Building upon the global and subnational measures of economic freedom, Stansel developed an index of economic freedom for MSAs, borrowing the methodology of the EFNA. It is based on publicly available data and assesses their government spending, taxes and labor market freedom. The key difference between the components in the Economic Freedom of North America Index and the U.S. Metro Area Economic Freedom Index concerns taxation. This MSA study drops the income tax rate variable that appears in EFNA, because local income taxes only exist in a small number of states, and there is no unified source for such rates at the local level.
There were 383 MSAs in the United States in 2017 and 14 were in Michigan. The MSA concept was established by the federal government in 1949 to identify local labor markets so federal agencies could record and report statistical information. To be considered an MSA, an area has to have at least one “central city” with at least 50,000 people. In many cases there are several cities in the MSA that exceed that size. In all cases, the MSA includes the central city (or cities) and the surrounding suburban areas from which a substantial amount of commuting occurs.
In his 2019 report for the Reason Foundation, “U.S. Metropolitan Area Economic Freedom Index,” Stansel ranked metropolitan statistical areas by degrees of economic freedom, using the same basic methodology as the ENFA report. Stansel observed that among the 52 MSAs with a population over one million, Houston-The Woodlands-Sugar Land, Texas, had the highest freedom score, followed by two Florida MSAs: Jacksonville and Tampa-St. Petersburg-Clearwater. The lowest freedom score among large metropolitan areas went to Riverside-San Bernardino-Ontario, California. Performing only slightly better were the Rochester and Buffalo Cheektowaga-Niagara Falls areas, both in New York state. The dataset for the 2019 study contains scores from nine specific years across five decades (every five years from 1972 to 2012).[*] The dataset for this MSA analysis contains one more year of data: 2017.
Neither Grand Rapids nor Detroit — the Michigan’s two large MSAs — appeared in the top or bottom 10 of the 52 largest MSAs in the country in terms of economic freedom. The same is true for the other 12 Michigan MSAs ranked among the 330 smaller ones examined in Stansel’s 2019 study. Of those 330 smaller MSAs, Naples-Immokalee-Marco Island, Florida, took top honors with a score of 8.55 out of 10. This was followed by Midland, Texas, and Sebastian-Vero Beach, Florida. On the opposite end of the spectrum, El Centro, California, was ranked last with a score of 4.22, followed by Kingston, New York, and Visalia-Porterville, California, both with a 4.39 score.
Graphic 3 shows the scores and ranks for the 14 MSAs and two “metropolitan divisions” in Michigan, using data through 2012. Eleven of the larger MSAs in the U.S., including Detroit, are broken into multiple metropolitan divisions. Because they are fundamentally different from the MSAs, they are not included in the rankings. However, they are given scores to facilitate comparisons within those 11 larger MSAs. The most-free MSA in Michigan was Midland with a score of 6.62, ranking it 141 out of the 330 smaller MSAs, followed by Ann Arbor at 6.54 and 165th. Bay City was the least-free at 5.50 and 302nd, followed by Flint at 5.64 and 297th.
In the section titled “Analysis and Findings,” we report the most and least free MSAs around the nation and in Michigan, using data through 2017. The graphic below are rankings using Stansel’s 2012 data set.
Graphic 3: Economic Freedom Scores and Ranks for Michigan MSAs, 2012
An analysis that compares nations, subnational governments, or localities to each other is important for several reasons. As Stansel noted previously, “Freedom can vary quite widely within the same country and even the same state.” By identifying a relative position among regions, elected officials and other policymakers can review policies that may lead to a gain or fall in their polity’s economic freedom score. More than an intellectual curiosity, that position appears to have real world consequences.
For instance, the Economic Freedom of the World and Economic Freedom of North America reports find a wide gap between the per-capita personal income of people who live in countries and states with low economic freedom scores and those living in the areas with the highest scores. The same goes for Stansel’s original MSA analysis, and this study, as well. He found that through 2012, per-capita personal income in U.S. MSAs in the least-free quartile were 4.9% below the national average. By contrast, income in the most-free MSAs was 5.7% above average. This current MSA study also finds a yawning gap. The gap reflects but one among many associations, mostly positive, between economic freedom and well-being.
[*] Due to tax and spending data for local governments only being collected every five years (in the Census Bureau’s Census of Governments), the dataset contains data only for the years ending in ‘2’ and ‘7.’ Given the two-year lag on the data, 2012 was the most recent year available when the Reason Foundation report was released.