The latest banking crisis only increased concerns that the U.S. economy is headed for a downturn. Some politicians, including President Joe Biden, are now exploiting recession fears to extend pandemic-era aid programs.
The sad reality is that these aid programs cannot deliver on their promises to solve the poverty problem.
Between the beginning of Ronald Reagan’s presidency and that of Donald Trump, taxpayer spending on the nation’s 13 largest means-tested welfare programs increased by almost 240 percent. While poverty generally tends to fall during boom times and rise during busts, the overall trend has been mostly unchanged. That’s a terrible return on public investment.
My recent research, commissioned by the Commonwealth Foundation, suggests the ever-soaring growth in public spending is likely counterproductive. In fact, cutting government spending—and expanding economic freedom more broadly—can simultaneously lower poverty and promote prosperity across all income levels.
Economic freedom entails expanding the sphere of personal choice—and minimizing the role government plays in our lives. It means reasonably low levels of government spending, low taxes, and a lack of onerous labor market regulations.
Nearly three decades of research has found that areas with higher levels of economic freedom experience positive outcomes, ranging from faster economic growth to cleaner environments. Data from the 2022 Economic Freedom of North America (EFNA) report shows that, on average, residents in the most economically free states have incomes per capita over $3,000 higher than residents in the least free states.
The least free states also tend to spend significantly more on public welfare programs—with the 10 least free states spending almost twice as much per recipient as the most free states. While poverty rates are higher in less free states, they’re not high enough to necessitate twice the spending. Unfortunately, government solutions that focus on the alleviation of poverty—and not the promotion of prosperity—come riddled with damaging unintended consequences. The structure of many programs is at odds with incentivizing upward mobility, essentially trapping recipients in the very poverty they want to escape.
The goal of a successful anti-poverty program should be creating an environment conducive to broader human flourishing. Economic freedom is the key to crafting this environment. My research suggests that economic freedom not only alleviates poverty but can also promote economic prosperity for all people.
Specifically, my findings show that a one-point improvement in economic freedom over a five-year period correlates with substantial decreases in poverty the subsequent year.
And it’s not just the poverty rate that improves. In Pennsylvania, for example, a one-point improvement in its EFNA score over five years is associated with a $2,338 growth in per capita income and a 2.08 percentage point employment increase.
New York, California, Hawaii, Vermont, and Oregon are currently the lowest-ranked states for economic freedom. While New York and California remain relatively wealthy, the other three have per capita personal incomes lower than the national average.
While large jumps are rare, changes in economic freedom tend to accumulate over time. In the same five-year period, Arizona lost nearly a full point on the EFNA index while North Dakota gained a full point. Six additional states changed more than half a point.
Critics might object that cutting government spending would mean decreasing needed assistance to the poor—but this doesn’t have to be the case. And not all government spending is helpful; the federal government spent $281 billion in improper payments in 2021 alone.
Government spending also tends to crowd out what would otherwise be private spending or investment. Even programs that are designed to attract or spur economic development can hamper the business environment.
Economic freedom, however, strongly relates to entrepreneurship. In recent years, people and businesses have fled New York, California, and Illinois—all states that rank low in economic freedom. Where are they going? Texas and Florida are popular choices—both consistently rank among the top five most free states.
By pursuing an agenda of economic freedom, policymakers might be able to decrease poverty and spread the benefits of prosperity more widely. Win-win policy solutions are rare, yet this is an example where government can help more by doing less.
Meg Tuszynski, PhD, is the Managing Director of the Bridwell Institute for Economic Freedom at Southern Methodist University.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.