Economic liberty: Pols should take notice before taking office

As the debate over the most recent election cycle and party strategies winds down in the United States, it is worth noting as a backdrop that the Fraser Institute of Canada has just released its Economic Freedom of North America (EFNA) index. After all, elections have consequences, and policy fallout from them will have an impact on economic freedom — and thus, human well-being.

Fraser’s “All-government index” attempts to measure and rank the degree to which states in Mexico and the United States, and Canadian provinces, are economically free. It includes national and subnational-level data to help the policymaker or curious citizen compare states and provinces to each other. The Fraser Institute has published these rankings since 2002, and its most recent iteration identifies New Hampshire as the freest among 92 subnational units of government comprising Mexico, the U.S. and Canada.

The Live Free or Die State is first among the eight U.S. states that sit atop the rankings, followed by a Canadian entry, the western province of Alberta. The worst performing province is Newfoundland. Unfortunately for Mexico, its top performing state, Jalisco, is 61st. It is home to the highly populated city of Guadalajara, north of Mexico City. All Mexican states earned economic freedom ranks behind their U.S. and Canadian counterparts.

The Fraser Institute also ranks these subnational units of government within their own nations, ignoring national policies that affect them. In the United States, New Hampshire is on top, followed by Florida, Virginia, Texas and Tennessee as the most free. The least free are Vermont, California, Alaska, West Virginia and then New York, which sits in the 50th spot. Canada’s subnational top- and bottom-ranked provinces are Alberta and Quebec. Mexico’s top state in Fraser’s subnational index is again Jalisco. Its worst ranking is reserved for Zacatecas.

It is worth lingering over Zacatecas. One of the authors of the Fraser Institute’s index report, José Torra of Mexico City, tells me that Zacatecas was one of five Mexican states that loses more citizens than other states to emigration to other countries, including to the United States, which may be a function of having such limited economic freedom.

Where your state ends up in the rankings matters. Research by academics who look at data in the EFNA index find associations between economic freedom and well-being. One academic study published in 2019 found that a 10 percent increase in freedom is associated with a 5 percent increase in inflation-adjusted gross state product. That is a key measure of state-level economic growth or decline. 

It is not the only study to use the index, either. Since 2002, more than 300 academic and policy-related research studies and articles have used the index to examine economic freedom and well-being. The subjects are as varied as economic growth, state business incentives and entrepreneurship, decisions on firm location, and even elderly female labor force participation. As a brief aside, and according to the latter study, “a one unit increase in the labor market freedom index appears to induce a 5.3 percent to 6.88 percent increase in the female labor force participation rate of women aged 65 years and older.”

The Fraser Institute notes in this year’s study that a yawning gap exists between those states and provinces in the bottom quintile of economic freedom and those in the top two when it comes to income per capita. That should not be a surprise. Governments that actively thwart free, peaceful and voluntary exchanges are likely to have less of them. After all, how many indices in the world point to North Korea, Cuba and Venezuela as wealth- and opportunity-creating machines? I challenge the reader to find one.

The U.S. election cycle is basically over. Some pols lament its results. Others are celebrating wins. All of them should pause before they take office and read the new Fraser Institute report on economic freedom and its related evidence. They demonstrate that economic freedom is a powerful tool that facilitates human flourishing and — by extension — for making your state, province, nation or the world a better place.

Michael LaFaive is senior director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy in Midland, Mich. Follow him on Twitter @lafaive.