Comparing Normative & Positive Economics

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  • 0:02 Facts vs. Opinions
  • 0:50 Positive Analysis
  • 1:42 Normative Analysis
  • 2:47 Normative & Positive in Action
  • 4:28 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

In most sciences, you can largely ignore opinions. However, in economics, we call opinions normative statements and economists must pay attention to them. This lesson details the differences between normative statements and positive statements.

Facts vs. Opinions

Like many other fields, economics is subject to a great deal of emotionally charged debate. After all, this is people's money, jobs, and stuff at risk! However, unlike other fields, economics actually has to pay attention to the opinions. This is because economics has to take utility, or the amount of usefulness something offers, into account, and opinion often offers the best indication of this. As a result, two different perspectives on economics have been developed in order to help economists separate facts from opinions, but still give opinions an appropriate amount of attention. These two views are positive analysis and normative analysis. Positive statements focus solely on facts, whereas normative statements also admit opinions and feelings.

Positive Analysis

Positive economic statements are those assumptions that are easily confirmed by fact. It is here that much of the heart of economics is at play. After all, our economic models, from supply and demand to Keynesian theory, are all established on fact: we can observe it, we can repeat it, and to some degree, we can even quantify it. This means that arguing against a positive economic statement is often very difficult, if not impossible, within the realm of economics alone. Professional economists really like positive economic statements because it gives them something they can act upon. Statements like ''investing in the stock market over the last 4 years was more profitable than investing in savings accounts'' or ''health insurance is a good lifetime investment'' are positive statements because we can confirm them.

Normative Analysis

Normative economic statements, on the other hand, have no such grounding in fact or data. For example, assertions like ''the government should fund education for everyone'' or ''the government shouldn't fund the arts'' are both normative statements. I have no real data to back them up. However, this does not make them any less valuable. This is because normative economic statements can help us to determine where utility lies, and economics is all about maximizing utility. After all, most people listen to their emotions, and emotions are famous for not listening to hard facts. However, it is possible to turn normative statements into positive statements with the right data. If I were to say, and have it be proven true, that if the government were to invest 12% more in education then it would see an 8% growth in GDP and tax revenues for the next 25 years, that could be a positive statement.

Normative and Positive in Action

As you no doubt see, statements about the economy are everywhere. From the front page of the newspaper to the talking heads on cable TV, it seems that everyone has something to say about the economy. However, how many of those are normative, and how many are positive?

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