Freedom in the 50 States

The regulatory policy dimension includes categories for (a) land-use and energy freedom, (b) health insurance freedom, (c) labor-market freedom, (d) lawsuit freedom, (e) occupational freedom, (f) miscellaneous regulations that do not fit under another category (such as certificate-of-need requirements), and (g) cable and telecommunications freedom. Figure 1 shows the weights for health insurance policies now controlled by the federal government (8.1 percent) and for only those health insurance policies that states can still control after the Patient Protection and Affordable Care Act (PPACA) (0.8 percent), altogether summing to 8.9 percent of the index.

The calculated freedom scores do not usually allow weights to vary by year, even when variation across states disappears. In other words, a variable continues to contribute to the weights even in years when it no longer contributes to differences across states because every state has the same policy. Including this type of variable allows for intertemporal comparisons. That happened when the PPACA passed, and states could no longer choose whether to have community rating, guaranteed issue, and the individual mandate. As a result of our methodological choice, the data show the PPACA as a large negative shock to all states’ regulatory policy. However, we also develop an alternative, chain-linked index in the downloadable data that includes only policies that have never been federalized. We do not put this ranking in the text because it is really for comparisons over time rather than across states, and the 2022 values on this chain-linked index correlate perfectly with the 2022 values on the regular index.

This regulatory policy dimension does not include regulations with a mainly paternalistic justification; those regulations are placed under the personal freedom dimension. They include laws such as private and homeschool regulations and smoking bans.

To take into account the wider, unmeasured costs of insecure rights, this index increases the weights on variables representing policies encoded in state constitutions or the federal Constitution. It does so because the fact that a policy has been encoded within a constitution is prima facie evidence that the policy is widely considered to affect a “fundamental” freedom—a freedom with consequences for the security of the citizenry that extend beyond citizens under its immediate purview.

Within the regulatory policy dimension, the weights of certain variables are boosted as follows:

1. The victim cost/freedom value is multiplied by 2 if a closely related policy is encoded in the U.S. Constitution, or has been recognized by at least some courts as relating to a fundamental right. Examples of such policies include eminent domain reform, rent control, regulatory taking restrictions, and mandatory permission of political speech on private property, which we view as compelled speech implicating the First Amendment.
2. The victim cost/freedom value is multiplied by 1.5 if the policy is encoded in state constitutions but not the federal Constitution and has not otherwise been recognized judicially as a fundamental right. Right-to-work laws are the only such policies in the regulatory dimension.

We believe this sort of boost is necessary to capture the particular importance that Americans have attached to certain fundamental freedoms, even if it necessarily involves an element of judgment. Freedoms are more fundamental the more widely people consider them to be part of their flourishing and autonomy, and policies potentially infringing on them are therefore subject to stricter judicial scrutiny than policies that would restrict freedoms that, while potentially valuable, are not as fundamental.¹ By relying on existing judicial interpretations of fundamental rights, the freedom index avoids at least one possible source of subjectivity as it “upgrades” these policies.

Overall Regulatory Policy Ranking

As with fiscal policy, states that rank highest on regulatory policy are mostly conservative, but they tilt toward midwestern more than southern. In general, these are “good-government” states that score well on variables such as the liability system variable. Regulatory policy remains a key element in economic growth. But both fiscal and regulatory policy are highly correlated; thus, it is hard to disentangle which policy variable is doing most of the work to explain economic growth in the states.

We validate our regulatory policy measure by examining its correlation to small businesses’ ratings of their states’ regulatory environments. Thumbtack.com conducts an occasional survey of independent businesses in each state, funded by the Kauffman Foundation.² We average each state’s rank out of 45 for 2012, 2013, and 2014 (Alaska, the Dakotas, West Virginia, and Wyoming lack data). Smaller numbers are better, indicating a higher rank. The correlation between the 2014 regulatory index score and Thumbtack.com’s regulatory survey rank is −0.70, a strong negative correlation that suggests that our index captures most of what small businesses think about when it comes to regulations that affect their business.

Figure 2 shows how average regulatory policy has changed over time, when federalized policies such as the PPACA are excluded. Unlike with fiscal policy, states have not sustained their gains on regulatory policy since the Great Recession. Land-use freedom and labor-market freedom have declined since 2019, whereas lawsuit freedom and cable and telecom freedom have improved. Occupational freedom declined up until 2019, but improved noticeably during the COVID-19 pandemic. Minimum-wage increases were particularly problematic for labor-market freedom. Were we to include federalized policies, the drop would be even larger in 2012 when the PPACA took effect, more than wiping out even the temporary gains at the state level.