My reading is that there are serious diseconomies of scale in governance. The larger the polity, the worse the ability to govern. Yes, some small countries are very un-free, but the most-free countries are all small. Of the other countries in the top ten in terms of economic freedom, Canada has the largest population, and it is barely more than 1/10th of ours. My impression is that Canada also is less centralized than the U.S., with more autonomy in the provinces.
Ultimately, I think that democracy is a very unreliable friend of economic freedom. The ability to vote with your feet is more valuable than the ability to cast a ballot. The trend in the U.S. is toward giving people less power to vote with their feet, as power becomes more centralized. If the median voter would like more decentralization, that is one message that is not getting through.
Charles de Secondat, Baron de Montesquieu noted long ago that,
It is natural for a republic to have only a small territory; otherwise it cannot long subsist. In an extensive republic there are men of large fortunes, and consequently of less moderation; there are trusts too considerable to be placed in any single subject; he has interests of his own; he soon begins to think that he may be happy and glorious, by oppressing his fellow-citizens; and that he may raise himself to grandeur on the ruins of his country.
In an extensive republic the public good is sacrificed to a thousand private views; it is subordinate to exceptions, and depends on accidents. In a small one, the interest of the public is more obvious, better understood, and more within the reach of every citizen; abuses have less extent, and, of course, are less protected.
And James Madison explains in Federalist 62 how the Senate was designed to limit the federal government by preventing the centralization of power into one republic:
In this spirit it may be remarked, that the equal vote allowed to each State is at once a constitutional recognition of the portion of sovereignty remaining in the individual States, and an instrument for preserving that residuary sovereignty. So far the equality ought to be no less acceptable to the large than to the small States; since they are not less solicitous to guard, by every possible expedient, against an improper consolidation of the States into one simple republic.
Of course, that structural limitation only worked so long as Senators were appointed by state legislatures. Once they became popularly elected through the 17th Amendment, they became subject to the same special interests as representatives in the House, and were equally incentivized to make grandiose promises to the electorate to centralize power and solve whatever problems voters feared that day. The ability of people to "vote with their feet" is one way for sovereigns to be held accountable to the governed. But keeping the government close to the people will assist the sovereigns, and the people they govern, in understanding the actual effects of the policies to which they, with good intentions or not, subject others. Alexis de Tocqueville pointed out that, as people become more ignorant of each other, they become more apathetic about their government:
The first thing that strikes the observation is an innumerable multitude of men, all equal and alike, incessantly endeavoring to procure the petty and paltry pleasures with which they glut their lives. Each of them, living apart, is as a stranger to the fate of all the rest; his children and his private friends constitute to him the whole of mankind. As for the rest of his fellow citizens, he is close to them, but he does not see them; he touches them, but he does not feel them; he exists only in himself and for himself alone; and if his kindred still remain to him, he may be said at any rate to have lost his country.
To manage those minor affairs in which good sense is all that is wanted, the people are held to be unequal to the task; but when the government of the country is at stake, the people are invested with immense powers; they are alternately made the play things of their ruler, and his masters, more than kings and less than men. After having exhausted all the different modes of election without finding one to suit their purpose, they are still amazed and still bent on seeking further; as if the evil they notice did not originate in the constitution of the country far more than in that of the electoral body.
It is indeed difficult to conceive how men who have entirely given up the habit of [individual] self-government should succeed in making a proper choice of those by whom they are to be governed; and no one will ever believe that a liberal, wise, and energetic government can spring from the suffrages of a subservient people.
A constitution republican in its head and ultra-monarchical in all its other parts has always appeared to me to be a short-lived monster. The vices of rulers and the ineptitude of the people would speedily bring about its ruin; and the nation, weary of its representatives and of itself, would create freer institutions or soon return to stretch itself at the feet of a single master.
Repealing the 17th Amendment would be the first step towards limiting the federal government by restoring the ability of people to vote with their feet, and limiting the power of government in general by keeping it closer to the people it governs and while the governed are also closer to each other.
Hat tip: Let A Thousand Nations Bloom