January 14, 2016

The Declining State of the Union

Daniel Bennett

Research Professor, Baugh Center for Entrepreneurship and Free Enterprise, Baylor University

President Obama gave his final State of the Union address earlier this week, touting the performance of a progressive economy during his tenure. While some economic indicators appear to suggest that the economy is healthier now than when the president was inaugurated, growth and opportunity have diminished significantly under his watch. 

This decline did not begin with the Obama administration, but it has certainly continued. As recently as 2000, the United States was ranked among the top three most free economies in the world. According to the most recent data, over the last decade, the U.S. has fallen to 16th place. To put this into perspective, Canada, our so-called “socialist” northern neighbor, is now more economically free than the “land of the free” itself.

Readers may question the important role economic freedom plays in their lives, or wonder why they should care about it at all. The answer is simple: When both rights and property are protected by the rule of law, citizens generally find themselves at liberty to utilize their time, talent, and resources in the manner they deem best. 

This, in turn, leads to better economic performance and improved living standards. A growing body of research has found economic freedom to be associated with positive outcomes such as economic growth, job creation, and happiness. When economic freedom declines – as it has in the U.S. during the last two presidential administrations – the nation’s economy and people both end up generally worse off. As a result, the U.S. has experienced a plethora of setbacks: increased regulatory burdens, an expanded and far-reaching government, threats to private property rights, and restrictions on international trade.  

Although the Obama administration has pushed for greater trade freedom with policies such as “fast track” authority and the Trans-Pacific Partnership, an increase in controls on capital and labor mobility, as well as foreign visitor restrictions, have limited the U.S.’s ability to import and export goods. 

Following the 2005 Kelo v. New London U.S. Supreme Court decision, which set precedent for the use of eminent domain for private gain, U.S. citizens have, unsurprisingly, encountered numerous threats to private property rights.  

Also contributing to an undermining of private property rights has been the Department of Justice’s Asset Forfeiture Program, which allows the seizure of private property from personssuspected – and not necessarily convicted – of a crime. The value of asset seizures has more than doubledduring the Obama administration. While the Department of Justice recently temporarily suspended the program, it should be permanently eradicated.

The U.S. government’s involvement and overreach has also expanded under the Obama administration. Soon after taking office, the president enacted an $800-billion stimulus plan, and in March 2010, he signed the Affordable Care Act into law, which mandates the purchase of health insurance and greatly expands government intervention in the healthcare market.

Another expansion of government has been the growth of economic regulations such as those contained in the Dodd-Frank Act. According to the Mercatus Center’s Reg Data, the number of federal regulations has increased from 947,000 to more than one million between 2008 and 2014.  

Recall that the president assumed office amid global economic turmoil, at a time when the U.S. unemployment rate had risen to nearly 8 percent. In October 2009, unemployment reached a peak of 10 percent before beginning a gradual decline. The latest numbers suggest that in December 2015, unemployment fell to 5 percent, near what economists refer to as the natural rate.  While the president may herald this as an indication of his successful leadership, the unemployment rate obfuscates the weakness of the labor market, as it does not account for discouraged workers or the underemployed.  

The U-6 unemployment rate accounts for these factors and suggests that 10 percent of individuals are without acceptable work. Labor force participation has declined precipitously during the president’s tenure, falling from 65.7 percent in January 2009 to 62.6 percent last month, suggesting that individuals increasingly abstain from the labor market.  

Building a stronger U.S. economy and ensuring better and more productive lives for future generations requires reversing the trend of declining economic growth and freedom. This entails reducing the size and scope of government, enhancing property rights, and promoting freer trade for a more democratic and prosperous America.