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Posted: January 07, 2009

First, do no harm

Taking the temperature of the Colorado economy

Tony Gagliardi

As we close out the year in one of the worst recessions in modern history, Congress and the Colorado Legislature will be looking to do something — whatever that is — because people want something done — whatever that might be.

Before any further damage can be inflicted in the name of finding a cure, legislators might be wise to step back and take a long, hard look at the patient with Hippocrates' oath ringing in their ears: First, do no harm.

One thing undeniably certain is that all economic recovery starts with small business. According to the U.S. Small Business Administration's Office of Advocacy, small businesses are 98 percent of the employers in Colorado.

So what shape is Colorado in before the doctors under the dome in Denver snap on the latex gloves and pick up their hammers and handsaws? Four barometers are worth checking out.

About every four years, the Pacific Research Institute in San Francisco releases one of the most exhaustive reports on state economies. Its U.S. Economic Freedom Index: 2008 Report took a look at 143 indicators and categorized them in to five sectors: fiscal, regulatory, judicial, government size, and welfare spending. Colorado emerged a highly respectable third best in the nation for economic freedom, a slight fall from its second-place finish in PRI's 2004 rankings, but still miles ahead of the 14th place the state found itself in after the 1999 study.

The Fraser Institute of Canada also issues a report on economic freedom, not only for its own country, but for America, Mexico, and every state and province within. The institute's Economic Freedom of North America, 2008 Annual Report rated economic freedom on a 10-point scale at two levels, the all-government (local, state, and federal) and the sub-national (just state and local).

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The ten components were divided into three areas: size of government; takings and discriminatory taxation; and labor market freedom. After wringing Colorado through these filters at the sub-national level, our state emerged tied for 10th best in North America. Alberta was the only Canadian province with a better economic freedom ranking. Colorado came out second best when compared with 10 other western states. Only Nevada had a higher economic freedom score at the sub-national level.

The Small Business & Entrepreneurial Council also issues an annual report on business climates in each state. In its Small Business Survival Index 2008: Ranking the Policy Environment For Entrepreneurship Across The Nation, Colorado came in 10th place again. The SBE Council "ties together 34 major government-imposed or government-related costs impacting small business and entrepreneurship across a broad spectrum of industries and types of business." Within those 34 bands, our state's worst scores come in the crime rate (28th), highway cost effectiveness (31st), and health insurance mandates (40th) categories.

So far, so good. But a fourth barometer put out by America's leading small business association, the National Federation of Independent Business, called Laissez Les Bon Temps Rouler 2008 (Let the good times roll): The Continued Rise in State Spending And Deficits, does not record quite the healthiness the other three do.

In percent changes in inflation-adjusted state expenditures between 1992 and 2006, Colorado was fifth highest (70.36 percent), but in the inflation-adjusted revenue category for the same period, Colorado was only the ninth highest. Uh, oh. This imbalance might explain why Colorado came in third in having the highest percentage of inflation-adjusted debt at end of fiscal year between 1992 and 2006.

Ladies and gentlemen, we have found the biggest ailment of our state economy, and the cure is not a higher tax or a big new state program. The vital signs for Colorado's economic freedom are fine; it's the medical care that legislators have been giving the state budget that is the problem. Prescription: Let the patient rest. Do no harm. Colorado's entrepreneurs will be back on their feet shortly, creating jobs, infusing communities with prosperity, and leading us out of this recession.

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Tony Gagliardi is Colorado state director for the National Federation of Independent Business. Contact him at 303-831-6099 or via email at tony.gagliardi@nfib.org.

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