Spreading the news on the state of economic freedom
The Fraser Institute has released its 12th edition of the Economic Freedom of North America index (EFNA), which ranks and compares the levels of economic freedom across North America and within the U.S., Canada and Mexico by measuring taxation, regulation, labor market restrictions and the size of government. The bad news for those of us in the “land of the free” is that the top jurisdiction and two of the top three are in Canada. The good news is that several states are applying the commonsense principles of economic freedom, enabling their citizens to deploy their talents, pursue their goals, and use their wealth free of unnecessary government restriction and regulation.
Ups and Downs
A little more bad news—at least for Americans—before we get to some more good news: On the 2010 EFNA index, there was only one Canadian province in the top 47 jurisdictions measured. Today, there are five Canadian provinces in the top 22. Since 2004, the average score for U.S. states on the EFNA measure has fallen from 8.26 to 7.70 (out of a possible 10). California’s score, for instance, has plummeted from 6.4 in 2000 to 5.9 today.
In other words, too many states are following D.C.’s lead by over-spending, over-taxing, over-subsidizing, over-regulating and undercutting individual liberty. As a result, many U.S. states are falling behind their Canadian neighbors in economic freedom, just as the U.S. is falling behind its global neighbors. Indeed, this downward trend is reflected in the international rankings, where the U.S. has fallen from 2nd in the world in 2000 to 16th in the 2016 rankings. (By comparison, Canada’s economic freedom ranking has jumped from 14th in the late 1990s to fifth today.)
The U.S. tumble from the top of the international rankings was inevitable given the increasing government encroachments on private property rights, numerous government interventions, an ebbing of the rule of law, expansion of federal government spending and regulations, and consequent shrinking of the space for free economic exchange. Indeed, at both the state and national level, the falling U.S. rankings are the result of more regulation, more constrained labour markets, higher taxation and less economic freedom.
On the U.S.-only component of this year’s EFNA, the top-ranked states are New Hampshire (1st), Florida (2nd), South Dakota and Texas (tied at 3rd), and Tennessee (5th). At the other end of the spectrum are New York (50th), California (49th), and Alaska, Hawaii and New Mexico (all tied at 46th).
The differences between high-economic-freedom states and low-economic-freedom states (and countries) can be seen in far more than numbers on a graph, which brings us to some good news: In the most-free states, the average per capita income is 4.7 percent above the national average, while the average per capita income in the least-free states is 3.3 percent below the national average.
Moreover, as my colleague Dean Stansel, an SMU economics professor and lead author of the report, points out, people (and businesses) are voting with their feet. The reason can be traced to vastly different approaches to economic freedom. “Over the last three years, population in Texas and Florida has grown more than two-and-a-half times faster than it has in New York and California,” he observes. “Employment and income have also grown faster in Florida and Texas.” According to Stansel, high-growth states like Texas and Florida “maximize economic freedom by keeping the burden of taxes, spending and regulations low.”
The benefits extend beyond higher incomes and higher employment rates. Fred McMahon, a colleague who heads the Fraser Institute’s family of economic freedom research programs, notes that higher economic freedom correlates with higher economic growth, higher levels of life satisfaction and higher levels of wealth on both the richer and poorer ends of the spectrum (in other words, in jurisdictions with more economic freedom, the poor are wealthier than their counterparts in jurisdictions with less economic freedom).
Sharing the Message
In short, 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.
This is a message that needs to be heard. The challenge, until recently, was spreading this message at the state and local level.
That began to change in 2014, when we launched a partnership of U.S. organizations, with the aim of spreading the news about economic freedom at the state level. Starting with 10 partners in nine states, our EFNA Network now comprises 32 partners in 28 states. These partners collaborate with us in disseminating EFNA’s findings in their states (see page 87 of this year’s EFNA report), and they are doing so with gusto: EFNA media mentions in the U.S. increased 243 percent after the network was launched. Thanks to this network, EFNA 2015 (published in December 2015) was featured in prominent statewide outlets in Texas, New York, Pennsylvania, Kentucky, Michigan, Nebraska, Alabama, Arkansas, Florida and Hawaii—some 20 states in all in the past 12 months.
The result: the EFNA Network is raising awareness about economic freedom in each state.
For example, the Buckeye Institute (Ohio) distributes EFNA info sheets to state policymakers and posts EFNA findings on social media. “The Economic Freedom of North America index gives us a valuable measuring stick so we can advise policymakers how their actions are making Ohio more or less free,” Rea Hederman of the Buckeye Institute explains. Ohio’s ranking has improved from 46th in 2009 to 38th on this year’s index.
Michael LaFaive of the Mackinac Center (Michigan) uses EFNA findings “to remind lawmakers and others that mountains of data exist that show positive correlations between economic liberty and human wellbeing.” Michigan has jumped from 42nd in 2009 to 27th on this year’s index.
Economist Vance Ginn, Ph.D., says he and his colleagues at the Texas Public Policy Foundation “rely on the EFNA to craft free-market reforms to improve the standards of living for all Texans.”
The Grassroot Institute (Hawaii) leverages EFNA findings and authors for “Skype-cast” interviews discussing policies Hawaii needs to implement to lift itself out of the EFNA cellar.
The list goes on. Add it all up, and the result is more state policymakers and more concerned citizens hearing and learning about the benefits of economic freedom. This, too, is good news. Spreading the word about the benefits of economic freedom promotes it at the state level.
Perhaps the best news of all is that states don’t need a wealth of natural resources, a highly educated or highly skilled workforce, a great climate, stunning tourist attractions, or gleaming infrastructure to rate highly on economic freedom—and thus unleash the creativity, talents and energy of their citizens. All they need is the common sense to adopt and practice policies that allow their citizens to act in the economic sphere free from stifling restrictions.