Little platoons make the case for economic freedom

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Fraser Insight, January 2018

It’s only appropriate that New Hampshire has the highest level of economic freedom among all U.S. states in the Fraser Institute’s latest Economic Freedom of North America report (EFNA). After all, New Hampshire is the “Live Free or Die” state. New Hampshire is certainly living up to its motto, holding the top spot for three years running in the U.S. rankings and sharing the top spot with Alberta in the continent-wide rankings. Joining New Hampshire in the top five are Florida and Texas (tied for 2nd), South Dakota (4th) and Tennessee (5th). At the other end of the spectrum, New York is the least economically free state, followed by California (49th), New Mexico and West Virginia (tied for 47th), and Hawaii and Mississippi (tied for 45th).

Going back more than 25 years—when the Fraser Institute began to pioneer research into economic freedom—Fraser scholars have defined economic freedom as “personal choice, voluntary exchange, freedom to compete and security of privately owned property.” Our EFNA index, then, is determined by measuring each state’s government spending, level of taxation, amount of regulation, and restriction or flexibility in the labor market.

Economic freedom is not some abstraction or theoretical debating point. Economic freedom—or a lack thereof—has real-life implications. In fact, economic freedom is one of the main drivers of prosperity, 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-free states (the top quartile on the EFNA index), the average per capita income is seven percent above the national average. On the other hand, in the least-free states (the bottom quartile on the EFNA index), the average per capita income is nearly five percent below the national average.

This isn’t an accident or a coincidence. These higher per capita income levels are the result of sound and smart public policy in the state house. States that enjoy the fastest economic growth implement policies “maximize economic freedom,” explains Dean Stansel, co-author of the EFNA report and a professor at SMU’s O’Neil Center for Global Markets and Freedom. “They attract new businesses and residents by keeping the burden of taxes, spending and regulations low. In contrast, states like New York and California that take the opposite approach have seen much less economic prosperity.”

Or consider how Americans vote with their feet by fleeing states with lower levels of economic freedom and moving to states with higher levels of economic freedom: The average EFNA ranking of the top six fastest growing states (by percentage population) is 13. The average EFNA ranking of the eight states that lost population last year is 35. “Since the last recession ended (in 2009),” Stansel adds, “population in the ten most-free states has grown two-and-a-half times faster than it has in the ten least-free states. It has grown nearly three-and-a-half times faster in just the past three years.”

In other words, economic freedom triggers and encourages a virtuous cycle, as lower taxes, smaller government and freer labor markets attract and retain people, families and businesses, which contributes to economic growth, innovation and larger tax bases—all with smaller tax burdens.

As my colleague Fred McMahon, who heads Fraser Institute’s research into economic freedom, concludes, “The link between economic freedom and prosperity is clear: States that support low taxation, limited government and flexible labour markets see greater economic growth, while states with lower levels of economic freedom see lower living standards and less economic opportunity.”

This is a message that desperately needs to be heard, especially after so many years of statism and swelling government at the federal level. The challenge is spreading the message about the benefits of economic freedom at the state and local level.

The good news is that a network of 45 free-market think tanks and academic partners in 36 states, Canada and Mexico is using the EFNA report and related data to make the case for economic freedom to policymakers and informed citizens at the grassroots.

These organizations employ the EFNA report in their own research, reference the EFNA report in legislative testimony, disseminate the EFNA report to policymakers in their home towns and state capitals, share the report with statewide newspapers, and use the report as a springboard for everything from blogs and columns to magazine articles and scholarly papers.

Thanks to this network of free-market partners, EFNA has been featured in and/or cited by outlets in 33 states the past three years, as well as in influential national publications like The Hill, Forbes, Real Clear Policy, The Washington Examiner, Barron’s, Investor’s Business Daily, and the online editions of The American Spectator, CNBC and National Review.

To get a sense of how effective these organizations have been at spreading the economic freedom message, consider that the first year of the EFNA Network (2014) saw a 243-percent increase in U.S. media mentions over the previous year. Between 2014 and the end of 2017, U.S. media mentions were up 136 percent. And in 2017, we set a record for the most-ever U.S. media mentions for EFNA—and registered a 489-percent increase in U.S. media mentions over 2013 (the year before we launched the EFNA Network).

The point of all these numbers and citations is not self-congratulation. After all, the credit goes to those 45 think tanks, academic centers and civic groups—what Burke called “little platoons”—that have transformed how and where EFNA is seen. Rather, the point of this recap is to encourage those who believe in economic freedom that the message is getting out, being heard and making a positive impact on the policy debate all across the country.

More on this topic

Economic Freedom of the Arab World: 2018 Annual Report
Economic Freedom of North America 2018
Economic freedom means economic growth