Posted by : Ahsan Khan Thursday, 7 February 2013

Positive versus Normative Analysis in Economics

Economists make a distinction between positive and normative that closely parallels Popper's line of demarcation, but which is far older. David Hume explained it well in 1739, and Machiavelli used it two centuries earlier, in 1515. A positive statement is a statement about what is and that contains no indication of approval or disapproval. Notice that a positive statement can be wrong. "The moon is made of green cheese" is incorrect, but it is a positive statement because it is a statement about what exists.
A normative statement expresses a judgment about whether a situation is desirable or undesirable. "The world would be a better place if the moon were made of green cheese" is a normative statement because it expresses a judgment about what ought to be.

While economics is largely an academic discipline, it is quite common for economists to act as business consultants, media analysts, and advisers on government policy. As a result, it's very important to understand when economists are making objective, evidence-based statements about how the world works and when they are making value judgments about what policies should be enacted or what business decisions should be made.

Positive Analysis

Descriptive, factual statements about the world are referred to as positive statements by economists. The term "positive" isn't used to imply that economists always convey good news, of course, and economists often make very, well, negative positive statements. Positive analysis, accordingly, uses scientific principles to arrive at objective, testable conclusions. It is a type of theoretical economics in which facts are observed, analyzed and reported as they actually are represents positive economics.

Normative Analysis

It is a type of theoretical economics in which facts are observed, analyzed and advice is given about their effects represents normative economics. Economists refer to prescriptive, value-based statements as normative statements. Normative statements usually use factual evidence as support, but they are not by themselves factual. Instead, they incorporate the opinions and underlying morals and standards of those people making the statements. Normative analysis refers to the process of making recommendations about what action should be taken or taking a particular viewpoint on a topic.

Examples of Positive vs. Normative

The distinction between positive and normative statements is easily shows via examples. The statement
  • The unemployment rate is currently at 9 percent.
is a positive statement, since it conveys factual, testable information about the world. Statements such as
  • The unemployment rate is too high.
  • The government must take action in order to reduce the unemployment rate.
are normative statements, since they include value judgments and are of a prescriptive nature. It's important to understand that, despite the fact that the two normative statements above are intuitively related to the positive statement, they cannot be logically inferred from the objective information provided. (In other words, they don't have to be true given that the unemployment rate is at 9 percent.)

How to Effectively Disagree With an Economist

People seem to like disagreeing with economists (and, in fact, economists often seem to enjoy disagreeing with one another), so it's important to understand the distinction between positive and normative in order to disagree effectively.
To disagree with a positive statement, one must bring other facts to the table or question the economist's methodology. In order to disagree with the positive statement about unemployment above, for example, one would have to make the case that the unemployment rate isn't actually 9 percent. One could do this either by providing different unemployment data or by performing different calculations on the original data.
To disagree with a normative statement, one can either dispute the validity of the positive information used to reach the value judgment or can argue the merits of the normative conclusion itself. This becomes a more murky type of debate, since there is no objective right and wrong when it comes to normative statements.
In a perfectly organized world, economists would be pure scientists who perform only positive analysis and exclusively convey factual, scientific conclusions, and policy makers and consultants would take the positive statements and develop normative recommendations. In reality, however, economists often play both of these roles, so it's important to be able to distinguish fact from opinion, i.e. positive from normative.


{ 1 comments... read them below or add one }

  1. Smart work! Really interesting to read the article! You deserve great appreciation and expect many more good quality articles from you! Keep writing! best online phd programs in economics


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