"Power tends to corrupt, and absolute power corrupts absolutely." Lord Acton

Fleeing the World’s Eighth Largest Economy

Lawrence J. McQuillan offers a less than surprising economic assessment for the Golden State in the City Journal, causing people to flee for better opportunities elsewhere. McQuillan states:

California continues to be burdened with high taxes, punitive regulations, huge wealth-transfer programs, out-of-control spending, and lawsuit abuse. And there’s no end in sight to the state’s fiscal madness.

Some entrepreneurial minded residents are finding states like Nevada more hospitable for economic opportunity. Nevada ranks second when it comes to inbound migration. The Pacific Research Institute’s 2008 U.S. Economic Freedom Index ranked Nevada sixth in the country in “economic freedom.” South Dakota secured the top spot for 2008.

The rankings and report PRI has compiled is worth studying. It’s not a bland read either, for example thoughts and quotes concerning the relationship between political and property rights by leaders like James Madison are included.

Undoubtedly the report would be very beneficial for state legislators to use as a tool for serving their constituents. McQuillan also notes in his piece:

Economic freedom—or the lack thereof—affects states in multiple ways. Migration alters the political map through congressional apportionment. Current projections suggest that California’s mass exodus will deprive it of a seat in the U.S. House of Representatives after the 2010 census. Economic freedom also impacts pocketbooks. In 2005, per-capita income in the 15 most economically free states grew 31 percent faster than in the 15 states with the lowest levels of economic freedom. Policies friendly to economic freedom help states shore up their finances, too. The 15 freest states saw their general-fund tax revenues grow at a rate more than 6 percent higher than the 15 states with the least economic freedom.

City Journal: The Science of Economics

The Summer issue of City Journal features a piece worth reading by Guy Sorman titled “Economics Does Not Lie.” The paper includes weighty arguments favoring a free market economic system and the author does a good job explaining the rationale of those who criticize a free economy. Sorman says:

If economics is finally a science, what, exactly, does it teach? With the help of Columbia University economist Pierre-André Chiappori, I have synthesized its findings into ten propositions. Almost all top economists—those who are recognized as such by their peers and who publish in the leading scientific journals—would endorse them (the exceptions are those like Joseph Stiglitz and Jeffrey Sachs, whose public pronouncements are more political than scientific). The more the public understands and embraces these propositions, the more prosperous the world will become.

These are the ten propositions put forward by Sorman:

1. The market economy is the most efficient of all economic systems.

2. Free trade helps economic development.

3. Good institutions help development. (governments & rule of law)

4. The best measure of a good economy is its growth.

5. Creative destruction is the engine of economic growth.

6. Monetary stability, too, is necessary for growth; inflation is always harmful.

7. Unemployment among unskilled workers is largely determined by how much labor costs.

8. While the welfare state is necessary in some form, it isn’t always effective.

9. The creation of complex financial markets has brought about economic progress.

10. Competition is usually desirable.

Sorman adds:

These ten propositions should guide all economic policymaking, and to an increasing degree they do, worldwide. Does this mean that we’ve reached an “end of history” in economics, to borrow a phrase made famous by Francis Fukuyama, by way of Hegel and Alexandre Kojève? In one sense, perhaps: economic science will never rediscover the virtues of hyperinflation or industrial nationalization. Some critics charge that economics is not a science in the way that, say, physics is—after all, economists can’t make precise predictions, as an exact science can. But this isn’t quite true: economists can predict that certain bad policies will lead necessarily to catastrophe. If economics, a human science, lacks the precision of physics, a natural one, it advances the same way—evolving from one theory to the next, each approximating a reality that eludes our complete grasp.

On a somewhat related note about economic policy, here is a review I wrote about the book Good Capitalism, Bad Capitalism and the Economics of Growth and Prosperity. The review appeared in the Fall 2007 issue of Religion and Liberty.