Positive vs. Normative Economics
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If you took all
of the economists in the country and laid them end to end, they'd
never reach a conclusion. George Bernard Shaw Shaw's line echoes a popular view that economists seldom
agree, but roughly 90 percent of all economists agree
on about 90 percent of the basic concepts and broad models described in most standard
economics textbooks, with only nit-picking differences about which 90 percent
to accept. How can this reputation for discord be reconciled with the fact of
widespread agreement? Part of the answer is that economists may differ
sharply about how even widely accepted theory applies in a specific case.
Economists' disputes about how to translate theory into policy get a lot of
press, while broad areas of agreement tend to be ignored. Even
if economists agree, politicians often reject their advice. For example, over
90 percent of economists—irrespective of their personal political
leanings—favor freer international trade, but tariff barriers are standard
responses when imports threaten significant groups of voters' jobs. A similar
consensus exists about most price controls, which include such things as
minimum wage laws and the rent controls some cities enforce—most economists
view price controls as inefficient. Apparent discord also arises when
economists in government agree publicly (but disagree privately) with
politicians who appoint them, even if economic logic supports policies the
politicos won't enact. Pre-appointment writings of
the two Chairmen of President' Bush's Council of Economic Advisors provide examples. Economists
tend to agree most about positive economics—which, ideally, generates ideas
that are free of value judgments and which can be tested
for accuracy.
The statement “A poor coffee harvest will raise coffee
prices and people will drink more tea,” is an example of a positive economic
statement. But be wary. Positive statements may be
either true or false. For example, the positive scientific statement that
“The moon is made of green cheese” is clearly false. Disagreement
is most common when value judgments are central to a problem.
Normative statements often contain the prescriptive
words “should” or “ought.” For example, you might agree with the army of
economists who think that government regulations “should” be reformed if
specific policies are unarguably inefficient, but even this view is
intrinsically normative. Positive
and normative elements are often intertwined. For
example, economists may differ sharply about the normative issue of whether
government “should” ever execute murderers. The prediction that quicker,
stiffer, and surer penalties deter crime is, however, a positive theory with
which most economists would concur. Normative
issues often turn on questions of equity and provoke debate among economists
and the public alike. Policy is inherently more normative than theory. For
example, the statement, “We should redistribute wealth from the rich to the
poor,” implies a value judgment that benefits to the poor would outweigh the
harm done to the rich. There is little reason to suppose that an economist's
value judgments are superior to those of other people, but economic reasoning
can offer unique insights into the effectiveness of alternative policies in
achieving specific normative goals. Few
normative issues are settled by looking at evidence
because value judgments involve faith and argument, not scientific proof.
Disputes about positive economics can ultimately be settled
by evidence, but even economists with shared values may disagree because some
areas of positive economics remain unsettled for generations. For example,
virtually everyone favors high employment and price-level stability, but
economists may disagree about how to cure economic gyrations because of
difficulty in finding the right evidence and then accurately interpreting it
in changing circumstances. |
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Understanding economic reality is useful
primarily because it helps us develop strategies to deal scarcity. All
policies hinge on normative issues, but if economists design policies
intended to achieve goals set by policy makers, then their quest can be
positive in nature. For example, if minimizing unemployment is a goal, then
developing policies to accomplish this goal involves positive economics. We
can evaluate policies by how well they accomplish our goals, but positive
economics cannot determine whether any goal is good or bad. The complex
interactions of positive theory, empirical (observable) facts, normative
goals, and economic policies are summarized in this figure.
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Author: Ralph Byrns |
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Economics
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