Freer states still grow faster

When Fox News hosted a debate last month between California Gov. Gavin Newsom and Florida Gov. Ron DeSantis, much of the media coverage focused on its implications for 2024. Would Newsom make some nervous Democrats pine for a Joe Biden retirement? Would DeSantis breathe new life into his sputtering presidential campaign?

Interesting questions. But speaking as someone who’s spent most of his career in state-level policy and journalism, I found the substance of the event more compelling than its atmospherics. In a sense, the two governors — both polished speakers and experienced executives — were debating a question with which North Carolinians are very familiar: does bigger, more activist government make the residents of a state better off or worse off?

Over the years, I’ve explored this issue extensively in newspaper columns and magazine pieces. I even wrote a book about it more than a decade ago. My thesis was that while states and localities certainly fund valuable services such as education, infrastructure, and public safety, the relationship between public expenditures and outcomes is rather weak.

That is to say, if North Carolina didn’t fund schools, colleges, and universities at all, or maintain a network of roads and bridges, or administer a system of law enforcement agencies and courts, North Carolinians would be poorer, less safe, and less satisfied with our lives.

But the relevant question isn’t whether to create these assets. They already exist! What current policymakers must decide is how best to fund and manage them, and whether a large increase in spending from current levels would produce enough measurable benefit to North Carolinians to justify the costs they’d bear in higher taxes.

Generally speaking, the answer to that last question is no. While I believe there are initiatives in education, infrastructure, public safety, and other areas that deserve more funding, state spending as a whole isn’t too low. Since 2010, North Carolina lawmakers have rightly made tax reduction a priority, as have fiscally conservative lawmakers in other states.

Economists and other scholars have published many hundreds of academic studies on this subject. While their models and conclusions vary, I think a fair description of a preponderance of the evidence is that states with smaller governments — measured by such variables as spending levels, tax rates, and regulatory burdens — tend to grow faster than other states while providing an equivalent or even superior quality of public services.

For a 2022 column, I pulled economic, public finance, education, and infrastructure data for the 10 most-populous states in the country. I found that the top four states in economic freedom — Florida, Texas, Georgia, and North Carolina — outperformed the rest on most measures.

In other words, they didn’t just have lower taxes and faster-growing economies. Their roads and other infrastructure were better maintained. And their students scored higher on standardized tests after adjusting for socioeconomic status (which is a way to try to isolate the educational value added by their schools).

Last week, I updated my analysis to include the latest economic-freedom ranking by the Frasier Institute as well as recent data on population flows, gross domestic product growth, and violent crime. The populous states rated freest were, again, Florida and Texas, with North Carolina and Georgia tying for third. Ohio, Illinois, California, and New York were the lowest ranked.

Since 2020, only four of the 10 states have added population: Florida (+3%), Texas (+2.7%), North Carolina (+2.4%), and Georgia (+1.7%). New York (-2.1%), Illinois (-1.6%), and California (-1.2%) experienced the largest declines. In GDP growth, only Florida and Texas have exceeded the national average of 2.8% since 2020, while only North Carolina matched it. The rest underperformed. By contrast, there isn’t much of a correlation between government size and violent crime.

There will always be plenty of issues about which North Carolinians can and will disagree. But if you believe our state’s turn toward fiscal conservatism has been a catastrophe, your argument isn’t with me. It’s with the facts on the ground.

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history.