictor of future behavior is past behavior. In early 2008, Senator Obama accused businesses of having cultures “rife with inside dealing, questionable accounting practices, and short-term greed.” Only ten months shy of establishing a federal regime rife with inside dealing, questionable accounting practices, and greed, the senator also warned that America’s “real problem is … that the corporation you work for will ship [your job] overseas for nothing more than a profit.”

Obama’s implicit suggestion that companies should bleed dollars to keep people employed revealed his blindness to economic reality. The practice of demonizing capitalists and the free market has become an Obama favorite. So goes the “progressive” mentality. So goes Barack Obama.

Obama destroys. Wearing the cape of savior, he destroys the resolve of people seeking to be saved. Abusing the office of president, Obama destroys American prosperity. He genuinely believes that government creates wealth. But Obama’s policies and pontifications scare the hell out of the machine that creates all wealth: private enterprise.

The president makes a show of caring about private enterprise, about people. But he is in love with big government, with ideas. Almighty central planning is progressivism’s dearest idea. Barack Obama’s idea, too. Obama clings to the notion that government legislates progress. He cannot see that society progresses when doers do profitable things that improve people’s lives, an endeavor called “business.” Remove the profit motive, and action fades. Without action, no business. Without business, no progress. Yet Obama doesn’t get it. Our president is an ideologue.

Since 1900, in America as in Europe, progressive ideologues like Obama have dominated a ruling class that focuses government on one overarching pursuit: political patronage. Today, snowballing organizations like George Soros’s Open Society Institute and Tides Foundation, “green” advocacy groups; climate alarmists; social, economic, and environmental justice zealots; multiculturalism preachers; and victimhood-mongers of all kinds vie for government backing to push agendas.

In Bought and Paid For, Charlie Gasparino shows how the chummiest kowtowers to Obama’s favor, Wall Street “fat cats,” push agendas of personal profit. The president’s rhetoric and policies ooze contempt for the general idea of business, but business writ large across Lower Manhattan draws only pseudo-threats that camouflage friendly policies. The double standard subjects honest, traditional, small-business entrepreneurs to a baked-in disadvantage: omission from Obama’s corporatist gift list.

Corporatism does create prosperity, but mainly for businesses that play the game. Widespread prosperity arises when anyone with a legal business idea gets an unimpeded shot at trying out that idea in the marketplace without playing games. Entrepreneurs must be free to direct talent and money into products and services that people want.

Today’s business leaders instead navigate a maze of flagrant political patronage tailored to accommodate a chosen few. Among the few are the Wall Street fat cats, as well as “green” and “alternative energy” interests. EPA overregulation will, for instance, force consumers to buy green electricity at jacked-up prices and pay mark-ups on anything that requires electricity to produce — in other words, everything.

Barack Obama presides over this abuse while hyping the need for vision, the need to help fellow Americans. The opposite side of the presidential mouth vilifies visionary people whose business revenues do help Americans by providing jobs. Obama paints these traditional business people as coldhearted, bigoted, nature-hating Ebenezer Scrooges. What else could traditionalists be? Anyone opposing the visionary, compassionate, planet-saving Obama is obviously a Neanderthal.

The president locks out Neanderthals. The presidential network accommodates only enlightened beings who push, Kool-Aid drinkers who accept, and savvy partners who profit from fundamental transformation. It will be no surprise when Obama keeps the unenlightened Republican House Speaker, John Boehner, on the fringes of the network. Barack Obama will tolerate nothing resembling Republican accomplishments over the next two years.

Neither will the president mothball his anti-business ideology. The stunting economic effects will be insidious. Markets create maximum wealth when businesspeople move about freely, developing and ending relationships across various social networks. In those networks lie common interests, and in the interests, needs. When entrepreneurs decide to fulfill the needs, businesses are born. Entrepreneurs benefit. Networks benefit. Other entrepreneurs replicate the process. Society thrives. Prosperity grows.

Barack Obama abhors this natural order.

Obama the progressive views himself as a socioeconomic engineer. Although the free market’s health depends on government respecting citizens’ right to freely and randomly associate with each other, our control-obsessed president cannot stand for something so serendipitous derailing his brilliantly planned economy. Progressives know better. Progressives must dictate. The free market’s smooth functioning also depends on respect for the rule of law. But Obama displays staggering disregard for the law. The president has anointed dozens of policy-making “czars” accountable only to him. Halting America’s fundamental transformation now hinges on the GOP finding ways to stop vast amounts of czar-initiated backdoor regulation.

