tv Heritage Discussion on Economic Freedom Index CSPAN January 31, 2019 4:54pm-6:03pm EST
house judiciary committee about the special counsel investigation into russian interference in the 2016 election. we'll have that live on c-span2 at 9:30 a.m. eastern, a week from tomorrow. c-span. where history unfolds daily. in 1979, c-span was created as a public service by america's cable television companies. and today we continue to bring you unfiltered coverage of congress, the white house, the supreme court, and public policy events in washington, d.c. and around the country. c-span is brought to you by your cable or satellite provider. next, the heritage foundation presents its 2019 survey of economic freedom in countries around the world. this is an hour and ten minutes.
>> ladies and gentlemen, please welcome the heritage foundation's president, kay coles james. [ applause ] >> you know, they call that the voice of god, when you're introduced by an off-camera person. but i never knew it was a woman. hello, genevieve, where are you? welcome. we are so delighted for you to be here today and so excited about what this day represents. it's a pleasure to welcome you to the special occasion, releasing the index of economic freedom, our 25th edition. who was here for the first? look at that. well, thank you for being here for the 25th, and we look
forward for you celebrating with us as we move forward. for 45 years, the heritage foundation has been dedicated to building an america where freedom, opportunity, prosperity, and civil society flourish. for those of us who have the privilege of working here at the heritage foundation, that is not a throwaway line. in fact it's our battle cry against the forces of oppression and tyranny. you see, for literally thousands of years, the vast majority of people lacked economic freedom and opportunity. and as a result, they were condemned to demeaning, dehumanizing lives of poverty, sickness, and in many cases, early death. a few people controlled most of the power and most of the
wealth. and pretty much everyone else suffered. thankfully, those days are over for more people today than at any previous time in all of human history. but we still see instances such as venezuela, zimzimbabwe, and north korea, that serve as a stark reminder of where we've come from. and in fact where we could return if we don't remain dedicated to building a better future. that's what the heritage foundation is all about and committed to. also, that's why our index of economic freedom is so important now more than ever. the index of economic freedom is unique. it's a team spirited flagship product of the heritage foundation. and its creation involves nearly everyone in this building. but there are a few that i want to especially thank for their
work on this year's index. ambassador terry miller, anthony kim, jim roberts, jim kerafano, jack spencer, bill poole, theresa pinfeather, and john fleming and jay simon. thank you all so much for the incredible work that you do. [ applause ] it is a phenomenal product, and it really does speak into our dialogue on these very important issues. the index chronicles the advance of economic freedom and its conquest of poverty, with detailed analysis presented in a user-friendly format. the index has served as the go-to resource for policymakers, researchers, and students for more than 20 years.
the index confirms the essential link between free markets and prosperity and it has absolutely inspired policy change around the globe, improving the lives of millions of people. the 25 years of data we have amassed in this project demonstrates conclusively that economic freedom leads to better health, longer lives, improved education, and cleaner environments. it expands markets and raises living standards. and it brings societies closer together in peaceful commercial cooperation that transcends race, religion, and culture. in sum, the index reveals a powerful truth. governments that respect and promote openness and free markets make their citizens' lives and the world better.
the ratings and rankings will undoubtedly change in the future. we hope for the better in all countries everywhere. but one thing will not change, the fundamental message of the index. as we at heritage said in introducing the first index in 1995, in striving for peace and prosperity, freedom is what counts most. and now i would like to invite dr. kim holmes, executive vice president of the heritage foundation, to share how the index has evolved and made measurable impact around the globe. perhaps most notably for today's special occasion, i should mention that dr. holmes was a founding editor of the index of economic freedom. dr. holmes. [ applause ]
>> mrs. james, thank you very much for that introduction. it's a pleasure to be here with all of you here this morning. i also want to add, mrs. james, thanks to you, terry, anthony, jim roberts, jack, and the rest of the team that worked on this stellar product. it's been in my life now for 25 years. every year it seems to get better, and it's because of these people right here that it's getting better. so thank you very much for all your hard work. you know what? these are my children. my children's children. and since there's so many of them, my children's children's children. after 25 years of the index of economic freedom, what a wonderful visual. i didn't realize they were going
to be doing this. yeah, this is the one, we started back in 1995. it was predigital, by the way. and so the graphics are rather primitive. i spent hours with printers trying to make sure it was working correctly. so we have come a long ways, so many different ways in the index. i remember meeting in ed's office 25 years ago. he asked me if we thought we could produce an index of economic freedom. there was a lot of talk among economists at the time whether or not it could be done. milton friedman had called for them. the frasier institute had been involved in creating an idea for the index. there was a lot of people, a lot of chatter, trying to see if we could do this. he asked me if i thought our staff could do it. i said, sure. we set to work. and the first publication in 1995 was the result. now, the question is often put to me about why did we decide to
do this at the end of the mid-1990s. there were actually many reasons for it. one was to offer policymakers a guide to how well foreign aid worked or did not work. that was the topic at the time. and that was sort of the issue that kind of pushed us over the edge when we asked ourselves the question, okay, well, you can do a theoretical study like this but what is the policy payoff? we're up here on capitol hill, the heritage foundation tries to offer solutions to policy questions, and so that was the -- sort of the issue of entry into making that final decision. but actually, thinking back, the biggest reason we decided to do it was that the cold war had ended, and freedom was breaking out all over the planet. much of the talk at the time, though, as a result of this, was about political freedom, about democracy, and about elections, all of which are of course very good, but which were only part of the picture. we knew that as communist
dictators were falling, we were discovering, many people were discovering the benefits of the free market, the capitalism. we wanted to create a research product to give policymakers, professors, a benchmark to measure economic policy and progress towards prosperity. the 25th edition of the index marks an especially important milestone. many more countries are committed to free market policies today than they were 25 years ago. the results have been far better quality of life for millions of people around the globe. and after 25 years of measuring global economic freedom, the verdict is in. economic freedom leads to rapid increases in incomes, dramatic drops in poverty, sustainable gains in education, health, and environment, and also the improved conditions for democracy and peaceful cooperation among neighbors.
