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03/14/10
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February
23, 2005 The U.S. economy is facing many challenges on the world market, as news stories remind us daily. Staying competitive is necessary for companies to survive; but it can be difficult to assess the numerous, complex factors that contribute to success. Similarly, individuals are looking for the best places to live -- fun places to be, that help them stretch their dollars, as well as their entrepreneurial creativity, in order to get ahead. Often overlooked in the focus on worldwide markets is the variable state of the 50 United States. What's the best place to be in the U.S., from a purely economic perspective? Are the states with no income taxes best, or do other factors complicate the issue? The Pacific Research Institute's 2004 edition of the U.S. Economic Freedom Index attempts to help gauge the relative economic freedom of the fifty states. It does so by comparing states on a wide variety of factors that comprise the numerical index by which each state is ranked. Specifically, the authors assumed that migration between the states is a good indicator of economic freedom -- that is, people will move to places where economic prospects are good, and away from areas where they are poor. A large number of variables were classified into one of five economic sectors: fiscal; regulatory; welfare spending; government size; and judicial. These sector scores were weighted, then summed to arrive at index scores for each state. This was repeated, varying the data sets and the weighting techniques, a total of 48 times. The model that best explained net population migration by regression analysis was selected as the final index. (More procedural and statistical details are available in the book, or, if one is so inclined, one may order the data sets and software from Global Economic Software.) Three sector scores were of roughly equivalent importance in computing the final economic freedom score for each state. These were: welfare spending sector, a measure of government revenue that's redistributed through direct transfers; fiscal sector, which compared states on tax rates and government revenues; and regulatory sector, or government restrictions on people's behavior. Much less important were judicial and government size. The authors admit that many subjective judgments directed their analysis. They were possibly most numerous in the judicial sector, which ended up with a negative score. That, along with the complexity of many judicial topics that influence economic freedom, such as tort reform, makes interpreting this sector's influence challenging. Interestingly, the least-important sector is government size, which suggests that simply having large numbers of government employees in itself isn't a serious hindrance to economic freedom. For those who enjoy digging through datasets and debating methodologies, U.S. Economic Freedom Index: 2004 Report offers a wealth of material. One may also examine trends across the states, most of which aren't surprising. For example, the West is the most economically free region (with the exception of California); and the most populous states (which describes California well) tend not to be economically free, in large part because they tend to have a high regulatory burden. For those who are considering their options in future moves, a look at this index as well as the 1999 one (which was constructed using a different model, making direct comparisons somewhat challenging), offers a rough trend analysis. For example, both Colorado and Kansas enacted legislation that aided economic development in the intervening years between studies; and both saw improvement in their scores. And, as news stories bear out, many states have followed policies that have resulted in sometimes substantial drops in their economic freedom indexes; Ohio, Mississippi, and Illinois are excellent examples of states moving backwards. The final chapter of U.S. Economic Freedom Index: 2004 Report is also the longest, providing a brief summary of each state's economy in more detail than the sector scores and indexes do. This information includes personal income per capita, population, employment across major business sectors, and unemployment rate. Many other informative tables compare states by specific variables; those and the detailed appendices allow interested readers to glean valuable insights not readily apparent from the simple rankings. While there's a lot of fairly sophisticated statistical stuff in U.S. Economic Freedom Index: 2004 Report, that doesn't mean that only economists, policy wonks, or others with statistical backgrounds will find value in it. Huang, McCormick, and McQuillan do a good job of relating their methods and findings in terms that an interested lay person can follow, particularly in the chapter summaries. Perhaps the most contentious element of the book is the authors' assumption that migration is fairly heavily economically driven. While it does explain a nontrivial amount of the human migration pattern, it fails to address a fundamental reason why places like New York City and much of California have the population densities they do: large cities and urban areas generally have more diverse offerings, in terms of entertainment, dining, and other things people like to do. Urbanites, and those who crave the fast pace and variety city settings tend to offer, aren't likely to be pulled away from Manhattan, New York to Manhattan, Kansas, no matter how great the economic advantages of such an action. Nevertheless, if you find yourself with an itch to move, do yourself a favor and spend a little time mining U.S. Economic Freedom Index: 2004 Report. It will likely pay off in greater economic liberty -- and thus prosperity -- in these highly competitive economic times. (Editor's Note: I have already made a great deal of use of this material, accessed from the various links included in this article. I'm planning to leave California and move to Wyoming, seeking greater freedom. Thank you Sunni!!) Sunni's Endervidualism Article Archive
Sunni Maravillosa is the co-founder of the Liberty Round Table, publisher of Doing Freedom!, and maintains a blog and personal web site. Sunni invites to you her newest project, Sunni's Salon, featuring books, music, interviews, and more from the pro-freedom culture scene. |
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