A Deep Dive into New Mexico’s Lack of Economic Freedom
By Matthew Mitchell and Paul Gessing

A thousand years ago, a group of people settled along Red Willow Creek at the base of the Taos Mountains and never left. They were among the first, but hardly the last, to be enchanted by New Mexico’s snow-capped mountains and sun-drenched vistas. The state’s moderate climate, rich culture, and mouth-watering cuisine are peerless. And now that New Mexico churns out 2 million barrels of oil every day—more than 15 percent of all US production—you’d think New Mexicans would be riding high.

Instead, the state’s citizens struggle to get by. Over the last decade, New Mexico ranked 47th in employment growth and 36th in real GDP growth. It has the third-highest poverty rate in the union and more children on federal food assistance than any other state. Over the past decade, New Mexico’s population edged up just 1% while neighboring states grew by an average of 12%. State employment also grew 1% while neighboring state employment growth averaged 19%.

In a new report, published by the Fraser Institute and the Rio Grande Foundation, we examine these trends, comparing the state with its more prosperous neighbors.

One key explanation for New Mexico’s dismal economic record is its lack of economic freedom. People are more economically free when they are allowed to make more of their own economic choices. But New Mexico’s high spending, steep taxes, and burdensome regulations have made the state one of the least-economically free in the union. It ranks 47 out of 50, well behind each of its closest neighbors.

The Fraser Institute in Canada began measuring economic freedom nearly three decades ago, first at the national level and then at the state and provincial level. This data has been used in over a thousand peer-reviewed studies assessing the effects of economic freedom on wellbeing. And the evidence is overwhelming that economically freer people tend to be more prosperous people.

Economically free places attract people, entrepreneurship, and growth. They tend to experience lower levels of poverty, less homelessness, and less food insecurity. People in economically free places are more tolerant of others, more philanthropic, and more satisfied with their lives. They are even less likely to recommit crime.   

Yet as this evidence has accumulated, New Mexico’s policymakers have moved to further restrict the economic freedom of New Mexicans. The state is the only one in the country to have reduced the economic freedom of its citizens over the four decades for which we have data.

In recent years New Mexico has had budget surpluses of more than $3 billion annually. This is a considerable surplus in a state where rapid spending growth has led to an annual general fund budget of $10.8 billion. Since Gov. Lujan Grisham took over in 2019, the budget has grown by 70%. New Mexico has also accumulated a whopping $61 billion fund for future government spending.
 
What can be done? New Mexicans themselves hold the key. When they head to the polls, they need to be acutely aware of candidates’ approaches to basic issues like taxes, spending, and regulations. They should question those who continue to believe that the government should be the dominant force in New Mexico’s economy.

They should respect New Mexicans who wish to engage in peaceful voluntary exchange with one another. They should question why the state’s top marginal income tax rate is nearly twice that of its neighbors or why its labor regulations are the second most burdensome in the country. Are its citizens served by especially heavy licensing requirements on low-income occupations?

Economic freedom isn’t the only thing that matters for prosperity. Geography, demography, culture, and luck also play a role. But policy makers can’t move mountains or fundamentally alter a state’s culture. What they can do is remove the barriers to prosperity that have held New Mexicans back for more than four decades.

Matthew Mitchell is a Senior Fellow in the Center for Human Freedom at the Fraser Institute in Canada. He lives in northern New Mexico. Paul Gessing is President of the Rio Grande Foundation in Albuquerque.