it's just basically the foundation for so many other things. peace, democracy, and freedom. this year's index also points to a welcome, positive trend for the united states. following an ambitious tax reform bush by the trump administration, the united states has moved up six places from last year's ranking and is now in the top 15 countries ranking in the index. this improvement reverses a depressing downward trend in the united states' scores that had been happening in the previous years. this progress is especially important to remember as some americans want to return the clock backwards on economic freedom. if they succeed, we will not only lose the progress on economic freedom but also the strides made in economic growth over the past two years here in the united states. not only that, we would lose the improvements of standards of
living that accompanies growth and accompanies economic freedom. when governments do a little less, they can empower their people to do so much more, unleashing powerful energies of entrepreneurship and effort. you know, it's not the massive redistribution of wealth mandated by government on wages, on prices, that make the lives not only of americans but anybody better. instead, lower barriers for people to enter the market increases social and economic mobility, giving rise to higher standards of living. it's not mandates by the government for green energy that will solve our many environmental challenges. rather, it is economic freedom, actual government deregulation in the marketplace that leads to higher levels of technological innovation and also to the economic dynamism that helps keep our environment clean.
now, we should be happy with the progress, mrs. james referred to this in her remarks, that have been made over the past 25 years. you hear so much of gloom and doom in the world today. and yet the story of economic freedom and economic development is one of success. when the index first was launched, nearly a third of the world was living in poverty. the in 2019, less than 10% can say the same. incomes have risen. innovation has flourished. and prosperity continues to grow for tens and millions and hundreds of millions of people around the globe. now, there are dark storms and clouds on the horizon. but there is no economic challenge which cannot be solved by free market solutions. so over the past 25 years, the mission of the index has grown
far beyond the initial goal to identify and to measure conditions conducive to foreign aid, as i mentioned earlier. one of the reasons why the index has fared so well, as alan greenspan once said about the index of economic freedom, is because its findings conform to economic reality. in other words, this is not just about theory. it's about results and measuring results. the index is truly a remarkable showcase of the progress the world has made since the fall of socialism, which was the original reason why we started it. it is a guiding light for those who seek to revive all of those dangerous policies and to learn from history that you should not repeat them. i just hope that the last thing i can say here on the 25th anniversary to all of my children here, is that i hope 25 years from now they are still around. thank you. [ applause ]
>> thank you very much. i'm terry miller. i'm the senior editor, i guess is the right way to put it, of the index of economic freedom. and it's going to be my privilege to talk to you about the actual results of the index this year. and i'll be using a little bit of data to do that. but i'll try to make it as much fun as we possibly can. we've been doing this project now for 25 years. as you've heard many times this morning. and you can see on the right side of this graph that the progress of economic freedom has been significant over that time. now, there's a little bit of a glitch there at the end of that graph, and you can see that we actually lost economic freedom in the world as a whole this year. but still, the global average
score of 63.8 is the third highest we've ever experienced in the index of economic freedom. so i think the overall trend is still positive. you've heard a little bit about why we do this, and i just want to emphasize that with some data. the main reason is what you see here in this graph. economic freedom causes and is highly correlated with higher incomes and greater prosperity. you can see in the graph on the left there that countries, as they move up the economic freedom scale, they tend to have much higher levels of per capita income. the numbers are there on the bars on the right side. you can see that countries that are free, as measured in our index, have per capita incomes that are almost eight times, i guess, higher than the countries that are considered repressed in the index of economic freedom.