If Barack Obama cares about being reelected, he might try something new: admitting his faults. The president might reflect on how he contributed to two years of economic misery, caused the electoral slaughter of his political party, and lost the trust of Americans, who said, “No, no, no!” as he kept saying, “Yes we can!” He might try adopting the proposals of Capitol Hill conservatives and setting America’s businesses free. The private sector will produce an economic recovery for which ideologue Obama would take credit. The president’s drool-soaked media toadies would eagerly sell the claim.

But Obama is an ideologue — and a man addicted to demonizing his opponents. So the president will play ugly games with a recharged GOP. He will agree to extend the Bush tax cuts. But the left-winger will cling to left-wing dogma and choose ever sneakier routes that will burden American business. The ideologue and his czars and agency bosses will try to circumvent Congress and the Constitution to bring about state-controlled capitalism.

God give the Republicans the courage to rediscover integrity and sane economic principle. For the sake of Americans living today and Americans not yet born, may voters continue to awaken between now and November 2012 and finish the purge that was started in November 2010.

HT: American Thinker

University faculties are often ignorant of the fact of entrepreneurial value creation. One such faculty member is the influential human rights scholar Judith Blau, Professor of Sociology at the University of North Carolina-Chapel Hill. Through her membership in the American Association for the Advancement of Science (AAAS) Human Rights Coalition she defines the human rights agenda for the world’s largest and most prestigious scientific association. Through her leadership of Sociologists Without Borders she promotes an activist “public sociology” agenda internationally. She has published dozens of articles and more than a dozen books, and she has served on numerous professional committees, advisory boards, editorial boards, etc.

And yet, in a 2006 interview, she could dismiss the role of entrepreneurs.

I don’t use the word “entrepreneurs,” at least not anymore. It does not go with the global predicaments we face today, which, in my view, require collective solidarities and collective action.

This is consistent with her Marxist orientation (she was Chair Elect of the Marxist section of the American Sociology Association in 2007-2008) and her Marxist economics, which she articulated in her major book on economics, Social Contracts and Economic Markets, in 1993:

… in purely economic terms, the entrepreneur owns the capital, the means of production, and hires workers to produce commodities or services to make a profit. … The potential for profit is created by workers: Specifically, surplus value is, put simply, the difference between what workers are paid for their work and what the work is worth — as products or services — in the market [1].

According to Blau, an entrepreneur is merely someone who owns capital and hires workers, and any profit is, in essence, stolen from the workers. Her ignorance makes her a superb case study of an influential scholar, writing frequently on economic issues, who is clueless regarding the role of entrepreneurial value creation.

Israel Kirzner identified the entrepreneur as the economic agent who is “alert to opportunity” and who acts on that opportunity. An entrepreneur is someone who recognizes that there are economic goods or services that are currently undervalued, and he or she then takes action, in the hopes of realizing a profit, by means of selling the undervalued goods or services at their market price. Kirzner thus identifies “profit” as the entrepreneurial reward for being alert to opportunity. It is analytically distinct from returns on capital investment received by the owners of the capital or managerial salaries received by managers of the enterprise (though one individual might simultaneously play the roles of entrepreneur, investor, and manager).

But even Kirzner’s “arbitrage” theory of entrepreneurship undervalues the entrepreneur. Many entrepreneurs do not merely buy low and sell high; they actively create new value in the process of identifying undervalued goods and services and discovering new ways to combine them in order to create more value. Leonard Shoen, the creator of U-Haul, realized that gas stations across the U.S. had empty parking spaces on which they would be happy to park his trailers and thereby provide themselves with an additional revenue stream. Sam Wyly made his first fortune by realizing that many users who needed computer processing power could not afford their own mainframe, so he bought up mainframe time and sold it as time-sharing. In each case, the “arbitrage” interpretation of their entrepreneurial story fails to do full justice to the combination of vision, development of new systems, marketing and sales savvy, and sheer chutzpah in creating something out of nothing. Ex post, such arbitrage opportunities may sound obvious; ex ante, each new endeavor is challenging, risky, and requires tremendous talent and commitment to pull off (thus the entirely justified Randian notion of entrepreneur as hero).

An entrepreneur is an individual who sees opportunities that are invisible to others. Entrepreneurs create value because they identify situations in which some goods or services are undervalued and apply their life’s energy to creating a reality which does not yet exist, with no guarantee of either financial or reputational reward. More than half of all new firms fail within four years in the U.S.[2]. Most entrepreneurs are losers, at least the first time.

