positive and normative economics

You will often hear statements about economic issues on the television and written in newspapers and magazines. These statements can be divided into two main groups - positive and normative.

POSITIVE STATEMENTS

Positive statements are objective statements dealing with matters of fact or they question about how things actually are. Positive statements are made without obvious value-judgements and emotions. They may suggest an economic relationship that can be tested by recourse to the available evidence.

Positive economics can be described as “what is, what was, and what probably will be” economics.  Statements are based on economic theory rather than raw emotion. Often these statements will be expressed in the form of a hypothesis that can be analysed and evaluated.

Examples:

• A rise in interest rates will cause a rise in the exchange rate and an increase in the demand for imported products
• Lower taxes may stimulate an increase in the active labour supply
• A national minimum wage is likely to cause a contraction in the demand for low-skilled labour
• The UK economy now has lower unemployment than Germany
• The American stock market has boomed in recent years

NORMATIVE STATEMENTS

Normative statements are subjective - based on opinion only - often without a basis in fact or theory. They are value-laden, emotional statements that focus on "what ought to be".

It is important to be able to distinguish between these types of statements - particularly when heated arguments and debates are taking place. Most economists tend to adopt a positive approach.

Examples:

• The decision to grant independence for the Bank of England is unwise and should be reversed
• A national minimum wage is totally undesirable as it does not help the poor and causes higher unemployment and inflation
• The national minimum wage should be increased to £5 as a method of reducing poverty
• Protectionism is the only proper way to improve the living standards of workers whose jobs are threatened by cheap imports