Economic Freedom and Prosperity
Freedom isn't just a moral good, it also produces greater wealth. That's the conclusion of a study recently published by the Pacific Research Institute, which analyzed each of the 50 states.

"If all states ranked as free as [top-ranked] Kansas," the Institute notes in a press release, "the annual income of an average working American would rise 4.42 percent, or $1,161, putting an additional $87,541 into his or her pocket over a 40-year working life. This would be a sizable addition to individuals’ private retirement accounts."

Further, says the Institute, "The report confirms that the most economically free states are experiencing population growth, as Americans are moving to states that have the most business- and job-friendly climates."

The factors used to rank the states are:

• Fiscal policy (structure of the tax system, per capita taxes);
• Regulatory climate;
• Judicial climate;
• Government size (spending as a percentage of the state economy; government employment as a percentage of workforce);
• Welfare state size

The top five states:

• Kansas;
• Colorado;
• Virginia;
• Idaho;
• Utah

The bottom five states:

• Illinois;
• Rhode Island;
• Connecticut;
• California;
• New York

Things get more interesting, though, when we look at the Great Lakes region, where states scored low on the economic freedom index:

• Indiana (14);
• Michigan (34);
• Wisconsin (38);
• Ohio (43);
• Minnesota (44);
• Illinois (46)

for an average ranking of 36.5. Compare this with the ranking of per-capita income:

• Illinois (8);
• Indiana (31);
• Michigan (20);
• Minnesota (7);
• Ohio (24);
• Wisconsin (19)

The one state in the region with above-average freedom (Indian) also has a below-average income, while the other states have below-average freedom and above-average income.

There are two possible explanations: government intervention produces all sorts of good things that promotes economic growth. That's the social democratic line. The other is that as the economy grows, demands for government intervention grow.

There's one other test to look at, and that's the population test. In broad terms, states with more economic freedom have seen more population growth, while states with less have seen less population growth. Call it the "voting with their feet" test. (permalink)