Federal Reserve Study: Economic Freedom Matters

A new study published by the Federal Reserve Bank of St. Louis, called "Economic Freedom and Employment Growth in the U.S. States," concludes that there is a link between economic freedom and employment growth. Other studies have come to the same conclusion. One of the things that makes this one different is its findings on labor markets. The authors write: "In addition, we find that less restrictive state and national government labor market policies have the greatest impact on employment growth in U.S. states."

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That conclusion doesn't bode well for Michigan, which is known for having a relatively hostile labor climate and which over the last 10 years has seen its overall national economic freedom ranking tumble according to the periodic "Economic Freedom of North America" report, published by the Fraser Institute in Canada, and the "U.S. Economic Freedom Index" published last by the Pacific Research Institute in California.

The Fraser Institute's 2004 and 2008 editions show Michigan ranked 32nd and 39th, respectively, in economic freedom among the states. The 2008 PRI index reports that Michigan's ranking fell from 27th in 1999 to 34th place in 2004, and to a dismal 43rd place in 2008. These years coincide with the progressive meltdown of this state's economy and job market.

Certainly other factors have contributed to Michigan's decline, but just as surely, the state's troubles have been compounded by a series of economic freedom-destroying policy missteps, such as a $1.4 billion tax hike in 2007.

Reversing our decline first requires that we stop digging a deeper economic freedom hole, beginning with the immediate and final entombment of Gov. Jennifer Granholm's latest tax hike proposal. Climbing out will entail repealing the Michigan business tax (and replacing its revenue with spending cuts and reforms), adopting a right-to-work law and reining in this state's out-of-control environmental regulators.

Since opening its doors in 1988, the Mackinac Center has provided evidence that increased economic freedom in Michigan is not just necessary and desirable, but is a moral imperative. The St. Louis Fed study suggests why, with the state's politicians pushing us ever further in the opposite direction, residents shouldn't be surprised to learn that Michigan has had the highest unemployment rate in the nation for 48 straight months.