that's an amazing difference. and you can see, as the slope of the graph on the left side starts to get quite steep for countries at higher levels of economic freedom, that continued improvements in economic freedom make a real difference in levels of prosperity. this is true in every region of the world, for countries at all levels of development. you can see the difference between the freest countries in each region and the least free countries in each region this graph. you may look at the sub-saharan numbers there and say, wait, that's not true there. but the unfortunate truth is that there are very few countries in sub-saharan afterry cab that have even a modest level of economic freedom. only seven countries out of the 49 that we measure in sub-saharan africa have levels
of economic freedom that we would classify as even moderately free. so there's a very small base there to inform that blue column for sub-saharan africa. the regions are not consistent in their commitment to economic freedom. the middle east, asia-pacific and the americans, in the middle of this graph, they all have levels of economic freedom that are on average approximately the world average of economic freedom. you can see at the top that europe does significantly better and at the bottom, unfortunately, again, sub-saharan africa lagging significantly behind. but good news for those countries that are lagging behind, it's not just the level of economic freedom that's important. there's a very high correlation, a very high relationship between changes in economic freedom and economic growth rates which of
course represent the change in levels of prosperity. and we find that whether you're looking at just the past five years, the past 25 years, whatever time frame you look at, countries that have improved their economic freedom have much higher growth rates on average than the economies that have either lost freedom or are stagnant in terms of economic freedom. this is my very favorite result from the index of economic freedom. you can see that as economic freedom has gone up over the 25 years and the global economy has expanded significantly, poverty rates have been cut by two-thirds. i think this is a message that is lost on the great majority of the population, not only here in the united states but in countries around the world. the free market capitalist system that's represented and measured by the index of
economic freedom has created a tremendous increase in prosperity and improved living conditions for literally hundreds of millions of people around the world. and it's not just the number of people living in poverty. it also has reduced the intensity of poverty for people and countries. you can see here the intensity of poverty in the countries that are mostly free or moderately free in terms of economic freedom is much lower than the intensity of poverty. and that means how is poverty actually experienced by the people in those countries. and it's much less of a deprivation in the countries that have higher levels of economic freedom. and i think you already heard a little bit about this this morning, but i also wanted to emphasize that the countries
with higher levels of economic freedom, the citizens in those countries enjoy much better health. they enjoy higher levels of education. they do a much better job in protecting the environment. it's not these big status solutions, government-directed central planning projects that result in improvements in social wellbeing, but rather increases in economic freedom. and this shows the relationship between the index of economic freedom and two major indicators, global indicators of social wellbeing, the relationships on the left show the human development index put out by the u.n. development program, and you can see the countries that are free enjoy high levels of economic freedom, have much higher levels of human development. in the index, the graph on the right shows the comparison between economic freedom scores and the social progress index put out by the social progress
initiative. and again, countries that have higher levels of economic freedom have much higher levels of social progress overall. i did promise i would get to the results, and here they are. in the 2019 decks index of econ freedom, we have six economies that have earned the designation of free, economically free economies. i just want to mention each one individually. hong kong is number 1 in the index this year. and it deserves an incredible amount of credit, under very trying, sometimes, political circumstances, hong kong has maintained its number 1 position in the index all 25 years we have been measuring economic freedom. number 2 in the index this year is singapore. and number 3, new zealand, that's a nice picture of
auckland there. switzerland, number 4. pretty sure that's zurich. anybody in the audience confirm that? okay, thank you, yeah. australia, number 5. the sydney opera house, we thought we would highlight that. and ireland, number 6. so these six countries really deserve the highest praise for achieving significant levels of economic freedom. and i think you would see, if you looked at the economic indicators, that all of them are doing quite well indeed in terms of promoting prosperity for their citizens. i wanted also to highlight the regional champions. some of these are repeats from the top six list. hong kong, of course, and asia. the united arab emirates had the highest scores in the middle east/north africa region. mauritius was the leader in sub-saharan africa.
i also want to give a little shoutout to rwanda which had the highest economic freedom scores on the sub-saharan african continent itself, and joined the ranks of the mostly free countries this year for the first time ever. oops, i left out two. ireland, of course, in europe. and canada had the highest level of economic freedom in the americas. it really pains me to say that as a citizen of the united states. i would very much like the united states to be on top of this index, and that's something we're working very hard here at the heritage foundation to try to achieve. a couple of things about this list. this shows the top 20 scores in our index this year and also the bottom 20 scores in the index. there are two significant movers on the left side of this, in the top 20.
unfortunately one is downward, and that's estonia, which fell significantly this year in the index. and that was the result primarily of a banking crisis and scandal that afflicted that country. the other movement was a little more positive, and that's the movement of the united states, which had the biggest jump among the leaders in economic freedom, moving from 18th place up to 12th place in the index. on the other side of the graph, there aren't very many happy stories to tell. i think i would just highlight venezuelan there near the bottom of the graph, at 179th place, because you've all probably heard the news stories of the last several days about the turmoil that's engulfing that country. when we first started measuring economic freedom 25 years ago, venezuela had one of the higher scores in the index. their score at that time was around 60 on our index.
