The Path to Prosperity in America
Kurt Brouwer August 18th, 2008
Source: American
The Path to Prosperity (The American Magazine, August 7, 2008, Amela Karabegovic and Alan W. Dowd)
A new report confirms that low taxes, limited government, and flexible labor markets help to spur economic growth.
There are times when common sense is not so common. We may be in one of those times, which is why a new report on the power of economic freedom is so important.
Common sense tells us that low taxes, limited government, and flexible labor markets will help to spur economic growth. The Fraser Institute’s 2008 Economic Freedom of North America (EFNA) report offers a striking, yet unsurprising, picture of the benefits that flow from such policies.
In 2005, the most recent year for which data are available, Colorado, Georgia, Delaware, North Carolina, New Hampshire, Tennessee, and Texas-states with consistently strong records of promoting economic freedom-had an average per capita GDP that was more than $4,300 above the U.S. average. Their total growth from 1981 to 2005 was nearly 20 percentage points higher than the U.S. average.
In the latest EFNA index, Delaware is the top-ranked state or province in all of North America while Texas is tied for second with the Canadian province of Alberta. And for good reason: Delaware has the smallest size of government at the subnational level and ranks first among U.S. states on key taxation measures; Texas ranks first in labor-market freedom at the all-government level and has a state top marginal income tax rate of zero. Delaware and Texas also rank high in the categories of government transfers and subsidies as a percentage of GDP at the all-government level.
By comparison, West Virginia, Hawaii, Maine, Montana, New Mexico, North Dakota, and Rhode Island-states with low levels of economic freedom-had an average per capita GDP that was more than $4,300 below the U.S. average. Their total growth from 1981 to 2005 was 10 percentage points below the U.S. average.
Again, this is predictable: all of these states rank in the bottom half of the nation on taxation at the all-government level, labor-market freedom at the state/local level, and size of government at the all-government level.
The benefits of policies that promote economic freedom extend far beyond good scores and bragging rights. For instance, a one-point increase in economic freedom results in an increase of $32.13 in venture capital investment per capita; an increase in the number of patents by 8.2 per 100,000 population; and an increase of 4.2 percent in the growth of sole proprietorships.
The encouraging news is that most states have maintained a high degree of economic freedom and embraced polices that nurture economic freedom. In fact, the 2008 EFNA report found that 20 states have improved their level of economic freedom since the last report, with Louisiana experiencing the greatest increase…
This is a case where putting in a blogging acronym, RTWT [that is, read the whole thing] is not a cliche. This article is important and well worth reading. The principles outlined in the article work at the national level, the state level and the local level.
If you improve and enhance economic freedom, more prosperity ensues. If you restrict economic freedom by increasing taxes or laying on more bureaucratic red tape, you inevitably reduce prosperity. Our economy is resilient, yet it should also be clear that people gain prosperity faster in areas with more economic freedom.
I hope to return to this in more depth soon, but for now, RTWT.
- Business , Economy , Geopolitics , Investing , Money , Personal Finance , income taxes
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