Junior Achievement: Economics Student Text
(Colorado Springs: Junior Achievement, 1996), 211 pages.
General comments: The Junior Achievement text is an excellent
introduction to economics for high school students. The chapters are carefully outlined,
and clear headings and subheads introduce the material. The text chooses good examples of
economics in action that will appeal to students and show clearly how different economic
principles operate. At about 200 pages in length, the text condenses considerable
information and presents it in logical sequence for the student.
Criterion 1: Costs and PricesHow Production is Determined
Junior Achievement gets off to a strong start by describing economics as a way of
thinking about the world. The text starts with the concept of scarcity, presenting
resources and means of production as scarce by definition. Students are told that
entrepreneurs must choose what to produce; and consumers, using opportunity costs, must
choose to consume some products and avoid others. Price is shown to be the key mechanism
that directs exchange in an open market.
In making points on scarcity, resources, and opportunity costs, this text uses examples
students can identify with or easily visualizeshopping in a mall, making cornflakes,
and drafting players for a basketball team.
Criterion 2: Competition and Monopoly
Junior Achievement has an excellent description of competition and its advantages for
consumers. The book defines oligopoly and shows how a high concentration ratio among, say,
four firms can still mean lots of competition is taking place. The text defines monopoly
and shows how monopolies in a free market are hard to achieve. "Pure monopolies are
rare. Rarer still are those able to survive over many years" (p. 111). In fact,
monopolies can rarely be created without help from the governmentas in the case of
One weakness of the Junior Achievement text is that it accepts the argument that public
utilities are a natural monopoly. The authors could have told students about the movement
toward "retail wheeling"which allows the free movement of electricity
along interconnected wires, and is breaking down the public utility monopolies in many
states. Public utility companies have always bought and sold electricity from one another,
but legal barriers, not natural ones, prevented homeowners from doing the same thing. If
the deregulation of public utilities follow the pattern of deregulation in
telecommunications, airlines, and natural gas, we should see prices fall and service
improve in the years ahead. Students need to be aware of just such economic trends.
The section on antitrust is a bit weak, and also contradicts the good points made
earlier about monopolies and collusion. On page 110, the book shows why collusion among
companiesto raise prices and stifle competitionis a difficult situation to
negotiate, much less achieve over any effective period of time. This would seem to argue
against the need for antitrust laws, yet the authors offer without qualification that
antitrust laws are needed to prevent businesses from restricting competition and raising
The student would profit from an examination of the historical record here. Have
companies with large market shares been able to maintain their dominance easily over time?
Have mergers and consolidation tended to make large corporations more efficient? The
answer is no in most cases. American Sugar Refining, the first company to be prosecuted
under the Sherman Antitrust Act, Standard Oil, and U. S. Steel are all examples of large
dominant corporations that lost large chunks of business to more efficient competitors in
the early 1900s.
Criterion 3: Comparative Economic Systems
The section on comparative economic systems is competently done. The text gives clear
definitions of communism, socialism, and capitalism. But in describing Japan, the text
presents the advantages of keiretsus, or cartels, in planning and in providing security
while ignoring the disadvantages in innovation and efficiency. That omission is not
repeated in the discussion of central planning and Russia. In describing the collapse of
the Soviet Union, the authors show the problems of central planning and how risk and
innovation are discouraged. Hungary is presented as an example of a communist country that
was more prosperous than other Soviet satellites because it provided some incentives for
The authors correctly note that most capitalist economies are really mixed economies.
In describing developing countries, the text might have pointed out that those developing
countries with the strongest economies (e.g. Hong Kong and Singapore) often have much
lower tax rates than those developing countries that are floundering (e.g. Zambia, Ghana,
and the Dominican Republic). The systematic testing of variables to explain prosperity and
poverty is a key task of the economistand is especially relevant in a section on
comparative economic systems.
Criterion 4: The Distribution of Income and Poverty
The Junior Achievement text does not have a section on the distribution of income, or
on government welfare programs. The section on "Consumers and Savers" does have
some helpful comments on income from work and income from savings, but nothing on
distribution of income. The section on "Government and Its Budget" has helpful
information on transfer payments, such as Social Security, and the costs and benefits to
society of welfare payments.