and now it's 35 points lower, and they've sunk to near last place. and the result is, as you see in the news, societal chaos and deprivation for the citizens of that country. i also wanted to highlight the country leaders in each of our categories that we measure in the index. we measure 12 categories of economic freedom now. you can see that singapore was the leader in property rights and judicial effectiveness. new zealand, the leader in government integrity. this is a particularly important category, these rule of law categories for the developing countries, actually, because they lag seriously behind in terms of rule of law, whereas the more developed countries like singapore and new zealand, for example, tend to score very high on these indicators. government size is led by three
developing countries. saudi arabia with its oil revenue has the lowest tax burden in the world. and sudan has the lowest level of government spending. if we were talking about a developed country like the united states, i would be among the first to praise that low level of government spending. for a country like sudan, i'm afraid it may just mean they don't have the capability to provide any services at all at the governmental level. but nonetheless, they led the index in government spending measures this year. and fiscal health, top of the charts was mccmacao. that's because of the gaming revenue that allows them to have a balanced budget. regulatory efficiency is a category that is equally important, i would say, for countries at all levels of
development. hong kong led in business freedom. and singapore in labor freedom. bulgaria, which made an early decision after the fall of the soviet union and the lifting of the iron curtain, to adopt a mond monetary board to make the decisions about currency independent of political considerations, tops the world in monetary freedom. finally, open markets. this is one of the most interesting categories. it's also one of the categories where we have the absolutely best data. it's always a challenge to find worldwide data for the index. hong kong, with essentially zero tariffs, no tariffs at all, imagine what that looks like, no tariffs, leads the world in trade freedom. and luxembourg, which has probably the highest per capita income of any country in the
world, leads the world in investment freedom. i think there's a clear relationship there. their per capita engine is well over $100,000. think about the level of prosperity that those citizens enjoy. and then for financial freedom, it's led by australia, hong kong, and switzerland. that means all those countries have very high levels of competition in the banking sector, and competition breeds efficiency and helps lower prices. i also want to give a shoutout to countries that have done particularly well in the index this year. overall, barbados had the highest improvement in economic freedom. they actually jumped 50 places in the index this year, from 117th last year to 67th this year. and that improvement was due almost entirely to the fact that they got their fiscal situation
under control. they reduced their government spending. they balanced their budget. and they put their country on a sound fiscal situation. most improved in rule of law was azerbaijan, probably not a country many of you have even heard of. but a country that's moving up very fast in our index of economic freedom. and they improved in all three categories of rule of law, property rights, judicial effectiveness, and government integrity. and had the best improvement overall in rule of law. government size, as i've already talked about, barbados had the largest improvement in that category due, again, to getting their fiscal situation into balance. the most improved country in open markets was laos. this was due entirely to their trade freedom score.
they dropped their applied tariffs from 14% on average last year to just a little over 1% this year. so they've practically eliminated their tariffs. and that makes them the most improved country in the index of economic freedom in terms of open markets. regulatory efficiency, this is an interesting case. the republic of congo is really in no way a good performer in our index. and they have very local level of per capita income and very low levels of prosperity. nonetheless, they improved, they showed improvements in all three categories of regulatory efficiency. they improved their business regulations, their labor regulations, their monetary freedom. and that gives me some hope that we will see some improvement, some social improvement, some economic improvement in that country in the years ahead. and finally, i wanted to
highlight this list of countries. this is a 25-year graph, covers the entire history of our index. and this shows the countries of that made the most improvement over time in the index of economic freedom. most of these countries have improved by 20 or even 30 points in their index scores over the years. and they all are the countries to watch out for in terms of good economic performance going forward. and i really wanted to take this opportunity to mention all of them by name. georgia, lithuania, rwanda which i already talked about a little bit, bulgaria, romania, armenia, albania, azerbaijan, kazakhstan, serbia, cabo verde, bosnia
herzegovina, croatia, and montenegro. one thing about this list, you don't really see any latin american countries on this list. and you'll see, if you look at our index, and i assume you've all picked up copies of our index now, we have sections focusing on each region of the world individually. and i invite you to take a look particularly closely at the section dealing with latin america, because i think there's some interesting conclusions that can be drawn by the relative stagnation in economic freedom in that region. a final shoutout to the importance of trade. and i think my colleague jack spencer, who is going to follow me, may want to talk about this a little bit as well. the decline in economic freedom in the index of economic freedom this year was driven by two categories, really. one was judicial effectiveness. and that's a category that uses
a lot of survey data. and the major declines in that category showed up in eastern europe, countries like poland, hungary, czechoslovakia, which showed declines in judicial effectiveness, or the opinion of their citizens about judicial effectiveness in those countries. the other global indicator that declined significantly was trade freedom. and i think you all have probably noticed the news about the increased protectionist tendencies in countries around the world, and even here in the united states. and we certainly picked that up in the index of economic freedom. and you can see here the importance of trade. the countries that are judged free in the index of economic freedom both depend on and benefit from trade much more
highly than do the countries that are unfree or repressed. the results of our index have gone up online. the entire text of the index, all of our databases are online, available at heritage.org/index. and we can also provide even more damage if you contact us directly at heritage.org. so we're happy to have people use this data. it's freely available. there's no gateway here or anything like that. so we have found over the years that researchers pay a lot of tensi attention to the results. we try to make them as freely available as possible. now i'm going to invite my colleague jack spencer up to the podium. jack is the vice president in charge of the institute for economic freedom here at the heritage foundation. he's going to talk a little bit about the united states and
maybe what it would take to get us back into the top ten, or dare i say it, number one. jack spencer. [ applause ] >> thank you, terry, dr. holmes, mrs. james, thank you very much. good morning to all of you. thank you for being here today. this is an exciting day for us here at heritage and for me personally. as the vice president for the institute of economic freedom, i hold dear the principles articulated by the index. the index of economic freedom is an important document. literally people from around the world look forward to our findings each and every year. they wait with anticipation for a reason. what the index measures under the umbrella of economic freedom are 12 variables that provide a very real life assessment of economic and vitality of each and every nation. so folks are proud when they're listed high on the list, and they should be.
