Michigan stagnates on Economic Freedom Index


Guest Columnist

The Fraser Institute just released its latest rankings of economic liberty in North America, covering U.S. and Mexican states as well as Canadian provinces. Michigan’s holds the same 27th place ranking among the 50 U.S. states as it did the last time Fraser produced the list — a troubling indication of stagnation after several years of gains.

The most free U.S. states in this index were New Hampshire, Florida, South Dakota, Texas and Tennessee. The least free were New York, California, Alaska, New Mexico and Hawaii, with New York and California bringing up the rear for the second year in a row.

Fraser scholars generally just report the rankings and let others draw conclusions, but with this release co-author Dean Stansel, an economics professor at Southern Methodist University, stated:

“Americans have been voting with their feet against the ‘big government’ approach of New York and California. Florida and Texas have experienced more than two-and-a half times faster population growth in recent years, and they’re among the freest states in the country.”

Studies show that economic liberty is highly correlated with many measurements of human well-being, starting with average incomes. Per capita incomes in the 10 states ranked most free were almost 5 percent above the national average, and incomes in the 10 least free states were more than 3 percent below average. During the past three years population grew about 3 percent in the 10 most free states, but only about 1 percent in the bottom 10 states.

There is practically zero chance these correlations are just coincidence. Economists and social scientists have studied what makes nations and their political subdivisions prosper. Economic liberty — the ability to freely produce and exchange goods and services for personal gain — is a vital ingredient for prosperity. How to best identify and measure it is a perennial challenge, and Fraser Institute scholars have made a major contribution by devising ways to do so at both national and subnational levels.

The Fraser index is built around three areas: spending by government, taxes and market freedom for labor, and these areas have a total of 10 subcategories. The methodology is explained in detail by the reports’ authors and the dataset is made publicly available.

Given Michigan’s current stagnation in the freedom rankings lawmakers here should look to the index for clues on where more work is needed. For example, eliminating the individual income tax would help Michigan transform into an economic freedom and opportunity powerhouse the likes of modern Florida and Texas.

Short of repeal, the people are still waiting for the substantial income tax cut promised by Lansing politicians back in 2007. That’s when a Democratic Governor and House along with a Republican Senate imposed a “temporary” 11.5 percent income tax increase, to be rolled back starting in 2011. Since then, they have delivered a down payment of just 0.1 percentage point on that promise.

The Fraser Institute’s Economic Freedom of North America report is a scholarly measure of where Michigan fits in North America’s economic firmament. State and national economies are not static — some places are always moving up and others falling behind. You’ll know Michigan is moving the right direction when our Legislature and Governor adopt policies that advance the state above its current 27th place on the EFNA index.

Michael LaFaive is director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy, a nonpartisan research and educational institute dedicated to improving the quality of life for all Michigan citizens by promoting sound solutions to state and local policy questions