The market happens like gravity happens – talent, capital and creativity are attracted to countries where they are wanted and well-treated. Intellectual resources gravitated to the American economy where they were put to their highest and most productive use. The scope, scale and volume of American production became the center of gravity in the economic universe. Just as planets orbit the sun, so too did the world’s economies orbit the United States. However, today the planets are realigning, where a markedly interventionist government repels entrepreneurship while the rest of the world is learning to attract it.
At home, a 35 percent corporate tax rate, strong union laws and more than two trillion dollars worth of annual government regulation has compelled a significant amount of capital and labor to find another home. Unions abhor free trade, but specialization and free trade is what Adam Smith told us creates prosperity. Every year, the American tax code becomes more complicated and less competitive. Americans tout free trade, but undermine that truth when the current administration refuses to sign a free trade agreement with Columbia. Without exception, the United States topped all of the leading indices of economic freedom, competitiveness and globalization over the last century. But today, the Wall Street Journal’s Index of Economic Freedom shows the United States has fallen from the top-tier in 1999 to being moderately competitive in 2010.
Not only are current American economic policies less attractive, but countries like China and India are becoming centers of gravity themselves. They literally replicated policies that made the United States the power it is today. No longer are Eastern European engineers as eager to leave for the United States, when the majority of their countries have moved to a 15-20 percent flat tax. Indications of America’s decline are a falling dollar, massive government debt, an uncertain tax future and a healthcare bill with at least three negative unintended consequences per page.
For more than 100 years, the United States has enjoyed a boom in productivity and living standards unparalleled in human history. The central actor in that rise has been the entrepreneur, supported by the pillars of limited government, free enterprise, free ideas and a free flow of capital. Indeed, freedom is the mainspring of economic prosperity and the best investment a country can make. The rest of the world believes this, the question is, do we?
Dr. Barry Asmus is a senior economist with the National Center for Policy Analysis.