Economists prefer to differentiate normative economics (“what should be”) from positive economics (“what actually is”). However, much normative analysis (value judgments) are subject to change if facts or knowledge changes. Amartya Sen, a welfare economist, distinguishes between basic (normative) judgements that do not depend upon such ability and non-basic judgements. Interestingly, he notes that no judgments can be demonstrated to be basic, while some value judgements could be shown not to be fundamental. This opens up the possibility for a scientific discussion about value judgments.
Practical idealism is a way to combine positive and normative economics. This discipline is sometimes called the “art of economics”, and it uses positive economics as a practical tool to achieve normative goals.
Here’s an example of a normative statement:
Milk should cost $6 per gallon to provide a better living standard for dairy farmers and save the family farm.
Because it makes value judgments, this is a normative statement. This particular statement makes the judgement that farmers should have a better standard of living and that family farms should be preserved.
Social choice theory, cooperative games theory, and mechanism design are all subfields of the normative economy.
Divergence in the normative economy has led to many economic decisions and schools of thought. Economists and intellectuals have debated the morality and effectiveness of different economic systems over time.
These can be broadly divided into two types of leanings in the modern age: “Left” and “Right”. Left-leaning economic thinking tends towards government intervention in economic affairs. Right-leaning economic thoughts tend to advocate minimal government intervention in economic programs.
Capitalism is an economic ideology that favours market factors, overproduction and consumption. It was developed mainly by the British and Dutch. Adam Smith is the author of the capitalist economic, normative framework.
Communism is a form of communism that has spread across the globe. It advocates state-controlled production and consumption. Karl Marx and Freidrich Engles are widely believed to have originated communist theory.
Modern politics is dominated by the normative analysis of state involvement in the economy. There is also various normative economic policy.
Some of the technical issues in welfare economics have been resolved.
Positive Economics
Positive economics refers to a branch of economics that examines the explanation, quantification and description of economic development, expectations and other related phenomena. It is based on objective data analysis, pertinent facts, and associated figures. It tries to determine cause-and-effect relationships and behavioural associations that can be used to test economic statement.
Positive economics can be objective and fact-based when the positive statements are clear, concise, descriptive, and measurable. These statements can be compared to historical or tangible evidence. Positive economics does not have any instances of approval-disapproval.
Here’s a positive economic statement example: “Government-provided health care increases public spending.” This positive statement is factual and does not contain any value judgment. You can prove or disprove its validity by looking at healthcare spending in countries that provide healthcare.
Importance and importance of positive and normative economics
A common observation is that public policy discussions often involve normative economic statements. These discussions are fraught with disagreements because neither side can prove its correctness.
Although normative statements can be subjective and generalized, they provide the necessary channels for outside-of-the-box thinking.
These opinions can be used to guide any changes necessary to transform a project. However, normative economics is not the only basis for making decisions on important economic fronts. Positive economics provides the objective perspective that is focused on facts and cause-and-effect. Positive economics can be combined with normative economics to help create, generate, and fulfil new ideas and theories that could lead to different perspectives and goals.
Understanding the differences between normative and positive economic programs can help you make better policy decisions. Policies should be based on both facts (positive) and opinions (normative). However, many policies that deal with international trade and welfare are at least partially based upon normative economics.
Difference between normative and positive economics
Economics can be both a science and an art. It isn’t easy to decide which type of science you should use, positive or normative. Positive economics relates to an analysis that is restricted to cause-and-effect relationships. However, normative Economics aims to examine real behavioural economic events from a moral and ethical perspective. It helps to decide whether economic events are desirable.
Positive economics relies on facts about the economy. Normative economics is based on value judgment. Many people believe that statements are accepted as facts, but they are valued. Understanding the difference between normative and positive economic analysis will help you understand how the economy works and whether policy-makers make the right decisions.
These points below explain the essential differences between normative and positive economics
1. Positive Economics is a science that is based on facts and data. Normative Economics is a science that relies on values, opinions, and judgement.
2. Positive economics can be descriptive, while normative economics is prescriptive.
3. Positive economics can explain the cause-effect relationship between variables. However, normative economics allows for value judgments.
4. Positive economics has an objective perspective, while normative ones have a subjective one.
5. Positive economics explains “what is”, while normative economics explains “what should be”.
6. The positive economic statement can be scientifically proven or disproved. This is not possible with normative economic statements.
7. Positive economics clearly defines economic issues. Contrary to normative economics, in which economic problems are dealt with based on a value judgment, positive economics clearly defines
them.
