Power & Market

Minimum Wage Advocates Set to Blame Lack of Results on Enforcement

02/20/2018Ryan McMaken

Minimum wage laws hurt the most unskilled and least experienced workers in society. They cut off the lower rungs of the ladder to that it becomes far more difficult to enter the workforce without substantial experience. After all, how many employers are willing to take the risk of hiring a workers at 8 dollars an hour when that workers has no references and no experience? Some would. But many more would be willing to do it for 5 dollars per hour. 

In practice, fewer than 3 percent of workers earn the minimum wage because as soon as most workers prove they can learn on the job and show up for work, they move above the minimum wage. But, it's that crucial opportunity to get the foot in the door and get a little experience that is hurt by minimum wage laws. Given that 97% of workers are already working above the minimum wage, this illustrates the key importance of allowing wages to be flexible for those not already in the 97%.

Entry into that 97% of workers making above-minimum wage is only hurt by minimum wages because the mandate erases opportunities for workers to prove themselves, even when they have zero experience. Thus, those who are the least promising prospects simply have no chance of getting their foot in the door because they are perceived as being too much of a risk when the employer must pay a minimum wage far above the worker's apparent value. 

Were wages more flexible, brining on an unskilled workers would be a far less risky proposition for employers. 

As a result of the minimum wage, however, unemployment rises among the least skilled, and income inequality grows. 

As we learn in Politico this week, however, supporters of the minimum wage have a ready scapegoat for the minimum wage's failure to bring the most vulnerable workers up to higher wage levels. They'll blame a lack of enforcement by government agencies:

This failure to enforce both the minimum hourly wage — $7.25 under federal law — and rules requiring higher pay for overtime distorts the economy, giving advantages to employers who break the law. It allows long-term patterns of abuse to take root in certain service industries, especially restaurants, landscaping and cleaning. Advocates for lowest-wage workers describe families facing eviction and experiencing hunger for lack of money that’s owed them. And, nationally, the failure to enforce wage laws exacerbates a level of income inequality that, by many measures, is higher than it’s been for the past century.

“Low-income workers are already in this fragile balance,” said Victor Narro of the UCLA Labor Center. “One paycheck of not being able to get the wages they’re owed can cause them to lose everything.”

Minimum wage laws increase income inequality by discriminating most against those "in the fragile balance," but when we fail to see that the least skilled workers are getting work, we will just blame enforcement instead.

This, it seems, is a variationon the "socialism has never been tried!" argument, in which if we just do socialism "harder," this time it will work. This appears to be the mentality in Venezuela right now. When we find that minimum wages don't actually put unskilled workers on the path toward high wages, we'll say "the minimum wage has never truly been tried" and we'll fix it by ramping up enforcement. 

In truth, these loophole through which many of these employers - mostly small businesses and other low-capital operations - are passing, are all that's keeping these workers employed at all. If forced to compete with workers at more reliable and highly capitalized operation, they may very well find themselves completely unemployed. Moreover, the small businesses that we're told are cruelly withholding wages are often not paying wages because they're missing payroll due to low revenues. Properly enforcing the laws will just drive these companies out of business. We might say "serves them right" when that happens, but the outcome will also be that all the workers lose their jobs. 


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More Minnesotans Own Guns, Violent Crime Remains Low

02/19/2018Ryan McMaken

In Minnesota, the CBS 4 affiliate reports: "more people are carrying guns than ever before, but the crime rate remains low":

We took a hard look at the numbers, and found: Minnesota has a high rate of gun ownership, and a relatively low rate of violent crime.


Minnesota’s violent crime rate hit a 50-year low in 2016, according to the FBI.

And in 2017, the state set a new record for firearms background checks.

The National Instant Criminal Background Check System reports it processed nearly 683,544 checks on gun buyers in 2017. That includes: 473,975 permits, 94,383 handguns and 125,516 long guns.

The State Department of Public Safety reports 283,188 Minnesotans now have permits to legally carry firearms in public...

There’s still a lot we don’t know about guns in Minnesota. An estimated 36.7 percent of Minnesotans own at least one firearm.

