Thanksgiving is a time to get together with family and friends, eat delicious food, and watch football. It is also a time to reflect and give thanks for the many things that make our lives better. One of those things is economic freedom, and although it popularity decreases among the younger generations, the empirical evidence is clear: more economic freedom makes us richer and healthier.
Each year, the Fraser Institute of Canada publish his North American Economic Freedom Report. This report ranks US states, Canadian provinces and Mexican states according to their degree of economic freedom along three dimensions: government spending, taxes, and labor market regulation. Another part of the report also incorporates certain measures at the national level which apply to all States in their respective countries. These measures include a legal system and property rights, a strong currency and the ability to trade internationally.
Economic freedom as a concept is important. It is the extent to which people are free to make choices that determines their economic situation. As the report states:
The freest economies operate with minimal government interference, relying on personal choices and markets to answer fundamental economic questions such as what is to be produced, how it is to be produced, how much is produced and to who is the production intended for. As the government places restrictions on these choices, there is less economic freedom.
When people are free and empowered to make their own choices, they are better able to pursue their dreams, make meaningful contributions to society, and become the best version of themselves. Countries that limit economic freedom limit the choices of their citizens, which ultimately leads to less innovation and prosperity.
This year, the top-ranked US state in terms of economic freedom is New Hampshire, followed by Tennessee, Florida and Texas. The top 10 is shown below.
The first Canadian province is Alberta with a score of 6.17, while the first Mexican state is Baja California with a score of 6.01. For reference, these scores are similar to those for the U.S. states of Arkansas and Washington, ranked 31st and 32sd among the 50 states.
American states generally have more economic freedom than Canadian provinces or Mexican states and America as a country is also freer: it ranks 6e in Fraser’s Economic Freedom of the Global index as Canada turns 14e and Mexico is 75 years olde.
More economic freedom is not only good in theory. As the figure below shows, states or provinces in the freest quartile have per capita incomes 7.5% above their national average. Meanwhile, states or provinces in the least free quartile have per capita incomes 1% lower than their national average. Per capita income in America was $ 34,103 in 2019, so a 7.5% increase is $ 2,557, a significant amount of money for most people.
States or provinces that increase their economic freedom over time also experience faster income growth. As the figure below shows, there is a positive relationship between greater economic freedom and income growth. When economic freedom in a state or province increases relative to its national average (horizontal axis), per capita income growth also increases on average (vertical axis).
Americans have many reasons to be thankful. Things are not perfect, but we live in a relatively wealthy and politically stable country that many others want to live in, as evidenced by the number of immigrants. who moves to America every year. We also enjoy a high level of economic freedom, which allows each of us to pursue our passions and live the best of our lives.
Residents of some states, like New Hampshire, Tennessee, and Florida, have more economic freedom than the rest of us, but that isn’t necessarily the case. More economic freedom comes from less taxes, less regulation and a government that protects the rights of its citizens. People are capable of amazing things when they are free to experiment and innovate, and state governments across the country can foster such innovation by enhancing economic freedom.