Differentiating Positive and Normative Economics

Introduction

• The distinction between positive and normative economics is a fundamental concept.
• Economists often view themselves as focusing on positive analysis rather than normative.

Definitions

• Positive Economics

  • Focuses on describing the world as it is.
  • Deals with facts and causal relationships.

• Normative Economics

  • Involves value judgments and opinions on what should be.
  • Statements often include the word "should."

Examples

Minimum Wage

• Positive Statement: Increasing minimum wage reduced the number of low-skilled workers hired.
• Normative Statement: We should not increase the minimum wage, citing employment reduction.
• Counter Example: No employment decrease, but poverty reduction seen when minimum wage increased.

Gas Tax Policy

• Normative Statement: We should increase gas taxes to reduce driving and carbon emissions.
• Positive Statement: Higher gas prices lead to reduced driving.

Student Loan Subsidies

• Discussion on whether increased subsidies lead to higher education levels.
• Economists argue over the factual data instead of normative propositions.

The Role of Predictions

• Predictions mix facts with economic models.
• Economists claim predictions are positive, though they involve model assumptions.

Social Welfare Considerations

• Social Welfare Definition: Collective utility of the population.
  • Aggregated in different ways: utilitarian or Rawlsian approaches.
• Concerns about projecting personal values in social welfare analysis.
• Assumptions about people's utility are often embedded in welfare analysis, blurring the line between positive and normative.

The Power of Economists

• Economists are trusted for their focus on positive analysis.
• Their models reveal assumptions explicitly, allowing critique.
• Employers in academia prefer economists for their perceived objectivity and analytical rigor.