Like numerous northern states with fairly high rates of gun ownership, Minnesota also enjoys very low homicide rates. 

First of all, as noted here at mises.org, homicide rates in the United States vary considerably by state and region. Claims about homicide and violence "in the United States" are usually meaningless because of the large variations from place to place in the United States. 

In Minnesota, the homicide rate in 2016 was 1.8 per 100,000. That's about equal to the homicide rate in British Columbia, Canada. 


Secondly, it is also true nationwide that homicide rates do not increase with increasing gun ownership. In fact, as we've shown here at mises.org, from 1994 to 2013, gun ownership increased substantially, while homicide rates fell. Moreover, homocide rates are now near 50-year lows, and have falled considerably from the 1980s and 1990s.

Unfortunately, many Americans think that crime has increased during that time. 


Some observers might be quick to point out that Minnesota conducts background checks for gun purchases. This is true, although in 2016 the homicide rates were even lower in New Hampshire and Maine where there are no background checks. 

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76th Anniversary of FDR's Prison Camps

02/19/2018Ryan McMaken

As Ryan McMaken noted in a 2014 article

February 19 is the Day of Remembrance for those who wish to recall that on February 19, 1942, President Franklin Roosevelt issued Executive Order 9066 authorizing military personnel to lock American of Japanese descent in concentration camps that are often euphemistically called “internment camps.”

The internment of the Japanese Americans is one of our greatest examples of how majority rule functions in a democracy. Fueled by the usual war hysteria so often and enthusiastically propagated by the American voter, Roosevelt’s government was virtually unrestrained in its wartime powers, and it’s drive to jail innocent Japanese civilians was not just national, but international in scope.

As Rothbard noted in an article on Peru, the American government wasn’t content with merely jailing Americans. No, it was important to actually import people destined for the concentration camps:

The first Japanese were imported into Peru at the end of the 19th century to work as slaves on the coastal sugar plantations. The Japanese, however, rebelled within weeks, and moved to Lima, where they are now located. Fujimori’s parents emigrated to Lima in the mid-1930s where his father, along with other Japanese, created hundreds of successful small businesses.

After Pearl Harbor, the U.S. government pressured Peru to go to war with Japan, to confiscate Japanese-owned businesses, including the elder Fujimori’s tire repair shop, and to ship almost 1,500 Japanese to internment in the U.S. Hence, the Peruvian Indians’ embrace of Fujimori as a fellow non-white rising up against the Criollos. The fact that Fujimori’s immigrant mother does not speak Spanish works in his favor with the Inca masses, who don’t speak Spanish either; Spanish is the language of Vargas Llosa and the Criollo conquerors.


In California, where the Japanese Americans, like the Japanese Peruvians, were treated like dirt, they set up a large number of highly-successful small business (most notably in small-scale agriculture and plant nurseries). In both cases, the success of the Japanese merely made the whites jealous, and the middle-class Anglos in California decided to wage class warfare on the Japanese immigrants in the early 20th century and passed a series of laws designed to outlaw Japanese-owned businesses. Fortunately, many of their plans failed. But when the opportunity came to ship the competition off to concentration camps, who would complain?

Camps helped cripple Japanese business well beyond the end of the war, since as Douglas Carey noted: “Over 110,000 Japanese civilians were detained in this way. Not one of them had been accused of any crime. After the war was over, the majority of those detained went home to find their property looted and destroyed.”

In a democracy, this is of course a win-win situation for the majority. The democratic system ensured that the Japanese, as a small minority, possessed virtually no political power either on the West coast or nationally, and were therefore at the mercy of the state. The few politicians who provided even mild resistance to stripping the Japanese of all rights, such as Colorado governor Ralph Carr, were promptly voted out of office.

The U.S. Government has never repudiated the legal principle behind concentration camps, and maintains the legal right to use them again. Often, when libertarians or others point out that the United States is not a free country, the defenders of the status quo point to the fact that people can vote. This magical talisman held out by government apologists, known as “the vote” doesn’t seem to have worked out very well for the Japanese Americans during World War II, who also had “the vote.”

