Criterion 3: Comparative Economic Systems

Some economies rely mainly on the market process to make economic decisions. Others rely on central economic planning. To some degree, we find central planning in every economy. And a centrally planned economy cannot avoid or escape the laws of economics. A good economics text will explain to students that free markets deliver vastly different outcomes than central planning. The reason: Government officials have different information and incentives than decision-makers in a free marketplace.

Economics texts should deal with the impact of central planning vs. free markets upon the general standard of living—income levels, quality and availability of goods and services, innovation, range of individual freedom of choice, and so on. The student needs to understand that the laws of economics remain in play no matter what the intentions of planning advocates may be, and usually deliver results very different from those desired.

For example, industrial policy—whereby government tries to guide and direct the economy by restricting trade and picking winners and losers through subsidies and discriminatory tax policies—is a confirmed loser. (See MEGA Industrial Policy: An Analysis of the Proposed Michigan Economic Growth Authority.) Texts that attempt to champion Japanese industrial policy, for example, mislead the student and, in light of the collapse of Asian economies that employed such practices, are hopelessly outdated.

Finally, in discussing comparative systems, a text should explore the problems of the former Soviet-bloc nations in making the transition from central planning to more market-based economies.