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Monday, October 24, 2016

Right and Wrong About Economic Freedom in Wyoming

In a newly released video, the Wyoming Republican Party encourages people to "vote Wyoming". The video presents life in Wyoming as being free and unrestrained by government. It also says that liberty is inseparable from economic freedom and that every man has the right to the proceeds of his own work.

It is very easy to get the impression that under Republican stewardship, Wyoming has become a powerhouse of economic freedom. But if that were the case, should not our economy be doing better than it actually is? Should not the free-market forces by now have diversified our economy? Should we not have liberated the mining industry of the burden of being the sole motivator of the Wyoming economy?

There are two very good reasons to ask these questions. First, let us look at state GDP growth numbers from 2010-2013, the period when the national economy began its slow recovery from the Great Recession:

Real GDP growth, 50 states, 2010-2013
1 North Dakota 9.85% 26 Arizona 1.45%
2 Texas 4.47% 27 Kansas 1.40%
3 Michigan 2.80% 28 South Carolina 1.32%
4 Nebraska 2.63% 29 Pennsylvania 1.27%
5 Oklahoma 2.44% 30 New Hampshire 1.25%
6 Iowa 2.39% 31 Maryland 1.04%
7 Minnesota 2.29% 32 Georgia 1.03%
8 Montana 2.25% 33 North Carolina 0.94%
9 South Dakota 2.22% 34 Virginia 0.92%
10 Oregon 2.16% 35 Florida 0.88%
11 Tennessee 2.07% 36 Illinois 0.85%
12 Indiana 2.07% 37 Idaho 0.84%
13 Kentucky 2.03% 38 New Jersey 0.72%
14 Utah 2.02% 39 Rhode Island 0.69%
15 Ohio 1.92% 40 Mississippi 0.67%
16 Arkansas 1.88% 41 West Virginia 0.60%
17 Massachusetts 1.84% 42 Missouri 0.37%
18 California 1.79% 43 New Mexico 0.16%
19 New York 1.76% 44 Nevada 0.14%
20 Wisconsin 1.67% 45 Louisiana 0.12%
21 Washington 1.67% 46 Connecticut 0.02%
22 Colorado 1.57% 47 Alaska -0.04%
23 Hawaii 1.57% 48 Maine -0.27%
24 Vermont 1.57% 49 Delaware -0.36%
25 Alabama 1.51% 50 Wyoming -1.28%
Source: Bureau of Economic Analysis

There is no direct correlation between economic freedom and GDP growth, but economic research in both academic and public policy literature has convincingly established that:

a) jurisdictions with a high degree of economic freedom experience more growth in GDP, private-sector jobs and overall prosperity than jurisdictions with a low degree of economic freedom; and
b) some elements of economic freedom are more important than others.

This last point leads over to our second reason to ask why Wyoming is not doing better as a state, given the Republican party's suggestion that we enjoy a high degree of economic freedom here. It is a common mistake to associate economic freedom entirely with either of two variables: taxes or regulations. Since Wyoming has no income tax, it is implicitly assumed that we have a high degree of economic freedom. 

The notion that Wyoming is a low-tax state is false, but the relatively high tax burden is not the only reason why Wyoming scores poorly in terms of economic freedom. According to the Fraser Institute's Free the World study, in 2015 Wyoming ranked mid-pack among U.S. states: tied for 21st place, the Cowboy State ranked far below the top three, New Hampshire, South Dakota and Texas. Our state also fell behind states like Missouri, Maryland, Colorado and Massachusetts. 

The Free the World report gives Wyoming low or very low rankings in four categories of economic freedom: 
  • Our government spending is way too high as share of GDP (a point this blog made last week);
  • Insurance and retirement payments are a high percentage of GDP, indicating that work-based income is comparatively depressed;
  • Sales tax revenue is high as share of personal income; and last but not least
  • Our government employment ratio is the highest in the nation.  

There is no easy fix to any of these points, not even the sales-tax problem. The reason is that our state faces structural over-spending problems that can only be addressed by structural, permanent spending reductions. One example is a K-12 school voucher system that allows private schools and charter schools to compete with traditional public schools. This reform not only leads to cost cuts in the current education system, but also encourages entrepreneurship among young people. It is, in other words, a job creator even beyond the school campuses. 

Another example of a structural spending reform is to let private providers and cross-state insurance purchases under a voucher system in Medicaid. A third example is a complete, statewide overhaul of non-federal regulations.

These are a couple of examples. There are many more to consider. All it takes is a legislature with courage and the determination to think out of the box. We can do that here in Wyoming. 

Right?

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