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The FBI Caught Asleep at the Switch — Again

02/16/2018Ryan McMaken

Governor Rick Scott of Florida has called on the FBI director, Christopher Wray, to resign after it was revealed the FBI failed ot follow up on leads related to this week's school shooter. The FBI also failed to even follow its own protocol in terms of forwarding information to the local field office

Robert Lasky, FBI Special Agent in Charge of the Miami field office, said agents in the Miami field office were never notified about the tip.

"The FBI has determined that protocol was not followed. The information was not provided to the Miami field office and no further investigation was conducted at that time," Lasky said Friday at a news conference. "We will conduct an in-depth review of our internal procedures for responding to information that is provided by the public."

The FBI was also notified about a comment on a YouTube video posted by a "Nikolas Cruz" last year. 

"The comment simply said, 'I'm going to be a professional school shooter,'" Lasky said Thursday. "No other information was included with that comment, which would indicate a time, location or true identity of the person who made that comment."

Lasky said the FBI was unable to identify who made the remark.

A statement released Friday by the FBI said that the most recent tip should've been investigated thoroughly and forwarded to the Miami field office because it was a potential threat to life.

"We are still investigating the facts," FBI Director Christopher Wray said. "I am committed to getting to the bottom of what happened in this particular matter, as well as reviewing our processes for responding to information that we receive from the public. It's up to all Americans to be vigilant, and when members of the public contact us with concerns, we must act properly and quickly."

No doubt the FBI will "get to the bottom" of this just as it gotten to the bottom of how it failed to notice anything was amiss in the lead-up to 9/11. Perhaps the FBI will receive another big budget increase, as tends to happen after the FBI botches a major investigation. 

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Federal Budgets are Meaningless

02/14/2018Jeff Deist

Reactions to presidential budget proposals generally run along predictable party lines: the party occupying the White House lauds it as a sober and responsible reflection of the nation's priorities, while the opposition party insists it will kill babies and bring about the general downfall of the nation. We might expect this political grandstanding to grow more intense in the Trump era, and so it has: the administration's new 2019 budget proposal has been met with howls of disapproval from many corners. 

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 We alternatively are told Trump's budget fights repeals Obamacare, mandates a border wall, swells defense spending, privatizes space travel, "reforms" student loans and food stamps, fights the opioid crisis, creates huge deficits, and somehow manages to expand federal expenditures 13% while simultaneously slashing critical programs. It's a starvation budget! It's a bloated pork-barrel giveaway! It even threatens Meals on Wheels! The average American, tribally inclined to believe one side's hype over the other, hears all of these things and wonders whether they're true.

But they are not true. Trump's budget, like all presidential budgets, is a meaningless document full of trial balloons that serve current political purposes rather than determining future spending priorities. Budgets have no bearing on future actions by Congress or the president, they don't change substantive law in any area, and they don't create deterministic deficits in the future. They are political documents, and should be understood as such.

A few points bear mentioning: 

  • Presidents have no constitutional role in the budget process, other than signing or vetoing a budget bill crafted by Congress alone.
    Unfortunately, the lawless and relentless rise of presidential power during the 20th century did not spare the budget process. But the Constitution plainly and unequivocally grants sole authority over the power of the purse to Congress in Article I, section 9, clause 7. Presidents are charged with executing the spending priorities of Congress, not setting them in the Oval Office.

    The more modern "tradition" whereby administrations propose an annual budget to Congress in early February is entirely extra-constitutional: the legally dubious Budget and Accounting Act of 1921 created the Office of Management and Budget under the auspices of the president, when it fact such an office should fall under congressional control (as the later-created Congressional Budget Office does). It is a mistake to further entrench the harmful idea that presidents have any say whatsoever over the federal budget.
  • Budgets have nothing to do with taxes and spending.
    Congress funds all of the federal departments, agencies, and programs through the annual appropriations process. Technically there are 12 annual appropriations bills, one for each Congressional subcommittee with jurisdiction over particular funding areas (e.g. defense, transportation, agriculture). House and Senate committees each pass their version, then in theory they hammer out an agreement known as a conference report that both bodies pass and send to the President. This process has broken down mightily in the last 15 years, because the poisoned political atmosphere makes agreement on 12 huge bills (all full of tucked-away language from swarming but friendly lobbyists) nearly impossible. So in recent years Congress has passed overarching "omnibus" bills that fund everything, or packaged "minibus" bills that combine two or more appropriations bills.