The text would be stronger if it showed how inequalities in income are inevitable in a
free-market economyand how some poor people over time (especially immigrants) worked
their way up and how some rich people have sharply fallen in wealth over time.
Criterion 5: The Role of Government
The "Government and Its Budget" chapter is generally reliable in describing
the role of government in the economy. But it also has unfortunate flaws.
The text starts by presenting the historic and constitutional role of government in
establishing and enforcing property rights and contracts. Next comes a good definition of
public goods and externalities, with clear examples of both.
The authors argue that one clear role for government is in promoting economic security
for the poor. The assumption here is that the market system, plus the charitable impulses
of philanthropists and churches, will not meet the needs of poor peopleand that
government money must come in to fill this gap.
Some economists would agree with this argument, but others would not. They would cite
the failure of many government programs. Social Security, for example, is headed toward
bankruptcy early in the 21st Century unless authorities impose massive tax
hikes, drastically reduce benefits, or implement some form of privatization. In any case,
the program provides a much lower return than almost all private pensions. A system of
private pensions such as has been adopted in Chile, might provide greater benefits to
poorer Americans. Also, government drug rehabilitation programs, to give a specific
example, have many fewer successes per capita than privately run programs such as Teen
It is also useful to note that the percentage of Americans below the poverty line fell
much more sharply from 1900-1960, when government benefits were minimal, than from the
1960s to the present. The increase in government aid since the 1960s has, in many cases,
provided incentives not to work. A text should not automatically assume that government
solutions work better than private solutions in helping poor people. In part, the Junior
Achievement text seems to recognize this point when it argues that government intervention
in general will often distort incentives and be open to abuse from special interests. Yet,
it loses the point in other areas.
Criterion 6: Public Choice
There is no section on public choice in this text. The authors, however, are aware that
the interests of politicians and regulators are not necessarily the same as the
"public interest." In the section on government, the text observes that
"various interest groups have strong incentives to stay well informed on particular
issues that affect them. They also have strong incentives to lobby government officials
for special benefits relating to these issues."
Criterion 7: The Role of Entrepreneurs
The Junior Achievement text is very strong on entrepreneurship. It classifies
entrepreneursalong with private property, the price system, and competitionas
being "essential to the success of any market economy" (p. 94). The text is
sprinkled with examples of entrepreneurs and how their inventions have changed markets and
consumer tastes. The examples of Will Kellogg and Henry Ford are well chosen. The case of
George Jacob Mecherle, the founder of State Farm Insurance, is an example the text uses
well to help explain how the whole insurance industry works. Other examplesin the
area of baby-sitting, tutoring, toy marketing, and photocopyinghave special appeal
to students through products and services they understand.
Criterion 8: Taxation
This text does a capable job of covering the basic principles of taxation. The authors
describe the different types of taxeson personal income, businesses, salesand
the issue of tax incidence. A student will also see that a tax on corporations often
translates to higher prices for consumers. The student will also learn about progressive
taxes, flat taxes, and regressive taxes in this book.
The text could be stronger on the issue of how taxes alter behavior. Soak-the-rich
strategies of taxation, for example, have historically throttled economic development and
depressed revenue. Conversely, tax cuts have often spurred economic booms. For example,
research on the 1920s and 1980s shows that during both of those decades income tax rates
were slashed; investors plowed capital into industry and created many new jobs; and,
federal income tax revenue, even after the steep cut in tax rates, rose rapidly. Students
need to be aware of these findings.
Criterion 9: The Business Cycle
The Junior Achievement text does not have a lot on the business cycle, but what it does
have is often useful. The authors describe peaks, recessions, troughs, and expansion in a
market economy. On p. 152 is a chart showing business cycles over time, but there is not
much historical description of the Great Depression or other recessions.
