A new study on economic freedom in North America has concluded that some American states are less free than the provinces of our northern neighbor Canada.
“Canadian provinces now lead US states in average economic freedom, with the provincial average at 6.8 compared to 6.7 out of 10 for US states,” claims the new study by the Fraser Institute.
Topping the list of the most economically free subdivisions of North American countries is the Canadian province of Alberta, followed by Delaware, Saskatchewan, Texas and Nevada.
On average, American states lose to Canadian provinces in a number of categories, including regulation of credit, regulation of business, and legal system and property rights. While the average of economically free regions is higher in Canada, it is worth noting they have both the most free state, Alberta, and the least free state, Prince Edward Island, which is located off the coast of Nova Scotia.
The Economic Freedom of North America 2012 report was calculated using ten components in three basic areas: size of government, takings
and discriminatory taxation, and labor market freedom. The number one issue affecting U.S. states’ freedom is the amount of government spending.
“Part of this is cyclical and has to do with the recession,” Benjamin Powell, associate professor at Suffolk University and senior fellow with the Independent Institute, explained.
“Welfare program spending is up, but that’s partly just because of the economic down turn. But it’s really across the board. Business subsidies from the government and then just government spending on goods and services generally, have all increased and that’s been the biggest cause of the decline at the state level.”
U.S. states with the highest levels of freedom include Wyoming, Texas, Nevada, Colorado, South Dakota, Illinois, Nebraska and Utah, many of the same states considered to be the most business-friendly states in the union.
“States that score higher in economic freedom tend to have higher income levels and higher growth rates,” said Powell.
What may be surprising, states that people commonly associate with over spending, big welfare systems and ballooning budgets — like California, New York or New Jersey — scored in the middle of the pack on economic freedom. Powell explained that the scores have to do with a popular misconception of economic freedom.
“A lot of times there are popular misconceptions about who’s really free and unfree. For instance, at the national level, people talk about ‘socialist Sweden’. But when you actually look at it, Sweden is actually very economically free, they just have a big welfare state and a lot of labor market regs, but not a heck of a lot of other infringements,” Powell said.
California, New Jersey and Michigan score have some of the lowest scores when it comes to Social Security payments as a percentage of GDP, far lower than any Canadian province.
New York, Nevada, and Montana scored some of the lowest in indirect taxes, again, lower than the levels of Canadian provinces.
Concern with levels of economic freedom stems from the relationship between economic freedom and economic growth. “Not only is economic freedom important for the level of prosperity; growth in economic freedom spurs economic growth,” the report states.
“Economic freedom is very important for prosperity,” Powell explained to The Daily Caller News Foundation.
“Higher levels of economic freedom generate higher income levels, higher growth rates, virtually any living standard we care about.”
A single-point improvement on the economic freedom index at the all-government level would increase per capita GDP by $13,276 for U.S. states, the report claims. The U.S. state level dropped by 0.4 this past year.
Canada ranked fifth in economic freedom out of the 144 nations the Fraser Institute examined, while the United States ranks 18th. The United States fell behind in the index in 2008, following the financial crisis.
The latest study uses data from 2010, which leaves out expanded spending for the Medicare expansion and Affordable Care Act. Powell expects state level spending to only get worse in the coming years.
Data from Mexico have also been collected for comparison with economic freedom in North America, but the data “has been rife with challenges,” according to the report.
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