Louisiana Continues to Lag in Economic Freedom

A report by the Pacific Research Institute shows Louisiana continues to lag behind a majority of the country on economic freedom. The report defines economic freedom as the right of individuals to pursue their interests through voluntary exchange of private property under rule of law. From 1999 to 2008, Louisiana decreased one spot from 31st to 32nd. During this time, the state has fallen as low as 40th.

The report relies on a variety of indicators within five main categories. They are: Fiscal, Regulatory, Judicial, Government Size, and Welfare Spending. Louisiana ranks in the bottom 50% for the Fiscal and Judicial categories, and it comes in dead last in the Regulatory column. On a positive note, Louisiana is ranked 16th in terms of Government Size, and has increased from 45th to 22nd on Welfare Spending from 2004-2008.

The report has traditionally been a good indicator of which states will see the most economic growth. For example, in 2005, employment growth was 216% higher in the top fifteen free states compared to the bottom fifteen. Additionally, taxpayers in the top fifteen free states paid 14% less in effective tax rates, but saw their general funds grow at a 6% higher rate than the fifteen least free states.

Furthermore, the report found that states which are the most free have much higher net migration rates while the least free states have the lowest. The implication for this is representation in Congress. If the pattern continues, the states with the most freedom will add Congressional seats, while the states with less freedom lose seats. It is widely speculated that Louisiana will lose a Congressional seat after the 2010 Census. Certainly Hurricane Katrina is partially to blame, however higher levels of economic freedom within the state could have potentially offset this population loss.

It should be noted that high economic freedom does not automatically translate into a good business climate. But this report demonstrates the benefits of higher economic freedoms. Louisiana should take note and continue to strive toward increased economic freedom.

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