    But nobody gives a moment's thought to the already-passed fiscal year budget during the summer appropriations process. The budget is like an old newspaper, a story that is utterly irrelevant to the appropriations process. The only numbers that matters are last year's appropriations spending; those numbers form the "baseline" from which the committees begin-- not those suggested in the White House budget. The priorities and initiatives outlined in the administration's budget proposal are never considered for a moment. 

    Tax bills similarly make their way through committees in the House and Senate, though they must originate in the House. Unlike appropriations bill, tax legislation is not particular to a single fiscal year, and remains in effect unless later revoked, amended, or subject to sunset periods. Tax proposals and revenue projections contained in the budget again are irrelevant and never considered by Congress. 

    So how much Congress spends each year, and how much the Treasury collects in taxes, is wholly a function of the appropriations and tax bills passed by Congress (again, save for a presidential veto). 
  • Budgets have no binding effect on Congress or the president in future years.
    All of the spending and revenue projections contained in the administration's budget will be utterly forgotten in a month or two. Even if passed into law, the budget bill has no legally binding effect whatsoever on future years, future Congresses, or future presidents. Nor does it have any institutional effect. Nobody in Congress ever says. "Gee, remember that budget we passed back in 2010? We projected spending only $15 billion every year for NASA. I guess we'd better stick to it since we promised... Sorry NASA."

    Nobody knows, or can know what Congress will spend down the road-- just look at "emergency supplemental" bills passed during the Bush and Obama administrations to fund the wars in Iraq and Afghanistan. They were passed without regard to presidential budgets, and completely apart from the existing appropriations/omnibus/minibus bills already voted on. What exactly is the point of a budget, if Congress simply can pass additional spending bills whenever it chooses? So when the New York Times breathlessly announces Trump's budget creates huge deficits in the future or increases poverty, it displays a profound ignorance of the two points above. The administration has no budget, and it doesn't ultimately control spending and tax bills. 

We all would benefit from jettisoning the presidential budget charade. It only creates more meaningless political theater, and diverts our attention from what really matters: the total amount Congress spends and the total amount it takes from the private economy in taxes.

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The Real Scandal in College Athletics

A star high school basketball player was incidentally mentioned in an FBI probe because he was allegedly paid $15, 000 for “committing” to play for the University of Arizona.  The student has recently committed to another university but may be ineligible to play college basketball next year. 

A study in 2011 estimated that the average college basketball player at a university in the top tier (FBS) of Division 1 athletics earned approximately $120, 000 including grants-in-aid to fund tuition, room and board, etc, coaching services, media and public relation services, free tickets, and other valuable services.   Another study in 2017 suggests that the average Division 1 player is worth $170,098  to their employing institutions.  However players on elite teams such as the Louisville, Duke, and Kentucky would be worth $1.72 million, $1.16 million and $1.02 million, respectively, on a free market. 

This raises a very serious question about college athletics—but not the one that you would expect.    Why is it that Federal police operate as an investigative and enforcement arm for the National Collegiate Athletic Association, the multi-billion dollar college athletics cartel whose main purpose is to ruthlessly suppress the wages of college athletes far below the additional revenue that they generate for the colleges and universities that employ them?

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Money Supply Growth vs. The Stock Market

02/14/2018Frank Shostak

On Friday February 9, 2018, the Dow Jones Industrial Average closed at 24,190.9 a decline of 1,958.49 points from the end of January 2018 or a decline of 7.5%. The S&P500 fell during this period from 2,823.81 to 2,619.55 – a decline of 7.2%.

