What Is Public Economic Theory?

Osmand Vitez

Public economic theory — which carries the alternate name welfare economics — has the idea that the allocation of resources should be done in a manner to suit all individuals in a market. In most cases, the economy should benefit the most individuals possible at a single time through economic movements. One of the largest tenets of public economic theory is of income or wealth redistribution; that is, money from the most successful goes to those individuals at the bottom of the economic scale. Individuals are the most important decision makers in this economy, not large entities or corporations. It may be necessary, however, to have a large government or central entity intervene in the market as well.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

In a free market economic society, most — if not all — individuals often act in a manner that benefits their own self-interests. This allows each and every individual to prosper and achieve goals that benefit themselves and their families. The biggest problem, therefore, results in individuals who do not want to work or do not have the ability to rise above their current situations. When this happens, public economic theory states that wealth redistribution is necessary in order to ensure these individuals achieve some level of success. A major issue here, however, is that wealth redistribution is often seen as anticapitalistic in a free market society.

The two most common ways a nation engages in public economic theory or welfare economics is through the use of a command economy or wealth redistribution. A command economy solves problems as this institution meters out natural or other economic resources to end users. Rather than a few ambitious individuals getting the majority share of resources — which is possible in a free market — all individuals get some amount of natural or economic resources for use. The main goal here is to ensure all individuals are equal in terms of economic wealth and livelihood. Unfortunately, this is not as easily accomplished as first thought by benevolent individuals in a command economy.

Wealth redistribution moves the placement of natural and economic resources from a command economy to individuals. Of course, a government may need to ensure the redistribution takes place through taxes, fees, or other methods. These processes collect income at one point and then redistribute it through tax credits, welfare payments, or other means to lower-income individuals. The result is placing public choice — another tenet of public economic theory — into the hands of individuals rather than a government agency. This may not continue in perpetuity, however, as those making larger incomes may not be able or willing to support such activities in the long run.

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Discussion Comments


"The biggest problem, therefore, results in individuals who do not want to work or do not have the ability to rise above their current situations." Not really - the biggest problem is government programs that redistribute wealth don't work. See Peter H. Rossi's "Iron Rule of Evaluation."

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