My wife, Magatte Wade, is a Senegalese entrepreneur whose first company, Adina World Beverages, began by selling an organic hibiscus beverage that was traditional to Senegal. When she created her company, the hibiscus industry in Senegal was dying as the Senegalese were switching from hibiscus to Coke and Fanta. Meanwhile, Senegalese hibiscus was not competitive in international markets; Chinese hibiscus, for instance, was half the price and of much higher quality. Magatte recognized, however, that with the right branding and marketing, she could sell an organic hibiscus beverage to U.S. customers in the “cultural creative” demographic because they care about the social and environmental conditions under which products are produced. But in order to create her company, she first had to spend months convincing potential investors to invest in her enterprise (again, Blau’s notion that the entrepreneur is simply the person with the capital is often false). Once she had raised the first round of financing, she had to spend numerous trips to Senegal training the women’s co-ops to grow high-quality organic hibiscus, and then she had to spend several years flying around the U.S. selling her products to Whole Foods Markets, Wegmans, and other high-end retailers. Meanwhile, she and her partners went through all of the usual business nightmares of management problems, employee problems, production problems, marketing problems, etc. Anyone who has actually created a new enterprise knows that it is often a matter of nonstop problem-solving in a frenzy of work, with the constant risk that it will all collapse at any point in time. It is not mere price arbitrage, less alone is it simply a matter of exploiting the “surplus value” created by workers.

At this point, Adina is growing successfully, and if Magatte’s shares become liquid (no guarantee of that), she may become wealthy and thereby exacerbate the inequalities of wealth with which Blau and other academics are often so obsessed. In the meantime, Magatte is starting a second company, for which she is again raising capital, through which she hopes to create even more and better jobs in Africa.

There are 500,000 aid workers in Africa who have not brought prosperity to the continent, nor will they. All nations that have become prosperous have done so by means of entrepreneurial value creation. Rather than 500,000 aid workers, Africa needs a million entrepreneurs, half of whom may succeed. The ones who succeed by means of creating value that hitherto had not existed will, in many cases, become rich and thereby “exacerbate” inequality in Africa, just as the rise of entrepreneurial capitalism in China and India have created a new class of wealthy entrepreneurs and “exacerbated” inequality in those places.

The entire academic focus on inequality is an atavistic throwback to the time when we lived in a tribe of 150 and if you got more of today’s kill, then I got less. Our biology is geared to zero-sum interactions in which we must each struggle with the other to get our share. But entrepreneurial capitalism is a stunning example of a non-zero-sum game. All of the wealth created since 1800 was created out of the minds of human beings. Almost everyone on earth is better off now than their ancestors were two hundred years ago.

When Blau writes, in 2006, “It was not uncommon not so long ago for social scientists to speak of ‘progress.’ We are now wiser” [3], I wonder what planet she is living on. Once one understands the phenomenon of entrepreneurial value creation, then the world becomes an optimistic world of abundance for all, rather than a grim world of fighting and struggle. As the poet Frederick Turner has noted, the best solution for all of our problems is to “Make Everybody Rich.” Since Adam Smith, we have known more or less how to do so: Let entrepreneurs, through the system of natural liberty, create value. Once Blau understands this, she will be part of the solution, and no longer part of the problem.

Michael Strong is the CEO and Chief Visionary Officer of Freedom Lights Our World, a non-profit devoted to entrepreneurial solutions to world problems, and the lead author of Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems.

HT: American Thinker

America’s economic situation needs an emergency heart transplant, but Obama and the Democrats keep offering band-aids instead. We need a major change in government economic, tax, and fiscal policies not more government bailouts. Yet the president is doing nothing to reverse the enormous uncertainty fostered by his own administration’s aggressive anti-business and pro high-tax initiatives and rhetoric.

In the latest indication that our president has no clue why businesses are struggling and unwilling to hire, Obama is trying to force through another $30 billion government bailout program to “help banks boost lending to small businesses.” Unfortunately, it’s not the lack of available funds that are stopping businesses from expanding and generating new jobs. It’s the massive economic uncertainty and instability created by misguided government mandates (especially the oppressive regulations of ObamaCare), coupled with the massive tax increases coming in January 2011, that have spooked companies and forced them into defensive economic positions.

