The Rio Grande Foundation

New Mexico's state and local public policies and their consequences for the state's economic health are assessed. That assessment is undertaken from a free market perspective: incentives matter, and overwhelming evidence indicates that economic freedom begets prosperity. The assessment provides answers to the question: How does New Mexico stack up relative to other states in the region and nation with respect to economic freedom and prosperity? An assessment of state and local governments' output of goods services, using primary and secondary education as an example, is provided. After all, the reason people agree to give up some economic freedom is to obtain government provided goods and services such as infrastructure, property rights enforcement and education.

Comparisons in the region are made between New Mexico and its bordering states: Arizona, Utah, Colorado, Oklahoma and Texas. Comparative measures are used for the lower 48 states to assess how New Mexico fares relative to the nation. This assessment uses longer term and improved measures of income than have appeared in prior assessments by others.

The answers for prosperity are not good. While New Mexico ranks fair to good with respect to domestic migration indicator of prosperity, it is at the bottom of states in the region and at or near the bottom of the lower 48 for measures of income and growth of income.

Not surprisingly also, the answers for economic freedom are not good. With respect to taxes, New Mexico has legislated greater harm than most states and the greatest harm of any state in the region. And that conclusion is invariant as to whether the harm is assessed by averages (taxes collected as a percent of income) or margins (tax rates on personal income and sales/gross receipts).

With respect to restraints on economic freedom imposed by regulation and litigation, New Mexico also fairs poorly. That assessment is drawn from the recent Clemson University study Economic Freedom in America's 50 States: a 1999 Analysis. In that study New Mexico is ranked 36th out of the lower 48 for freedom from regulation and 37th out of the lower 48 for freedom from litigation. In the region New Mexico is next to last for freedom from regulation and last for freedom from litigation.

How about government output? Does New Mexico deliver differentially more and better goods and services that other states in return for the differentially greater economic freedom given up? The answer is an emphatic no. Using primary and secondary education for comparison, New Mexico is last in the region and near the bottom of the lower 48.

The study concludes with an interstate cross-section econometric assessment of how economic freedom affects prosperity. It uses state and local government gross state product (gsp) divided by the quantity private gsp plus state and local government gsp as a measure of restraints on economic freedom for each state. And it looks at the growth rate of these restraints over 20 years. The results overwhelmingly validate the anecdotal assessments contained above: The findings can be summarized by what might have been for New Mexico: If New Mexico now had state and local governments that were only slightly more coercive than the lower 48 average, then the median income for 4-person families is estimated to be $8,303 higher and per capita income is estimated to be $5,476 higher than they are today.

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