The text describes how government can influence fiscal policy, and the authors are
aware that government policy can create many problems. It is not always true, however, as
the text says, that "if government reduces taxes to fight a recession, revenues
decrease." An awareness of supply-side economics and the historical results of tax
cuts could improve this section. The text shows a clear awareness of the historical
problems of handling economic problems by having government manipulate interest rates or
rush to the printing press to make more money.
Criterion 10: Wages, Unions, and Unemployment
The "Productivity and Labor" chapter shows students how improved labor
productivity has allowed "business and workers to earn more over time while also
providing consumers with better and lower-priced products" (p. 94). The text uses a
cooking metaphor to show how entrepreneurs and workers often work together to "bake a
bigger pie" of income. The strong implication is that wages cannot exceed worker
productivity in any industry.
For supporting evidence, the authors could have used the historical example of Henry
Ford, Americas second billionaire. Ford sharply hiked the wages of his employees and
cut the costs of his Model Ts at the same time. He later said that paying his workers a
minimum of $5.00 per day in 1914 (about $100 per day in 1998 dollars) was the best
cost-cutting move he ever made. The improvement in productivity among the workers in
Fords factories outstripped the sharp rise in their wages.
The text has a thorough section on labor unions and their history in the U. S. The
authors define both craft unions and industrial unions. Then the students read good
capsule histories of the Knights of Labor, the AF of L, and the CIO. Labor-management
issues receive several paragraphs and the authors describe the Wagner Act and the somewhat
counterbalancing Taft-Hartley Act.
Some labor unions originally opposed minimum-wage laws because workers would be allowed
to benefit without help from a union. The text describes the minimum-wage law, but
doesnt mention the motives for its original passage or the consequences of it in the
marketplace. The prime movers behind the minimum-wage law were the highly paid New England
textile workers, who wanted to impose higher costs on their competitors in the South. The
consequence of these laws for those workers retaining their jobs has been a wage increase;
many employers, faced with rising costs, have had to lay off many workerswhich is
why minimum-wage increases often correlate with higher unemployment rates, especially
among minority workers with limited skills.
Criterion 11: Trade and Tariffs
The chapter entitled "A World of Exchange" is an excellent and balanced
introduction to the subject of trade. The text shows why nations trade, what comparative
advantage is, and how free trade can benefit all traders. The authors describe tariffs,
give the arguments for and against tariffs, and show the importance of balance of
payments. Finally, the text describes the European community, NAFTA, and GATT.
Criterion 12: Money and Banking
The money and banking chapter in the Junior Achievement text is clear and sometimes
thorough. The authors do a fine job describing the rise of money as a medium of exchange.
Then they describe the development of banks from the Middle Ages to today. Reserves,
reserve ratios, demand deposits, and loans receive attentionand the authors have a
helpful page on the Savings and Loan problem of the 1980s. The Junior Achievement text has
a section on inflation, but it would be stronger if it showed more explicitly how
increases in the money supply cause prices to rise.
The text explains the Federal Reserve System and how it functions. The authors imply,
however, that the Fed works well in stabilizing the economy. In fact, the Fed has a mixed
track record at best (a Great Depression, at least nine recessions and a dollar worth
perhaps a nickel of its 1913 value), which the text needs to bring out so students
arent given a one-sided view.
The Fed was established in 1913 (not 1914 as the text states) to improve the banking
system. But in the mid to late 1920s, the Fed expanded the money supply and then in 1929
sharply constricted it. Many economists argue that this expansion-constriction helped
trigger the Great Depression. The chairman of the Fed is appointed by the president, and
often the Fed will shift policies on money growth to please presidents and help them get
re-elected. President Nixon, for example, wanted a rapid growth in money supply in 1972,
when he ran for re-election, and the Fed accomodated him with the largest growth rate in
the money supply since the end of World War II. Before Nixon, President Eisenhower, and
Presidents Ford and Reagan after him, wanted slower growth in the money supply and the Fed
chairmen dutifully obeyed. A good text will show that the Fedand all regulatory
agencies for that matterare not independent, but instead are subject to lobbying and
a variety of other political pressures.