similarly they're concerned when they drop, and they should be. the united states is no exception. over the past 13 years, except for 2016, the u.s. has been on a downward trajectory. in 2010, our economy was rated as mostly free. the u.s. fell out of the top ten. our economy was weighed down by high corporation taxation, overbearing regulation and high levels of government spending. the toll these policies took on the economy were not just theoretical. we had less choice in health care. less choice in banking and finance. capital was harder to access. we had less money in our pockets as economic growth slowed. we were forced to buy things we didn't want and there were fewer jobs. when i think about it, how we only dropped to 18 is really quite a miracle. but then with the election of donald trump, things began to change. the regulatory burden began to ease. in fact when it comes to the significant rules, those that cost over $100 million a year,
the trump administration issued 65% fewer than the obama administration and 51% fewer than the bush administration. it's not just about regulating less. the president is actually deregulating. in 2018 the administration took 57 significant deregulatory actions compared to 14 significant regulatory actions. by going after cafe standards, the clean power plan, by protecting internet freedom and giving consumers more health care options, this administration is directly increasing the economic freedom of each and every american. tax reform was implemented. now we have competitive corporate rates, fewer loopholes and lower individual rates. and economic growth, real economic growth has begun to take hold. and we see this progress in the ind index, as we've heard today. this year the ranking of the united states is finally on the rise. as we've already heard, the u.s. moved from a low of 18th last year to 12th this year. now, that's good. but it's not good enough.
no one is out there chanting we are number 12, we are number 12. number 12 is better, to be sure. but why aren't we number 1? or at least in the top ten. i mean, maybe that should be our goal for next year. let's get the united states into the top ten of the index of economic freedom. now, of course we shouldn't strive to increase our rankings simply based on pride. we should increase our rankings because of the real world tangible benefits. the index over 25 years has shown without exception or doubt that the more economic freedom a society has, the healthier it is, the cleaner its environment, the higher its members' standards of living. you name the measure, basically it increases if you get more economic freedom. basically it goes down as freedom is reduced. the statistics bear this out. as economic freedom has increased over the past 25 years, as we've heard today,
global poverty has been reduced by two-thirds. human development, including indicators such as infant mortality and literacy rates, have increased by nearly 20%. since 2007, entrepreneurial dynamism has increased by 20%. what this tells us is if you have economic freedom, you get economic growth. if you get economic freedom, your environment will be cleaner. you don't have to worry about trade flows, prices, or jobs. economic freedom gives us each of these things. yet despite this evidence, economic freedom seems to be under attack. it's not just from the usual suspects on the left but from across the political spectrum. folks on subsidized wages, restrict trade, tax carbon dioxide. they promise some ambiguous notion of security and all we have to do is give them a little bit of our economic freedom.
but here's the problem. politicians and special interests use such promises to attract our trust while they empower themselves and grow the size and scope of government. over time we end up ceding too much power over life's most basic decisions to bureaucrats in washington. the truth is they can never deliver on any of it. to the extent any of their promises are kept, they're fleeting. they come at substantial long term costs to the rest of us. look at their promises on clean energy, health care, home ownership. just never quite works out, does it? and too often, by the time we feel the pain, they're long gone. and the bad policy that benefitted some special interest is cast in stone and we're stuck with it. this weakens the economy, diminishes opportunity, and exacerbates the underlying structural problems that they claim to be fixing to begin with. but you see, the market is different. the market is responsive to our needs because the market is us.
