Laboratories of democracy: Disparities between the 50 states

This year’s Economic Freedom of North America 2014 (EFNA) report shows that, once again, while we are the United States, our states have bigger differences than climate, seasons and terrain. The levels of economic freedom, and thus economic opportunity, vary widely across the 50 states, as do the levels of economic prosperity.

In the three most-free states (Texas, South Dakota, and North Dakota) average personal income is about 20 per cent higher than in the three least-free states (Maine, Vermont, and Mississippi) — approximately $48,000 versus $40,000. And, the unemployment rate is more than seven per cent in Rhode Island (45th) versus about four per cent in nearby New Hampshire (5th).

Furthermore, cities in low-freedom states like California (43rd), Michigan (37th), and Rhode Island have made headlines in recent years for declaring bankruptcy, whereas cities in high-freedom states like Nebraska (5th), Texas, and the Dakotas, have seen incomes and their tax bases expand.

While factors like natural resources and population must be considered — and are largely out of human control — the new report by the Fraser Institute shows that there are factors we can control, namely, economic freedom, and the public policies that restrict this driver of economic and human flourishing. Those factors can have a huge impact on prosperity and well-being within each state.

Economic freedom is the ability of individuals, families and businesses to make their own financial and life decisions, free from government-imposed restrictions, taxes and regulations. Dozens of studies show that there is a positive relationship between economic freedom and measures of prosperity such as income levels, employment opportunities and economic growth.

States that have low taxation, limited government and flexible labor markets enjoy greater economic growth, while states with lower levels of economic freedom suffer from reduced living standards for families and less economic opportunity.

Just look at the indicators of economic health in the states that landed in the top ten this year versus those that ranked at the bottom. In the top ten states, total employment grew by roughly 3.5 per cent, while it has barely budged in the bottom 10. Over that same period, the economy grew more than eight per cent in the top 10, but only by about two per cent in the bottom 10.

The research is clear: Where economic freedom is high and rising, the number of jobs is expanding and the economy is vibrant and growing. Where it’s low and declining, the economy is stagnant, limiting opportunity and quality of life for residents of those states.

The United States is made up of unique areas with differing characteristics, experiences, and outlooks. We can take advantage of this diversity by learning from each other’s mistakes. The EFNA can serve as a tool for both state and local governments to re-evaluate current policies and get further down the path to growth and prosperity.

Big, costly government at the expense of the people doesn’t work. It leads to economic decline. In contrast, expanding economic freedom increases economic opportunity and provides the path to economic prosperity.