Positive vs. Normative Economics

Introduction to Concepts

• Positive Economics: Describes the world as it is, focusing on factual statements and relationships.
• Normative Economics: Involves value judgments and opinions on how things should be.
• Economists prefer to focus on positive economics to maintain objectivity.

Identifying Positive and Normative Statements

• Positive Statement Example: "When this state increased the minimum wage, the number of workers hired went down."
• Normative Statement Example: "We should not increase the minimum wage."
• Key Indicator: The use of the word "should" signals a normative statement.

Examples in Economic Policies

• Minimum Wage:
  • Positive: Analyzing employment effects after a wage increase.
  • Normative: Debating whether the wage should be increased.
• Gas Tax:
  • Positive: "People drive less when gas prices are higher."
  • Normative: "We should increase gas taxes to reduce carbon emissions."
• Student Loan Subsidies:
  • Positive: Discussion on increased education levels when subsidies rise.
  • Economists often focus on facts and causal relationships rather than normative arguments.

Challenges with Predictions and Social Welfare

• Predictions:
  • Economists argue predictions are positive using factual data within models of how the world operates.
  • Models require economists to outline assumptions, causality, and avoid embedding personal values.
• Social Welfare:
  • Aggregation of collective utility, but involves projecting personal values on others.
  • Statements about policies improving social welfare may mix positive analysis with normative assumptions.

Role of Economists

• Economists are trusted for their focus on positive analysis.
• Hiring preference for economists due to their objective, model-based analyses.
• Assumptions in economic models are scrutinized for biases and value judgments.