Criterion 4: The Distribution of Income and Poverty

People vary greatly in age, skills, imagination, goals, preferences, willingness to take risks, and much more. From these differences, it follows that they will also differ in what they earn. People who are very good at providing goods or services that others want to pay for will have high earnings; people who cannot or choose not to do so will have low earnings. Income inequalities should neither be praised nor condemned, but explained. Economic textbooks should avoid presenting data on income inequalities without including a discussion of income mobility—movement up and down the economic scale over time.

The subject of government welfare programs should be considered, and a good treatment will analyze not only the benefits to recipients, but also the ways these programs alter the incentives of recipients and taxpayers. If an economics text presents government programs as helpful and positive simply on the basis of good intentions—without taking into account the programs’ actual results—that text will be found wanting.

In this report, texts are given a lower rating if they employ shopworn, class-warfare cliches that pit rich against poor and call for coercive redistribution schemes. This picture of the world has been disproved by a wealth of research, which is one of the reasons Congress and President Clinton ended the federal entitlement to welfare in 1996.

The Social Security system is very important topic in a discussion of distribution of income. A solid analysis will include prospects for the program’s future, its economic impact on work, saving, capital accumulation and political action, plus suggested alternatives for reform. (See Saving Retirement in Michigan: Responsible Alternatives to Social Security.)