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08 November 2008

Economic Freedom and the Presidential Election

The Pacific Research Institute in association with Forbes produced the U.S. Economic Freedom Index, 2008 Report by Lawrence J. McQuillan, Michael T. Maloney, Eric Daniels, and Brent M. Eastwood and I have been intending to discuss it for some time. Then I thought that it might be interesting to correlate it with the results of the presidential election, which can now be done.

The report says, "Economic freedom is the right of individuals to pursue their interests through voluntary exchange of private property under a rule of law. This freedom forms the foundation of market economies. Subject to a minimal level of government to provide safety and a stable legal foundation, legislative or judicial acts that inhibit this right reduce economic freedom."

They set up 35 indices including such factors as tax rates, state spending, occupational licensing, environmental regulations, income redistribution, right-to-work and prevailing-wage laws, tort reform, and many others. They then assumed that people want to be free, so they search out locations, governments, and situations where freedom reigns. So they made migration their metric for deciding which index among the 35 they had set up as possible good indicators of economic freedom they would use to rank the states for economic freedom.

The formula for the Index is: Index = (0.2313 x Fiscal Score) + (0.2159 x Regulatory Score) + (0.1894 x Judicial Score) + (0.1208 x Government Score) + (0.2426 x Welfare-Spending Score)

The net migration score for the 20 freest states was 27.36 people per thousand. For the 20 most economically oppressed states the net migration score was 1.17 per thousand. For every one place improvement in state rank, a state's net migration per 1,000 people typically increased about one person.

The results of this economic freedom study are given below with the presidential popular vote result for each state, as State, Economic Freedom Score, 2008 Rank, 2004 Rank, 1999 Rank, McCain Vote %, Obama Vote %.

South Dakota, 14.54, 1, 15, 5, 53%, 45%
Idaho, 14.81, 2, 4, 1, 61%, 36%
Colorado, 14.91, 2, 14, 45%, 53%
Utah, 15.16, 4, 5, 3, 63%, 34%
Wyoming, 15.39, 5, 9, 4, 65%, 33%
Nevada, 15.70, 6, 12, 20, 43%, 55%
Oklahoma, 16.74, 7, 6, 18, 66%, 34%
New Hampshire, 17.07, 8, 7, 6, 45%, 55%
Virginia, 17.07, 9, 3, 2, 47%, 52%
Kansas, 18.06, 10, 1, 10, 57%, 41%
Georgia, 18.22, 11, 19, 12, 53%, 46%
North Dakota, 18.56, 12, 18, 21, 53%, 45%
Montana, 18.56, 13, 21, 26, 50%, 47%
Arkansas, 18.82, 14, 23, 15, 59%, 39%
Missouri, 18.90, 15, 10, 13, 50%, 49%
Alabama, 19.03, 16, 25, 11, 61%, 39%
South Carolina, 19.08, 17, 13, 16, 54%, 45%
Wisconsin, 19.15, 18, 38, 37, 43%, 56%
Mississippi, 19.28, 19, 28, 9, 57%, 43%
Delaware, 19.61, 20, 8, 7, 37%, 62%
Arizona, 19.78, 21, 11, 25, 54%, 45%
Iowa, 19.88, 22, 16, 24, 45%, 54%
Indiana, 19.92, 23, 14, 22, 49%, 50%
Hawaii, 19.92, 24, 35, 39, 27%, 72%
Nebraska, 19.93, 25, 20, 23, 57%, 41%
Minnesota, 20.92, 26, 44, 43, 44%, 54%
Illinois, 21.16, 27, 46, 36, 37%, 62%
Florida, 21.16, 28, 22, 30, 49%, 51%
Tennessee, 21.18, 29, 26, 19, 57%, 42%
Oregon, 21.24, 30, 29, 41, 42%, 56%
Texas, 21.32, 31, 17, 8, 55%, 44%
Lousiana, 21.36, 32, 40, 31, 59%, 40%
Massachussetts, 21.72, 33, 41, 47, 36%, 62%
Maryland, 21.73, 34, 27, 35, 38%, 61%
Maine, 21.81, 35, 30, 42, 41%, 58%
North Carolina, 21.87, 36, 24, 17, 49%, 50%
Washington, 21.92, 37, 31, 40, 41%, 58%
West Virginia, 22.55, 38, 32, 32, 56%, 43%
Connecticut, 22.66, 39, 48, 46, 39%, 60%
Kentucky, 22.71, 40, 39, 29, 58%, 41%
New Mexico, 22.82, 41, 37, 28, 42%, 57%
Vermont, 22.87, 42, 36, 34, 32%, 67%
Michigan, 23.08, 43, 34, 27, 41%, 57%
Ohio, 23.34, 44, 43, 33, 47%, 51%
Alaska, 23.38, 45, 33, 38, 62%, 36%
Pennsylvania, 23.88, 46, 45, 45, 44%, 55%
California, 23.89, 47, 49, 44, 37%, 61%
New Jersey, 23.94, 48, 42, 48, 42%, 57%
Rhode Island, 24.18, 49, 47, 49, 35%, 63%
New York, 27.39, 50, 50, 50, 37%, 62%

