Evidence Economic Freedom Improves Outcomes

The latest Economic Freedom of North America report issued by the Fraser Institute marks the first time economists have had a full four decades’ worth of data on economic freedom across the fifty United States. Those less familiar with economic research claim that economics isn’t a science because economists can’t conduct controlled experiments. Yet where economists can’t conduct controlled experiments (behavioral economists do conduct controlled experiments), they employ complicated statistical techniques to compensate for the fact that they must take data as they come. Here, the Fraser Institute has given economists a treasure-trove of data that provide insight into the effect of larger and smaller government footprints among the states’ economies.

Economic freedom is not the same as less government. In fact, in many cases, improved economic freedom requires more government. Economic freedom is rather “right government,” government that, as Thomas Jefferson put it in his first inaugural address, would “restrain (people) from injuring one another, (but) shall leave them otherwise free to regulate their own pursuits…” Societies are more economically free when their governments prevent people from harming each other, whether by violence, theft, fraud, defamation, pollution, or any of the many other ways the more powerful manage to exploit the less. But societies are also more economically free when their governments otherwise leave people and businesses alone to make decisions for themselves. Exploitation is as anathema to economic freedom as is the nanny state.

There is no perfect way to measure economic freedom, as is often the case, so  economists must settle for reasonable measures. Fraser has constructed a quasi-objective measure of economic freedom. The “quasi” part comes from the fact that Frasier’s researchers had to decide what metrics were consistent with the idea of economic freedom. The “objective” part is that government agencies put numbers to the metrics. In calculating an Economic Freedom index for each state, Fraser combines state and local government spending, government transfers and subsidies, state pension payments, tax rates and brackets, the minimum wage relative to average income, and government employment. Fraser simply averages its metrics together and puts the result on a scale from 0 (least free) to 10 (most free). Reasonable people can argue that some metrics should be weighted more than others, but Fraser tries to keep its researchers’ opinions out of the equation by taking simple averages.

As of 2020, the last year for which Fraser has performed the calculations, economic freedom among the fifty states has ranged from a low of 4.3 (New York) to a high of 7.9 (Florida). On the whole, economic freedom among the states has risen over the decades from a median of 5.2 in 1981 to almost 6.4 in 2020. That’s a remarkable improvement. Even New York State, the least free state in the union, has raised its score from 2.7 in 1981.

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