"Theres no avoiding the truth The year"
Foreword T here’s no avoiding the truth: The year The most striking fact of this year is how 2009 will go down as the worst for global many governments are repeating policy mis- economic freedom since the inflation and takes from previous eras. The spending spree wage and price controls of the 1970s, and maybe is rooted in the so-called Keynesian multiplier, since the industrial policy and monetary chaos which asserts that one dollar of government of the 1930s. Many governments and their outlays stimulates 1.5 times that amount in political agents have used the financial panic greater output. Harvard’s Robert Barro, and recession as an opportunity to reassert con- among others, demolished this claim a gen- trol across the private economy. As I write this eration ago, but here we go again. Britain’s in November 2009, the damage is still unfold- Labour government has little growth to show ing, though there are some signs that a backlash for its historic reflation campaign, and with a on behalf of liberty may be building. jobless rate of 10.2 percent amid a tepid U.S. The political assault began with the Panic of recovery, so far Mr. Barro seems more right ’08 that frightened voters and created a clamor than the Keynesians. for governments to do something. Many have Meanwhile, the Federal Reserve’s extraor- responded around the world with a reflation dinary and continuing monetary stimulus is binge, both monetary and fiscal, among other causing commodity prices to climb and is giv- interventions. The monetary stimulus in partic- ing heartburn to world finance ministers who ular has helped to stem the financial panic and see their currencies rising sharply against the encouraged an incipient recovery. But the very dollar. A whiff of “beggar thy neighbor” com- magnitude of the stimulus, and its eventual petitive devaluation is in the air, the kind of cost in higher taxes or perhaps inflation, raises policy the U.S. last tried in the 1970s to destruc- doubts about whether the current recovery can tive effect. The danger is that the entire U.S. become a durable expansion. establishment, from the Treasury Secretary to ix Wall Street, appears to want a weaker dollar in nese can’t afford stagnation, and they have the name of boosting exports. But if a nation seen the fruits of greater economic freedom. could devalue its way to prosperity, Argentina India continues to shake off its socialist past would be paradise. The Fed will eventually and wants no part of Western Europe’s malaise. have to defend the dollar. The world’s investors can move at the flip of an The U.S. is also tempting slower growth with electronic switch. The reality of global competi- its policies across the microeconomy: a de facto tion and instant capital flows means that wise government takeover of health care, a gigantic policy decisions will be rewarded faster than new tax on carbon energy, the political alloca- ever before. tion of capital in energy and autos and so much The larger lesson of this painful year is that else, new rules to expand union membership, old economic lessons must be retaught to a new nationalization of the mortgage market, a hos- generation. Milton Friedman must be reread, tility to freer trade, and much higher taxes to pay and Margaret Thatcher’s gift for explaining for it all. All of these either had already occurred economic liberty to the common man must be or were possible at year end, and all impose bur- relearned by new political leaders. My guess dens on private risk-taking and investment that is that this reeducation will become easier as will reduce U.S. prosperity over time. the consequences of the current wave of gov- Amid all of this, it is surprising that the U.S. ernment intervention become clearer to voters has fallen only two places in this year’s Index of around the world. Economic Freedom. This reflects the fact that other Already in the U.S., a populist reaction is nations have made similar policy mistakes and forming against the willy-nilly expansion of perhaps is testimony to the residual strength of state power. It is too soon to know how this U.S. law and institutions. But another lesson of will play out, but a recurring theme of Ameri- Argentina is that a nation’s prosperity must be can history has been resilience and revival. The continually earned and that the rest of the world Index of Economic Freedom exists to provide a may not join America if it insists on weakening map for that revival, and its purpose has never itself. As columnist Charles Krauthammer has been more vital. put it, “Decline is a choice.” In this sense, the very global free-market Paul A. Gigot revolution that America did so much to pro- Editorial Page Editor mote over the past 30 years may be a barrier The Wall Street Journal against a repeat of the 1930s or 1970s. The Chi- November 2009 x 2010 Index of Economic Freedom