It is no secret that discussion of US political economy is generally centered around the role of government in the economy. This discussion is multifaceted; it concerns itself with the appropriate level of taxes, regulation, and expenditure. In the context of political economy, it is worth noting that liberal used to connote a laissez-faire approach to economic governance, while conservative implied mercantilism (i.e. prioritizing a current account surplus usually through tariffs, the antithesis to free-market doctrine). The terms have essentially swapped meaning in recent times. Modern conservatives advocate for low taxes, reduced spending on government programs, and removing regulations. Modern liberals prefer to increase taxes, spend more on government programs, and believe in implementing regulations (such as antitrust laws and excise taxes) on various industries for the greater social good (e.g. financial services, banking, fossil fuels etc.).

Modern liberals (i.e. Democrats) are not without their detractors. Democrats were not always champions of big government; if anything this transition occurred with FDR (who, contrary to popular belief, was very restrained in expenditure for the New Deal and would likely be classified as a modern-day conservative). This continued up to Lyndon Johnson’s presidency. At this stage, the economy, despite being very close to full employment, continued to receive significant fiscal stimuli (especially spending on the Vietnam War). This, coupled with the global supply shock inflicted by the Arab oil embargo of 1971, resulted in the rampant stagflation of the 70s. Consequently, Keynesian economics was delegitimized and the world entered the Washington Consensus (i.e. market triumphalism). In this laissez-faire atmosphere, proposed ambitious spending on social programs is often a very easy target to ridicule.

Touche :/

As the Washington Consensus has widened income inequality and resulted in the stagnation of the middle class, there has been some obvious criticism of the policies that led to these outcomes.When liberals point to the success of social programs in other countries, the general conservative response is to emphasize the importance of the economic freedom that Americans possess. Championing the power of markets wasn’t always the status quo with conservatives (even up to the 1960s) but has been so in the post-Reagan era. This kind of ardent market fundamentalism also happens to be part of modern economic orthodoxy.

Free market provides?

As such, it is easy to believe that this kind of inequality is a necessary price to pay to preserve America’s exceptional economic freedom; after all, this is what purportedly makes America a land of opportunity. These are the principles that underpin the American dream; one that anyone could achieve through perseverance.

Except America isn’t that free after all.

Putting aside the Middle Eastern countries that do not levy any income taxes, let us examine many countries (with allegedly socialist programs) that the US is frequently compared to.

Overall Economic Freedom: Australia V. USA

Overall Economic Freedom: New Zealand V. USA

New Zealand and Australia, both of which have healthcare systems heavily/fully subsidized by the government, are ranked 3rd and 5th respectively on the index of economic freedom. In comparison, the US is ranked 18th.

Let us now dive into Europe.

Overall Economic Freedom: UK V. USA

Overall Economic Freedom: Denmark V. USA

Overall Economic Freedom: Sweden V. USA

The UK is ranked 8th, despite having a fully nationalized taxpayer funded healthcare system. Denmark and Sweden, commonly brought up as “socialist” European countries, are ranked 12th and 15th, respectively. Denmark’s healthcare system is practically identical to the UK, while the Swedish government leaves the funding of healthcare to local governments, which pay for 97% of overall medical costs incurred by citizens (through a low deductible insurance type system).

All of these countries have higher tax burdens than the US (with the remarkable exception of New Zealand); this is to be expected given that all of them have significantly higher government spending (as a percentage of GDP) than the US. However, at 18th, it sits below all of these countries on the index.

Tax burden is not the only indicator of economic freedom

Let us bring in the previously shelved Middle Eastern countries.

Overall Economic Freedom: Saudi Arabia V. UAE

The United Arab Emirates, a collection of 7 hereditary absolute monarchies, is ranked 10th on the index (this is higher than the US, an anomaly in the Middle East). Conversely, Saudi Arabia, also an absolute monarchy and an oil powerhouse, ranks 98th.

Tax Burden: Saudi Arabia V. UAE

It is worth noting that the tax burden in both areas is practically identical. Personal income taxes are non-existent; most tax revenue is generated through minor capital gains taxes and a recently introduced value-added tax on certain goods. What then, explains the vast difference in economic freedom between the two countries?

Government Integrity: Saudi Arabia V. UAE

Labor Freedom: Saudi Arabia V. UAE

Property Rights: Saudi Arabia V. UAE

The UAE is far superior in labor freedom and upholding the rule of law (i.e. property rights and government integrity) than Saudi Arabia. These are often important but often overlooked aspects of economic freedom; the ability of labor to switch between jobs with ease allows increased flexibility in the labor market. Appropriate enforcement of property rights and high government integrity maintains investor confidence in a nation’s economy.

It should have become obvious by now that economic freedom is multifaceted; it is influenced by a variety of factors.

Rule of Law: Property Rights, Judicial Effectiveness, Government Integrity Government Size: Government Spending, Tax Burden, Fiscal Health Regulatory Efficiency: Business Freedom, Labor Freedom, Monetary Freedom Open Markets: Trade Freedom, Investment Freedom, Financial Freedom

The complete list is available here.

The implication of all of this data is self-evident. To put it in crude terms, the US, by virtue of scoring lower on the index of economic freedom, is less capitalist than many of the industrialized western nations that it is frequently compared to.

One can no longer pretend that universal healthcare cannot be implemented in this country because “socialism doesn’t work for us”. If contemporary Western Europe is your standard for socialism, then the United States is already socialist.

Bring on the universal healthcare (or at least come up with better excuses).