A few months ago, Steve Wynn, the American entrepreneur and casino resort/real-estate developer, warned that our government’s own unpredictable and irresponsible policies had created a “frightening” business climate in America and brought about an atmosphere of uncertainty for everyone.

“So when you ask me today about predictability and uncertainty in China compared to Washington, I take China. Washington is unpredictable these days. Washington is… No one in the business community from one coast to the other has any idea what’s next. And what’s even worse, the people that do business with us that buy our bonds in other countries don’t even know what’s next. The uncertainty of the business climate in America is frightening, frightening to everybody. And it’s delaying the recovery.”

Since 2006, under the “leadership” of the Democrat controlled Congress we have witnessed the unthinkable, communist China now has lower corporate rates (25%), more stable regulatory policies, and a more business-friendly economic environment than the “free-market” United States. Even the communists understand how capitalism works and what governments must do to help stimulate economic activity and encourage private sector job creation.

Meanwhile our own ivory-tower president, who has never started a company or created one private sector job in his life, continues to deny reality and blame the Republicans for refusing to go along with more socialist “solutions” and endless government bailouts; “A partisan minority in the Senate has been standing in the way of giving our small business people a simple up or down vote on this bill,” said the president. “Small business owners… don’t have time for political games.”

Ironically, it is the very “political games” and hundreds of billions of dollars in government “stimulus” programs, forced through by Obama and the Democrats, that have scared small businesses and negatively influenced economic activity, while simultaneously increasing economic risks and fiscal instability.

Small businesses, responsible for approximately two-thirds of all new jobs in the United States, are not expanding and hiring because they are frightened by what the government has done and promises to continue doing. Offering them more bank loans will do little to persuade them to ignore reality and endanger their positions. Unless and until President Obama and Congress address the threats of higher taxes, militant and oppressive government regulations, and increasing levels of deficit spending, no amount of easy money and government bailouts will ever motivate businesses to expand in the increasingly unstable and turbulent economic waters of America. They are seeing the mounting risks all around us and are correctly refusing to budge.

Originally posted at American Thinker Blog and Chris Banescu.com

Story was renamed and re-published under a more appropriate title. Read the entire article on the Chris Banescu website. (re-printed with permission)

“Tax the rich” has been the inveterate battle cry of liberals from the beginning. The left believes in creating massive entitlement and welfare programs all in the name of fairness. Equal rights, it seems, don’t apply to the wealthy. Ironically, the idea only ends up hurting the very people it’s supposed to help.

Early in 2009, Maryland raised its tax rate to 6.25% for income earners of $1 million or more and saw a decline in tax revenue as high-income taxpayers emigrated to tax-friendlier states. While it may seem that few families make an income of a million dollars, sole proprietorships, partnerships, and many “S” corporations pass their earnings directly through to the individual, and that means that small businesses are the ones that get hurt the most.

Tax increases of this kind have far-reaching consequences. Small businesses that move don’t often take employees with them, and those that stay may be forced to cut back, resulting in higher unemployment numbers. In Maryland’s case, the drop in tax revenue also means that the burden is placed squarely on the shoulders of the middle class, the ones who can least afford it. (Usually Democrats deal with this problem by creating subsidy programs that only widen the gap in wealth disparity with more taxes. It’s this type of circular logic that keeps class warfare alive.)

While leaving one state for another due to taxes may be an option, what happens when the federal tax rate increases? Few are willing to go so far as to leave the country to escape taxation, yet the same decease in tax revenue can be found on a national scale. The reverse of this effect can be seen by looking back at the tax policies implemented by Andrew Mellon, the Secretary of the Treasury under Calvin Coolidge, in the 1920s. By lowering taxes across the board, the United States actually saw a surplus and used the money to help retire some of the national debt.

A true return on an investment can be calculated only after applying the corresponding tax rate. The higher the rate, the less return is realized. For the wealthy, reducing the amount of money subject to taxation becomes a necessary strategy to justify the level of risk taken in any given investment. As the tax rate goes up, the amount of risk that needs to be taken in order to make the same return also increases.

Municipal bonds are a unique type of investment products that provide tax-free income at the federal and potentially even state and local level. This makes them more attractive than the oft-lower-yielding Treasury securities, which are tax-free only at the federal level. Obviously, more money in these products will result in fewer income taxes collected.

