Ed Feulner

A nation’s economic situation can turn on a dime.

For example, in November 2007 the Federal Reserve expected the American economy to grow as much as 2.5 percent in 2008. In January the Fed revised that forecast downward, a step it would take repeatedly throughout the year as gasoline prices soared and the housing market plunged. By fall, it was clear our economy was in trouble.

That motivated members of both political parties to urge Washington to “do something.” The Bush administration has already spent hundreds of billions of dollars “doing something” in its final months. Now the incoming Obama administration wants to spend hundreds of billions more.

But this is no time to throw good (borrowed) money after bad. If all this spending was going to get the economy growing, it would be working. Yet nobody expects things to improve soon. There’s a lesson there, if we care to learn it.

In times of uncertainty, it’s natural that people will look to government for answers. Yet the long-term solutions to our current economic problems don’t lie in more government spending, controls or regulations.

Consider Japan. Facing a deep recession, the Japanese implemented 10 separate spending stimulus packages between 1992 and 2000. Spending on public infra­structure was a major part of each one. Yet the Japanese economy refused to cooperate. After eight years of “stimulus” Japan’s economic growth was anemic. The Japanese econ­omy grew at an annual rate of only 0.6 percent between 1992 and 2007. During that time, eight countries surpassed Japan’s per capita income. So much for infrastructure stimulus.

But we do know that economic freedom generates economic growth -- a fact that’s been documented for 15 straight years by The Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal. “Economies rated ‘free’ or ‘mostly free’ in the 2009 Index enjoy incomes that are more than double the average levels in all other countries and more than eight times higher than the incomes of ‘repressed’ economies,” the editors write this year.

The trends have been mostly positive. Worldwide, economic freedom has increased significantly during the years we’ve been measuring it. Taxes are lower. Trade barriers are down. It’s no coincidence the world economy has grown during that period from about $30 trillion to well over $50 trillion. Increased economic freedom has lifted millions from poverty and helped millions more live a better life.

Ed Feulner

Dr. Edwin Feulner is Founder of The Heritage Foundation, a Townhall.com Gold Partner, and co-author of Getting America Right: The True Conservative Values Our Nation Needs Today .
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