It's the Free Economy, Stupid!

2003-08-27

Back in March I noted the existence of a fascinating study by Nigel Meek of the Libertarian Alliance, which investigated the correlations between economic freedom, civil freedom, and material prosperity. Today I found a similar if more focused report by the Fraser Institute (Canada) and the National Center for Policy Analysis (USA), in which the authors analyzed the relationship between economic freedom and economic prosperity for all American states and Canadian provinces.

The sad news for Canadians is that, except for Alberta, all provinces score below even the worst American states (such as West Virginia, Montana, Maine, and North Dakota) on both freedom and prosperity. "Fiscal federalism" (i.e., transfers from wealthier provinces to poorer provinces) seems to be mostly to blame, since it tends to punish economic freedom and prosperity in any one province.

Differences between American states can be quite pronounced. Low-ranking states on economic freedom tend also to be poor, and when freedom goes down, wealth goes down as well (cases in point: Montana and Oklahoma). By the same token, rising freedom leads to rising wealth (for example, Massachusetts). Little Delaware consistently leads American states on economic freedom, with Colorado, Tennessee, Indiana, South Dakota, and New Hampshire following close behind.

For those libertarians in the Free State Project, the choices are rather stark. Four free state candidates score near the very bottom of the state and local rankings: Alaska, Maine, Montana, and North Dakota. Idaho and Vermont don't do much better (sandwiched between Oregon and New York!). Wyoming is in the middle of the pack. Delaware, South Dakota, and New Hampshire all score near the top. The only area pulling NH down is "labor market freedom": minimum wage laws, government employment as a percentage of total employment, and occupational licensing. Since New Hampshire does well on the government percentage score (IIRC), it must do poorly on minimum wage laws and occupational licensing. Something for those freestaters to work on should New Hampshire be chosen (which I still think is the most likely outcome).


Peter Saint-Andre > Journal