Economic Freedom Matters

The 11th edition of the highly respected report Economic Freedom of North America has been released and it has good news for Michigan. In the index Michigan ranks 27th among the 50 states.

The 2015 freedom index — this year’s data runs through 2013 — attempts to measure the degree to which governments across Canada, the United States and Mexico restrict (or permit) economic liberty. It is produced by the Fraser Institute, a Canadian research organization, based in Vancouver, British Columbia.

At 27th, Michigan is tied with Iowa and Utah. The top-ranked state for economic freedom was New Hampshire, followed by South Dakota, Texas, Florida and Tennessee. New York finished dead last. The other least-free states included California, Alaska, Hawaii and New Mexico.

Michigan’s middling performance may not seem impressive but it does reflect improvements over time. Dean Stansel, one of the architects of the report, tells me that Michigan has moved up from 40th based on 2010 data to 33rd in 2011 and 27th for both 2012 and 2013.¹ These changes in the “more free” direction are nothing to dismiss as they could portend greater economic well-being for the Great Lake State.

The authors of the index note that per capita personal income in the most-free states was 7 percent above the national average compared to 8 percent below in the least free. It is unlikely that this is simply a coincidence.

Economists have long investigated how and why some nations and people grow rich, using a number of valuable categories. Their conclusions are usually mundane: property rights, the rule of law and an ability to engage in voluntary exchange often rank high on the list of qualities associated with national wealth. In other words, economic freedom matters and the Fraser Institute’s index is one way to measure economic liberty and make comparisons by country and by subnational units of government.

The index is built around data compiled on such things as the size of government, laws governing labor markets and the level and types of taxation. Within each of these major categories are ten subcategories. As one example, under the size of the government the index uses data such as government expenditures as a percentage of personal income. The authors rank each of these variables on a scale of one to ten and total the scores in each area. A score of 10 represents the greatest freedom and a score of one the least.

The authors describe each area and subcomponent in detail and — much to their credit — are 100 percent transparent about their data sources. The data from each category is made available by the Fraser Institute on its “Free the World” website that hosts the study. Previous editions and datasets from the study have been used by other scholars in their own work.

Economic freedom is associated with almost every objective measure of human well-being, including longer lives, lower death rates among children and greater incomes.

Michigan has made important strides in the past few years. But more needs to be done to restrain the state’s ability to lord over — if not unnecessarily interfere with — the lives of its citizens.

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¹These rankings are based on a slightly new methodology. Direct comparisons to previous year’s reports will show different rankings by state.