West Virginia Lacks "Freedom," Should We Worry?
Earlier this month, the Mercatus Center at George Mason University released the 3rd edition of the Freedom in the 50 States rankings, which measures fiscal, regulatory, and personal "freedom." The study shares some similarities with the previously discussed Economic Freedom Index, both in how it defines freedom, and its relationship with real world economic measures.
Freedom in the 50 States uses a multitude of measures to determine levels of freedom. The biggest include tax burden and freedom from tort abuse, as well as right to work laws and crime statistics. According to the index, West Virginia ranks 42nd in overall freedom. In order to increase freedom, the study recommends that West Virginia cut state employment, cut corporate income taxes, reform liability laws, and stop mandating full-day kindergarten attendance.
Some of the items of note on West Virginia's page include our change in rank, as well as our change in population and personal income, the implication being that states that improve their ranking will see population and income growth. But, as the chart below shows, that is not the case. Going back to 2001, there is almost no correlation between a change in a state's freedom rank and change in its per capita personal income. In fact, in an odd bit of symmetry, the state with the biggest fall in rank, Wyoming (which saw its rank fall from 10 to 36), had similar per capita personal income growth (53% vs 44%) as Oklahoma, the state with the biggest jump in rank (31 to 5).
So if improving our "freedom" doesn't look like it will attract people and money to the state, could it be because the states that already are more free are doing better? Not really. First, much like the Economic Freedom Index, (and the tax competitiveness index, and the best states for business rankings) the Freedom in the 50 States rankings are a poor predictor of job growth. The chart below compares the 2007 rankings with private sector employment growth in the next five years. And as the chart shows, there is a negative, but very weak correlation between a state's ranking and subsequent growth, with no real tendency for states with more freedom to have better job growth. The correlation falls to -0.01 when one removes the outlier of North Dakota.
Our state's level of freedom also has little to do with some of the state's major problems. Take poverty, for instance. The chart below shows essentially no correlation between a state's freedom ranking and poverty rate in 2011. The results are the same for the other years available as well. If poverty remains one of the state's biggest challenges, pursuing freedom won't help.
The same is true for West Virginia's low levels of labor force participation. One would think that in a "free" state, people would be more free to work. But that's not the case, as labor force participation has a very weak correlation with a state's freedom ranking.
Like the other rankings, the Freedom in the 50 States rankings do have a moderate correlation with at least one economic measure. But, like the others, it's a bad one. A state's freedom rank has a moderate correlation with its median wage, but it's the states with more freedom that tend to have lower wages. But since the index hurts states for having right to work and minimum wage laws, it's no surprise that "freedom" in this case means the freedom for businesses to pay their employees less.
While rankings like the Freedom in the 50 States can attract a lot of attention, and make for an attractive soundbite, they don't tell us anything that matters. A state like West Virginia faces many challenges, from poverty, to education, to healthcare. Making it harder on ourselves to address these problems makes little sense, even if improves our rank on some arbitrary scale.