that's the magic of the marketplace. you have billions of participants making billions of decisions in real time to advance their dreams, to advance our dreams. and in a free market, buttressed by the rule of law, no one can do anything without someone else agreeing. we only do things we believe will advance our visions for ourselves and our families. sure, people do make bad decisions. but we learn from them and do less of those things and we get benefit from the good decisions. those good decisions add up over time. and that's how we get progress. that's how we leave the caves. we build buggies to move ourselves. that's why i'm able to buy a fancy belgian chocolate from an iphone here in washington, d.c. so how does this translate into policy? well, the index of economic freedom gives us a perfect lens through which to determine whether or not a policy is good or bad. we need merely to ask ourselves as the index points out, does
this action enhance the right of the individual to decide for themselves how to direct their lives? does it enhance economic freedom? let's be more specific about how to increase the u.s. ranking. on taxes, we got some good tax reform over the past years. but we can do better. a lot of the tax policy in the tax reform has been temporary. let's make that permanent. let's establish universal savings accounts for america's middle class. these accounts will end the double taxation of our savings and investments and allow us to more easily save for the challenges that life throws at us. on regulation, we need to put hard sunsets on new regulation. the economy changes. technology changes. everything changes. we need to be able to reevaluate regulations because they have been to change too. we need to keep the internet free. there's simply no better modern example of the power of free markets than the growth and the success of the internet. and we cannot kill that golden goose. on spending, this one's a big
deal. at nearly $22 trillion, america's debt is out of control. that's $68,000 for every man, woman, and child in the united states. that exceeds gdp. the annual deficit will reach $1 trillion this year. it's just going to go up from there. no one seems to care. democrats spend, republicans spend, the president spends, congress spends. heck, you spend and i spend. the government has created this complex web of dependency, special interests, subsidies, and cronyism where nearly every person in the united states gets a little cut of the action. while the broad recognition of the larger problem is fairly cliche at this point, the urgency or motivation to do anything about it is nowhere to be found. that needs to change. it has to change now. we need to reform entitlements. yes, we do need a safety net for those in need. but we're not all in need. and that safety net doesn't have to run so thoroughly through
washington. we need to reduce the size and scope of government. discretionary spending isn't going to be what breaks the government ultimately but it is contribute to go the breaking of our free market system. this is where all those little programs that serve this special interest or that special interest live. it's where the regulators get paid. it's where the subsidies get distributed. together, each of these things one by one chips away at america's economic freedom. and then trade. now, this is the big one looking forward, isn't it? everyone wants to know what's president trump going to do on trade? i hate to be so anticlimactic, but i have no idea. here's what i do know. there's a lot of opportunity to advance trade. too often we misunderstand the concept. we this of trade as between countries or governments. we say things like u.s./china trade policy. we think of trade as this endeavor between margin multinational corporations who
are trying to maximize their profits at the expense of the rest of us. but free trade, truly free trade, the ability of an individual to buy from whom or sell to whom they choose without government intervention anywhere in the world, is not about any of those things. it's about giving businesses and individuals access to the most resources, prouktducts, and markets. it's about making our businesses more competitive and giving them flexibility. it's about creating good jobs and having a market that invites businesses to establish themselves here in the united states. free trade is about opportunity. now, for us to continue to move up the rankings, we need to change path. we need to stop with the quotas and tariffs. look, i get why some folks support these efforts as a way to force actions in other countries. the fact is that americans pay for the tariffs and everyone suffers. a much better approach is to use organizations like the world trade organization to enforce agreed-upon trade practices. if these institutions don't work
then we should strengthen them or come up with ones that do. finally, we need trade deals that actually advance the freedom to trade. we need to move away from these giant exercises that manage trade through bureaucracies in washington and that try to harmonize regulations. in closing, a couple of thoughts broadly. when assessing the value of an economic policy, consider this simple question. does it enhance economic freedom? if it doesn't, then we really need to question the underlying justification for the policy. now, specifically, when it comes to the united states, we should be happy we're moving up in the index rankings. but no one needs to be satisfied with number 12. to continue moving up, we need more tax reform, we need to continue reducing the regulatory burden, we need to reduce federal spending and the impact that spending has on our economy. we need to rededicate ourselves to advanced the freedom to trade. thank you for your time. [ applause ]
i think we're going to do some questions and answers now, right? >> that's right. >> all right. >> we have a few minutes left. and it's your turn in the audience. we also have my co co-editors anthony kim and jim roberts as well for the really tough questions. let's start right here in the middle. i'm sorry, if you would wait for a microphone and also if you wouldn't mind identifying yourself, we would appreciate it. >> great presentation. prest preston knowles. we have seen the jump in the united states from 18 to 12, and probably a good part of that is because of president trump. i think you're right. we just saw in brazil the election of the trump of the
tropics, bolsonado. he is advocating the kind of ideas trump is. do you expect brazil to go higher? >> yes, i have high hopes a new regime in brazil could get that potential economic powerhouse moving in south america. i talked a little bit in my presentation about how the countries of latin america had really lagged behind. some of them have gone up, down. we've seen a resurgence in some places of sort of socialism or even peronism. we've seen a turn away from that in some countries, brazil is one of those. the election of someone like bolsonaro is hopeful for brazil. yes, i would love to see them improve their ranking in the future. more? over here, yes, sir. wait for the microphone, please. >> i'm with the united states
department of defense. how do you think we can use the u.s. military to advance american economic interests and american economic freedom particularly at the expense of russia and china? >> hmm. i would not say that i see a particular role for the military in advancing economic freedom, although i must say that the u.s. military is certainly a positive force in many places around the world when there's a tragedy of some kind, a humanitarian disaster, or a refugee problem. the u.s. military can do tremendous good works. but that's not the fundamental job of the military. the fundamental job of the military is to defend the united states and to keep us safe here at home. in terms of economic freedom, there's clearly a relationship between economic freedom and democracy and certainly peace
and stability in countries around the world. and the u.s. military is often in many places around the world a force for that peace and stability. in that respect they clearly contribute to economic stability and advancement. i have to reiterate that's not their main goal. >> one of the important roles of the military is protecting the global trade routes and making sure that we have adequate military power such that there's not some regional hegemon that can arise and impose its will, thus creating a lot of problems for global economic freedom in those regions. >> back in the back? >> this is james chin, a reporter from voice of america. i want to ask a question about china, with xi jinping, the president, in office.
