Economic Freedom Gains in Michigan

But the risk of backsliding remains

The Mackinac Center exists to educate Michigan residents about the importance of sound economic policy, and what it looks like. That often means discussing whether existing or proposed laws contribute to, or detract from, freedom and prosperity.

It’s no coincidence that states with greater economic freedom tend to prosper more over time and attract more inbound migration. We know this thanks to various efforts to measure the level of economic liberty in different places. Among the more interesting of these is a new report from the Canada-based Fraser Institute called “Economic Freedom of North America.”

The 2014 edition uses data through 2012, and the bad news is that Michigan ranks a sad 37th among the 50 states. The good news is that we’ve advanced eight places since 2009, when just five states were less free than Michigan. Also, the new ranking is based on data predating any benefits Michigan may derive from its new status as a right-to-work state.

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This last point is no small thing. In “Rich States, Poor States,” an economic outlook index published by the American Legislative Exchange Council, Michigan leapt from 20th to 12th place between 2013 and 2014, in large part due to our Legislature enacting a right-to-work law at the end of 2012. This index ranked Michigan’s outlook in a dismal 34th place as recently as 2009.

The 2014 ALEC report incorporates state Gross Domestic Product and related measures. Texas comes in first, and not surprisingly, Texas also occupies the top slot in the Fraser freedom index. More economic freedom yields better economic performance, and Texas is big on both.

The Fraser index uses 10 variables, including the size of government, tax policy and labor market freedom. Joining Texas among top performers are South Dakota, North Dakota, Virginia, New Hampshire, Louisiana, Nebraska, Delaware and Tennessee. Among the least free are Maine, Vermont, Mississippi, New York, Rhode Island, West Virginia, New Jersey and California. Average per-capita economic output in the most free states is about $55,000, compared to $48,000 in the least free states.

The data and methodology used by the Fraser index are published online. The report also cites more than 100 scholarly, peer-reviewed papers from academic journals that have employed data from the same sources in research ranging from the importance of tax policy to education reform.

Economic liberty is just one variable that influences economic growth and well-being. Hundreds of independent, peer-reviewed studies from a wide variety of scholars have arrived at the same general conclusion: that greater freedom is positively associated with better outcomes for people, including stronger economic growth. State-specific literature tends to find the same relationships.

In light of all this evidence, it’s distressing to see how progress toward expanding economic freedom in Michigan has stalled after the magnificent policy gains of 2011 and 2012. Threats of higher taxes, failing to close unaffordable government pension systems, the persistence of corporate welfare schemes, cost-increasing interference in the state energy market, a huge expansion in the medical welfare establishment and more all represent steps in the wrong direction.

Michigan’s government already takes too much, spends too much and interferes too much with the peaceful efforts of our people to voluntarily truck and barter to our mutual benefit. No doubt Michigan has taken positive strides in recent years, but as the Fraser index makes clear, we’re not out of the woods yet and certainly can’t afford to be taking two policy steps back from freedom for each step forward.

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