Study of States Shows Freedom Works Best

People follow jobs, and jobs follow freedom. That's one of the main results from the third and much improved edition of the Mercatus Center's "Freedom in the Fifty States: Index of Personal and Economic Freedom."

These policies include things such as bans on trans fats and the audio recording of police, an individual health insurance mandate, mandated family leave and more. According to their methodology -- which is available for everyone to see -- in 2011, the freest states were North Dakota and South Dakota, while New York, New Jersey and California ranked the least free.

The most interesting finding, however, is that when controlling for climate and other variables, all three dimensions of freedom are positively correlated to migration, but the results are exceptionally strong for economic (fiscal and regulatory) freedom.

In other words, people tend to move to economically freer states. One explanation is that economic freedom tends to be a fairly good indicator of prosperity. As my colleague Matt Mitchell noted:

"The economists Chris Doucouliagos and Mehmet Ali Ulubasoglu recently reviewed 45 studies examining the freedom-growth relationship. They concluded: '[R]egardless of the sample of countries, the measure of economic freedom and the level of aggregation, there is a solid finding of a direct positive association between economic freedom and economic growth.' " More economic growth usually means more jobs, and jobs are what attract people.

This, then, raises the question of why so many people still live in the least-free states like New York and California. The fact is that when it comes to where people choose to live, intrinsic characteristics of a state weigh heavily in the decision.

Among the factors that keep people in less-than-free places are jobs, family, friends and city amenities. In other words, there is a certain stickiness to states that have nothing to do with how free these places are.

There are times, however, where that stickiness goes away or isn't as important -- for example, when you are younger, or looking for a job and haven't settled anywhere yet, or about to retire.

In this case, economic freedom tends to matter a lot. This explains why Florida, which isn't not a libertarian paradise but has no income tax, is the top destination for New York state emigrants. Interesting though, today, many New York state workers move to Florida. Not just retirees.

Indeed, there is a point at which taxes and regulations will kill jobs, and people will pack up and move where economic opportunities are, i.e., freer states. Sorens and Ruger find that "on net, between 2000 and 2010, New York saw 1.7 million of its residents move to other states. ... [I]t shed 8.9 percent of its 2000 population."

Thanks to new arrivals from overseas and other states, New York's overall population didn't drop, but its growth rate during the 2000s was 47 out of 50 states. For the first time, a majority of California residents were born there, indicating the Golden State is no longer a magnet to people dreaming of a better life.

California isn't even the top destination for foreign immigrants anymore, which tells you a lot about its economic health.

This should be a lesson for the United States. According to the Fraser-Cato index for Economic Freedom of the World, the country has been long considered the standard bearer for economic freedom for the past two decades.

But in the last 10 years, things have changed, and in their last report, the United States had dropped to the 18th position. This loss in economic freedom has and will continue to have serious consequences for our economic prosperity.