and we've seen what's going on in the democracy, there's no democracy, of course. and also we've seen those like -- many americans feel disappointed over the years with the development of the economy. we've seen trends are going a different way. so how do we understand this trend in terms of economic freedom? >> yeah, china had a big burst of economic freedom about 40 years ago now, really at the time of deng chao ping. they've benefitted from some of the relationships they've had. we've seen per capita income grow, of course from a very low base so they have a long way to
go to catch up in overall prosperity to the countries of europe, the united states, canada, the developed countries in the world. i think it's unfortunate that economic reform in china seems to have stalled at this point, and the prospects for further reform are certainly -- i would to say they're uncertain at this point. we have of course this very vigorous trade debate and discussion between the united states and china right now. and many of the things that the united states administration is asking china to do are precisely those things that will most benefit the chinese economy and get reform going again in china. we've seen growth rates slow in china recently. it's really hard to determine exactly what they are. the choice government says 6%. some economists estimate it's only 1 or 2% or perhaps even
negative at this point in time. but it's absolutely clear that china has enormous potential. they only rank 100th in the index of economic freedom. hong kong is number 1. taiwan is number 10, i think this year in the index. clearly the chinese people have a great sense for how entrepreneurship works, and they can be a very innovative force for the world economy. but that's not happening right now. i think it would be in the best interests of all of us if it did. over here. >> thank you, good afternoon. my name is todd wiggins. i have a perennial question, i'm sure you can handle this deftly, that has to do with, if you were to spend five minutes with the president, and that means you would have to give him a suck
siven succinct plan, what do you think is the obstacle to the united states using its resources and what would be your prescription for solving the problem of finances in the debt situation you have? >> this one's yours. >> all right. i think on manufacturing, that sort of thing, we just have to have a better business environment. we've taken a lot of steps forward. but with like full expensing, that was a big part of tax reform, to be able to expense a good portion of our business expenses. they were temporary and not as expansive as it should be. that would be one thing. continue to drive corporate taxes down or to eliminate them entirely. what he said. because all that gets funneled through to the people anyway. it's a fiction that corporations are taxed at any rate. those are the sorts of things. and continue to deregulate.
i'm not for just -- i'm kind of for just deregulation, but we have to regulate smartly so that we get rid of these environmental regulations that don't actually help thethe environment. on debt, look, there are two things. i sort of talked about it a little bit in the talk. there's the entitlement stuff, and that's really where long- term debt liability lies. we need to get that under control. so social security reform is a big one, and all of that stuff. we need to reduce those long- term liabilities with some reforms. but in the near term we need to get the government out of the day to day lives of our decision making on the business side, and that's on the discretionary side. reducing that spending helps on the long-term issue but also will help us grow the economy more so we can better pay for that stuff over time. >> all right, down here in front.