Most commentators are trying to assure stock market participants that this correction is normal by drawing attention to the prolonged uptrend in the Dow and the S&P500. Thus, both the Dow and the S&P500 were in an uptrend since February 2009 when the Dow closed at 7,062.93 while the S&P500 closed at 735.09.

Since February 2009, the Dow has increased by 270.2% whilst the S&P500 has climbed by 284.1% as at the end of January. Moreover, many experts are drawing people’s attention to the fact that US economic fundamentals are in great shape. For instance, economic activity in terms of real GDP displays strong performance. In Q4 the annual rate stood at 2.5% against 2.3% in Q3 and 1.8% in Q4 2016.

An important reason for the correction, it is argued, is a growing likelihood for the strengthening in price inflation as a result of strong US economic fundamentals. We find this extraordinary, since an expansion in the pool of real wealth should be a mitigating factor for price inflation.

Note that after closing at minus 0.2% in April 2015 the growth momentum of the CPI has been in an uptrend with the yearly growth rate closing at 2.1% by December last year.

To moderate the future strengthening in the growth momentum of the CPI it is expected that the US central bank, the Fed, is going to tighten its interest rate stance.

This, it is held, will lift the entire interest rate structure in particular the yields on the long-term Treasury Bonds. This is seen as major negative for the stock market.

At the end of January, the yield on the 10-year T-Note closed at 2.72% against 2.411% in December last year.

The key for stock market fluctuations is monetary liquidity, which we define as the difference between the annual rate of the money supply and the annual rate of the demand for money. (The proxy for the demand for money in our modelling is depicted by the growth rate of nominal economic activity).

There is an average time lag of 20 months between changes in monetary liquidity and its effect on the annual rate of the S&P500 and the Dow Jones Industrial Average (see chart). Based on this, it is likely that the growth momentum of stock price indexes is likely to come under further pressure in the months ahead.



Contrary to the popular way of thinking, economic fundamentals are not about the growth rate in the demand for goods and services as depicted by the growth rate of GDP but by the economy’s ability to generate real wealth. We suggest that a major negative for the wealth formation process is increases in money supply.

We are of the view that the massive monetary pumping since the onset of financial de-regulation in the early 1980’s has likely severely damaged the US economy’s ability to generate real wealth. On this the money supply to its trend ratio i.e. the AMS to its trend ratio stood at 2.143 in December last year against almost 1 at the end of 1979. In other words, the amount of money has more than doubled in relation to its trend at the end of last year. Having said that the massive pumping has damaged the pool of real wealth, we do not have information regarding the state of the pool i.e. whether the pool is growing, stagnant or shrinking. We cannot ascertain the state of the pool of real wealth because we cannot quantitatively add various goods in the economy (how does one add 1 car and a loaf of bread?).


The severity of the downturn hinges on the state of the pool of real wealth. If the pool of real wealth is stagnant or even worse, declining then the economy is likely to fall into a severe recession.Now, based on the lagged growth momentum of AMS adjusted for price inflation i.e. real AMS it is likely that the growth momentum of industrial production is likely to come visibly under pressure in the months to come (see chart).



With respect to the growth momentum of price inflation we suggest that using the lagged growth momentum of AMS the yearly growth rate of the CPI is likely to strengthen for at least until the end of this year before commencing a visible decline (see chart).



Note that the future trend in the growth momentum of excess AMS is going to be decisive for the turnaround in stock price indexes and the Treasury bond market. Our modelling raises the likelihood that the growth momentum of excess AMS will start gradually strengthening after September this year.

If this were to eventuate then it is possible that the growth momentum of the Dow and the S&P500 could remain under pressure until early 2020 (see chart).Using this forecast of excess AMS growth we can also suggest that the yields on the 10-year T-Bond is likely to remain under upward pressure until year-end before a visible decline is forecast to ensue (see chart). 

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A Valentine, from Murray to Joey

02/14/2018Tho Bishop

Found in our archives by Barbara Pickard.

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Colorado Republicans Continue Their Thrashing of Jeff Sessions

02/12/2018Ryan McMaken

Last month, I noted how Colorado's Congressional delegation was incensed at Jeff Sessions' posturing on the drug war and his efforts to override Colorado's constitutional measures against marijuana prohibition in the state. 

