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Stunning Findings In Ranking Of States For Economic Freedom — Where Does Yours Rank?

fraser institute economic freedom states provincesThe most economic freedom for businesses and individuals on North America soil is not found in the areas you most likely would guess.

In fact, it’s not even in the United States at all.

The most economic freedom for businesses and individuals is in the Canadian provinces of Alberta and Saskatchewan. That is the conclusion of Economic Freedom of North America 2013, a new study from a Canadian think tank called the Fraser Institute.

The institute’s experts examined all 50 US states and 10 Canadian provinces and came up with a list of the best places to do business. Interestingly enough, both the best and worst places to do business were in Canada. The region with the least economic freedom was the Canadian province of Prince Edward Island.

“The freest economies operate with minimal government interference, relying on personal choice and markets to decide what’s produced, how it’s produced and how much is produced. As government imposes restrictions on these choices, there’s less economic freedom,” said the study’s coauthor, Dean Stansel, an economics professor at Florida Gulf University.

The American state with the most economic freedom, Delaware, came in at number three. The U.S. state with the least economic freedom was New Mexico, which came in at number 58. The next-to-last state was West Virginia, which came in at number 57.

Economic Freedom Equals Prosperity

Researchers found that there is a clear link between the level of economic freedom and the income of citizens. The annual income in the Canadian provinces with the largest governments was $32,000 a year lower than in the provinces with the smallest governments.

“The link between economic freedom and prosperity is clear—states that support low taxation, limited government and flexible labor markets see greater economic growth while states with lower levels of economic freedom see lower living standards for families and less economic opportunity,” the study’s co-author, Fred McMahon, noted in a press release.

New book reveals how to keep this “gangster” economy from murdering your money…

The annual income in the 10 states with the least economic freedom was around $40,000 a year. The average income in the United States was around $53,077 a year.

How the Study Ranked Economic Freedom

McMahon and his colleagues devised a set of criteria that affect economic freedom, then ranked the states and provinces using the criteria. The criteria included:

  • Size of government.
  • The level of taxation.
  • Protection of property rights.
  • The amount of government regulation.
  • Labor market freedom.
  • The level of union membership.
  • The percentage of government employees in the labor force.
  • The level of inflation.
  • Availability of credit and financing to business.

These criteria were used to create a 1 to 10 ranking for economic freedom. Alberta, which had the highest ranking, came in at 8.3, while Prince Edward Island came in at 6.7.

The study is part of a larger effort called the Economic Freedom of the World which was compiled by more than 60 scholars. Three Nobel Prize winners participated in the effort.

The States and Provinces Ranked

If you want to know what the level of economic freedom in your state or province is, just look at the list below. Those who want to start a new business might consider this list if they are planning a move.

  1. Alberta with a score of 8.3
  2. Saskatchewan with a score of 8.0
  3. Delaware with a score of 7.8
  4. Texas with a score of 7.7
  5. Nevada with a score 7.7
  6. Newfoundland & Labrador with a score of 7.7
  7. British Columbia with a score of 7.6
  8. Wyoming with a score of 7.6
  9. South Dakota with a score of 7.6
  10. Colorado with a score of 7.6
  11. Nebraska with a score of 7.6
  12. Georgia with a score of 7.5
  13. Utah with a score of 7.5
  14. Illinois with a score of 7.5
  15. Alaska with a score of 7.5
  16. Louisiana with a score of 7.5
  17. North Carolina with a score of 7.5
  18. New Hampshire with a score of 7.5
  19. Iowa with a score of 7.5
  20. Connecticut with a score of 7.5
  21. Indiana with a score of 7.4
  22. Minnesota with a score of 7.4
  23. Oklahoma with a score of 7.4
  24. Kansas with a score of 7.4
  25. Ontario with a score of 7.4
  26. Virginia with a score of 7.4
  27. Tennessee with a score of 7.4
  28. Oregon with a score of 7.4
  29. Massachusetts with a score of 7.4
  30. California with a score of 7.4
  31. North Dakota with a score of 7.4
  32. Washington State with a score of 7.3
  33. New York State with a score of 7.3
  34. Idaho with a score of 7.3
  35. Arizona with a score of 7.3
  36. New Jersey with a score of 7.3
  37. Manitoba with a score of 7.2
  38. Missouri with a score of 7.2
  39. Florida with a score of 7.2
  40. Wisconsin with a score of 7.2
  41. Pennsylvania with a score of 7.2
  42. Ohio with a score of 7.2
  43. Maryland with a score of 7.2
  44. New Brunswick with a score of 7.2
  45. Michigan with a score of 7.2
  46. Alabama with a score of 7.1
  47. South Carolina with a score of 7.1
  48. Rhode Island with a score of 7.1
  49. Quebec with a score of 7.1
  50. Hawaii with a score of 7.0
  51. Arkansas with a score of 7.0
  52. Montana with a score of 7.0
  53. Kentucky with a score of 7.0
  54. Maine with a score of 6.9
  55. Vermont with a score of 6.9
  56. Mississippi with a score of 6.9
  57. West Virginia with a score of 6.8
  58. New Mexico with a score of 6.8
  59. Nova Scotia with a score of 6.8
  60. Prince Edward Island with a score of 6.7

This study proves what many of us already know: Economic freedom equals prosperity. Hopefully policymakers in the various states and provinces will pay attention to it.

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2 comments

  1. Interesting then that for instance the state of Maryland, ranked #1 in median household income at $70,000 in 2011, is a low no. 43 (out of 60) on the ranking of “economic freedom.” I wonder what is happening there? Sheer force of proximity to capital/capitol? Similarly, Vermont, rated #55 out of 60 in “economic freedom” is a comparatively high #19 in household income, and Hawaii, ranked #50 in freedom shows nicely at #8 in income. Meanwhile Texas and Nevada, ranked #4 and 5 in the study (2 and 3 in the US after DE), show a middling 25th and 27th place in median income. Only Delaware really fits the bill, scoring both #1 in “economic freedom” and #5 in 2011 median income. How can we account for this segment of the data? The quote from researcher Fred McMahon also leads to a further question. He infers that the causal “link is clear” that states with low economic freedom invite poverty on themselves. But this a very simplistic form of data analysis. Certainly neither he nor the author of the article show that they can prove such a causality. The correlation could in fact stem from other unelaborated causal relationships. It is just as possible that traditionally poor states are socially and politically predisposed towards increased government oversight for reasons unrelated or tangentially related to their GDP. For instance, New Mexico, home to many leftists, “new-agers” and environmentalists, is ranked low in economic freedom and low in personal income (43rd). It is possible that this rural, lower-income population, in the absence of a strong, urbanized money economy, (and the values that come with it) has politically prioritized cultural and environmental preservation, in part by developing high standards for businesses, standards that have behind them the (however misguided one may think) intent to prevent them from compromising cultural or environmental values other than free market capitalism. On the other hand, we have Maryland, our biggest anomaly. Maryland is home to hundreds of thousands of government employees and federal contractors, folks who are familiar with the Washington game of bureaucracy, red tape and gridlock. This state is populated mostly by transitory in-migrants from all over the US and the world, but with some similar cultural goals: high income and career advancement based on government contracts or the GS pay scale. In such a culture, “business-friendlyness” may not be culturally valued, because Federal contracts and employment are mostly assured. The point is, that in some circumstances, it appears that “economic freedom” is not a requirement for high income, nor is relative economic freedom a sure indicator of high or low incomes. The causality, if any, has yet to be elaborated. It will be interesting to find out more.

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