The American Thinker | 12.17.14
By Alan W. Dowd
Common sense is
something of a misnomer, since common sense is not all that common. After all,
common sense tells us that lower taxes, smaller government and flexible labor
markets create an environment that encourages economic growth. The Fraser
Institute’s just-released Economic Freedom of North America report (EFNA)
offers proof of that sensible but not-so-common approach to public policy.
As always, the latest
EFNA report ranks jurisdictions by measuring size of government, taxation and
labor market restrictions. One of the new wrinkles in this year’s report is
that it fully incorporates and ranks Mexican states for the first time.
In this 10th edition of
EFNA, Texas and South Dakota have tied for the highest level of economic
freedom among all U.S. states. Rounding out the U.S. top 10 are North Dakota in
third; Virginia in fourth; New Hampshire, Louisiana, Nebraska and Delaware tied
at fifth; Tennessee in ninth; and Indiana, Georgia and Utah tied at 10th.
(Alberta has the highest level of economic freedom of any jurisdiction in North
America, and Coahuila de Zaragoza is the highest-ranked Mexican state.)
At the other end of the
spectrum are West Virginia and Rhode Island (tied at 45th), New York (47th),
Mississippi and Vermont (tied at 48th), and Maine (50th out of the 50 U.S.
worryingly, the report notes that “economic freedom has been declining in all
three countries.” The average score for Canadian provinces has fallen from 7.8
to 7.6 since 2000; the average score for Mexican states has fallen from 7.1 to
6.9 since 2003; and the average score for U.S. states has fallen most
dramatically of all, from 8.2 to 7.5 since 2000.
In fact, although the
United States was rated second in the world economic freedom rankings in 2000,
the United States plunged to 17th in last year’s rankings, before clawing its
way back to 12th in the most recent rankings.
In other words, the
self-styled “land of the free” is not as free as it once was—or as we in the
United States think of ourselves. This tumble from the top was inevitable given
the increasing government encroachments on rule of law and private property
rights, numerous government interventions, expansion of government spending and
regulation, and consequent shrinking of the space for free economic exchange.
Total federal outlays have
exploded. Between 2001 and 2013, federal outlays jumped from $1.86 trillion per
year to $3.45 trillion per year—an increase of 85 percent, or about 6.5 percent
per year. By way of comparison, in the previous 13-year span, federal outlays
grew from $1.06 trillion to $1.78 trillion—an increase of a comparatively
modest 67 percent, or about five percent per year.
the Obama administration. However, it’s worth noting that during the Obama
presidency, the federal government has consumed an average of 22.5 percent of
GDP. That’s significantly more than the historical average of 21 percent of GDP,
revealing a surge in the level of federal involvement in the economy.
Cycle of Success
Turning back to EFNA
2014, my colleagues have used the report to provide more than a ranking of
states: EFNA 2014 paints a vivid portrait of the benefits of policies that
promote economic growth at the state level—and the consequences of policies
that constrain it.
Economic freedom is one
of the main drivers of prosperity and growth, and the evidence shows that
states with low levels of economic freedom reduce the ability of their citizens
to prosper economically, while states with high levels of economic freedom
maximize their citizens’ ability to prosper economically.
Consider that in the
most economically free U.S. states, the average per-capita GDP in 2012 (the
most recent year of available data) was about $55,000, while in the least economically
free states it was just $48,000. In fact, the jurisdictions in the least-free
quartile on what my colleagues call “the world-adjusted, all-government index”
had an average per-capita GDP of just $10,079, compared to $57,269 for the
As Fred McMahon, who
heads Fraser Institute’s research into economic freedom, explains, “The link
between economic freedom and prosperity is clear: States that support low
taxation, limited government and flexible labor markets see greater economic
growth, while states with lower levels of economic freedom see lower living
standards and less economic opportunity.”
freedom triggers and encourages a virtuous cycle, as lower taxes, smaller
government and freer labor markets have a way of attracting and retaining
people, which contributes to economic growth, innovation and larger tax bases
(with smaller per capita tax burdens). Can it be a coincidence that the top 10
states on EFNA 2014 enjoyed an increase in net domestic migration of 147,288 in
2012-13, while the bottom 10 weathered a decrease in net
domestic migration of 225,677?
If the best aspect of
economic freedom is how it benefits the peoples, nations and states that
embrace it, the next best thing about it is that any group of people, any
nation, any state can acquire it and enjoy its benefits. In other words, states
don’t need a wealth of natural resources, a highly educated or highly skilled
population, or gleaming infrastructure to rate highly on economic freedom—and
thus unleash the creativity, talents, skills and energy of their citizens.
They just need the
common sense to adopt public policies that allow individuals to act in the
economic sphere free of stifling restrictions.