Both Republicans and Democrats from Colorado condemned Sessions, and this should surprise no one. Marijuana legalization would never have passed in the first place without significant amounts — even majority support — from a number of Republican counties. 

Even rural Colorado is far from the sort of Bible Belt politics that impels Jeff Sessions to blithely call for federal meddling in the daily lives of private citizens. More inclined toward libertarian leave-me-alone politics, Colorado Republicans are (slightly) less likely to go running to the federal government to manage their personal habits than in some other parts of the country. 

On the matter of marijuana, rejecting federal marijuana prohibitions has now become widespread in Colorado in both parties where a good economy and relatively low crime rates are not exactly driving voters to call for a repeal of the the legalization measures a majority of them voted for in 2012. 

So, it's not shocking to see yet another Colorado legislator join the anti-Sessions pile-on. The latest addition is this op-ed by Colorado Springs Republican Owen Hill who writes:

I have taken oaths to uphold the constitution as both a commissioned military officer and a state senator. Our state constitution clearly provides that marijuana, both recreational and medical, is legal by a popular vote of the citizens of Colorado. The US constitution also clearly states in the 10th amendment that any powers not expressly granted to the federal government are reserved to the states.

While some will wrongly argue that the supremacy clause or the commerce clause give the federal government the authority to meddle in our local issues, I side with conservative Supreme Court Justice Clarence Thomas: That if Congress can regulate this under the Commerce Clause, then it can regulate virtually anything — and the federal government is no longer one of limited and enumerated powers.

He goes on to say: “Whether Congress aims at the possession of drugs, guns, or any number of other items, it may continue to appropria[te] state police powers under the guise of regulating commerce.”

There are a couple of things to note here. Hill is from Colorado Springs which is the most right-wing part of Colorado, and is home to mega churches and military bases. It's about as Republican as you can get. Given the tone of his op-ed, however, it's clear Hill doesn't exactly fear blowback from his strident opposition to Sessions. 

Secondly, Hill's defense of state autonomy using the Tenth Amendment is especially laudable and is the sort of thing we should routinely hear from state legislators. 

Hill is right, of course, that there is nothing at all in the US Constitution autorizing federal control of substances like marijuana. It's simply not in there, and any claim of federal "supremacy" in this matter conveniently ignores the Bill if Rights. 

For pragmatic reasons, Hill supports federal legislation making it clear that the federal government will leave states alone when they legalize marijuana. It is also clear from his argument, however, that such federal legislation isn't actually necessary. Federal prohibitions on drugs that void valid state laws are simply unconstitutional, whether there's any federal statute recognizing this fact, or not.

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Ikigai: Meaning and Purpose in Life

02/09/2018Jonathan Newman

We all strive for satisfaction and purpose in our lives. We want to do what we love, love what we do, and do it well enough to pay bills and buy groceries. The Japanese have a word for this “sweet spot”: Ikigai, which translates to “a reason for being”. Artists have rendered the overlapping criteria like this:


The main four overlapping circles are what you love, what the world needs, what you can be paid for, and what you are good at. According to the diagram, the intersection of what you are good at and what you can be paid for is your profession. The intersection of what the world needs and what you love is your mission.

Sometimes three of the criteria overlap, like the case where your passion (what you are good and and what you love) and your mission (what you love and what the world needs) overlap. In that case, you have “delight and fullness, but no wealth.” Ikigai is when all four criteria are satisfied.

What the world needs, and what people will pay for, are the same

An economist wouldn’t really see a difference between the what the world needs (red circle) and what you can be paid for (blue circle). If somebody needs something, then they would be willing to pay for it. If somebody is willing to pay for something, then they necessarily want or need it.

Even if we consider social problems like poverty and homelessness, those with resources are willing to pay to help alleviate these problems. We economize on the use of resources to alleviate social problems through voluntary donations from others. Thus, somebody with a need who cannot pay for that need to be met is still covered by the blue-red total eclipse.

