Between the Lines

Between the Lines by David Lias As we take stock of everything that�s happened in the last year, and look forward to the future in 2003, it would do us well to take an accounting of conditions here in South Dakota.

The news hasn�t been particularly good lately. Headlines tell us of budget shortfalls, drought, an exodus of young people, low farm prices, low teacher pay, and school districts challenged by declining enrollments and a property tax freeze.

But guess what? South Dakota ranks high, compared to other states, in economic freedom.

I know � what a shock. South Dakota actually isn�t LAST in everything.

In a new study released by The National Center for Economic Policy and the Fraser Institute, which ranks all 50 states based on overall economic freedom, South Dakota ranks fourth overall.

Delaware ranks as the most free and West Virginia is least free. Of the surrounding states, South Dakota ranks number one with Wyoming, 25; Minnesota, 31; Iowa, 33; North Dakota 46; and Montana 48.

The state rankings are based on factors such as size of the tax burden, size of government, and the state�s labor market.

South Dakota ranks fifth in tax burden with Delaware being first and Maine last.

South Dakota is sixth in the size of government with New Hampshire first and Alaska last.

South Dakota is seventh as to the percent of government employment relative to total employment. Nevada is first with the lowest percentage and New Mexico has the highest percent of government employment.

Economic freedom and prosperity go hand in hand and states such as South Dakota, with limited government and low taxes, grow faster than those states where the opposite is true, according to the study.

The per capita output of goods and services in the top 10 states averaged $2,560 more than the average state. At the same time, the per capita output of goods and services in the bottom 10 states averages $3,130 less income per person than the average state.

The per capita output of goods and services for South Dakota was $2,662, which was the fourth highest for the states.

The National Center for Economic Policy also studied economic freedom across the border in Canada.

This year�s general election campaign likely may have convinced many South Dakotans that we need to be more like Canada, especially since prescription drugs are so much cheaper there.

The study�s results show that, while economic freedom has a powerful impact in Canada, its impact on U.S. states is far greater. This is likely because of Canada�s fiscal federalism. This system transfers money from rich to poor provinces. Since economic freedom spurs prosperity and growth, fiscal federalism in effect transfers money from relatively free provinces to those that are relatively unfree.

This mutes the impact of economic freedom and perversely creates incentives for provincial politicians to limit economic freedom and, thus, economic growth since this increases the flow of federal transfers, which are directly controlled by these politicians.

Generally, U.S. states have been able to realize the gains economic freedom generates while Canadian provinces have lost opportunity due to weak levels of economic freedom and the structure of Canadian federalism.

There are many challenges awaiting South Dakota in 2003. As we ring in the new year next week, we shouldn�t forget that the future offers many opportunities here � thanks to economic freedom.

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