>> thank you. i had two questions. american virches my country, we use indexes for that, but you do very well under the index. today i see the walbach index. this actually did the comparison. have you checked why some cups are doing very well in one and not the other one? and another one, i was more interested in the tech sector. across many levels, an individual level. for african countries, the level now is an individual level. so how do you factor that in the
index? the commitments, the individual level? of course, trade is at the individual level, too. >> well, the index obviously looks at the data for individual countries. we also do regional analysis, and the factors you describe are very important. one of the things we're always looking for in the index is ways to find better data sources that are comparable among countries so we can look at additional factors and make sure that we're handling all of those in the most efficient and effective way possible. i think that when we find these high correlations between the index of economic freedom, levels of economic freedom, and virtually every other indicator of societal well being, whether that's economic well being,
environmental well-being, social well being, this is not an accident that these factors -- it's a little hard to determine the causality of change in every case. we don't know whether democracy comes before economic freedom, although from my own point of view, something like economic freedom, which empowers individuals in a society, economic freedom is all about dispersing power, both within a society and among societies around the world. i think that's a tremendous force for democracy and respect for human rights worldwide. so i'm not surprised at all when we see these positive correlations and the various indicators. and i think sometimes there are artifacts of measurement that would make a country do better on one or another when you look at the wide variety, but there are now 5 or 60 different
indexes studying various aspects of social well-being in countries around the world. i think the index of economic freedom sort of started a trend, if you will, because people started to notice our results and others have followed suit. i'm very proud of that development, and i think it's very positive for all of us that are trying to understand better how our own country fits interest a regional arrangement or the globalized system entirely. how about way over here. we haven't had anyone from this side. >> steve from baltimore. i'm just -- like some clarification on how your calculations really work. as maybe one example, the u.s. raised tariffs on china and a few other countries, but it didn't do anything, for instance, with a tariff to switzerland, and we did things with nafta. how do you balance that, and is
it -- if a 20% tariff means more than a 10% or 8%, the number of countries, the volume, how do you do the calculations? knew yeah. we use the actual 57 applied -- average applied tariff rate, the tariff rate that is actually paid at the border by -- on goods and services imported into the united states, or any other country. in fact, that is available from the world bank for almost all countries in the world. i think it's the best representation. a lot of countries have tariff rates that aren't always necessarily applied. sometimes they have very high statutory rates, sometimes they ear exceptions to. that but what a we use in our calculations are the average applied tariff rates. sometimes that indicator makes it -- the index a little slower to react to developments like
the imposition of tariffs on the united states by a country, and we have to actually see that on the goods, then we'll pick that data up and it will be reflected in our index. for example, the united states only add very small drop in trade freedom this year because we were just beginning -- in the beginning stages of seeing the application of those tariffs. if that continues, there will be a much bigger impact on the u.s. score next year. yes, sir? >> my name is jarrett lee. i'm from techro in the united states. today i'm just pleased to see that hat moved from 13th last year to 10th this year. we are grateful for this, the
announcement. during today, the presentation, you will convey one message that economic freedom leads to better economic power, environment, education, and social well being. and for us to live a better life, economic power, economic growth, and democracy, two major contributors to our good life. and so do you see in the report or in your study the correlation between the economic freedom and the democracy? >> yes, we absolutely do. and we have published that data and some editions of our index. the democracy indexes aren't necessarily updated on a regular basis so we wait until we see some statistical change in that data, then we do report
that. we have seen a very high correlation between economic freedom and effective democratic governments. there are an awful lot of countries around the world that call themselves democratic. sometimes even in the name of their country but don't really have democratic practices or the ability for the peaceful transfer of power through democratic means. but there are indexes now that measure truly effective democratic governance, and when we compare those with our rankings and the economic freedom we find there's a very strong relationship. i think it's mutually supportive, this relationship. i think having a truly effective democracy contributes to economic freedom, and i certainly think economic freedom contributes to the development of a true democracy. taiwan has done very well in our index, and your government is to be commended for its
actions, i think to liberalize the economic regulations and make it possible for your people to prosper in the way they have. i guess we're just about out of time. maybe one more question. barbara, down here in the front. >> thank you for your presentations. i'm barbara bowie whitman, and i've spent more than five decades working for the republican party, and a whole lot of years on trade issues. one of my views on that is we don't need trade agreements if we just let people trade the way they wanted to that government should be out of it, but that's a topic for a whole other day. what grabbed me today was how effective the talking parts are about economic freedom and why it produces the results we want in terms of people's liberty
overall, and it sounded like the best political message i've ever heard. how do we translate that into practical politics in this country so that people understand it better instead of listening to how much good we can do for you with your own money if we take it first and redistribute it? >> well, if we had the answer to that question, we'd put all ourselves out of business. look, that's a big challenge of what we do. as pur viers of big market principles, we get up against an enemy who, a, doesn't have to adhere to the truth, and they promise you everything. and we have to say, just trust us, take away the regulations and will you end up in a better place. we spend a lot of time at heritage, what's the best way to communicate this reaching out to people across the country? to me, the index is a really important tool in doing exactly that. i can just tell you, as someone who has been -- has had the
honor of leading our domestic economic team for a few years, one of the first things i did was try to really integrate the work that we do into the principles and messages that the index puts out there, because by doing that, we're able to sort of build i think a cohesive argument that lends itself more easily to a policy agenda. so i don't have the perfect answer, but we continue to work on that, to communicate it, and thank you very much for saying that we did an okay job with it here today. [ applause ] >> i think that will have to be the last word, and we would invite you all to join us out in the lobby for a reception celebrating the 25th anniversary of the index of economic freedom. thank you for coming today. [ applause ]
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