It is tempting to dismiss the role played by incentives in economics, but the persistence of poverty in the inner city and elsewhere is difficult to explain with any other view of human behavior. Poor people, like everyone else, respond to incentives. The dilemma is how to introduce market incentives while still maintaining a generous system of helping those in need.

The first step is to consider the role played by disincentives, whether they are disincentives to work because government benefits fall away as income rises, or...