Positive vs. Normative Analysis

While economics is largely an academic discipline, it is quite common for economists to act as business consultants, media analysts, and advisers on government policy. As a result, its very important to understand when economists are making objective, evidence-based statements about how the world works and when they are making value judgments about what policies should be enacted or what business decisions should be made. Positive Analysis Descriptive, factual statements about the world are referred to as positive statements by economists. The term positive isnt used to imply that economists always convey good news, of course, and economists often make very, well, negative-positive statements. Positive analysis, accordingly, uses scientific principles to arrive at objective, testable conclusions. Normative Analysis On the other hand, economists refer to prescriptive, value-based statements as normative statements. Normative statements usually use factual evidence as support, but they are not by themselves factual. Instead, they incorporate the opinions and underlying morals and standards of those people making the statements. Normative analysis refers to the process of making recommendations about what action should be taken or taking a particular viewpoint on a topic. Examples of Positive vs. Normative The distinction between positive and normative statements is easily shown via examples. The statement: The unemployment rate is currently at 9 percent. is a positive statement, since it conveys factual, testable information about the world. Statements such as: The unemployment rate is too high.The government must take action in order to reduce the unemployment rate. are normative statements, since they include value judgments and are of a prescriptive nature. Its important to understand that, despite the fact that the two normative statements above are intuitively related to the positive statement, they cannot be logically inferred from the objective information provided. (In other words, they dont have to be true given that the unemployment rate is at 9 percent.) How to Effectively Disagree With an Economist People seem to like disagreeing with economists (and, in fact, economists often seem to enjoy disagreeing with one another), so its important to understand the distinction between positive and normative in order to disagree effectively. To disagree with a positive statement, one must bring other facts to the table or question the economists methodology. In order to disagree with the positive statement about unemployment above, for example, one would have to make the case that the unemployment rate isnt actually 9 percent. One could do this either by providing different unemployment data or by performing different calculations on the original data. To disagree with a normative statement, one can either dispute the validity of the positive information used to reach the value judgment or can argue the merits of the normative conclusion itself. This becomes a more murky type of debate  since there is no objective right and wrong when it comes to normative statements. In a perfectly organized world, economists would be pure scientists who perform only positive analysis and exclusively convey factual, scientific conclusions, and policymakers and consultants would take the positive statements and develop normative recommendations. In reality, however, economists often play both of these roles, so its important to be able to distinguish fact from opinion, i.e. positive from normative.