Let’s take a look at an example to help illustrate how this works. The equation used to determine a comparable taxed investment versus a tax-free one is Taxed Comparable = Tax Free Comparable / (1-Tax Rate). If an investor’s tax bracket is 35%, and he can invest his money tax-free at 6%, then the amount he needs to make from a taxable investment is 9.2% [9.2% = 6% / (1-35%)]. Now, what happens if taxes are raised to 45% instead of 35%? In this case, the investor would need to make 10.9% in order to make the same amount of money as the tax-free one at 6%.

The real problem occurs when taxes are raised during a recession, as Herbert Hoover found out the hard way. Many times, there are no comparable taxable investments, so investment funds flow into municipals and treasury bills en masse. With no incentive to invest and pay taxes, investors opt for a better strategy, thereby reducing the amount of money the federal government collects.

In recent years, the proliferation of brokerage firms and computer-based transactions has made transferring assets even easier. Thanks to technology, the act of investing offshore to lessen or even avoid taxation, once limited only to the ultra-rich, has become more commonplace. On January 1st, 1980, 401Ks were created, allowing even more people to shelter their income by deferring taxation until retirement.

As the political landscape changes, taxes are just one more tool Democrats use as a way of “balancing” what they see as an unfair system. To those who don’t know any better, the idea of taxing the top income earners in America can sound very appealing, especially when you’re living paycheck to paycheck. The economic truth is kept hidden away, and ignorant votes create more problems for the disappearing middle class. The rise of the salient “Tea Parties” may finally shine a light on how the American tax system is designed and educate voters in a way that allows them to see through incorrect leftist philosophies. It’s a progressive mindset that actually works.

HT: American Thinker

If you’re known by the company you keep, then the United States may want to re-think its economic policy. The 2010 Index of Economic Freedom, a joint publication of the Heritage Foundation and the Wall Street Journal, measures the world’s nations according to a range of criteria from the ease of starting a business, to protection of property rights, to various forms of government interventions. Among the 15 “biggest losers” during the past year was the United States, placing it among the likes of Libya, Uzbekistan, Mongolia, and Venezuela. (The inclusion of the relatively more respectable United Kingdom is cold comfort.

America’s plunge in the rankings is the result of a range of misguided policies, including increasing tax rates and exorbitant government spending. The Bush White House deserves some blame for setting the trajectory, but the Obama Administration has only taken Bush’s economic mistakes and amplified them.

The United States for the first time dropped out of the Index’s “free” category and into the ranks of “mostly free.” Many Americans, who fail to understand how much of the world has recognized the benefits of market-friendly economic reform and government restraint while their country has moved in an opposite direction, will be shocked to learn that Australia, Switzerland, and even Canada rank ahead of the United States on an economic freedom index. Asian city-states Hong Kong and Singapore continue to top the chart.

Why does this matter? After all, freedom and economic prosperity are not the only or even the chief measures of well-being anyway. Amelioration of poverty and protection of the environment, some would argue, are the sorts of concerns that should take precedence over the grasping of ever greater economic freedom and material accumulation.

But this view takes the wrong perspective. Advancing scores on the Index’s criteria of economic freedom are, more often than not, concurrent with poverty reduction and environmental improvement. The Index itself notes the correlation in its Highlights summary. During the last decade, countries improving in economic freedom have reduced poverty levels faster than have countries whose economic freedom has declined. Nations that enjoy vigorous property rights protection and free trade score higher on the Environmental Performance Index.

Both of these correlations fit the evidence from a long history of academic studies and lived experience that demonstrate the causations at work here: The institutions of free markets, private property rights, and rule of law create conditions conducive to economic growth; economic growth lifts an increasing percentage of the population out of poverty; as the poor are relieved of the desperate search for daily sustenance, they are willing to allocate more attention to other goods, such as conservation of natural resources.

Social benefits extend beyond the areas of poverty reduction and environmental stewardship. “Economic freedom,” the Index observes, “is also strongly correlated to overall well-being, taking into account other factors such as health, education, security, and political governance.”

Thus economic growth may be “morally neutral” in the abstract, but it certainly has moral implications in the real world. The recent experience of Haiti confirmed this point in a grim fashion. Obviously the devastation there is not reducible to economic factors, but it should be equally obvious that the country’s poverty—reflected in shoddy infrastructure and weakness in the capacities of both public and private institutions—intensified the human and material destruction.

People of good will may differ on a wide range of policy details without impugning their character. The specific connections between various policies and economic improvement are often debatable. But when a compelling measure of economic freedom shows the United States in free fall, then every conscientious citizen should take notice. We’re headed in the wrong direction.

HT: Acton.org