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 90 percent of economists would probably accept 90 percent of the theory in this book, 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.

      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.

 

Positive economics addresses “what is” and predicts observable and testable tendencies in economic relationships.

 

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 economics depends on value judgments and addresses what “should be.”

 

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.

      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.

 

Positive Theories, Empirical Facts, Normative Goals, and Economic Policies

Positive theories are derived by applying logic to observed reality (empirical data), but even positive theory is shaped by (a) the desires of the policy makers who provide research funding, and (b) normative goals that help us decide which questions to examine. Some empirical observations are filtered through our sense of equity to shape normative goals, but most people want goals to be attainable, which requires consistency with their positive theories. Normative goals, positive theories, and economic policies all cause us to focus on certain empirical data, and to ignore other real-world data. Directions for policies, in turn, are distilled from a mix of (a) observations about empirical reality, (b) normative goals, and (c) positive theories of economics.