Economic freedom increases people’s well-being, wealth

The latest work from the Canadian Fraser Institute marks the first time economists have had four decades’ worth of data on economic freedom across the 50 United States. Cross-referencing Fraser’s data with government data shows that the more economically free states are the more prosperous.

Fraser measures economic freedom, on a scale of 0 to 10, by looking at state and local government spending, transfers, subsidies, pension payments, tax rates and brackets, wage controls, and government employment. In general, states are more economically free when their governments prevent people from harming one another but leave them alone. Exploitation and the Nanny State are anathema to economic freedom.

As of 2020, economic freedom among the 50 states ranged from a low of 4.3 (New York) to a high of 7.9 (Florida). Nevada came in at 25th with a ranking of 6.36. Median economic freedom among the states has risen from 5.2 in 1981 to almost 6.4 in 2020. Even New York raised its score from 2.7 in 1981.

It’s reasonable to assume that small states would be more economically free because they don’t require the massive spending on infrastructure and social welfare programs that come with large populations. Yet, economic freedom doesn’t follow state size. Two of the most economically free states, Florida and New Hampshire, are at opposite ends of the size spectrum. Florida is the third-largest state by population and fourth by the economy. New Hampshire is 42nd by population and 40th by economy. In addition, two of the least economically free states, New York and Vermont, are of opposite sizes.

Economic freedom is related to well-being. To see the pattern, split the states into two groups: the more economically free and the less.

In every year from 1981 through 2020, one-quarter of the states (Florida, New Hampshire, South Dakota, Texas, Tennessee, Virginia, Georgia, North Carolina, Idaho, Indiana, Missouri and Colorado) were always among the 25 more free, while one-quarter of the states (New York, California, Vermont, Oregon, Maine, West Virginia, Rhode Island, Alaska, Minnesota, Ohio, Michigan and Washington) were always among the 25 less free. Half of the states, including Nevada, moved back and forth, ranking among the more free states in some years and among the less in others.

In each year for the past four decades, the less economically free

states had an average unemployment rate that exceeded that of the more free states. The difference was almost a full percentage point.

Sixty-five percent of the time from 1981 through 2020, the average poverty rate across the more economically free states was lower than among the less free states. Median household income was higher among the more free states 60 percent of the time. And adjusted for differences in costs of living, the more free states showed higher household purchasing power 85 percent of the time. Interestingly, income inequality (data for which only go back to 2008) was lower in the more free states 60 percent of the time.

The pattern repeats when comparing countries, and the evidence becomes richer. More free countries exhibit lower child labor rates, more gender equality and empowerment, improved human development and better environmental outcomes. And this isn’t a “rich country effect,” because the pattern emerges again when looking only at poor countries.

Correlation isn’t causation, but the absence of correlation is the absence of causation. And nowhere do we see a correlation between less economic freedom and better outcomes. The data show that less economic freedom does not cause better outcomes.

People ask what the government can do to mitigate social and economic problems. But the data suggest that people should be asking what the government can stop doing that exacerbates these problems. We know that better outcomes arise when governments prevent people from harming one another, but otherwise leave them alone.