The Southwest Public Policy Institute wishes a belated “happy birthday” (apologies!) to Arizona. On Tuesday, the Grand Canyon State celebrated 111 years in the union.
But a month and eight days before the State of Arizona entered the Republic, its neighbor to the east put its own star on Old Glory. The Territory of New Mexico became the 47th state, the Territory of Arizona the 48th.
Both are dry and sunny. Both share long borders with a foreign nation. Both have some truly magisterial scenery.
But that’s where the similarities end.
As difficult as it may be to believe, in 1912, New Mexico had more residents than Arizona. The 1910 census put the populations at 327,301 and 204,354. By the first few decades of the 21st century, things had changed, bigtime. In 2020, there were 7,151,502 Arizonans, compared to just 2,117,522 New Mexicans. The former’s growth rate had exceeded the latter’s by a factor of 5.4.
The states’ divergent fortunes stem largely from the complicated nexus of culture and policy that not even the keenest researchers can quantify to a precise degree. But over decades, the admixture’s impacts can be measured. Simply put, Arizona bet its future on the private sector, while the Land of Enchantment chose to become a ward of Washington. And as even Lee Reynis, a left-wing professor at the University of New Mexco once put it: “If the federal government is so good, how come we’re so poor?”
Mean and median wages are slightly higher in Arizona, and while a cheaper cost of living in New Mexico narrows the gap, the disparity in labor force participation makes for a dramatic overall difference. The median household in Arizona enjoys an income advantage of 32.5 percent.
Factor in New Mexico’s horrific social pathologies — e.g., severe violent and property crime, sky-high illegitimacy, rampant substance abuse, the worst dropout rate in the nation, political corruption driven by nine decades of one-party rule — and the two states’ courses diverge even more starkly.
Arizona is not paradise, of course. The state is hardly crime-free, for example. But there are solid reasons why it’s a national leader in both natural increase and in-migration. Spending restraint (for 2019, $9,146 in state and local expenditures per capita, versus New Mexico’s $12,285) allows for a noticeably lighter tax burden. This year, the Grand Canyon State will impose the lowest flat-rate levy on personal income in the nation. A right-to-work law (adopted as quickly as D.C. permitted) attracts significant domestic and international investment. And parents have a strong justification to beat a path to Arizona — last year, it enhanced its already-impressive record on education freedom by becoming “the first state to embrace universal school choice.”
William A. Pile, appointed governor of New Mexico in 1869, lamented: “The key to the utter want of enterprise in our Territory can be found in its entire dependency on government patronage ever since its annexation to the United States.” The minister, congressman, Union Army general, and Indiana native spent less than two years in the Land of Enchantment, but he understood that relying on “government expenditures as our source of wealth” was a mistake.
Arizona’s leaders understood it, too. And in sharp contrast to their counterparts in New Mexico, they made the desert bloom with opportunity.
In a 2016 analysis, Duquesne University’s Matt E. Ryan studied 50 years of the two states’ economic data. He concluded:
Arizona’s economy relied more upon market activity, whereby New Mexico had a larger reliance on the public sector … . As expected, areas that rely on markets grow faster and generate wealthier areas over time, and the Arizona/New Mexico dynamic is the perfect example. From a beginning ratio of 1.45-to-1, the Arizona economy, relative to New Mexico, grew to over three times the size of its neighbor in less than 50 years. By comparison, if New Mexico had experienced the growth that Arizona had, and vice versa, over the same time span, the New Mexico economy would be nearly 50% larger than the Arizona economy. Small differences in growth rates have staggering results over the long run, and indeed, modest differences in an economy’s reliance on the private sector generate marked discrepancies in an economy’s level of wealth and a society’s level of well-being.
The results point to the immediate policy prescription of minimizing the footprint of the public sector on any state’s economic activity — even if only marginally. Reducing public outlays, minimizing tax burdens and cutting regulation all play a direct role in shifting the focus away from the public sector and into private sector. By doing so, states’ economies can grow faster and … residents can more quickly reap the benefits of increased wealth.