The law of association guarantees you a spot in the division of labor

Furthermore, the law of association guarantees that everyone has a comparative advantage. Using the language of the ikigai graphic above, everybody has a guaranteed spot in the what you are good at (green) and what you can be paid for (blue) overlap. And since the blue and the red circles are really the same, what this means is that everybody has the profession-vocation combination.

Everybody has a comparative advantage because even if somebody is really good at something, it means they incur a high cost by doing anything else. Said another way, if somebody is really good at something, then somebody else can produce something else at a relatively lower cost. The law of association is based on this logic. One man’s relative productivity in A is necessarily another man’s relative productivity in B.

Individuals find their comparative advantage by interacting with others in the market. It is only by surveying existing producers, goods, and the prices of those goods that one can make an informed decision on what to produce or where to apply for jobs.

Government gets in the way

The only thing that can hinder the natural process of individuals finding what they are good at, what they can be paid for, and what the world needs is government intervention. Price controls (including minimum wages), regulations, taxes, subsidies, and crowding-out effects can only prevent individuals from finding ikigai.

Government can also separate the what the world needs category from the what you can be paid for category. When the government removes resources from the market to pursue a separate set of ends, certain people get paid, but not necessarily to produce what the world needs. The use of the resources is no longer subject to the strict profit and loss test of the market.

We know that consumers value what producers do by the profit earned by the producer. Losses indicate that the resources used by the producer have higher-valued uses elsewhere. Since there are no market prices for anything the government does, there is no way to calculate profit and loss.

Government budget surpluses and deficits do not proxy for profit and loss because tax revenues are not related to the citizens’ satisfaction with the government’s projects. Thus we get a lot of what we don’t need and not enough of what we do need through the government.

What you love and what you prefer

So far, we’ve seen how economic theory guarantees everyone a job that satisfies three out of four of the ikigai criteria: what the world needs, what you can be paid for, and what you are good at.

Unfortunately, economic theory cannot guarantee the fourth criterion: that you love what you do. That part is up to you and your values.

Economics can guarantee, however, that you will do what you prefer, which might be considered a broader category that encompasses what you love to do.

Anything that you do voluntarily is necessarily your most-preferred course of action given your circumstances. This concept is called demonstrated preference. Murray Rothbard famously employed it in his article “Toward a Reconstruction of Utility and Welfare Economics”:

The concept of demonstrated preference is simply this: that actual choice reveals, or demonstrates, a man's preferences; that is, that his preferences are deducible from what he has chosen in action. Thus, if a man chooses to spend an hour at a concert rather than a movie, we deduce that the former was preferred, or ranked higher on his value scale. Similarly, if a man spends five dollars on a shirt we deduce that he preferred purchasing the shirt to any other uses he could have found for the money. This concept of preference, rooted in real choices, forms the keystone of the logical structure of economic analysis, and particularly of utility and welfare analysis.

Demonstrated preference does not just apply to one’s purchasing decisions. It also applies to selling decisions. If you sell your labor to an employer for a certain wage, you demonstrate that you prefer that arrangement over any other alternative given your current knowledge and preferences. You may not “love” your job, but you certainly prefer it to not working or working somewhere else, or else you would choose those paths.

One way to interpret the economic concept of demonstrated preference in a psychological way is to reflect at any given moment on all the choices you have made that have led you to your current situation. Every choice you’ve ever made has been the best one you could have made given your circumstances at the time of your choice. If you look back and see some choices you regret, this has only added to your set of information, allowing you to make more informed decisions going forward.

No matter what, we can find a certain level of contentment in the thought that all of our past experiences and choices have brought about either better circumstances or more complete information to help us make even better choices.


The demonstrated preference concept and the law of association have delightfully optimistic implications. Find your comparative advantage and participate in the division of labor and you will find purpose in your life knowing that you are helping the world, taking care of yourself and your family, and making the best use of your skills. While finding a profession/vocation that you love can be difficult, you can rest assured that you are always doing something you prefer to all other alternatives and that any regret can be chalked up as a learning experience.

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