Of the top 25 freest states by economic freedom ranking, McCain won 16 of the states. In the most oppressed 25 states, he won only 6 states. The voters who consistently pursue restrictions upon our individual economic freedoms, were fairly consistent in choosing the socialist Obama. Of the six states that gave McCain 61% or more of the vote, five were ranked in the top 16 by economic freedom index and four were ranked in the top 7 by economic freedom. The other state was Alaska, whose people think of themselves as being self-reliant and independent, but who are massively on welfare. It will be interesting to see if those states voting for Obama tumble in future economic freedom rankings.

The states of Idaho, Utah, Wyoming, New Hampshire, and Virginia have consistently had top ten rankings in all of the three evaluations in 1999, 2004, and 2008. Until this election, all of these states had voted Republican in the last several presidential elections. Now that New Hampshire and Virginia have defected to the socialist candidate, I expect to see them fall out of the top 10. Indeed, they are barely hanging in there now, both having lost position steadily since 1999. There are other states whose economic freedom ranking has steadily fallen also: Ohio, Michigan, Vermont, New Mexico, Kentucky, North Carolina, Texas, Tennessee, and Delaware, where I have ordered them from most oppressive to least oppressive. Of the 11 falling states, 8 are already ranked 29 or worse.

There are a few steadily improving states as well. These are Nevada, North Dakota, Montana, and Hawaii. Then there is one state which has been remarkably consistent: New York. It has ranked dead last as the most oppressive state of all in each of the last three evaluations. Most of us will realize that this means it is ranked #50, but for Mr. Obama's sake, I will point out that the last rank is not 57. 57 is the number of Heinz varities, Mr. Obama.

South Dakota at number 1 has no corporate income tax, no personal income tax, no personal property tax, no business inventory tax, and no inheritance tax. Companies are moving into the state. In 2007, the Small Business Survival Foundation ranked South Dakota the best business climate for entrepreneurs. Forbes magazine says Sioux Falls is the best smaller metro area for business and careers. The Milken Institute says it has a low cost of doing business.

The freest states are in the Great Plains and the Rocky Mountain states, while the most oppressed are in the Northeast. South Dakota, North Dakota, Minnesota, Wisconsin, and Illinois have all made major improvements in economic freedom in the Upper Midwest. But, Indiana has fallen somewhat and Michigan and Ohio are both very bad and falling. The fact that Indiana and Ohio have fallen may say a lot about why they voted for Obama and these states may be hard for the Republicans to win in the future given their poor attitude toward economic freedom.

The states with the biggest drops were Texas, Alaska, Delaware, North Carolina, and Arizona. Again, these rapid drops may be a harbinger of future defections to the socialist Democrats of Texas and Arizona and the continued loss of North Carolina.

Among those states having values which have given rise to more economic freedom, the Republicans should find states it will be particularly beneficial to try to swing into the Republican column before the next election. Among these states are Colorado, Nevada, New Hampshire, Virginia, Wisconsin, Delaware, Iowa, Indiana, Minnesota, Illinois, and Florida. OK, maybe Illinois will have to wait until they do not have a socialist Native Son in the presidency. A determined and consistent effort in these states might well provide a big payoff in the next election or two. Meanwhile, the Republicans should make a strong effort to improve the economic liberty of Texas and Arizona, so they will not lose them in the future. They should do the same in North Carolina in an effort to recover it.

2 comments:

Anonymous said...

Dear Mr. Anderson:

Excellent analysis and use of the data in my "U.S. Economic Freedom Index." The Republican Party would be wise to listen to your sound, data-driven advice on how to craft a succesful strategy going forward and how to best allocate their resources.

Sincerely,
Lawrence J. McQuillan, Ph.D.
Director, Business and Economic Studies
Pacific Research Institute

Charles R. Anderson said...

Lawrence,

Thanks for your kind comment. I found your evaluation to be fascinating. Thanks for doing the very hard work and research that went into it.

It does appear that building the Republican Party in states which are choosing more economic freedom should be easier and worth the effort. Unfortunately, the higher population density states are generally Democrat and more socialist. So, the Republicans will also need to improve aspects of their record for fiscal responsibility and make a stronger stand on individual rights as the opposition to socialism. They will have to find a way to be resurgent in some of the more densely populated states. But even here, it makes sense to work harder on those that have higher, rather than lower, economic freedom rankings. Your data is very interesting here. Also, states increasing economic freedom should be targeted, since the actual economic freedom probably lags the will to make improvements in many cases.