Economic Freedom Matters

Economic Freedom Matters

May 11, 2010 Posted by J. Scott Moody - No Comments

This new study by Thomas A. Garrett and Russell M. Rhine from the St. Louis Federal Reserve Bank, finds that economic freedom boosts economic growth.  From the abstract:

We extend earlier models of economic growth and development by exploring the effect of economic freedom on U.S. state employment growth. We find that states with greater economic freedom – defined as the protection of private property and private markets operating with minimal government interference – experienced greater rates of employment growth. 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. Except for labor market policies, we find that state employment growth is influenced by state and local government policies, but not the policies of all levels of government, including the national government. Our results suggest that policy-makers concerned with employment should seriously consider the degree to which their own labor market policies, as well as those of the national government, may be limiting economic growth and development in their respective states.

Their measure of economic freedom is derived from this study published by the Fraser Institute.  In particular, the labor market policies the authors mention in the abstract include minimum wage legislation, government employment as a percentage of total employment and union density.

Additionally, the authors calculate the added employment growth for the 10 states with the lowest economic freedom score if those states were at the national average–not surprisingly, Maine is among them.  They perform 3 simulations based on 3 different time-periods.  For the time-period 1980 to 1990, Maine would have added an additional 21,294 jobs having an average economic freedom score.  For the time-period 1990 to 2000, Maine would have added an additional 22,901 jobs.  And for the time-period 2000 to 2005, Maine would have added another 9,857 jobs.   Clearly economic freedom matters . . . a lot.