SAN FRANCISCO – The Pacific Research Institute (PRI), a free-market think tank based in California, recently released the U.S. Economic Freedom Index: 2008 Report, a ranking of economic freedom in the 50 states. Published in association with Forbes, the Index scores states based on 143 variables, including regulatory and fiscal obstacles imposed on businesses and residents.

South Dakota, which ranked 15 in 2004 (the last time the Index was published), has assumed the notable spot as the nation’s most economically free state, while New York consistently remains the most economically oppressed state, ranking 50 in all three editions of the Index.

The net migration rate for the 20 freest states was 27.36 people per 1,000, while it was a low 1.17 people per 1,000 for the 20 most economically oppressed states. “People are moving to the freest states and fleeing the least free states as our market-based migration metric of economic freedom predicts,” said Lawrence J. McQuillan, Ph.D., director of Business and Economic Studies at PRI and director of the project.

“By measuring economic freedom and studying its effects, people will gain a fuller appreciation of the important imprint it makes on the economic and political fabric of America and will encourage new state legislation that advances economic liberty.

The Index score ranges from 1 (most free) to 50 (least free), and state rankings were derived from the index scores. The Index collected and ranked 143 indicators comprised of 209 underlying variables from five sectors (fiscal, regulatory, judicial, size of government, and welfare spending) for each state to measure how friendly, or unfriendly, each state’s government policies are toward free enterprise and consumer choice.
http://www.pacificresearch.org/docLib/20080909_Economic_Freedom_Index_2008.pdf

11/25/2008 9:38:15 AM

^

I am never too hot on index creation. It is incredibly hard to do well, you could easily devote your entire life to the creation of a single index that consistently captured a concept without distortion or hand waving.

This one has two big problems off the bat.

1) The Government size index is largely based on Government Spending and employment. However, the poorer the state the larger government is going to be relative to the rest of the economy. The more people are going to be employed by the government

2) The Welfare index seems to be chocked full of Federal programs which capture how much money is being pumped into that state from the rest of the country. That is just straight up a measure of poverty.

11/25/2008 10:40:06 AM

I know the index is skewed, but I don't believe it is skewed how you are suggesting. Afterall, the freest states in the index are invariably the poorest states, as someone on another forum pointed out:

Quote :

"For example, Connecticut and New Jersey rank 1 and 2 by per capita income but 38 and 49 by economic freedom. Mississippi and West Virginia rank 50 and 49 by per capita income but 19 and 38 by economic freedom. My hunch: "More Economic Freedom = Lower Per Capita Income"."

If I had to guess the causality, I would draw the following: due to a legacy of disparate development due to technological reasons, we as a nation have a low income south and a high income north, the cause of which has been eliminated by recent technological developments. As such, we should expect to see industry and business leave the north to settle in the lower wage south, causing relatively higher unemployment up north compared to the south, the long term effect of which will be to drive up wages in the south and drive down wages in the north until equillibrium is restored. As such, the south has much to gain from economic freedom while the north has much to lose from economic freedom, and they pass laws accordingly.

11/25/2008 11:02:23 AM

Quote :

"1) The Government size index is largely based on Government Spending and employment. However, the poorer the state the larger government is going to be relative to the rest of the economy. The more people are going to be employed by the government"

The end result is still less economic freedom. I don't think the report goes so far as to say what is the most desirable situation.

Quote :

"2) The Welfare index seems to be chocked full of Federal programs which capture how much money is being pumped into that state from the rest of the country. That is just straight up a measure of poverty."

This is true, they should really only be measuring the state portion.

11/25/2008 11:03:53 AM

^

Yes, what I meant to imply was that you don't know if poverty is pushing less freedom or less freedom is pushing poverty.

11/25/2008 11:05:36 AM

Look at New York and California.


California is already a bankrupt state. The state deficit was already unsustainable before the real estate crash and death spiral of the US economy. They were banking on speculative real estate and tourism to bail them out. And they elected a spendocrat idiot to govern the state. Oops.


New York was already leveraged to the hilt. Now they have massive unemployment and a service economy that is dependent on wealthy bankers to buy $10 bud lights, $8 coffees, and $5,000 business suits.

Some of those paper pushing jobs are being offshored and the rest are being lost altogether. It appears that "wealth creation" through phony financial instruments isn't sustainable. That state will collapse within 24-48 months without fed help.

11/27/2008 12:34:52 AM

New York has been in far worse financial situations than the present.

But that is beside the point. New York is a state government in the United States. The absolute worst-case scenario would be an end to the flow of credit to the state which is a common event in U.S. history and always ends the same way: The state dramatically cuts spending and gradually pays down the debt until trust the state enough to resume lending.

There can be no collapse because the state economy, which produces the tax revenue, is entirely independent of the state government's ability to borrow money, as crucial services such as fire and police easily fit within revenues.

It is similar for the U.S. Federal government: its ability to pay its debt is independent of its ability to borrow. (unless it starts running the presses, a bankrupt uncle sam will have little impact upon the dollar)

11/27/2008 1:17:36 AM