The field of economics combines subjective interpretation with scientific objectivity. While positive economics is concerned with ‘what is’, normative economics focuses on ‘what should be’. Therefore, the former approach looks at statements about economic conditions that are empirically verifiable, while the latter focuses on, among other things, value-based assertions.
Positive Economics
An objective branch of economics, positive economics is concerned with what is happening, or facts, and conclusions drawn from it can be backed up by data and tested to form the basis of future predictions. Positive economics does not incorporate value judgements and therefore allows policy makers to formulate the necessary measures to move the economy in a specific direction or tackle certain economic conditions.
The advantages of positive economics are that statements made as a result are based on objective data and are therefore easily verifiable, giving policymakers the ability to make better-informed decisions. It can also enable individuals to make better choices regarding their financial and economic lives.
However, experts in macroeconomics, like Domen Zavrl, know that positive economics aren’t an exact science, and solutions and policies that are derived from this approach will not affect everyone in the same way.
Normative Economics
Unlike positive economics, which deals with objective analysis and data, normative economics focuses on ‘what ought to be’ and value judgements and aims to prescribe solutions. This branch of economics expresses ideological judgements regarding the possible consequences to economic activity should public policy changes be made. Normative economics can’t be tested or verified, typically presenting opinion-based analyses about what’s thought to be desirable. In practice, economic analyses often mix elements of both positive and normative economics.
Normative economics is related to behavioural economics, which is a branch of psychology that deals with how and why we make decisions. This type of economics can be a useful way to establish and generate new ideas from different perspectives, but it can’t be the only basis for decision making around economic issues, as it doesn’t focus on causes and effects and facts.
Combining the Two Approaches
Both normative and positive economics are vital to analyse and discuss contemporary economic issues, with good policy decisions usually requiring both. While positive economics establishes a factual basis, normative economics tends to inform economic goals and priorities.
For more information about normative economics, take a look at the embedded PDF.
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