Among the frustrations voiced by Occupy protesters in cities across the United States is a lack of economic opportunity for the overwhelming majority of Americans, the “99 percent.” With unemployment sitting at or above 9 percent for more than two years, many Americans are certainly struggling to find satisfying jobs. But new research reveals that blame should be directed at our rapidly expanding federal and state governments and the resulting decline in economic freedom.
Economic freedom is the ability of individuals to benefit voluntarily from mutually beneficial transactions without significant intervention by government.
Capitalism made possible by economic freedom has not reduced economic opportunities for the less fortunate. On the contrary, country level data measuring economic freedom consistently finds that economic freedom is positively correlated with economic prosperity in the United States and throughout the world.
And, economic prosperity translates into more abundant and expansive job opportunities for all. Those wishing to improve opportunities and living standards for the least well off should be protesting for greater economic freedom.
The new Economic Freedom of North America 2011 index commissioned by the Fraser Institute and released this month measures economic freedom for all 50 U.S. states over the last 30 years and demonstrates that even relatively small differences in economic freedom can lead to significant differences in income and economic growth.
Results of this year’s report are alarming and help explain why so many people have been unable to find stable employment despite the billions of dollars that have been pumped into stimulus plans intended to create jobs.
In fact, since the last EFNA index, the average state score has dropped .4 points from an average of 7.0 to 6.6. More alarming, this finding is partially based on 2008 data and fails to fully take into account the 2009 American Recovery and Reinvestment Act.
The EFNA index measures economic freedom in three broad areas that are most relevant at a state level: the size of government, tax freedom and labor market freedom.
High government spending and taxation inhibit the ability of individuals to benefit from the fruits of their labor in a manner that adds value to their lives and those around them.
People living in states with greater economic freedom enjoy significant benefits, including higher income levels. In 2009, the 10 most free U.S. states had an average income per capita of $49,818, whereas the 10 least free states had an average income per capita of $41,459.
Leading the most-free states in this year’s report are Delaware and Texas, while West Virginia and New Mexico are the least free.
Protesters might argue that these benefits have been accumulated by relatively few — the 1 percent — while leaving the majority of Americans behind.
Let’s look into this conjecture using data from the Economic Policy Institute, which compares the share of income of the highest earners to that of middle and lower income earners in the mid-2000s.
These data do not demonstrate that more economic freedom has been the source of inequities in the distribution of income. In fact, if we compare the 10 most economically free states between 1981 and 2005 with the 10 least free states, the opposite is the case.
The ratio of average family income of the richest fifth compared with the poorest fifth is 6.9 in the most free states compared with 7.1 in the least free states. The gap between the richest and poorest is actually larger for the least free states.
Based on these numbers, it is difficult to argue that the free market has led to worse outcomes for the majority of Americans. More government spending and higher taxation will not alleviate the plight of struggling workers.
Protesters seeking to improve opportunities for all Americans should be protesting on Capitol Hill, demanding Congress to give Americans back the freedom to pursue their own economic well-being through cooperative economic activities that lead to prosperity for all.
Nathan J. Ashby is co-author of Economic Freedom of North America 2011 index and the professor in western hemispheric trade research at the University of Texas at El Paso.
